Annual Report • Mar 6, 2008
Annual Report
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Five steps to value generation
The Roadmap to Value capital markets programme ushers in a new phase in our corporate development, in which we aim to focus the entire Group on value growth.
| 2006 restated |
2007 | +/– % | ||
|---|---|---|---|---|
| Group | ||||
| Revenue | €m | 60,545 | 63,512 | 4.9 |
| Profi t from operating activities (EBIT) | €m | 3,872 | 3,202 | –17.3 |
| Return on sales1) | % | 6.4 | 5.0 | |
| Consolidated net profi t2) | €m | 1,916 | 1,389 | –27.5 |
| Operating cash fl ow (Postbank at equity) | €m | 2,178 | 2,808 | 28.9 |
| Net debt (Postbank at equity)3) | €m | 3,083 | 2,858 | –7.3 |
| Return on equity before taxes | % | 21.6 | 15.8 | |
| Earnings per share | € | 1.60 | 1.15 | –28.1 |
| Dividend per share | € | 0.75 | 0.904) | 20.0 |
| Number of employees5) | 461,222 | 470,123 | 1.9 | |
| Segments | ||||
| Revenue | €m | 15,290 | 15,484 | 1.3 |
| Profi t from operating activities (EBIT) | €m | 2,094 | 2,003 | –4.3 |
| Return on sales1) | % | 13.7 | 12.9 | |
| EXPRESS | ||||
| Revenue | €m | 13,463 | 13,874 | 3.1 |
| Profi t or loss from operating activities (EBIT) | €m | 288 | –174 | –160.4 |
| Return on sales1) | % | 2.1 | –1.3 | |
| LOGISTICS | ||||
| Revenue | €m | 24,405 | 25,739 | 5.5 |
| Profi t from operating activities (EBIT) | €m | 751 | 957 | 27.4 |
| Return on sales1) | % | 3.1 | 3.7 | |
| FINANCIAL SERVICES | ||||
| Revenue | €m | 9,593 | 10,426 | 8.7 |
| Profi t from operating activities (EBIT) | €m | 1,004 | 1,076 | 7.2 |
| SERVICES | ||||
| Revenue | €m | 2,201 | 2,357 | 7.1 |
| Loss from operating activities (EBIT) | €m | –229 | – 660 | –188.2 |
| Consolidation | ||||
| Revenue | €m | – 4,407 | – 4,368 | 0.9 |
| Profi t from operating activities (EBIT) | €m | –36 | 0 | 100.0 |
1) EBIT/revenue.
2) Consolidated net profi t excluding minorities.
3) Adjusted for fi nancial liabilities to Williams Lea minority shareholders.
4) Proposal. 5) Average FTEs.
1) Exluding Consolidation. 2) Note 8.1.
Deutsche Post World Net is the global market leader for logistics. Our Deutsche Post, DHL and Postbank brands stand for a wide range of integrated services and customised solutions for the management and transport of letters, goods, information and payments. Over 520,000 employees in more than 220 countries and territories make us the world's sixth largest employer and provide superior logistics services to help our customers be even more successful in their markets.
Deutsche Post delivers mail and parcels in Germany. It is an expert provider of dialogue marketing and press distribution services as well as corporate communications solutions. We operate a nationwide transport and delivery network in Germany. At the heart of this network are 82 mail centres processing around 70 million items per working day, and 33 parcel centres whose handling volume on six days a week exceeds 2.5 million units. An annual volume of around seven billion items makes us the cross-border mail market leader and Europe's largest postal company.
DHL delivers time-critical shipments as well as goods and merchandise by road, rail, air or sea. We transport courier and express shipments via one of the world's most extensive networks – our gateway to more than 220 countries and territories. DHL is the international market leader in the air and ocean freight and contract logistics segments. To satisfy our customers' needs, we draw on our geographic coverage, multi-modal capabilities and specifi c skills in numerous sectors.
As the largest single retail bank in Germany, Postbank serves 14.5 million customers, has around 21,000 staff and employs more than 4,200 mobile fi nancial advisers. With its 855 own branches and several thousand outlets of Deutsche Post, it has the most extensive branch network of any bank in Germany. Postbank's wide range of standardised banking products is designed to meet the typical needs of private and business customers. Along with traditional savings and current account offerings, Postbank primarily provides private real estate fi nancing and home loan savings products.
With EBIT before non-recurring effects of €3.76 billion, we have met our forecast. Revenue rose 4.9% to €63.5 billion, driven above all by the LOGISTICS Division and Postbank's dynamic new customer business. On the liberalised German mail market, a basis for dependable planning with regard to social standards and price structure up to the year 2011 is now in place. With our Roadmap to Value, we have initiated an extensive capital markets programme.
We anticipate making good headway towards attaining our goal of EBIT before non-recurring effects of around €4.2 billion. We aim to rapidly improve the results situation in our US EXPRESS business which remains fl awed. With our Roadmap to Value initiative, we are seeking to achieve sustained value growth. At the same time, we are committed to systematically gearing our efforts to meeting customers' needs as well as intensifying collaboration between divisions and throughout the Group.
1) Including overheads.
1) Weighted average cost of capital. 2) Net asset base.
Payout ratio
1) Compound annual growth rate.
2) Before non-recurring effects.
DHL1) generates more revenue from fast-growing regions than its competitors
1) Only includes Express and Logistics.
2) Asia, Middle East, Africa and Central & South America.
3) Europe and North America.
4) Excluding Central and South America.
Source: annual reports from 2006
It is my pleasure as new chairman of the Board of Management to present to you the results of our business. On 18 February 2008, the Supervisory Board accepted Dr Klaus Zumwinkel's resignation from offi ce as chairman of the Board of Management and appointed me as his successor.
Klaus Zumwinkel achieved great things over the past eighteen years and we wish to thank him for his business achievements, his strong commitment and the passion with which he made Deutsche Post the world's leading logistics service provider.
Th e past year saw a number of changes on the Board of Management. John Allan succeeded Edgar Ernst as Chief Financial Offi cer, Wolfgang Klein took over the helm of Postbank from Wulf von Schimmelmann and Jürgen Gerdes assumed responsibility for the MAIL Division, which was previously headed by Hans-Dieter Petram. On behalf of the Board of Management, I wish to thank our former colleagues on the Board for their contribution to our business success.
Th e fact that we are right on course in all of the Group's divisions is refl ected in the annual results. With EBIT before non-recurring eff ects of €3.76 billion, we met our earnings target and closed the year with a solid performance. Your company is well equipped to face the future. I will now join with my fellow Board members in building on this solid fundament as a strong team.
I am particularly gratifi ed that Chief Financial Offi cer John Allan has agreed to extend his contract for another two years up to the end of 2010. For he embodies at once a commitment to continuity and the courage to innovate. Both are vital to carving out a clear path to the future.
Back in November, the Roadmap to Value ushered in a new phase in the company's evolution. Our goal is ambitious. We want to make your company the most attractive investment in the industry. We are seeking to generate a bigger profi t, distribute a larger portion of it to you, our shareholders, and sustain our organic growth.
Th e generally favourable response from amongst your ranks and the pattern traced by the share price confi rm that we are on the right track. Between 8 November, when we announced the programme, and the end of the year, our share price climbed by 16.10% to €23.51.
Th e second milestone was the First Choice programme. Alongside our employees, it is our customers who are at the fore as their loyalty is a prerequisite of our profi table organic growth. Th e First Choice initiative gives usa frame of reference for systematically meeting customers' needs and will, I am convinced, bring about a shift in our management and corporate culture.
Dr Frank Appel, Chairman of the Board of Management
In our business activities, we are facing four major challenges:
First: Th e German mail market was fully liberalised on 1 January 2008. Th e good thing is that since last year we have had a sound basis for dependable planning with regard to social standards and price structure up to the year 2011. A statutory minimum wage for mail carriers has been stipulated, postage rates have remained stable and, as the only provider of a nationwide universal service, we are exempt from value-added tax. Overall, this is a good basis for ensuring that quality and reliability decide the fi eld in competition. As the undisputed quality leader, we are very well equipped to welcome other providers into the marketplace.
Second: Th e express business in the United States remains fl awed. Th e improvements made at the start of 2007 were undone as the economy faltered at the year-end. We have already adopted measures to improve performance. However – and I say this in all openness – the situation as it stands is unacceptable. Th e problem needs to be resolved. I promise you we will very soon be initiating all steps necessary to achieving a rapid improvement in results.
Th ird: In our logistics business, we aim to grow faster than the industry. With the integration of DHL and Exel, we executed the largest project of its kind in the industry to date, rapidly and with resounding success. However our ambition does not stop there. When I look ahead, I see the image of an integrated logistics service provider. By intensifying our collaboration between divisions and throughout the Group, we intend to substantially speed up the process of integration, thereby boosting the company's growth and profi tability.
And fourth: Our subsidiary Postbank needs clear prospects for future development. With its successful business strategy, Germany's leading retail bank has long been attracting covetous interest. In the coming months, I will be joined by my colleague on the Board of Management, Wolfgang Klein, in paving the way for Postbank to play an active part in the consolidation of the sector as a whole.
Dear shareholders, you followed the development of your company with interest in 2007. We want to give you a greater share in its success than ever before. Th e Board of Management and the Supervisory Board will be proposing a dividend of €0.90 per share at the Annual General Meeting. Marking a substantial 20% year-on-year rise, the proposed dividend represents a payout ratio of around 50% of our net profi t before non-recurring eff ects.
On a personal note, I am delighted at the fascinating new challenge I am undertaking and wish to thank the Supervisory Board for their trust, my fellow Board members for their support and our 520,000 employees around the globe for their loyalty.
Th ose who know me also know that I embrace a culture of openness. Let us work together in a spirit of open, honest partnership. My pledge to you is that I will listen carefully, will at all times take your criticisms very seriously and will make clear-cut decisions.
We are aware of the challenges facing us in the coming years and we will overcome them. With our Roadmap to Value and First Choice initiative, we have embarked on a course that will help us become the most attractive investment in the industry and the preferred provider for customers throughout the world.
Bonn, 29 February 2008
Yours sincerely, Dr Frank Appel Chairman of the Board of Management
Th e growth of the German economy in 2007 prompted an upturn on the German stock market. Although negative repercussions from the Far East prompted some brief worries in February, the German DAX index regained impetus around mid-year and reached its 2007 high of 8,106 points on 16 July. Later in the summer, the subprime mortgage crisis in the United States brought the positive trend to a halt. Investors became less willing to purchase, which had a global impact on the major stock markets. Th e true eff ects of the crisis did not become apparent until towards the end of the year, however, by which time a short-lived recovery had occurred. Despite these infl uences, the DAX closed the year at 8,067 points. Th is represents an increase of 22.3% over the year. Th e EURO STOXX 50, on the other hand, grew by only 6.9%.
| 2004 | 2005 | 2006 | 2007 | +/– % | ||
|---|---|---|---|---|---|---|
| Year-end closing price | € | 16.90 | 20.48 | 22.84 | 23.51 | 2.9 |
| High | € | 19.80 | 21.23 | 23.75 | 25.65 | 8.0 |
| Low | € | 14.92 | 16.48 | 18.55 | 19.95 | 7.5 |
| Number of shares | millions | 1,112.8 | 1,193.9 | 1) 1,204.0 |
1,207.5 1) | 0.3 |
| Market capitalisation | €m | 18,840 | 24,425 | 27,461 | 28,388 | 3.4 |
| Average trading volume per day | shares | 2,412,703 | 3,757,876 | 5,287,529 | 6,907,270 | 30.6 |
| Annual performance with dividend |
% | 6.4 | 24.1 | 14.9 | 6.9 | |
| Annual performance excluding dividend |
% | 3.4 | 21.2 | 11.5 | 2.9 | |
| Beta factor2) | 0.84 | 0.75 | 0.80 | 0.68 | ||
| Earnings per share3) | € | 1.44 | 1.99 | 1.60 | 1.15 | –28.1 |
| Cash fl ow per share4) | € | 2.10 | 3.23 | 3.28 | 4.27 | 30.2 |
| Price/earnings ratio5) | 11.7 | 10.3 | 14.3 | 20.4 | ||
| Price/cash fl ow ratio4),6) | 8.1 | 6.4 | 7.0 | 5.5 | ||
| Dividend | €m | 556 | 836 | 903 | 1,087 7) | 20.4 |
| Payout ratio | % | 34.8 | 37.4 | 47.1 | 78.2 | |
| Dividend per share | € | 0.50 | 0.70 | 0.75 | 0.90 7) | 20.0 |
| Dividend yield | % | 3.0 | 3.4 | 3.3 | 3.8 |
1) Increase due to exercise of stock options, see Note 35.
2) From 2006: Beta 3 years; source: Bloomberg.
3) Based on consolidated net profi t excluding minorities, see Note 21.
4) Cash fl ow from operating activities.
5) Year-end closing price/earnings per share.
6) Year-end closing price/cash fl ow per share.
7) Proposal.
At the beginning of the year, our share price initially made favourable progress before mirroring the negative performance of the DAX. In the second quarter, it continued to track the leading German share price index as it rose. Th e price peaked at €25.65 on 27 April. Th ereaft er, the share price followed the negative market pattern, reaching its low of €19.95 on 3 October. Th e upward trend then resumed, fuelled in particular by Strategy and goals, page 30
the launch of our capital markets programme, Roadmap to Value, on 8 November 2007. In the course of the year, the share price thus gained ground on both the DAX and our competitors' stock. It closed the year at €23.51, representing a gain of 2.9%. Th e average number of shares traded on market days was 6,907,270, or 30.6% more than in 2006. Our shareholders reaped the rewards of the higher liquidity.
1) Rebased on the closing price of Deutsche Post shares on 29 December 2006.
| 2006 | 2007 | +/– % | ||
|---|---|---|---|---|
| Deutsche Post | EUR | 22.84 | 23.51 | 2.9 |
| TNT | EUR | 32.58 | 28.25 | –13.3 |
| FedEx | USD | 108.62 | 89.17 | –17.9 |
| UPS | USD | 74.98 | 70.72 | –5.7 |
| Kühne + Nagel | CHF | 88.65 | 108.50 | 22.4 |
1) Closing prices on the last trading day.
Th e regional distribution of our shareholders changed again in the course of the year. Th e number of shares held in the USA increased by fi ve percentage points, whilst the percentage attributable to German shareholders fell. Th e interest of our largest individual shareholder, KfW Bankengruppe, remained constant, representing 30.5% of the share capital.
At the end of the year, 22 analysts advised investors to buy, seven to hold and only two to sell our shares.
Of particular interest to investors were the liberalisation of the German mail market on 1 January 2008 and its eff ects on our company, as well as the situation of the express business in the USA. In the spring, we conducted an extensive survey amongst investors. We wished to establish how they perceive our company and what they want and expect from us in the future. Th eir responses formed the basis of a catalogue of measures, which we presented in November together with the capital markets programme, Roadmap to Value. By way of the envisaged action, we are seeking to make the company more attractive to investors.
1) In 2005 KfW issued a convertible bond in Japan for private investors (volume: 55.6 million shares). Investors can convert this bond until January 2010.
2) Some institutional investors are not entered directly in the share register but listed via a depository bank.
1) The chart refers to institutional investors named in the share register. Their share of the free float was 50.9% on the reporting date.
Source: Thomson Financial As at December 2007
January Williams Lea buys the UK company The Stationery Offi ce, the public-sector leader in printing services and document management.
June Deutsche Post World Net acquires a 49% stake in the US air transport company ASTAR Air Cargo.
Deutsche Post World Net acquires a 49% interest in US company Polar Air Cargo.
September Postbank sells BHW Lebensversicherung AG as well as its interest in PB Versicherung AG and PB Lebensversicherung AG to Talanx AG.
January DHL is the fi rst international logistics service provider to offer a domestic air freight service in China.
February DHL announces plans to substantially expand capacities in Dubai where the fi rst fully integrated logistics platform and the world's largest airport are taking shape.
June Deutsche Post plans to open around 600 outlets in the new Postpoint format in Germany.
October Williams Lea takes over Deutsche Post's document management business with over 2,500 employees in Germany.
November Germany's federal network agency approves Deutsche Post's pricing proposal. Prices for the domestic and international dispatch of letters and postcards will remain unchanged in 2008.
DHL is building a new US\$175 million north Asian hub in Shanghai with a view to serving China and other north Asian markets beginning in 2010.
May DHL expands its joint venture with India's Lemuir Group, thereby consolidating its leading position on the Indian logistics market.
September DHL Express and Lufthansa Cargo set up the joint air freight carrier AeroLogic, with fl ight operations set to begin in April 2009.
December DHL Exel Supply Chain concludes a fi ve-year contract worth over €200 million with UK furniture and fi ttings retailer MFI.
March The DHL Innovation Center is opened in Troisdorf near Bonn, Germany. It is here that the Group brings together all entities entrusted with managing technical innovations.
May The Annual General Meeting approves a dividend of €0.75 per share for 2006, which represents a 7.1% increase on the previous year.
July Dr Hans-Dieter Petram and Prof. Dr Wulf von Schimmelmann retire from offi ce. New to the Board of Management are Jürgen Gerdes, responsible for the mail and parcel business in Germany, and Dr Wolfgang Klein, who is also chairman of the Board of Management at Postbank.
October John Allan becomes Chief Financial Offi cer, Dr Frank Appel Board member responsible for the LOGISTICS Division.
The European Council passes a resolution to liberalise the European mail markets. In Germany, the market will already open up fully on 1 January 2008.
November With its Roadmap to Value, the Group presents an elaborate capital markets programme.
December The German Bundestag and Bundesrat stipulate a minimum wage for mail carriers, which comes into effect on 1 January 2008.
Photographs (from top left to bottom right): The new air freight carrier of DHL and Lufthansa, the DHL Innovation Center, Deutsche Post mail carrier, CFO John Allan presents the Roadmap to Value.
The Group continued to grow in 2007. At €3.76 billion, profit from operating activities (EBIT) before non-recurring eff ects coincided with our forecast of about €3.7 billion. Aft er adjustment for non-recurring eff ects, EBIT was €3.2 billion. Revenue rose 4.9% to €63.5 billion. Th e main drivers of this increase were the LOGISTICS Division, which took over the procurement logistics function for the UK National Health Service, and the FINANCIAL SERVICES Division, which raised its revenue on the back of dynamic development in Postbank's new customer business.
In the MAIL Division, we recorded EBIT of €2,003 million, comfortably reaching our target fi gure of around €2 billion. Falling revenue in the domestic mail business was off set by the other business units.
Earnings in the EXPRESS Division were negatively aff ected by impairment losses of €594 million recorded on non-current assets in the Americas region and came to €–174 million. Adjusted for this eff ect, the division would have returned EBIT of €420 million, slightly in excess of the minimum €400 million forecast. Th is fi gure already includes the construction expenditure for the new European hub in Leipzig.
Th e LOGISTICS Division exceeded expectations, generating EBIT of €957 million. Adjusted for the non-recurring income of €59 million from the disposal of Vfw AG, this was an improvement of 19.6%. DHL Exel Supply Chain played a decisive role in this development.
For the FINANCIAL SERVICES Division, we had forecast a 5% increase in EBIT. Th anks to the outstanding performance of Postbank, EBIT in fact rose by 7.2% to €1,076 million.
Th e SERVICES Division generated EBIT of €–660 million (previous year: €–229 million). Th is decrease is due to one-time factors recognised in the previous year, including the redemption of the exchangeable bond on Postbank shares (€276 million), the sale of McPaper AG (€10 million) and the positive outcome of arbitration proceedings against Deutsche Telekom (€89 million, net).
| 2006 | 2007 | +/– % | ||
|---|---|---|---|---|
| Revenue | €m | 60,545 | 63,512 | 4.9 |
| Profi t from operating activities (EBIT) | €m | 3,872 | 3,202 | –17.3 |
| Return on sales1) | % | 6.4 | 5.0 | |
| Consolidated net profi t excluding minorities | €m | 1,916 | 1,389 | –27.5 |
| Earnings per share | € | 1.60 | 1.15 | –28.1 |
| Dividend per share | € | 0.75 | 0.90 | 20.0 |
1) EBIT/revenue.
Deutsche Post World Net off ers integrated services and tailored, customer-focused solutions for managing and transporting letters, goods, information and payments.
In the MAIL Division, we transport mail and parcels in Germany and serve as an expert provider in the direct marketing and newspaper and magazine distribution segments. We also off er mail and communications services through direct links to more than 140 countries across the globe, as well as end-to-end corporate communications solutions.
Our EXPRESS Division provides courier and express services to business and private customers. We can draw on the world's most extensive network, embracing 220 countries and territories. Our business is structured according to the regions in which we operate.
In the LOGISTICS Division, we carry goods by rail, road, air and sea. We rank amongst the world's leading providers of air and ocean freight, contract logistics and for overland freight transport in Europe.
Th e FINANCIAL SERVICES Division chiefl y comprises the business activities of Deutsche Postbank, namely Retail Banking, Corporate Banking, Transaction Banking and Financial Markets.
We have centralised the internal services which support the entire Group, including Finance Operations, IT and Procurement. Th is consolidation enables us to increase the fl exibility of our business, improve service quality and leverage economies of scale and cost benefi ts.
Deutsche Post World Net comprises four divisions. In 2007, the reporting segments were:
| ■ EXPRESS | ■ LOGISTICS | ■ FINANCIAL SERVICES |
■ SERVICES | |
|---|---|---|---|---|
| • MAIL Germany | • Europe | • Global Forwarding | • Deutsche Postbank AG | • Global Business Services |
| • MAIL International | • Americas | • Supply Chain | • Postbank branches | • Corporate Centre |
| • PARCEL Germany | • Asia Pacifi c • EEMEA |
• Freight | • Pension Service | • Deutsche Post retail outlets |
Th e Group management functions are performed by the Corporate Centre. Th e divisions operate under the control of their own divisional headquarters.
At the start of 2007, we transferred the German parcel business from the EXPRESS to the MAIL Division and assigned overall responsibility for this business accordingly.
In the MAIL Division, we transferred Global Mail (formerly MAIL International) and Corporate Information Solutions (formerly Value-added Services) to a new MAIL International unit in the second quarter and assigned responsibility for this unit to the board department then called Global Business Services. In addition, Corporate Regulation Management was transferred from the chairman's board department to the expanded former Global Business Services, MAIL International board department.
At the end of the third quarter, we reorganised the Board of Management's responsibilities for Finance, LOGISTICS and Global Business Services. John Allan, who formerly headed LOGISTICS, assumed responsibility for Finance eff ective 1 October 2007. He also took charge of Global Business Services. At the same time, Dr Frank Appel took control of the LOGISTICS Division, whilst retaining responsibility for MAIL International, Corporate Regulation Management and the First Choice corporate programme. Dr Frank Appel and John Mullen jointly head Global Customer Solutions.
As at 31 December 2007, the company's share capital totalled €1,207,470,598 and is divided into the same number of no-par value registered shares. Each share carries the same statutory rights and obligations, and entitles the holder to one vote at the Annual General Meeting (AGM). No individual shareholder or group of shareholders is entitled to special rights, particularly rights granting control powers.
Th e exercise of voting rights and the transfer of shares is based on the general legal requirements and the company's Articles of Association, which do not restrict either of these activities. Article 19 sets out the requirements that must be met in order to attend the AGM as a shareholder and exercise a voting right. Only persons entered in the share register shall be considered shareholders in the eyes of the company. Th e Board of Management is not aware of any agreements between shareholders which would limit voting rights or the transfer of shares.
Structure in accordance with governance tasks and responsibilities (boards and committees)
Structure in accordance with decision-making responsibility and reporting lines
Structure based on Deutsche Post World Net legal entities
Structure in accordance with brand names used in customer communication
KfW Bankengruppe is our largest shareholder, holding around 30.5% of the share capital. Th e Federal Republic of Germany holds an indirect stake in Deutsche Post AG via KfW. According to the notifi cations we have received pursuant to Sections 21 ff . of the Wertpapierhandelsgesetz (WpHG – German securities trading act), KfW and the German government are the only shareholders who own more than 10% of the share capital, either directly or indirectly.
Th e members of the Board of Management are appointed and replaced in accordance with the relevant legal provisions (Sections 84, 85 of the Aktiengesetz (AktG – German stock corporation act), Section 31 of the Mitbestimmungsgesetz (MitbestG – German co-determination act)). Th e Articles of Association do not contain any special provisions in this respect. According to Section 84 of the AktG and Section 31 of the MitbestG, appointments by the Supervisory Board shall be for a maximum term of fi ve years. Re-appointment or extension of the term of offi ce, for a maximum of fi ve years in each case, is admissible. Details of changes on the Board of Management during the year under review are reported in Organisation and management structure.
In accordance with Section 119(1), No. 5 and Section 179(1), sentence 1 of the AktG, amendments to the Articles of Association are adopted by resolution of the AGM. In accordance with Article 21(2) of the Articles of Association in conjunction with Sections 179(2) and 133 of the AktG such amendments generally require a simple majority of the votes cast and a simple majority of the share capital represented. In such instances where a greater majority is required by law for amendments to the Articles of Association, that majority is decisive.
AGM resolutions were passed on 5 June 2003 (Contingent Capital II), 18 May 2005 (2005 authorised capital) and 8 May 2007 (Contingent Capital III) authorising the Supervisory Board to amend the wording of the Articles of Association in accordance with the respective share issue or utilisation of authorised capital, and following expiry of the respective authorisation period.
Th e Board of Management is authorised, subject to the approval of the Supervisory Board, to issue up to 174,796,228 new, no-par value registered shares by or before 17 May 2010 in exchange for non-cash contributions and thereby increase the company's share capital by up to €174,796,228 (2005 authorised capital, Article 5(2) of the Articles of Association). Th e shareholders' pre-emptive subscription rights have been disapplied. Th e use of authorised capital as acquisition currency is standard business practice in Germany. Th e 2005 authorised capital allows the company to acquire companies and shareholdings fl exibly, without recourse to the capital market. Th e authorised capital is equivalent to less than 15% of the share capital.
24
Page 23
New, no-par value registered shares may only be issued from Contingent Capital II (Article 5(3) of the Articles of Association) in order to service the subscription rights granted in accordance with the 2003 Stock Option Plan. To this end, the company's share capital has been contingently increased by up to €13,184,482. Within the context of the 2003 Stock Option Plan, up to 13,184,482 million shares in Deutsche Post AG are still available for subscription. Under this plan, the issue of new stock options is no longer possible.
An AGM resolution was passed on 8 May 2007, authorising the Board of Management, subject to the consent of the Supervisory Board, to issue bonds with warrants, convertible bonds and/or income bonds (hereinaft er referred to collectively as "bonds with warrants and/or convertible bonds"), or a combination thereof, with a total nominal value of up to €1 billion, either once or several times, by or before 7 May 2012, thereby granting option and/or conversion rights on new shares with up to €56 million of the share capital. To this end, the share capital is contingently in creased by up to €56 million (Contingent Capital III, Article 5(4) of the Articles of Association). When issuing bonds with warrants and/or convertible bonds, shareholder subscription rights may only be disapplied subject to the terms of the aforementioned resolution and pending the consent of the Supervisory Board. Further details may be found in the motion adopted by the AGM under agenda item 7 of the AGM on 8 May 2007.
Th e authorisation to issue bonds with warrants and/or convertible bonds is standard business practice amongst publicly listed companies in Germany. It allows the company to fi nance its activities fl exibly and promptly, and gives it the fi nancial leeway to take advantage of favourable market situations at short notice, for example, by off ering company shares or bonds with warrants/convertible bonds as a consideration within the context of company mergers, and when acquiring companies or shareholdings in companies. To date, the Board of Management has not made use of this authorisation.
In addition, the AGM of 8 May 2007 authorised the company to buy back shares up to a level of 10% of the share capital existing as of that date, by or before 31 October 2008. Th e general proviso is that at no time should the shares acquired in this way, together with the shares already held by the company, account for more than 10% of the share capital. Shares may be purchased on the stock exchange, in the form of a public purchase off er addressed to all shareholders, or by some other means in accordance with the provisions of Section 53a of the AktG. Th e authorisation permits the Board of Management to exercise it for every purpose authorised by law, particularly to redeem its own shares without a further AGM resolution, subject to the consent of the Supervisory Board. Details may be found in the motion adopted by the AGM under agenda item 6 of the AGM of 8 May 2007.
It is standard business practice amongst publicly listed companies in Germany for the AGM to authorise the company to buy back shares on an annually recurring basis. On 6 May 2008, the Board of Management and the Supervisory Board will propose to the AGM that this authority be granted for a further year.
Any public off er to acquire shares in the company is governed solely by the law and the Articles of Association, including the provisions of the Wertpapiererwerbs- und Übernahmegesetz (WpÜG – German securities acquisition and takeover act). Th e AGM has not authorised the Board of Management to undertake actions within its sphere of competence to block possible takeover bids.
Th e basic features of the remuneration system for the Board of Management and the Super visory Board are described in the Corporate Governance Report under Page 114 Remuneration Report. Th e latter also forms part of the Notes.
In 2007, the global economy remained on course for strong growth. Although cyclical risks increased in the second half-year, the vigour of economic expansion was not appreciably diminished. At around 5%, growth in global economic output was only marginally lower than a year earlier. Th e international exchange of goods actually grew by more than 6%.
| % | GDP | Exports | Domestic demand |
|---|---|---|---|
| USA | 2.2 | 7.9 | 1.6 |
| Japan | 2.1 | 8.7 | 1.0 |
| China | 11.4 | 27.2 | n/a |
| Euro zone | 2.7 | 6.3 1) | 2.2 1) |
| Germany | 2.5 | 8.3 | 1.1 |
1) Estimates, as at 14 February 2008.
Sources: Postbank Research, national statistics
Th e US economy was hampered by the signifi cant fragility of the residential property market. Private consumption grew well, on the other hand, as did companies' willingness to invest. Demand for commercial property was especially high. In addition, export activity was aided by both the healthy global economy and the weak US dollar. Th e 2.2% advance in gross domestic product (GDP) was substantially lower than the previous year's rise (2.9%).
Th e upsurge in Asia continued more or less undiminished. At more than 9%, the emerging markets in Asia recorded the highest growth. In China, GDP increased by 11.4% and exports by around 27%. Th e trade surplus climbed to more than US\$260 billion. Th e country is also retaining its appeal to foreign investors whose direct investments rose to around US\$75 billion. In Japan, on the other hand, the economy lost some of its vigour as GDP grew by only 2.1% (previous year: 2.4%). Whilst foreign trade continued to generate favourable impetus, partly thanks to the weak yen, the advance in domestic demand was more restrained.
Dynamism in the euro zone waned somewhat as the year progressed but, at 2.7%, GDP growth was almost as strong as in the previous year. Th e economy benefi ted from a further rise in net exports. On balance, however, the growth was driven by domestic demand. Gross fi xed capital formation continued to develop very favourably but the advance in private consumption was less pronounced than in 2006.
Th e German economy slowed in the course of the year as well but, at 2.5%, growth still exceeded all expectations. More than half of the increase is attributable to foreign trade. Although the labour market was bolstered by the approximately 5% rise in gross fi xed capital formation, private consumption faltered due to the signifi cant increase in value-added tax from 16% to 19% at the start of the year, amongst other reasons.
International oil prices soared during 2007. A barrel of Brent Crude, which was trading for less than US\$60 at the start of the year, peaked at almost US\$100 and closed 2007 only marginally lower. Th e annual average oil price was around 10% higher than in 2006.
Following a moderate rise in the fi rst six months, the euro strengthened enormously to close the year at US\$1.46. Its value therefore appreciated by 10.6%. Th e gain was driven by the crisis on the sub-prime mortgage market, which imposed a substantial burden on the fi nancial markets. Th e fear of a recession in the USA grew and prompted a cut in the Federal Reserve key interest rate to 4.25% from September. Since the European Central Bank (ECB) had raised its key interest rate by 0.5% to 4% in the fi rst half of the year and proceeded to hold it steady, the dollar's interest rate advantage was seriously eroded as the year unfolded. Measured against pound sterling, the euro posted a 9.1% gain.
Th e economic upswing and base rate increases fuelled a strong rise in capital market returns in the fi rst half of 2007. Th ereaft er, following the mortgage crisis, government bonds were once again seen as a safe haven. At the end of the year, ten-year US treasury bonds were yielding around 0.6 percentage points less than at the close of 2006. In contrast, the yield on German ten-year treasury bonds increased by a good 0.3 points to 4.3% in the same period. Although long-term interest rates remain low, the climate for corporate bonds has deteriorated appreciably. Apprehension in fi nancial markets has made investors more risk averse and risk premiums have increased signifi cantly as a consequence, even for high-quality corporate bonds.
Underpinned by increased off -shoring of production and the global sourcing of goods and services, trade volumes are expanding more than twice as fast as industrial production. Here a shift in the pattern of growth is becoming visible: Import demand is moving away from high-income countries towards emerging markets. Import growth in these markets came to around 12.5%, compared to only 6.8% in the high-income countries. On the export side, growth in developing countries and emerging markets has been twice as fast as in high-income countries since 2000 (10.8% versus 5.1% a year on average). Intra-Asian trade fl ows have already become the largest trade lane in the global arena and continue to grow at an outstanding 10.8% (CAGR 2006 – 2009). In second place comes trade between Asia Pacifi c and Europe, which is growing by 10.1% per year. Th e following diagram shows the most important international trade fl ows (foreign trade volumes larger than €100 billion) and their growth rates.
1) Foreign trade volumes > €100bn
Sources: Global Insight, The World Bank
We operate worldwide and are represented in over 220 countries and territories, including all major economic regions. Th e overview in the margin is of the overall market as well as of the courier, express and parcel (CEP) markets relevant to us. Th e parameters aff ecting us in the individual segments and the market shares we attained are detailed in the sections on the individual divisions.
Four trends are currently making a strong impact on our business:
• CEP market5): €27.8bn, of which int. express markets: €5.6bn
As at 2006
4. Digitalisation Th e internet is changing the way in which information is exchanged. Written communication is being replaced increasingly by electronic data transmission. Quantities and revenues are declining, especially in the traditional mail business. On the other hand, the internet brings dealers and customers closer together, fosters dialogue and gives customers virtual access to goods. Th ese attributes stimulate business and, in turn, demand for transport and logistics services.
In view of our leading market position, a large number of our services are subject to sector-specifi c regulation under the German postal act. Further information on this Note 50 issue and legal risk is contained in the Notes.
Th e market for logistics services is becoming increasingly intricate as individual segments converge and competition increases. At the same time, the number of products and services is rising. Traditional forwarders are reducing shipping times and off ering services that were once the preserve of express providers. From the customer's perspective, the task of fi nding the best logistics solution is becoming steadily more diffi cult. Logistics customers are therefore reducing the number of suppliers and selecting service providers who cover the entire supply chain. Deutsche Post World Net off ers a comprehensive service – not only in each of its divisions but also by way of an integrated off ering. We aim to be the market leader in every segment, to generate a high profi t margin and to grow faster than the market. At the same time, we seek to create value by fostering even closer co-operation between the individual divisions, in particular between EXPRESS and LOGISTICS. Th e divisions' individual strategic goals are derived from the overriding corporate strategy.
On 8 November 2007, the Group initiated its Roadmap to Value, an extensive capital markets programme geared to achieving a sustained increase in enterprise value. Th e idea is to improve profi tability, increase cash generation and give shareholders a larger stake in the Group's ensuing positive development, based on organic growth. Investors and analysts are to receive extensive information that will enable them to assess the Group's performance reliably.
Th e central focus of the programme is to increase profi tability. We plan to increase the profi t from operating activities (EBIT) by €1 billion by the end of 2009 – through actions taken in the operating business and through further cost savings.
Beginning on page 47
In future, cash generation will be more central to our strategy than ever before. Th e Group plans to reduce its net working capital by €700 million by the end of 2009. In addition, we aim to free up at least €1 billion in cash through the disposal of real estate in the next 24 months. In January 2008, a new performance metric, EBIT aft er asset charge, was introduced as an expression of this value-driven approach. As we move forward, management incentives will be tied to this metric.
In a move to give our shareholders a larger stake in the value we create, we will be proposing that the dividend for 2007 be increased by 20% to €0.90 per share. We plan to increase the dividend again in the coming years – broadly in line with the anticipated growth in net profi t excluding non-recurring eff ects.
Th e Group is committed to improving the transparency of its reporting. Th e unbundling of the SERVICES Division and the allocation of all Global Business Services costs to the operating units will illustrate more clearly the profi tability of the individual segments.
We intend to use the strong platform we have built in recent years as a springboard for organic growth. The strengths we have already established in high-growth regions – e.g. Asia Pacifi c and Eastern Europe – enable us to participate in their expansion. Th e construction of our new hub in Shanghai is to be seen as an expression of our confi dence in Asia's sustainable growth potential. Th e rate of growth in the LOGISTICS Division, which has been signifi cantly outperforming the market since 2005 despite the integration of Exel, further refl ects our strong position in rapidly growing markets. Spending on company mergers and acquisitions has thus been capped and the criteria for such takeovers have been tightened. Acquisitive investments have already fallen substantially.
We laid a foundation stone for further, sustainable growth when the First Choice programme was launched back in 2006. Its aim is to improve our performance systematically at every point of contact with our customers – from sales through customer centres and the internet to the mail carriers. For us, the programme is a tool for fostering even greater loyalty amongst our customers. In the reporting period, almost 900 initiatives in 116 countries were rolled out and, in some cases, completed within the framework of the programme. In the mail business, for instance, 350 new service managers were employed and Postbank has equipped its branches with mobile counter units in order to reduce waiting times. First Choice remains a key component of our growth strategy. We now intend to focus on smaller countries whilst at the same time integrating employees more closely into the programme.
Internal Group management, page 34
Since 2004, we have been serving our major customers through a dedicated account management organisation, Global Customer Solutions. Here, industry experts with product expertise act as empowered single points of contact along the entire supply chain of the individual key accounts. Th e team of experts also continuously develop our business in line with changing market or customer needs. Our success proves this formula right: For years, an increasing percentage of customers have been requesting services from not one but several of our divisions.
Th e way in which we act, both as individuals and in the economic arena, is based on seven corporate values that refl ect our mission as a company. Th ey also provide guidance for our employees as they take day-to-day decisions. In order to establish terms of reference, we made the Code of Conduct a binding document in 2006. It is based on international guiding principles, such as the Universal Declaration of Human Rights, International Labour Organisation Conventions and the United Nations Global Compact.
Th e debate concerning climate change and measures to restrict harmful emissions has reached a new climax. As the world's largest logistics service provider, we give rise to signifi cant greenhouse gas emissions. We have, however, long been aware of our environmental responsibility and act accordingly – as illustrated by numerous individual measures. In 2007, we focused on a range of climate-neutral products in our GOGREEN initiative. We were the world's fi rst logistics company to adopt the goal of reducing the greenhouse gas emissions from road transport activities in Europe – as envisaged by the Kyoto Protocol – by 5% by 2012 compared with 1990.
As in previous years, we present economic profi t as an additional earnings performance indicator alongside EBIT in our value-based Group management system. Economic profi t measures the value we create for shareholders in operating activities, taking into account the cost of capital employed.
Sustainability, page 76
Th e starting point for calculating economic profi t is net operating profi t aft er taxes. Th is consists of EBIT, net income from associates, net income from measurement of the Deutsche Postbank Group at equity and the interest component of operating lease expenses. Taking net operating profi t aft er taxes and deducting the total cost of capital (weighted average cost of capital times average net assets employed) gives economic profi t.
| 2006 restated |
2007 | +/– % | ||
|---|---|---|---|---|
| Net operating profi t after taxes | €m | 3,029 | 2,538 | −16.2 |
| Average net assets employed | €m | 27,291 | 26,601 | −2.5 |
| x Weighted average cost of capital | % | 5.9 | 6.7 | |
| – Total cost of capital | €m | −1,610 | −1,782 | 10.7 |
| = Economic profi t | €m | 1,419 | 756 | −46.7 |
With economic profi t at €756 million, the Group continued to create substantial value in 2007. Net operating profi t aft er taxes was down on the previous year despite operational improvements. Th is was due to a €594 million non-cash write-down on EXPRESS Americas non-current assets. Average net assets employed decreased slightly, whilst the weighted average cost of capital sharply increased due to generally higher interest rates. As a result, economic profi t dropped by 46.7% compared with the previous year. Th e weighted average cost of capital had already been set at 6.7% for the beginning of the year.
Th e weighted average cost of capital (WACC) represents the weighted average net cost of interest-bearing liabilities and equity, taking into account tax eff ects and sectorspecifi c risk factors in a beta factor.
| Equity cost of capital | Debt cost of capital | ||||
|---|---|---|---|---|---|
| Risk-free rate of return | 4.0% | Risk-free rate of return | 4.0% | ||
| Market risk premium | 5.0% | + | Average, long-term risk premium | 0.5% | |
| + | x Beta factor |
0.8 | = | 4.5% | |
| (specific risk premium for Deutsche Post World Net) |
– | Tax effect (20%) | –0.9% | ||
| = | 8.0% | = | 3.6% | ||
| Weighting at market rates | 70% | Weighting at market rates | 30% | ||
| Group cost of capital 6.7% |
Th e average net assets employed fi gure used in economic profi t calculations is determined as follows:
| Average net assets employed (Postbank at equity) |
|---|
| -------------------------------------------------- |
| €m | 2006 | 2007 |
|---|---|---|
| restated | ||
| Segment assets | 30,642 | 30,266 |
| – Segment liabilities including non-interest-bearing provisions | −10,601 | −10,883 |
| = Segment net assets | 20,041 | 19,383 |
| + Investments in associates and the Deutsche Postbank Group | 1,674 | 1,865 |
| + Investment property | 50 | 115 |
| + Net present value of operating lease obligations | 4,863 | 5,211 |
| = Net assets employed at end of year | 26,628 | 26,574 |
| Net assets employed at end of previous year | 27,954 | 26,628 |
| Average net assets employed | 27,291 | 26,601 |
Strategy and goals, page 30
We introduced EBIT aft er asset charge as a new primary performance metric from 1 January 2008 as part of our Roadmap to Value capital markets programme to focus all divisions on sustained value growth. Managers' incentives will also be tied to this indicator. Unlike EBIT, the performance indicator used so far, EBIT aft er asset charge takes into account the cost of tied-up capital. In other words, it refl ects profi t generated over and above the cost of capital.
| EBIT | – | Cost of capital | x | Net asset base | = | EBIT after asset charge |
|---|---|---|---|---|---|---|
Th e net asset base is defi ned as operating assets minus operating liabilities plus goodwill.
We anticipate that the new performance metric will enhance the focus on cash generation. Th is means we can make better use of our strengths and more easily identify scope for improvement to boost the value of the company and returns for shareholders.
In fi nancial year 2007, our portfolio changed as follows:
Th e prior-year fi gures have been adjusted to refl ect the following changes in segmentation: At the beginning of 2007, we removed the parcel business in Germany from the EXPRESS Division and transferred it to the MAIL Division. Th e year before we had already transferred the European overland transport business from the EXPRESS Division to the LOGISTICS Division. Details of these changes can be found in Segment reporting disclosures.
Consolidated revenue and income from banking transactions rose by 4.9% to €63,512 million (previous year: €60,545 million). Th e increase was mainly driven by the contract with the National Health Service (NHS) in the LOGISTICS Division, which took eff ect on 1 October 2006, and the good performance of Postbank. Th e share of revenue generated outside Germany continued to grow and now accounts for 60.6% of total revenue (previous year: 59.0%). Negative currency eff ects reduced consolidated revenue by €1,197 million.
Note 8
Other operating income declined by €235 million to €2,586 million, due mainly to the one-time factors contained in the prior-year fi gure: €276 million from exercising the exchangeable bond on Deutsche Postbank shares, net income of €89 million from the positive outcome of the arbitration proceedings against Deutsche Telekom and €10 million from the disposal of McPaper AG. A further €64 million from the sale of shares in the Czech building society Modra Pyramida were compensated for by various smaller non-recurring eff ects at Postbank. In the year under review, we recorded income of €59 million from the sale of Vfw AG and net non- recurring eff ects of €–25 million at Postbank. Th ese mainly comprise the gain on the disposal of Postbank's insurance equity investments of €391 million, provisioning in the investment portfolio in the amount of €183 million and impairment losses of €112 million in connection with the sub-prime crisis, as well as extraordinary eff ects in administrative expenses and non-recurring eff ects in net interest income.
Materials expense and expenses from banking transactions rose in line with the increase in revenue from €34,349 million to €36,875 million in total. Materials expense rose to €30,488 million (previous year: €28,641 million), expenses from banking transactions rose to €6,387 million (previous year: €5,708 million). Materials expense also includes higher expenses for the NHS contract.
Staff costs dropped slightly by 0.8% to €18,471 million, due in part to a reduction in pension expenses.
Depreciation, amortisation and impairment losses increased by €586 million to €2,357 million (previous year: €1,771 million), primarily due to impairment losses recorded on non-current assets in the Americas EXPRESS business as a result of impairment testing.
At €5,193 million, other operating expenses were up €435 million on the previous year. Th e increase stems from a series of smaller factors.
Note 14
Th e developments presented above generated profi t from operating activities (EBIT) of €3,202 million. Th is fi gure contains non-recurring income of €59 million and net non-recurring eff ects of €–25 million at Postbank as well as a €594 million impairment loss on the assets of the EXPRESS business in the Americas region. Th e prioryear earnings fi gure contained non-recurring income of €375 million. Adjusted for these factors, profi t improved by 7.6%.
Net fi nance costs closed at €1,010 million, a slight improvement on the previous year (€1,030 million). In 2006, interest and measurement eff ects from the exchangeable bond on Postbank shares was responsible for the higher fi gure, whilst in the period under review it was higher interest rates that drove up fi nance costs.
Profi t before income taxes fell by €650 million to €2,192 million. Income taxes dropped to €307 million (previous year: €560 million). Th is refl ects the lowering of the tax rate in the wake of the corporate tax reform in Germany. As a result, the Group tax rate dropped from 19.7% to 14.0%.
Consolidated net profi t for the period decreased by €397 million to €1,885 million (previous year: €2,282 million). An amount of €1,389 million is attributable to shareholders of Deutsche Post AG and €496 million to minority shareholders. Both the basic and diluted earnings per share fell from €1.60 to €1.15.
Th e Board of Management will propose the payment of a dividend per share of €0.90 at the Annual General Meeting on 6 May 2008. Th is represents an increase of 20% compared with the previous year. Th e total dividend will therefore amount to €1,087 million. Th e payout ratio in relation to Deutsche Post AG's net profi t for the year will thus increase from 71.5% to 81.2%. In relation to the consolidated net profi t attributable to Deutsche Post AG shareholders, it amounts to 78.2% (previous year: 47.1%). Based on the share price as at 31 December 2007, the net dividend yield is therefore 3.8%. Th e dividend will be disbursed on 7 May 2008 and, as in previous years, is tax-free for shareholders resident in Germany.
1) Proposal.
Besides cash and liquidity management, the Group's fi nancial management activities include: managing interest rate, currency and commodity price risks; overseeing the Group's fi nancing; issuing guarantees and letters of support; and liaising with the rating agencies. Since the requirements and processes of Deutsche Postbank Group diff er fundamentally from those of the remainder of the Group, the remarks below refer exclusively to the analysis with Postbank presented on an equity-accounted basis; in other words, cash fl ows are shown without the Deutsche Postbank Group.
First and foremost, we seek to control risk and to manage processes centrally. Responsibility rests with Corporate Finance, which is supported by three Regional Treasury Centres in Bonn (Germany), Fort Lauderdale (USA) and Singapore. Th ese centres act as interfaces between headquarters and the operating companies, advise the companies on all fi nancial management issues, and ensure compliance with the Group-wide guidelines. Th ese guidelines and processes comply with the Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG – German law on control and transparency in business) of 27 April 1998.
Our principal goal is to minimise the cost of capital and fi nancial risks, whilst safeguarding the Group's lasting fi nancial stability and fl exibility. In order to maintain its unrestricted access to the capital markets, the Group continues to seek a credit rating that is higher than the average for the transport and logistics industry. In view of this aim, we monitor the development of our operating cash fl ow against adjusted debt particularly closely. Adjusted debt is the Group's net debt, allowing for pension obligations that are not directly capital-backed and liabilities under operating leases.
Cash and liquidity management is a central activity overseen by the Corporate Treasury on behalf of the subsidiaries, whose operations span the globe. More than 80% of the Group's external revenue is consolidated in cash pools and used to balance internal liquidity needs. In countries where this practice is ruled out for legal reasons, internal and external borrowing and investment are arranged centrally by the Corporate Treasury. In this context, we observe a balanced banking policy in order to avoid depending excessively on individual banks. Our subsidiaries' internal revenue is also pooled and managed by the in-house bank with a view to escaping external bank charges and margins (inter-company clearing). Payment transactions take place according to uniform guidelines as well as by way of standardised processes and IT systems.
Th e Group's unsecured fi rm credit lines total around €4.2 billion, of which some €398 million had been used as at 31 December. Our banking policy seeks to spread the volume of transactions widely and to foster long-term business relationships with fi nancial institutions. Alongside the customary equal treatment clauses and termination rights, the relevant loan agreements do not contain any further undertakings concerning the Group's fi nancial indicators. Bridge-over fi nancing for acquisitions temporarily gave rise to relatively substantial drawdowns on credit facilities in recent years. Average drawings on credit lines came to only around 4.4% in 2007 (previous year: 9.7%).
Th e Group manages fi nancial market risks by making use of both primary and derivative fi nancial instruments. Interest rate risks are managed by way of interest rate swaps. Forward transactions, cross-currency swaps and options are used to hedge currency risks. Commodity price risks are largely passed on to customers via surcharges. Th e parameters, responsibilities and controls governing the use of derivatives are established in internal guidelines.
We apply the principle of covering the Group's fi nancial requirements with a balanced ratio of equity to liabilities. Th e Group needs funds to repay outstanding debt, for capital expenditure and to fi nance its business activities. Our most important source of funds is the net cash from operating and investing activities. We cover our borrowing requirements with a fl exible approach, using fi rm bilateral credit lines, capital market off erings, structured fi nancing transactions and, as an off -balance sheet funding vehicle, operating leases. Our aim is to appeal to a broad circle of investors and to raise funds close to the time when the requirement arises. Borrowing largely takes place centrally and in euros, and the funds are distributed internally. Operating leases are used mainly to fi nance real estate and aircraft but also IT equipment as well as fl eet and warehouse vehicles.
Th e most important currency in which Group debt is denominated is the euro. By way of derivative fi nancial instruments, however, a portion of the euro debt is translated into foreign currencies in order to cover our operating companies' liquidity requirements. Paying due regard to such transactions shows that the portion of the Group's net debt denominated in euros was 60% (previous year: 40%); the US dollar share was 28% (previous year: 27%). Th e euro share mainly increased as a result of streamlining the foreign-currency debt portfolio.
Note 48.2
Deutsche Post AG provides collateral as necessary by issuing letters of support or guarantees for the loan agreements, leases and supplier contracts concluded by Group companies. Th is practice allows better conditions to be negotiated locally. Such collateral is provided and monitored centrally.
Credit ratings represent an independent and current assessment of a company's credit standing. Th e ratings are based on a quantitative analysis of the subjects' balance sheets, income statements and cash fl ow statements. Qualitative factors, such as industry particularities and corporate strategy, are also taken into account. Our creditworthiness is regularly reviewed by the international rating agencies Standard & Poor's, Moody's Investors Service (Moody's) and Fitch Ratings. With our current category A rating, awarded to companies whose ability to meet their fi nancial obligations is considered good, we rank above the average for the transport and logistics industry.
| Moody's Investors Service | Standard & Poor's | Fitch Ratings | |
|---|---|---|---|
| Long-term | A2 | A– | A |
| Outlook | Negative | Negative | Stable |
| Short-term | P–1 | A–2 | F1 |
Standard & Poor's has issued a long-term credit rating of A- together with a negative outlook. Th is places us at the lower end of category A, which is the ranking for companies whose capacity to meet their fi nancial commitments is considered good. Th e outlook is an assessment of the direction the rating is likely to take in the medium term. Our short-term credit rating according to Standard & Poor's is A–2, which, like the long-term rating, is a good mark.
Moody's ranks our long-term creditworthiness A2, which is in the mid-range of category A. Th e current outlook is negative. Th e agency gives us the highest possible short-term credit rating, namely P–1.
Fitch has given us a long-term rating of A with a stable outlook, which places our long-term creditworthiness in the "good" category. According to this agency as well, our short-term credit rating is the highest possible.
Detailed analyses by the rating agencies and full information on the rating categories
40
As of the balance sheet date, the Group (excluding Postbank) had cash and cash equivalents in the amount of €1,339 million (previous year: €1,761 million) at its disposal. A large portion of this is accounted for by subsidiaries in countries where foreign exchange transactions are unrestricted. Th e fi nancial liabilities disclosed in our balance sheet break down as follows:
Financial liabilities, 2007 (Postbank at equity)
| €m | |
|---|---|
| Bonds | 1,952 |
| Due to banks | 978 |
| Finance lease liabilities | 625 |
| Liabilities to Group companies | 467 |
| Other fi nancial liabilities | 956 |
| 4,978 |
Further information on the disclosed financial liabilities is contained in the Notes.
We use off -balance sheet funding vehicles – particularly operating leases – primarily to fi nance real estate, as illustrated by the following table.
Operating lease obligations by asset class, 2007 (Postbank at equity)
| €m | |
|---|---|
| Land and buildings | 6,153 |
| Technical equipment and machinery | 164 |
| Other equipment, offi ce and operating equipment | 402 |
| Aircraft | 165 |
| 6,884 |
As regards fi nancing business, two transactions stood out in 2007:
Note 42
Group fi nancing, page 39
At a total of €2,210 million as at December 2007, capital expenditure (capex) was higher than in the previous year, as illustrated by the adjacent diagram. €1,860 million of this fi gure related to investments in property, plant and equipment, and €350 million to investments in intangible assets (not including goodwill). Th e expenditure in property, plant and equipment was mainly allocated to advanced payments and tangible assets under development (€349 million), to machinery and equipment (€346 million), transport equipment (€277 million), land and buildings (€263 million) and to IT equipment (€243 million).
| €m | FINANCIAL | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Group | EXPRESS | LOGISTICS | SERVICES | Other/SERVICES | ||||||||
| 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | |
| Capex | 1,931 | 2,210 | 253 | 309 | 572 | 721 | 565 | 538 | 159 | 142 | 381 | 496 |
| Depreciation on assets | 1,771 | 2,3571) | 433 | 432 | 394 | 1,0341) | 402 | 423 | 172 | 163 | 370 | 305 |
| Capex vs. depreciation ratio | 1.09 | 0.94 | 0.58 | 0.72 | 1.45 | 0.70 | 1.41 | 1.27 | 0.92 | 0.87 | 1.03 | 1.63 |
1) Including the impairment loss on the non-current assets of the EXPRESS business in the Americas region of €594 million.
To allow for a like-for-like comparison with the 2006 Group's depreciation of assets, the impairment loss in the EXPRESS business in the Americas region of €594 million is to be considered as a one-time eff ect lowering the total depreciation of assets fi gure of €2,357 million to €1,763 million. Th us the respective capex versus depreciation ratio for the EXPRESS Division would improve to 1.64 and for the Group to 1.25, fi gures clearly indicating a signifi cant amount of investments being allocated to the expansion of the Group's business.
Compared with the previous year, capital expenditure increased in the MAIL Division from €253 million to €309 million. Out of the total amount, investments were predominantly made in assets related to IT equipment (€87 million), internally generated intangible assets (€82 million), other operating and offi ce equipment (€55 million) and to machinery and equipment (€39 million).
In order to reinforce our leading position on the domestic mail market, the key action taken in the MAIL Division consisted in modernising the network as well as optimising the production and distribution of letters and parcels. Besides investing in additional mail-specifi c soft ware, we purchased materials handling assets, handheld scanners and innovative machinery that will enable us to process fl at mail (large letters) more cost-eff ectively.
We improved the quality of service in the parcel business. About 900 Packstations enable customers to send and collect parcels around the clock, seven days a week. We also installed Paketboxes that allow customers to drop off franked parcels and small packets. Sorting, franking and wrapping machines were purchased for production purposes in the international mail business, and its information technology was expanded.
In the Global Mail network, we are currently developing a soft ware platform with a view to gradually superseding, extending and harmonising the heterogeneous system architecture.
In the EXPRESS Division capex increased year-on-year from €572 million to €721 million. Th e 2007 capex was mainly allocated to advanced payments and property, plant and equipment under development (€162 million), investments in machinery and equipment (€161 million), aircraft (€117 million), IT equipment (€72 million) and leasehold improvements (€63 million). Focusing on a single investment shows that substantial resources were spent on building the new European hub at Leipzig/ Halle airport. Also in Europe, we renewed our vehicle fl eet in several countries and improved the technical assets of the national express centres, primarily in the Netherlands and Ireland.
Investments in the Asia Pacifi c region centred on Hong Kong, China, Korea, Japan and India. Whilst we extended our hub at the international airport in Hong Kong, we are establishing operating facilities as well as modernising and relocating branches and representative offi ces in China and Korea. In Japan, we are constructing hubs at the international airports in Osaka and Nagoya, and we have renewed our national air fl eet in India. In the EEMEA region, we focused on Russia, which is a growth market. We enlarged the vehicle fl eet there as well. Our international aircraft fl eet also accounted for signifi cant investment.
Th e amount of capital expenditure fell year-on-year from €565 million to €538 million in the LOGISTICS Division. Out of the total amount, €456 million were related to the DHL Exel Supply Chain business, €50 million were spent by DHL Global Forwarding and €19 million by the DHL Freight business. €13 million were invested in central measures in this division. Within DHL Exel Supply Chain our main investments were particularly allocated to customised transport services, warehousing solutions and the associated information systems. Spending focused on the United Kingdom, Germany, the USA, Canada and South Africa. In the DHL Global Forwarding business, we invested in the facilities of buildings and IT infrastructure and, in the DHL Freight business, spending concentrated on our vehicle fl eet.
Postbank integrated the previous year's acquisitions in its operating business. In order to reinforce its sales organisation and leverage synergies, investments were made in the IT systems that facilitate customer advice and selling activities, and in the modern multi-channel architecture. Other spending took place in connection with the supervisory regulations governing risk capital requirements (Basel II) and the establishment of a loan factory at BHW Bausparkasse. In line with our aim to develop and establish Postbank as the premier bank for small and medium-sized businesses, we extended the corporate banking strategy in the credit business. We also refi ned the branch concept and tested it in eight locations. Th e goal is to make the branches more appealing. In this way, we aim to retain and acquire customers, and improve the cross-selling ratio with existing clients. In transaction banking, we have established a payment transaction platform with multi-client capability and are developing a solution for archiving our own and third-party data.
Company-wide capex also stepped up, from €381 million to €496 million, and focused on vehicles, retail outlets and information technology. €189 million were invested in Deutsche Post Fleet GmbH: Vehicles which had either reached the end of their optimal economic life were replaced and additional vehicles were procured. For Deutsche Post Retail Outlets capex of €40 million was made to establish new partner outlet formats and introduce new outlet soft ware. In other respects, capital expenditure was increased by the mutual reversal, for legal reasons, of a purchase agreement we concluded with Viterra Logistik Immobilien GmbH & Co. KG in December 2000. Th e relevant properties were brought into Deutsche Post Immobilienentwicklung Grundstücksgesellschaft mbH & Co. Logistikzentren KG at the end of December 2007.
| Selected cash fl ow indicators (Postbank at equity) | |
|---|---|
| ----------------------------------------------------- | -- |
| €m | 2006 | 2007 |
|---|---|---|
| Cash and cash equivalents as at 31 December | 1,761 | 1,339 |
| Change in cash and cash equivalents | 377 | – 422 |
| Net cash from operating activities | 2,178 | 2,808 |
| Net cash used in investing activities | – 871 | – 908 |
| Net cash used in fi nancing activities | – 876 | –2,303 |
Net cash from operating activities increased by €630 million to €2,808 million. Net cash from operating activities before changes in working capital matched the previous year's level, with a rise in cash outfl ows for other assets and liabilities being off set by a drop in non-cash income from the reversal of provisions. EBIT was also reduced, amongst other things, by the non-cash write-down on EXPRESS Americas non-current assets, which was added back in under depreciation/amortisation of non-current assets. Net cash from operating activities improved mostly because the net outfl ow of working capital was €597 million down on the previous year.
Net cash used in investing activities came to €908 million, on a par with the previous year (€871 million). Purchases of non-current assets amounted to €2,009 million. We also acquired interests in Th e Stationery Offi ce, ASTAR Air Cargo and Polar Air Cargo. Cash infl ows of €818 million were primarily accounted for by disposals of other non-current assets and Vfw AG.
Taking net cash from operating activities and deducting net cash used in investing activities gives a positive free cash fl ow of €1,900 million, an increase of €593 million on the previous year (€1,307 million).
Net cash used in fi nancing activities rose by €1,427 million to €2,303 million. Th e main factors in this larger cash outfl ow were higher dividend payments of €903 million and the scaling back of fi nancial liabilities (accounting for an outfl ow of €757 million). Th e increase in interest paid is mainly due to the modifi ed, gross disclosure of fi nancial derivatives from the beginning of 2007. Th ere was a parallel increase in interest received as part of net cash from investing activities.
As a result of the net cash fl ows for operating, investing and fi nancing activities as set out above, cash and cash equivalents decreased by €422 million compared with 1 January 2007, to €1,339 million.
Total assets increased compared with the previous year-end by €17,768 million to €235,466 million. Th e main factors in the increase were the expansion of Postbank's operating business – as refl ected in receivables and other securities from fi nancial services and in liabilities from fi nancial services – along with a larger cash reserve at Postbank. As Postbank plans to sell BHW Bank AG's credit card and sales fi nancing business, the assets and liabilities concerned have been reclassifi ed to non-current assets held for sale and liabilities associated with non-current assets held for sale. Further information on this point is provided in the Notes.
Non-current assets totalled €25,744 million as at the balance sheet date, a slight drop (1.3% or €330 million) on the previous year's fi gure (€26,074 million). Th e reduction in intangible assets (by €426 million) is mostly accounted for by amortisation. Property, plant and equipment decreased by €634 million. Th is was mainly due to the write-down of assets in the EXPRESS Americas business, which was partly off set by expansion of our operating business including the Leipzig hub. Non-current fi nancial assets grew by €66 million, largely as a result of the Polar Air Cargo acquisition. Other non-current assets increased from €376 million to €497 million as at the balance sheet date, in part due to growth in pension assets. Deferred tax assets amounted to €1,020 million (previous year: €542 million).
Current assets increased by 9.4% to €209,722 million, chiefl y due to receivables and other securities from fi nancial services (up €14,706 million), refl ecting the strong operating business at Postbank. Th e non-current assets held for sale item has grown by €559 million to €615 million. As mentioned previously, Postbank intends to sell BHW Bank AG's credit card and sales fi nancing business. Cash and cash equivalents rose from €2,391 million compared with 31 December 2006, to €4,683 million, primarily because of Postbank's larger cash reserve.
Equity attributable to Deutsche Post AG shareholders decreased from €11,220 million to €11,058 million. Th e equity base was strengthened by €1,389 million from consolidated net profi t for the period. Th is was countered by payment of the increased dividend for the 2006 fi nancial year (€903 million) and by currency translation differences recognised directly in equity.
Note 34
Current and non-current liabilities increased from €189,513 million to €208,997 million, primarily due to a €19,124 million rise in liabilities from fi nancial services. Th e Group's fi nancial liabilities were reduced from €10,488 million to €10,181 million. Th is was partly accounted for by repayment of a €636 million fi xed-interest bond in October. In the opposite direction, subordinated debt at Postbank increased fi nancial liabilities by €555 million. Other fi nancial liabilities were €226 million down. In contrast, trade payables rose by €315 million to €5,384 million. At €5,462 million, other current and non-current liabilities were also up on the previous year (€5,175 million).
A major portion of the 11.4% drop in current and non-current provisions to €12,610 million is accounted for by Postbank's sale of its insurance companies.
In the analysis with Postbank accounted for at equity, Postbank is treated as an investment accounted for using the equity method.
Net debt comprises fi nancial liabilities less cash and cash equivalents, current fi nancial instruments, long-term deposits and fi nancial liabilities to minority shareholders of Williams Lea. Th e fi gure decreased with the scaling back of fi nancial liabilities, whilst the reduction in cash and cash equivalents had the eff ect of increasing net debt. Overall, net debt was reduced by €225 million compared with 31 December 2006, to €2,858 million.
Net gearing – the ratio of net debt to the sum of equity and net debt combined – decreased from 21.4% to 20.3%.
| 2007 | ||
|---|---|---|
| % | 31.6 | 31.4 |
| % | 46.3 | 47.0 |
| €m | 3,083 | 2,858 |
| % | 21.4 | 20.3 |
| 8.3 | 14.6 | |
| years | 1.4 | 1.0 |
| 2006 |
Net interest cover is the ratio of EBIT to the balance of interest paid and interest received. Th e fi gure has increased from 8.3 to 14.6. Th is indicates that EBIT exceeds net interest obligations by a factor of 14.6.
Th e dynamic gearing ratio is an indicator of internal fi nancing capacity and expresses the average number of years required to pay outstanding debt using the whole of the cash fl ow generated in the year under review. As net debt has dropped and operating cash fl ow has increased, the dynamic gearing ratio has further improved from an average of 1.4 to 1.0 years.
| €m | 2006 restated |
2007 | +/– % | Q4 2006 | Q4 2007 | +/– % |
|---|---|---|---|---|---|---|
| Profi t from operating activities (EBIT) | 2,094 | 2,003 | – 4.3 | 685 | 739 | 7.9 |
| Revenue | 15,290 | 15,484 | 1.3 | 4,229 | 4,309 | 1.9 |
| of which Mail Communication | 6,342 | 6,070 | – 4.3 | 1,676 | 1,619 | –3.4 |
| Dialogue Marketing (formerly Direct Marketing) | 2,875 | 2,914 | 1.4 | 803 | 824 | 2.6 |
| Press Services (formerly Press Distribution) | 820 | 822 | 0.2 | 213 | 216 | 1.4 |
| Parcel Germany | 2,587 | 2,558 | –1.1 | 749 | 748 | –0.1 |
| Global Mail/Corporate Information Solutions | 2,917 | 3,338 | 14.4 | 866 | 965 | 11.4 |
| Consolidation/Other | –251 | –218 | 13.1 | –78 | –63 | 19.2 |
| EXPRESS | ||||||
| Profi t or loss from operating activities (EBIT) | 288 | –174 | –160.4 | 134 | – 420 | – 413.4 |
| Revenue | 13,463 | 13,874 | 3.1 | 3,538 | 3,757 | 6.2 |
| of which Europe | 6,381 | 6,624 | 3.8 | 1,715 | 1,891 | 10.3 |
| Americas | 4,379 | 4,165 | – 4.9 | 1,100 | 1,036 | –5.8 |
| Asia Pacifi c | 2,443 | 2,576 | 5.4 | 647 | 681 | 5.3 |
| EEMEA (Eastern Europe, Middle East, Africa) | 819 | 1,064 | 29.9 | 225 | 287 | 27.6 |
| Consolidation | –559 | –555 | 0.7 | –149 | –138 | 7.4 |
| LOGISTICS | ||||||
| Profi t from operating activities (EBIT) | 751 | 957 | 27.4 | 255 | 339 | 32.9 |
| Revenue | 24,405 | 25,739 | 5.5 | 6,693 | 6,733 | 0.6 |
| of which DHL Global Forwarding | 9,271 | 9,410 | 1.5 | 2,396 | 2,522 | 5.3 |
| DHL Exel Supply Chain | 11,998 | 13,099 | 9.2 | 3,420 | 3,382 | –1.1 |
| DHL Freight | 3,712 | 3,646 | –1.8 | 979 | 947 | –3.3 |
| Consolidation/Other | –576 | – 416 | 27.8 | –102 | –118 | –15.7 |
| FINANCIAL SERVICES | ||||||
| Profi t from operating activities (EBIT) | 1,004 | 1,076 | 7.2 | 306 | 212 | –30.7 |
| Revenue | 9,593 | 10,426 | 8.7 | 2,482 | 2,692 | 8.5 |
| SERVICES | ||||||
| Loss from operating activities (EBIT) | –229 | – 660 | –188.2 | –98 | – 210 | –114.3 |
| Revenue | 2,201 | 2,357 | 7.1 | 599 | 632 | 5.5 |
| Group | ||||||
| Profi t from operating activities (EBIT) | 3,872 | 3,202 | –17.3 | 1,282 | 660 | –48.5 |
| Revenue | 60,545 | 63,512 | 4.9 | 16,334 | 16,965 | 3.9 |
1) Excluding Consolidation.
Risks, page 86
Source: company estimates
Market share (revenue) in dialogue marketing, 2007 Market volume: €20.9 billion
13.4% Deutsche Post
86.6% Competition
Source: company estimates
We deliver Germany's mail. Th e around seventy million items we carry on average every working day make us Europe's largest postal company. Our range of mail products for private and business customers extends from standard letters to merchandise. We also off er services such as cash-on-delivery and registered mail. Th ree options are available for franking mail items: the conventional postage stamp; online; and, for mass mailings, fully computer-based solutions. More than a million collectors (philatelists) have our new stamp issues delivered postage-paid every month. We also sell and market collectors' coins under a contract with the German government. Alongside our standard products, we develop tailor-made mail solutions for our business customers and for business process outsourcing. We digitalise incoming mail, for example, and deliver it to the internal recipients electronically.
Historically, our mail business has focused on Germany. Th e domestic market volume of mail communication in 2007 was approximately €6.6 billion, around 3% less than in 2006 (€6.8 billion). Th e market is shrinking as conventional mail is steadily being ousted by electronic communications media, such as fax, e-mail, text messaging and the internet. Th is trend is most apparent in the telecoms industry, which is now issuing a signifi cantly greater number of electronic invoices. At the same time, competition is becoming tougher on the German mail market, which remains regulated. Th ese two factors have resulted in a slight decline in our market share but it still remains at 87.2%.
By way of conventional dialogue marketing instruments, we support our business partners' targeted communications with their clients, providing sophisticated IT solutions that enable companies not only to handle mail-shots easily but also to optimise their postage costs. At the same time, we develop solutions for cross-media customer dialogue and advertising campaigns. We off er a full range of services, from consulting and concept development all the way to media planning and buying as well as the production and dispatch of advertising materials. We thus combine dialogue marketing with conventional advertising. We also conduct market research to measure the impact of such advertising.
Th e market sector relevant to us, namely dialogue marketing in the narrower sense – advertising mailings, telephone and e-mail marketing – grew by 1.6% year-on-year to reach a volume of €20.9 billion. We maintained our share (13.4%) of this highly fragmented market.
We deliver newspapers and magazines nationwide and on the day specifi ed by the customer. Our Press Services Business Unit off ers two product groups. Th e preferred periodical is the product traditionally used by publishers to mail subscribed publications, whilst the standard periodical is our distribution product primarily for companies which publish customer magazines to advertise their products and services. Our special services include electronic address updating as well as complaint and quality management.
According to market studies, the press services market amounted to 17.9 billion items in 2007, or 1.5% fewer than in the previous year. Growth in the business of television programme guides and magazines enabled us to off set decreases, particularly in the daily newspaper segment, so that we maintained our market share (11.4%). Th e trend towards heavier items, and therefore higher average prices, is being sustained.
We deliver around 2.5 million parcels a day in Germany and seek to make access to our services as simple as possible for customers. We have developed special solutions tailored to the segments in which our business customers operate. We support mail order companies, for example, in transporting their merchandise to consumers and carrying their returns. By way of more than 13,500 retail outlets and some 900 Packstations, we enable our private customers to send and collect parcels and small packets around the clock practically everywhere. In addition, we have successfully tested the Paketbox – a letterbox for franked parcels. We make systematic use of the high-speed medium that is the internet: Private customers can purchase cardboard boxes, frank parcels, place parcel collection orders and track items online. Business customers can register easily, and send and track parcels immediately.
In 2007, the market volume of the parcel business totalled €6.3 billion, which represents a year-on-year rise of 6.3%. Several very capable providers compete for shares in this highly contested sector. We stabilised our share at around 38%.
Market share (volume) in press services, 2007 Market volume: 17.9 billion items
11.4% Deutsche Post
88.6% Competition
Source: company estimates
Market share (revenue) in parcels, 2007 Market volume: €6.3 billion
Source: company estimates
Sources: company estimates, UPU statistics 2006, annual reports for USPS, Royal Mail, La Poste, SPI and TNT, additional calculations and estimates
We transport mail across borders, serve the domestic markets of other countries and, apart from carrying mail, also provide special services. We serve business customers in key national mail markets, including the USA, the Netherlands, the UK, Spain and France. In the Netherlands, we realigned our product portfolio in the reporting period in response to the fi erce price competition in the direct marketing segment. In Japan, we stepped up our co-operation with Yamato Holding in the direct marketing and unaddressed delivery sectors.
Th e global market volume for cross-border mail was approximately €10 billion – more or less the same as in the previous year. Although competition has become even tougher, we sustained a market share of 14%. We thus defended our position on a par with the United States Postal Service – amongst other things, by increasing the volume of mail from Germany, Austria, Switzerland and the USA.
Every day, companies need to process large quantities of information as well as transfer documents and data. Managing business processes is becoming steadily more complex – especially in the international business arena. Our subsidiary Williams Lea specialises in the management of digital and printed information. Its principal activities are photocopying, printing, mailroom management and offi ce services; other services include the outsourcing of transaction printing, document management and the end-to-end processing of customer correspondence. We develop individual solutions that enable our customers to attend more closely to their clients and operate more profi tably. Such solutions can embrace the outsourcing of services or realignment of business processes. Moreover, eff ective document management reduces the risk of records getting lost.
Our goal is to continue operating highly profi tably. In the domestic mail business, our exclusive licence for letters weighing less than 50g lapsed on 31 December 2007. With a view to making good the anticipated loss of market share, we are pursuing three aims: extending our range of services, reinforcing our position abroad and making our transport and delivery network costs more fl exible.
Ahead of the complete liberalisation of the German mail market, key parameters that will shape our business in the future were defi ned. Mail prices will continue to be regulated by the Bundesnetzagentur (German federal network agency). Th e new regulations allow us to keep postage costs for private customers stable whilst establishing more fl exible pricing for business customers. Th ere are currently no plans to impose value-added tax on mail carried under the postal universal services obligation.
Deutsche Post has long since emerged as more than a company that simply carries and delivers mail and parcels. We now off er services at every link in the mail value chain. In the dialogue marketing segment, we are seeking to establish a position as a provider of cross-media services. Williams Lea is pursuing a strategy of performing additional services for existing partners and harnessing these credentials to acquire new customers.
"In Germany, we are the market and quality leader for mail and parcel services. We now face the challenge posed by the market's complete liberalisation, for which the parameters have become clear. We are very well prepared for the change."
Jürgen Gerdes, MAIL and PARCEL Germany
Our goal in the parcel business is to be readily accessible anywhere, any time. For this reason, we are expanding the existing network of some 900 Packstations to a total of 2,400 machines by 2010. In the initial phase, we are also installing 1,000 Paketboxes across Germany.
Recent studies have confi rmed the success of our strategy: Customers in all segments – private customers, small and large businesses as well as key accounts – have indicated their signifi cantly greater satisfaction year-on-year with the scope and quality of our services.
An opportunity exists for us in the further opening of mail markets abroad as we either enter them for the fi rst time or continue to develop our local business in line with the extent of liberalisation. Th e timetable agreed in Europe envisages opening up the markets in two steps, in 2011 and 2013. Th is serves to set the future parameters for our business also in this area.
Risks, page 86
Page 79
In recent years, we have made our network costs more fl exible, allowing us to adjust them rapidly in response to volume changes. To this end, we have come up with a detailed range of measures. Amongst the requirements are a decrease in the number of mail cargo fl ights at night and a reduction in outsourced operations, such as transport by lorry. State-of-the-art IT systems enable us to more accurately predict the order intake and optimise capacity utilisation according to traffi c volumes. We have also further increased the fl exibility of our staff costs in the past two years.
"We are capable of exploiting our opportunities in the international mail business and are favourably positioned in mail markets abroad. The greatest challenge currently lies in the inconsistent timetable for liberalisation within the European Union."
Dr Frank Appel, MAIL International
Since the start of the 2007 fi nancial year, we have been reporting on the Parcel Germany unit in the MAIL Division; the prior-year fi gures were restated accordingly.
Th e division once again increased its revenues in 2007, pushing them up by 1.3% from €15,290 million to €15,484 million. Th e fourth quarter, which is traditionally strong, contributed much to this development. We counterbalanced the anticipated decline in domestic mail by growing our business abroad, largely thanks to the fi rst-time inclusion of Williams Lea with eff ect from 1 April 2006. As in the past, currency eff ects were marginal in the reporting period. Th ey pushed down revenue by €79 million.
Revenue in the Mail Communication Business Unit declined from €6,342 million to €6,070 million. Th e decrease was less pronounced in the fourth quarter than in the fi rst three, even though parameters remained unchanged. Th e increasing use of electronic means of communication is resulting in ongoing shrinkage of the market, whilst at the same time competition is becoming more intense. Volumes fell in both the business and the private customer segments because, amongst other things, the period was 1.8 working days shorter than in 2006.
| Mail Communication (Deutsche Post AG share) | |||
|---|---|---|---|
| mail items (millions) | 2006 | 2007 | +/– % |
| Business customer letters | 7,011 | 6,764 | –3.5 |
| Private customer letters | 1,369 | 1,348 | –1.5 |
| Total | 8,380 | 8,112 | –3.2 |
In the regulated mail sector, we kept our prices stable although the infl ation rate underlying the price-cap procedure increased. Furthermore, we lowered our rates for formal delivery orders, secured market shares with competitive products and services, and won back lost customers. We substantially reduced expenses thanks to systematic cost reductions.
According to a comparative study we conducted, our postage rates rank amongst the lowest in Europe. Th e survey took account of both the nominal price for sending a standard letter (20g) by the fastest method and key macroeconomic factors, such as purchasing power and labour costs.
In the Dialogue Marketing (formerly Direct Marketing) Business Unit, the trend towards higher-quality, on-target services is continuing. As in the second and third quarters, the volume of advertising supplements rose favourably in the period from October to December 2007. At €2,914 million, the unit's revenue even exceeded the high fi gure posted in 2006 (€2,875 million).
| Dialogue Marketing (Deutsche Post AG share) | ||
|---|---|---|
| mail items (millions) | 2006 | 2007 | +/– % |
|---|---|---|---|
| Addressed advertising mail | 6,721 | 6,782 | 0.9 |
| Unaddressed advertising mail | 4,373 | 4,650 | 6.3 |
| Total | 11,094 | 11,432 | 3.0 |
In the Press Services (formerly Press Distribution) Business Unit, revenue stabilised at the prior-year level, climbing marginally from €820 million to €822 million. Although quantities edged down, both item weights and average prices increased.
Competitive pressure remains tough on the domestic parcel market. We therefore reduced prices in the private customer segment in summer 2006, which slowed down the rate of volume decline from the fourth quarter of 2006. In the reporting period, we achieved a turnaround by enabling volume and revenue to climb again. Despite the price reduction, revenue reached €2,558 million, which was more or less on a par with the previous year's high fi gure of €2,587 million.
| items (millions) | 2006 | 2007 | +/– % |
|---|---|---|---|
| Business customer parcels | 644 | 646 | 0.3 |
| Private customer parcels | 105 | 107 | 1.9 |
| Total | 749 | 753 | 0.5 |
Once again, the strongest growth was posted in our international business. Revenue in the Global Mail and Corporate Information Solutions units rose by 14.4%, from €2,917 million to €3,338 million. A key factor was the inclusion of Williams Lea with eff ect from 1 April 2006, which yielded inorganic eff ects totalling €338 million. We also recorded organic growth, thanks in part to major customer contracts, including the one concluded by the Williams Lea Group with Reader's Digest. Th ese two business units now account for around one fi ft h of the division's revenue.
| mail items (millions) | 2006 | 2007 | +/– % |
|---|---|---|---|
| DHL Global Mail | 7,124 | 7,457 | 4.7 |
With a profi t from operating activities (EBIT) of €2,003 million, we achieved our announced target of around €2 billion. Alongside higher revenues from the international mail business, improved productivity and lower costs also played a role. Compared with the previous year (€2,094 million), our performance deteriorated by 4.3%, amongst other things because the period was 1.8 working days shorter and due to our price reduction in the Parcel Germany business in 2006. In addition, we reduced the price of orders for the formal delivery of documents in January 2007. Th e fi gure for the third quarter of 2006 also contained €66 million attributable primarily to the settlement with the Bundesanstalt für Post und Telekommunikation (German federal posts and telecommunications agency), which gave rise to reimbursement of the payments already made for fi nancial years 1997 to 2003. Th e fi gure for the fourth quarter of 2007 contained €58 million, chiefl y from the adjustment of pension provisions in view of the changed retirement age. Measured against 2006, non-recurring eff ects thus had only a marginal impact. Th e return on sales was 12.9%.
Th e global express market is growing at an annual average rate of 6% to 8%, as globalisation fuels the expansion of worldwide trade, and more and more shipments need to be handled swift ly and reliably. Th e demand for time-critical express services is rising as a consequence. With 124,000 employees and a network spanning more than 220 countries and territories, we are exceptionally well positioned to participate in the future growth of this attractive segment.
Having transferred the German parcel business to the MAIL Division with eff ect from 1 January 2007, we are focusing more acutely on international business. Th ere is a particularly strong rise in demand in this market. According to a recent study by Airbus, the volume of intercontinental air traffi c is expected to increase by 6% a year until 2025 and we intend to play a part in this expansion. Th e groundwork has already been laid. In conjunction with our partner companies, we hold the necessary fl ying rights as well as takeoff and landing slots and can draw on a fl eet of more than 350 aircraft .
In June 2007, we acquired an interest in Polar Air Cargo, a US airline. Th is gives us cargo capacities on the trans-Pacifi c routes, where the volume of express business is forecast to increase by some 10% in the coming years. In September, we founded the air freight company AeroLogic together with Luft hansa Cargo. From spring 2009, it will enable us to extend our capacity and to shorten transit times on trade routes between Europe and Asia, improving capacity utilisation and reducing costs through the sharing of aircraft . Air transport on the north Atlantic route is serviced by our own fl eet, which we can deploy fl exibly. To this end, we ordered six Boeing 767 cargo planes in the reporting period. Here, weight is anticipated to grow by between 4% and 5% in the next few years. Extension of the air freight network is being supported by capital expenditure on modern ground infrastructure.
DHL Express specialises in carrying goods reliably from door to door, which is facilitated by fi xed routes and standardised procedures. Our three product lines – Same Day, Time Defi nite and Day Defi nite – satisfy diff erent customer requirements for speed of delivery. In the year under review, we revised and simplifi ed our product range. Th e gradual roll-out of the new portfolio started on 1 October; it off ers customers clearly structured services for international time-defi nite shipments, which constitute our core business: DHL EXPRESS 9:00, DHL EXPRESS 12:00, and DHL EXPRESS WORLDWIDE.
Page 42
Key accounts with global business interests are to be managed by a new sales unit. Th anks to our enhanced service, we are increasingly establishing ourselves as a partner of enterprises that engage in certain branches of commerce and industry. Th e principal users of our reliable, time-critical services are the automotive, consumer goods, electronics and life science sectors, in which delivery times are a key driver of success. Our PharmaPlus product, which has been launched in France, is an industryspecifi c solution for shipping temperature-sensitive goods to numerous countries across the globe.
Th rough a network of more than 50,000 service points at which items can be dropped off and collected, we are facilitating customers' access to our services. DHL Express is also expanding its range of electronic services. Business customers in Asia, for example, have been able to place shipment collection orders electronically since autumn 2007.
At a time when the environmental impact of products and services is a live issue, we are thus far the only express service provider to off er – in our GOGREEN range – climate-neutral shipping products.
For several years, the European market for courier, express and parcel (CEP) services has been expanding at a rate of around 5% to 6%. We have maintained our leading position in the market, as a stable economic climate has invigorated international business, especially as regards shipments to Eastern Europe and Asia. On many trade lanes, we have grown more strongly than the market.
As the number of reliable day-defi nite shipments in Europe continues to rise – our sales activities now embrace 29 countries – customer demands are also becoming more rigorous in the time-defi nite segment. We have expanded this service and can now deliver before midday to 80% (previous year: 74%) of all business addresses in Europe.
We have introduced next-day deliveries for shipments between Europe and the United States. Our customers in major European cities are benefi ting from the dense delivery network in the United States, which ensures next-day delivery to 96% of the market. We expect this service enhancement to generate further growth on the trans-Atlantic trade lane.
In the Americas, the USA occupies a special position as the largest express market. It is connected to the world's principal trade lanes. Some 47% of all domestic and international DHL shipments are billed in the United States, where half of our 200 largest customers are based. In our global business, off ering a high-performance range of products and services here also guarantees business success in other regions.
Sustainability, page 76
1) Country base: GB, NL, E, F, I, D, S, B, BG, PL. 2) These figures are based on the new definition of all shipments <1,000kg. 3) Including DPD and Geopost. 4) Including GLS.
Sources: Market Research Service Centre, Market Intelligence, 2007
We operate an air and ground-based transport network, through which we move all domestic and international shipments. Th e strongest growth was posted by groundbased shipments, where we increased our share of the market. On one of the world's largest trade lanes – between the USA and Canada – we have extended our fl ight connections. With a share of 13% we have strengthened our position as the third major player in the international CEP market in the United States, despite the diffi cult economic climate.
We are the market leader in Latin and Central America, where we have extended our off ering of time-defi nite shipments. We now off er guaranteed pre-10:30 delivery, for example, between Mexico and the USA. Th e growth has been reinforced by capital expenditure on the regional network. In addition, a common accounting and billing platform for almost all the countries has been set up in two locations and has improved internal workfl ows whilst reducing costs.
Aft er years of strong growth, several factors slowed the further expansion of the Asian express market. First, the US economy started to cool down, which signifi cantly hampered exports from Asia. Second, the supply chains that feed internal trade within Asia have changed; and third, more and more goods are being carried by ship. Nonetheless, the region is still regarded as a driver of growth.
DHL Express posted strong operative growth to defend its leading position. In Asia's international express markets – including the region's fourteen largest economies – we hold by far the largest market share (34%). We have made it even easier for customers to access our services by increasing the number of service points and extending the internet-based off ering.
In fourteen of the region's countries, we are off ering a new service that allows express import shipments to be billed in compliance with the international terms of trade. Our Airport to Door product not only allows business customers to have their shipments delivered with the customary speed and reliability; we also take care of all the customs arrangements on their behalf. It is a service that enables us to address new customer groups and harness fresh growth potential.
In the countries of the EEMEA region (Eastern Europe, Middle East and Africa), we recorded strong double-digit growth. We generate around 90% of our trade with business customers operating chiefl y in the oil and gas, high-tech, life science and textile industries. In order to sustain growth, we are continuously improving our transit times – in the year under review, we reduced them by one day on more than 200 inter-city routes. We have also enlarged our off ering, amongst other things by introducing a new range of hazardous goods transport services.
1) These figures are estimates for outbound international shipments < 70kg.
Source: Market Research Service Centre in co-operation with Colography Group, 2007
1) Country base: AU, CN, HK, ID, IN, JP, KR, NZ, MY, PH, SG, TH, TW, VN.
2) These figures are based on the new definition of all shipments < 1,000kg.
Sources: AT Kearney, TMS 2007
International express markets EEMEA, 20061) Market volume:2) €0.8 billion
1) Country base: RU, ZA, SA, BH, IL, UAE, IR, JO, OM, QA, KW, NG, LB.
2) These figures are based on the new definition of all shipments < 1,000kg.
Source: Market Research Service Centre in co-operation with Crescendo Partners, 2007 Th e Russian express market is exceptionally dynamic. In recent years, growth rates there have reached up to 40%. With a share of 41% of the international and 25% of the domestic market, we are the clear leader in Russia. We intend to continue profi ting from this vigorous growth in the future.
By establishing a global organisation under uniform management, DHL Express has realigned its strategy. Th e main purpose is to improve profi tability and generate further organic growth. Our goal is to be the preferred provider in the international express business across all products and regions, and we are defi ning our range of products and services as well as our infrastructure with this aim in mind.
Th e core element of our strategy is the international air traffi c network. Competitive pricing and a fi rst-rate service on all the major international trade routes is the target. We employ specialist teams to ensure delivery of the best possible performance, profi tability and growth on 74 important global trade lanes we have defi ned.
"DHL Express ranks amongst the leading operators in its segment. Our strengths lie in a network that spans the globe, motivated employees and satisfi ed customers. The US business remains the greatest challenge. Although we have established ourselves as the number-three player there, we are currently being hampered by the inhospitable economic climate." John P. Mullen, EXPRESS
We intend to systematically reinforce our leading position in numerous domestic markets. More than 80% of all shipments remain in the country of the sender. We intend to step up the consolidation of domestic and foreign shipments and thus leverage further cost advantages. By way of domestic business, we are also winning international orders from our customers.
In order to participate in the growth of the express markets, we are creating the necessary ground infrastructure in the diff erent regions. Th e new European hub at Leipzig/Halle airport represents a major step in this direction. It was integrated into our network in the autumn and will become fully operational in spring 2008. We are also expanding our central Asian hub in Hong Kong and planning a new one in Shanghai.
At the same time, we are developing systems and products for our customers that make it even easier for them to use DHL for their shipping needs – for example, by building electronic interfaces to our customers and integrating these in our workfl ows, as well as using new technologies to facilitate customers' access to our services.
Th e EXPRESS Division's revenue increased by 3.1% to €13,874 million (restated prioryear fi gure: €13,463 million) even though business was impacted by negative currency eff ects (€507 million). Measured in local currencies, we attained organic revenue growth of 6.4%.
In Europe, we achieved gains in both revenue and shipment volumes. Revenue increased by 3.8% to €6,624 million (previous year: €6,381 million); the underlying organic growth for the region reached 4.6%. Th e domestic business in Central Europe – including the Czech Republic, Hungary, Poland, Slovakia, Slovenia, Romania and Bulgaria – generated the largest advances. We satisfactorily improved our international business in the Benelux countries. Th e other countries gave rise to moderate revenue growth of 3% to 7%. Exceptions were France and the UK, where revenues remained more or less unchanged year-on-year.
Negative currency eff ects in the amount of €339 million were the main driver of the downturn in revenue in the Americas, which fell by 4.9% year-on-year, from €4,379 million to €4,165 million. In local currency, the organic growth rate was 2.9%. Th e most notable advance was achieved once again in our Latin American domestic business, especially in Mexico, where the rate reached 20%. Organic growth in the USA was positive at 0.6%. Th e enhanced performance of our Ground and International products was unable to make good the sharp decline in the Domestic Air business – a pattern which became apparent in the second half-year in particular as economic activity waned.
Revenue in the Asia Pacifi c region climbed by 5.4% to €2,576 million (previous year: €2,443 million). As in America, changes in the euro exchange rate gave rise to negative currency eff ects, in this case in the amount of €102 million. Although the rate of growth in the region slowed, we posted organic revenue growth of 9.6%. Th e principal contributors were China and India.
In the EEMEA region, revenue increased by 29.9%, from €819 million in 2006 to €1,064 million. As in the prior year, the largest gains were recorded in this region, primarily in the Middle East and Russia.
Th e impairment review conducted at the end of the year led to a €594 million writedown of the EXPRESS non-current assets in the Americas regions. Th is write-down has no cash impact. It cannot currently be excluded that further write-downs regarding additions to non-current assets might occur. Profi t from operating activities (EBIT) before extraordinary impairment loss increased by 46%, from €288 million to €420 million, even aft er deducting expenses of €76 million for the construction of the new European hub in Leipzig. With one exception, all the regions improved their profi tability. In the Americas region, operating business deteriorated as revenue stagnated and the demand shift ed in favour of lower-margin products. Th e return on sales for the EXPRESS business climbed from 2.1% to 3% when measured before the extraordinary impairment loss on non-current assets in the Americas region.
DHL Global Forwarding is the international market leader in air and ocean freight. As forwarders, we move goods and merchandise on behalf of our customers to an agreed destination within fi xed parameters such as transport mode, time and price. We draw upon our geographic coverage and multi-modal capabilities and have specifi c skills in numerous sectors, including aviation, automotive, chemicals, consumer goods, life sciences, technology and the processing industry to meet the needs of our customers.
Our business is built on sound customer relationships. Working with customers over many years enables us to identify and supply the transport solutions best suited to their needs. We reduce the complexity of our customers' value chains by supplying the information required to determine the appropriate transport route, which also mitigates the risk associated with working in developing markets.
In the air freight business, we are the global market leader, off ering direct shipments and air consolidations, including time-defi ned services that operate on an airportto-airport or door-to-door basis. In the year under review, the air freight market grew by around 4% (previous year: 5%) according to IATA. Our SeAir product gives customers the best of both worlds: combining the speed of air transport with the lower cost of ocean freight.
In ocean freight, we provide full-container-load and less-than-container-load services as well as non-containerised transport between the world's principal markets. Th e ocean freight market growth in 2007 was around 10%, fuelled primarily by exports from Asia.
Our forwarding activities are complemented by transport-related, value-added services, such as customs brokerage, cross-docking, pick-up and delivery and cargo insurance to ensure the seamless transfer of cargo across borders. We also advise customers on security issues. Our sophisticated IT systems allow us to track goods in transit at all times, providing customers with maximum visibility and control. On request, we also develop customised programmes such as integrated order management.
Market volume: €16.4 billion1)
12.1% DHL Global Forwarding
5.2% Schenker/BAX2)
5.0% Nippon Express
3.7% Kühne + Nagel
2.8% Kintetsu
1) Market volume and market share data are based on IATA statistics, which do not correspond to companies' published revenues and cannot be compared with the prior-year figure.
2) Pro forma, BAX Global revenue missing in IATA data for some countries.
Sources: IATA/CASS, company estimates and own sources, 2006
Market volume for forwarding: 26.2 million TEUs1)
| 9.2% DHL Global Forwarding |
|---|
| 8.7% Kühne + Nagel |
| 4.9% Schenker/BAX |
| 4.1% Panalpina |
| 2.7% Expeditors |
Sources: Global Insight, annual reports, press releases, company estimates, 2006
Market shares in contract logistics, 2006 Market volume: €192.7 billion1)
1) Company estimates.
Sources: annual reports, press releases, company websites, Transport Intelligence, analysts' reports
| 2.6% Schenker |
|---|
| 2.0% DHL Freight |
| 1.6% DSV |
| 1.3% Geodis |
| 1.1% Dachser |
1) Total for fourteen European countries, excluding bulk and specialties transport.
Sources: MRSC freight reports 2006 and 2007, Eurostat 2006, annual reports, press releases, company websites, estimates
Strategy and goals, page 30
Our DHL Exel Supply Chain Business Unit remains the world leader in contract logistics. Within this area of our business we provide warehousing and groundbased transport services plus specialist sector-based value-added solutions along the entire supply chain. In the year under review, we renewed the majority of existing agreements and gained new ones with existing and new customers in all regions and sectors.
Our teams not only have expert knowledge of logistics but also have specialist knowledge and many years' experience in our key sectors including automotive, life sciences, technology, fast-moving consumer goods as well as retail and fashion. Within the business we are now developing and strengthening specifi c sector-based solutions to meet the needs of our customers precisely. Th ese have included strengthening our off ering in packaging and contract manufacturing and off ering a consultative design element as well as implementing and operating supply chains for our customers.
DHL Freight operated as an independent business unit in the LOGISTICS Division for the fi rst full year in 2007. We run a comprehensive less-than-truckload network covering Europe, Russia and traffi c into the Middle East with 160 terminals. Our strong full-truckload business is complemented by a fast growing intermodal service. Additionally we off er a comprehensive range of customs services. In the year 2007 the European road transport market grew at around 3.5% with the international market growing faster (4.5%) than the domestic market (3.2%).
Th e business model of DHL Freight is asset-light. Trucking and a high percentage of cartage and handling is outsourced. We work closely together with Parcel Germany, EXPRESS and the other logistics business units by sharing IT systems, teaming up for joint product off erings and delivering reliable transport solutions to all of these units – thus leveraging the purchasing power and competence of DHL Freight for the whole Group.
In 2007, customers have benefi ted from our integrated approach to the supply chain. Uniquely, we can now off er a logistics and express service with the greatest global reach. We are establishing improvement targets for each business unit and function, working in parallel with the recently launched capital markets programme.
Our customers regularly highlight the need for proactivity and innovation and we have addressed this need in several ways. We have, for example, added to our capabilities within the life science arena; similarly, retail customers have benefi ted from the introduction of off erings such as demand planning and a strengthening of our co-pack manufacturing services to consumer customers. We have also developed global products which span several of our business units such as service parts logistics and e-fulfi lment with the expectation that these will continue to develop in the years to come.
We are focusing on organic growth through three distinct programmes: We are reinforcing our presence in regions whose economies are expanding rapidly, such as Central and Eastern Europe and areas of South America and Asia; we are focusing on key customer accounts where we are looking to increase our share of outsourcing; and fi nally, we are focusing capital expenditure on innovative products and process harmonisation.
"Our logistics business is well positioned in key global markets to deliver organic growth. We have developed our business to seize the opportunities brought about by growing consumer demands, complex modern supply chains and the ongoing trend of outsourcing. We are also focusing on people development to add value through proactive delivery of solutions and collaboration with other members of the DHL family." Dr Frank Appel, LOGISTICS
In our drive to continue creating added value for customers and shareholders, we have adopted a Roadmap for Logistics setting out our vision – which is to lead the industry into a new era by 2010: We intend to set the pace in innovation, quality and productivity whilst at the same time off ering our employees fresh opportunities. We will also be seeking to encourage the industry to behave even more responsibly towards society and the environment. In pursuing these goals, we will make the most of our collective passion, experience and scale. We aim to build the best logistics company in the world and to be the fi rst choice for customers and employees alike. Th ere continues to be increased collaboration across all DHL business units, with our customers benefi ting from our ability to bundle together products and services from one provider to create seamless support for their critical business needs.
In the LOGISTICS Division, the prior-year fi gures were restated because we transferred our European overland transport business from the EXPRESS Division to the LOGISTICS Division under the name DHL Freight on 1 July 2006.
Th e growth, performance and integration of our logistics business developed favourably in 2007. Revenue increased by 5.5% to €25,739 million (previous year: €24,405 million). Th e total was impaired by negative currency eff ects of €605 million. Inorganic infl uences, including the disposal of Vfw AG, reduced revenue by a further €270 million. Organic revenue growth came to 9.1% as a result, amongst others, of the ten-year deal with the NHS in the UK.
DHL Global Forwarding generated revenue of €9,410 million (previous year: €9,271 million). This figure was affected adversely by currency effects totalling €283 million; aft er adjusting for these eff ects, revenue grew by 4.6% year-on-year. Th is development only partly refl ects the higher growth in volumes because our air freight activities also recorded lower freight rates.
Air freight volumes rose by 7.3% in 2007 above market growth of only around 4%. Revenue decreased slightly due to negative impacts from currency eff ects and lower freight rates on key trade lanes. Our business performed well, above all in Europe, the Middle East and Africa.
| €m | 2006 | 2007 | +/– % |
|---|---|---|---|
| Air freight | 4,956 | 4,809 | – 3.0 |
| Ocean freight | 2,657 | 3,014 | 13.4 |
| Other | 1,658 | 1,587 | – 4.3 |
| Total | 9,271 | 9,410 | 1.5 |
| thousands | 2006 | 2007 | +/– % | |
|---|---|---|---|---|
| Air freight | Tonnage | 4,110 | 4,409 | 7.3 |
| Ocean freight | TEUs1) | 2,400 | 2,764 | 15.2 |
1) Twenty-foot equivalent units.
Ocean freight volumes grew by 15.2% in 2007. Here also, we greatly outperformed the market, which grew only by around 10%. Our revenue growth came to 13.4%. Latin America registered substantial volume and revenue increases and our business in the Middle East, in Africa and in Europe also performed well. Moreover, growth in industrial projects was particularly strong.
Revenue generated by DHL Exel Supply Chain rose by 9.2% to €13,099 million yearon-year, driven by the ten-year deal with the NHS in the UK as well as higher operational revenue in all regions. In the year under review, we generated new business of around €1 billion in annualised revenue.
In 2007, DHL Freight reported revenue of €3,646 million (previous year: €3,712 million). Th e business shows growth well above market with a particularly strong performance in Central Eastern Europe, Benelux and Germany. Adjusted for inorganic eff ects, we grew by 6.2% as inter-company relations were not reported in 2006.
Profi t from operating activities (EBIT) was €957 million in the reporting period (previous year: €751 million). Th e 27.4% increase was infl uenced by the sale of Vfw AG in the fi rst quarter as well as real estate disposals in the last quarter. Allowing for these eff ects and negative currency eff ects, our performance here was very positive. Return on sales rose from 3.1% to 3.7%.
Th e integration of Exel and DHL was successfully completed by the end of the year 2007, delivering synergies in line with expectations.
1) A different definition of gross profit applies to DHL Exel Supply Chain.
• Payment transaction processing
Postbank's highly diverse sales channels make it easily accessible to customers at all times – at its branches, through its mobile sales force, online or by telephone. It has the most extensive branch network of any bank in Germany, with its own 855 branches off ering Postbank products along with expert advice on fi nancial services. Th ese branches are complemented by several thousand Deutsche Post outlets where selected Postbank services are available. Over 4,200 independent agents within Postbank Finanzberatung AG make up the Postbank mobile sales force and specialise in private mortgage lending, asset accumulation and retirement pension products.
Postbank's wide range of standardised banking products is designed to meet the typical needs of private and business customers. Along with traditional savings and current account off erings, these primarily include private mortgage lending and home savings products but personal loans, securities and pension and insurance products are also gaining in importance. At the same time, Postbank is Germany's largest issuer of credit and debit cards. It holds a leading position in German online and telephone banking. Postbank online customers now have 2.8 million current accounts and 590,000 brokerage accounts. Some 3.7 million customers use telephone banking.
Postbank plans in future to restrict its activities as a "banking service producer" to areas where it can achieve economies of scale and has restructured its insurance business accordingly. Th e insurance subsidiaries have been sold to the Talanx Group, with which Postbank has entered into a long-term marketing alliance in life and accident insurance. Th e company has also further boosted its sales capabilities, for example by co-operating with Tchibo and HUK-COBURG. Both companies off er their customers basic Postbank products such as current and savings accounts.
Th e German retail banking market remains fi ercely competitive. Postbank has successfully held its own here as Germany's largest single retail bank. In terms of customer numbers, it's market share increased to a pleasing 9.5% (previous year: 8.8%). In the savings segment, where the total volume of deposits came to €43.9 billion, Bundesbank statistics show an increase in Postbank's market share from 7.4% to 8.1% at the end of 2007. Th e market share of the €16.6 billion in home saving deposits remained stable at 13.6%. Postbank comfortably achieved its target of attracting a million new customers; its market share in business with new customers came to 12% (previous year: 13%). In new current account business, Postbank had a record year despite fi erce competition, with 587,000 consumer accounts opened between January and December (previous year: 469,000).
Postbank further improved its volumes in the private mortgage business from €62.3 billion to €68.0 billion. Due primarily to the VAT increase and the abolition of the home owner's allowance, the operating environment for the private mortgage lending business was marked by a strong decline in demand. Despite low demand and strong competition, Postbank, at 8.6%, almost reached its goal of a more than 10% increase in the volume of self-brokered private mortgage loans.
Th e Corporate Banking business primarily involves products related to payment transactions and commercial real estate fi nance. Alongside an investment credit product which it had already successfully launched, Postbank now also arranges development loans from major public-sector development agencies. It has extensive expertise in commercial real estate fi nance, which it also employs in foreign markets. Th anks to a highly selective lending policy, Postbank has a favourable risk profi le.
In addition to handling its own transactions, Postbank provides payment transaction services for other banks including Deutsche Bank, Dresdner Bank and, starting in 2007, HypoVereinsbank. Postbank is leveraging its traditional strength in transaction banking to join forces with BHW in building an effi cient platform for processing building loans.
Postbank invests its liquid funds in fi nancial markets. Its Financial Markets unit is acknowledged as an effi cient service provider in managing interest rate, currency and share price risk.
Postbank plans to provide its approximately 14.5 million customers with even better service and innovative products while further improving processes and achieving cost leadership. In sales, it will focus more intensively on its 4.6 million-strong base of private customers who do most of their banking through Postbank. It aims to increase this customer base to 5.2 million by 2010. At the same time, Postbank aims to maximise potential in its existing customer base by cross-selling and, ultimately, to gain market share in all important product areas through above-average growth with both new and existing customers. All sales channels will be expanded, with the priority on the two most important: mobile sales as well as sales through branches and retail outlets. Progress on this front will be communicated on a regular basis.
Postbank currently serves some 30,000 corporate customers, primarily with a wide range of payment transaction services. In addition, it has its sights on up to 3,000 customers for whom it aims to become one of their fi ve preferred banks. Postbank also plans to raise its profi le as a specialist for fi nance management, expanding its loan portfolio with small to medium-sized businesses from €2.8 billion in 2006 to €5 billion in future. It will simultaneously embark on targeted, risk-controlled expansion in the profi table commercial real estate fi nance segment, with the main focus on Europe. Income from corporate banking is targeted to rise from €382 million today to €500 million in 2010.
"Postbank aims to continue expanding in all its business units, based on its unique platform in the market. In particular, we intend to maximise the great potential in our customer base with innovative products and a clear sales strategy. The greatest challenge continues to be competition for private customers."
Dr Wolfgang Klein, FINANCIAL SERVICES
Postbank aims to expand the European activities of its Transaction Banking Business Unit. Th is requires capital spending that will be shared with strategic partners. Postbank will also extend its capabilities in loan processing by employing, amongst other resources, a multi-client platform for handling building loans.
Th e Financial Markets Business Unit – Postbank's innovation driver – will focus in future on developing products for private and corporate customers.
During the year under review, the division generated revenue of €10,426 million, which exceeded the previous year's fi gure of €9,593 million by 8.7%. In the banking business, income from interest, fees and commissions and net trading income are equivalent to an industrial company's revenue.
Th e division also increased its profi t from operating activities (EBIT) again. At €1,076 million, it surpassed the previous year's total of €1,004 million by 7.2%. Th is contained the net eff ect from the disposal of Postbank's insurance companies, aft er allowing for transaction costs, for provisioning in the investment portfolio, impairment losses in connection with the sub-prime crisis, extraordinary eff ects in administrative expenses as well as non-recurring eff ects in net interest income, which, on balance, reduced EBIT by €25 million.
Postbank raised its balance sheet-related revenues and net fee and commission income by 3.3% year-on-year, from €4,117 million to €4,253 million. Th e balance sheet-related revenues – net interest income, net trading income and net income from investment securities – increased by 4.2%, from €2,710 million to €2,824 million. Despite an inhospitable interest rate climate, net interest income rose by 4.0% year-on-year to €2,240 million. At €294 million, net income from investment securities was 0.7% up on the previous year. Net trading income climbed by 9.8% to €290 million.
Net fee and commission income also increased, rising by 1.6% to €1,429 million. Th e portion of total income attributable to net fee and commission income fell slightly, from 34.2% to 33.6%.
At 0.3%, the allowance for losses on loans and advances rose less sharply than the volume of customer loans. Administrative expenses edged up by 1.6% to €2,856 million.
Net other operating income and expenses amounted to €–55 million (previous year: €–27 million). Postbank's return on equity (ROE) before taxes improved from 18.9% to 19.3%. Th e cost/income ratio also developed favourably, falling from 66.7% to 64.8% in the traditional banking business. Including transaction banking, which is dominated by industrial processing, it came to 67.2% (previous year: 68.3%). As at 31 December 2007 the tier 1 ratio, calculated in accordance with the Solvabilitätsverordnung (German solvency regulation) but excluding the initial restrictions pursuant to Section 339 of the solvency regulation, came to 6.9% at 31 December 2007 compared with the previous year (6.6% according to own calculations).
Deutsche Postbank AG provides details of its business development in 2007 in its own annual report, published on 5 March 2008.
Our SERVICES Division bundles Group-wide internal services, with the aim of enhancing service quality and cutting costs. It includes Global Business Services, the retail outlets of Deutsche Post AG and the Corporate Centre containing the Group's central functions. It also includes the non-operating income and expenses of Deutsche Post AG. We report the services performed by internal service providers as internal revenue.
Global Business Services provide services for all divisions, with some 13,000 employees supporting the Group in the areas of Legal Services, Insurance, Procurement, Finance Operations, Information Technology, Real Estate, Fleet Management, Inhouse Consulting, Human Resources Operations and Innovation Management.
We successfully generated value in 2007. Our Procurement unit attained a top score in an external comparative study, and another comparative study testifi ed to the high level of eff ectiveness and exemplary cost structure in Legal Services. Human Resources Operations is set to provide payroll accounting for employees in the various regions along with centralised human resources management and made a start in 2007 with Germany, Asia and the United States.
We signifi cantly cut costs and enhanced quality in many areas, with both kinds of improvement benefi ting the entire Group. Procurement achieved major savings for the third year running, whilst a decrease of more than €50 million in insurance costs was secured by taking policies that were previously held externally and combining them in-house. Substantial real estate costs savings were made by reducing vacancy rates. All service units are highly cost-aware in their work and take care when purchasing services on a large scale to ensure that costs rise in less than direct proportion to procurement volume. A customer-supplier relationship has become established between Global Business Services and its internal business partners. Service quality, scope and price are set a year at a time in service level agreements. Th is assures planning confi dence and transparency for both sides.
In the 2007 fi nancial year, revenue increased by 7.1% to €2,357 million (previous year: €2,201 million). Th e loss from operating activities (EBIT) totalled €660 million (previous year: €229 million). Th e change is chiefl y attributable to the income of €276 million generated by calling the exchangeable bond on Postbank shares in the third quarter of 2006. It further stems from net non-recurring income of €99 million in the fi rst quarter of 2006 arising from the favourable outcome of arbitration proceedings involving Deutsche Telekom (€89 million) and the disposal of McPaper AG, Berlin (€10 million).
Page 78
As of 31 December 2007, the Group employed 475,100 people (full-time equivalents). Although the total number of employees rose year-on-year, the number of civil servants dropped further to 61,172. Th e staff costs fell slightly by 0.8% year-on-year, from €18,616 million to €18,471 million.
In the MAIL Division, the number of employees fell by 0.9% to 146,208 but this masked confl icting trends. In the international mail business, the acquisition of Th e Stationery Offi ce brought some 500 employees into the Group. At the same time, more than 1,000 new jobs were created. In contrast, the number of full-time equivalent employees in Germany contracted by almost 2,800, principally because we further improved workfl ows, extended the weekly working hours of the mail carriers – by common consent – and outsourced parcel delivery districts.
Measured against the previous year, the number of people employed in the EXPRESS Division rose by 5.7% to 112,727. Th e increase is attributable to the acquisition of ASTAR Air Cargo, expansion of Leipzig/Halle airport into a European hub, workforce adjustments as well as companies being fully consolidated for the fi rst time. In LOGISTICS, notably operational growth pushed up the number of full-time equivalent employees by 4.5% to 170,130. In addition, over 4,000 employees in Europe were statistically recorded for the fi rst time.
| 2006 | 2007 | +/−% | |
|---|---|---|---|
| At year-end | |||
| Headcount1) | 520,112 | 536,350 | 3.1 |
| Full-time equivalents2) | 463,350 | 475,100 | 2.5 |
| By division | |||
| 147,4864) | 146,208 | − 0.9 | |
| EXPRESS | 106,6354) | 112,727 | 5.7 |
| LOGISTICS | 162,787 4) | 170,130 | 4.5 |
| FINANCIAL SERVICES3) | 22,7694) | 22,346 | −1.9 |
| SERVICES | 23,6734) | 23,689 | 0.1 |
| By region | |||
| Germany | 195,577 | 191,732 | −2.0 |
| Europe (excluding Germany) | 130,522 | 133,137 | 2.0 |
| North, Central and South America | 81,175 | 87,185 | 7.4 |
| Asia Pacifi c | 46,948 | 51,852 | 10.4 |
| Other | 9,128 | 11,194 | 22.6 |
| Average for the year | |||
| Headcount | 507,641 | 524,803 | 3.4 |
| Hourly workers and salaried employees | 440,203 | 459,162 | 4.3 |
| Civil servants | 62,560 | 61,172 | −2.2 |
| Trainees | 4,878 | 4,469 | −8.4 |
| Full-time equivalents | 461,222 | 470,123 | 1.9 |
1) Including trainees.
2) Excluding trainees. 3) Of which Postbank 21,895 (2006), 21,474 (2007).
4) Restated.
Note 12
Employees by region as at 31 December 20071)
1) Full-time equivalents.
The FINANCIAL SERVICES Division employed 22,346 people, or 1.9% fewer than in 2006. Staff numbers dropped primarily in the BHW Group and in Postbank branches. In the SERVICES Division, employees were assigned to the service segments at international level. Th is eff ect was off set by staff reductions triggered by the further reorganisation of the retail outlet network, which meant that the division's number of employees remained at the prior-year level.
We employ people in 220 countries and territories across the globe. Th eir regional distribution is illustrated by the adjacent diagram. Germany remains the country with the largest number of employees; however, the workforce there is diminishing. On the other hand, numbers are rising in Europe, America, Asia and the other regions.
Th e second stage of the collective pay agreement of 13 May 2006 was implemented at Deutsche Post AG with eff ect from 1 November 2007. Th e linear wage increase of 2.5% for hourly workers and salaried employees corresponds to a pay rise of 2% compared with the previous year. New collective pay agreements with a term of eighteen months were concluded for some 5,000 people employed by subsidiaries. Th e companies concerned are DHL Vertriebs GmbH & Co. OHG, DHL Verwaltungs GmbH, DHL Express Germany GmbH, DP IT Services GmbH and the DP property companies. Employees' pay scales were raised by 3.3% with eff ect from 1 October 2007 or 1 January 2008. Depending on the applicable legacy arrangements, employees received one-off payments of between €400 and €650 for the period between the agreements' conclusion and their taking eff ect.
At the start of 2007, we transferred the German parcel business from the EXPRESS to the MAIL Division. Around 20,000 employees were transferred to the MAIL branches. Th e transfer took place against the background of a reconciliation of interests and a social plan agreed with the General Works Council.
At 6.3%, the illness rate at the Deutsche Post Group in Germany remains at a low level. Th is performance indicator is computed using a new method whereby part-time staff are converted to full-time employees and weekends, public holidays and holiday leave are deducted. For the third year in succession, we received recognition for our health management activities. In a study published by the business daily Handelsblatt we occupied fi rst place amongst service enterprises. Th e certifi cation of our occupational health and safety organisation's quality management system was renewed.
In 2007, our occupational safety team launched a road safety campaign throughout the Group. Th e response was very impressive. Some 76,000 employees of Deutsche Post AG alone attended courses on safe and considerate driving practices in 2007. In the same period, the number of work-related road accidents involving personal injury fell by over 1,300, a decrease of more than 17%. In view of our desire to instil in the workforce a thorough awareness of safety issues, the successful Global Road Safety Initiative is to continue for at least two more years.
In 2005 Deutsche Post AG agreed in a training pact with the service sector trade union, ver.di, to off er 2,300 traineeships in Germany every year until 2007. We continued to meet our obligations under this agreement in the year under review. Furthermore, the provision requiring us as a general rule to off er employment to 30% of trainees and students in Berufsakademie (German universities of co-operative education) programmes in the period from 2007 to 2009 applied for the fi rst time. We actually off ered posts to most of the suitable candidates upon completion of their training programmes and therefore far exceeded the quota agreed in the training pact.
We have developed a separate programme specifi cally to recruit, foster and retain particularly capable trainees and Berufsakademie students. We undertake to off er permanent employment to the best trainees and students in each year's group who successfully complete the training programme, a clear incentive for improving performance and raising commitment. For several years, we have been running the Youth Job Market Entrance Qualifi cation programme. Th is long-term internship serves as a foundation for formal vocational training and thus improves the prospects of young people with restricted access to the employment market. In 2007, we off ered traineeships for skilled positions in courier, express and mail services to just under 90% of the 280 young people who embarked on the programme in 2006.
We not only respect but encourage diversity in our workforce. Everyone is assessed exclusively according to their skills, performance and conduct. We are developing special programmes to ensure equal opportunities for all. Th e mentoring programme, for example, which develops the skills of those aspiring to management positions, was extended in 2007 to embrace the entire Group. In December, we signed the charter of diversity, once again underscoring the fact that we foster a climate of acceptance and trust.
We continued to translate our seven corporate values into action in 2007. In numerous workshops, our employees developed measures relating to everyday work experiences. Alongside the binding terms of reference introduced by the Code of Conduct in summer 2006, we launched an internet-based information tool in spring 2007.
Strategy and goals, page 32
At the start of 2008, we launched an internal training platform on the internet at www.mylearningworld.net. It currently off ers around 200 courses and seminars on a variety of subjects. Th e curriculum refl ects the skills promoted by our human resources development system and thus facilitates focused personal development.
Our House of Finance programme is targeted at all employees in fi nance wishing to expand their knowledge in this area. Th e Group was awarded the Initiativpreis Aus- und Weiterbildung, a training and continuing professional development prize, for this programme in 2007.
An employee survey was conducted in most divisions again in 2007. Responding to questions concerning customer orientation, commitment and active leadership, the workforce pointed to existing strengths and potential for improvements. Th e results are to form part of our continuous improvement process. Th e next Group-wide employee survey is scheduled to take place in 2008.
In the reporting period, Deutsche Post employees submitted 202,000 suggestions for making workfl ows more effi cient, reducing repair and energy costs, and improving environmental protection. Th e benefi t to the company totalled €257 million. According to a study of idea management produced by the magazine Wirtschaft swoche, we remain the leading non-manufacturing company in this area.
In recent years, career portals on the internet have become one of the foremost recruiting instruments. Our website is well structured, clearly laid out and varied. In the Top Employer Web Benchmark 2007 ranking published by Potentialpark Communication, the Swedish market research institute, it once again reached the number one spot in both Germany and Europe. Each year, we advertise more than 19,000 jobs online and our database already encompasses over half a million candidates.
In the interests of sustainable human resources planning, we monitor demographic developments. It was in this context that we devised a simulation model in co operation with the Forschungsinstitut zur Zukunft der Arbeit (Institute for the Study of Labour) which is currently being tested in a number of diff erent countries. Using the so-called demographic risk monitor, potential risks can be identifi ed at an early stage and pointers to possible courses of action gained. Following analysis of the test results, this control instrument will be made available to the divisions to help them in their planning.
Following the introduction four years ago of our uniform Group-wide performance management system, motiv8, we have now created the post of internal talent broker, whose job is to use the results of the annual evaluation process to fi ll even more management vacancies from within our own ranks.
Four events took place under the auspices of the International Business Leadership Programme in 2007. Some 100 managers from twenty countries took the opportunity to meet and talk to the Group's Board members and executives, as well as representatives of other companies. Th e participants honed their leadership skills through active learning orientated towards the requirements of the everyday working environment. Th e outcomes of case studies have helped to shape corporate strategy, amongst other things through ideas on improving co-operation between divisions.
In 2007, we introduced a procedure throughout the Group for generating personal performance feedback not only from supervisors but also anonymously from peers and subordinates. Entitled "360-degree feedback" and intended to promote both personal development and self-refl ection, this option is available to all managers. In the same context, we also off er team development courses and individual coaching sessions.
We continue to conduct ourselves responsibly towards the environment, other people and society, guided by seven corporate values that refl ect our company's mission.
In order to establish binding terms of reference, we introduced a Code of Conduct in 2006. It is based on international guiding principles including the Universal Declaration of Human Rights, International Labour Organisation Conventions and the United Nations Global Compact.
Our strategy and key initiatives are published on the internet and in our sustainability report, the next issue of which will be published in mid-2008. dpwn.com/sustainability
Th e eff ectiveness of our action on sustainability is also monitored by external rating agencies. According to Sustainable Asset Management (SAM), our rating improved from 67 in 2006 to 74/100 points in 2007. We were omitted from the latest European Dow Jones sustainability index, the DJSI STOXX, but the FTSE4Good Index confi rmed our company's membership. We also remain in the Advanced Sustainability Performance Index Eurozone maintained by the French rating agency Vigeo and in the KLD Global Climate 100 Index.
Protecting the climate in compliance with the Kyoto Protocol and improving carbon dioxide (CO2) effi ciency were our principal environmental goals in the year under review. We calculate our greenhouse gas emissions with a continuously refi ned CO2 monitoring system based on an international standard (the Greenhouse Gas Protocol published by the World Resources Institute and the World Business Council for Sustainable Development). In 2006, we were able for the fi rst time to record all CO2 emissions directly caused by us. Th ese totalled around 6.1 million tonnes.
Until there are economical large-scale alternatives to fossil fuels, we must seek to organise all logistics processes so effi ciently that the rising demand for goods transport is not accompanied by an equivalent increase in emissions. As the examples below indicate, we are embracing this challenge.
By way of our GOGREEN options, we are currently the only logistics service provider to off er climate-neutral products, which off set the emissions associated with their shipping through climate protection projects. In Germany, the product range encompasses the Pluspäckchen (small packet plus postage) for retail customers, online franking and parcels for mail order customers. In January 2007, we also began off ering climate-neutral express delivery services to business customers in Europe.
Strategy and goals, page 32
We are investing in modern, fuel-effi cient cargo aircraft , such as the Boeing 767-300 ER. Our road fl eet also uses alternative powertrains, including hybrids, and burns renewable fuels, such as vegetable oil. We also consolidate shipments and optimise route planning.
Th e infrastructure of our new central air freight hub for Europe, in Leipzig, will emit about 3,000 fewer tonnes of CO2 each year than conventional systems, thanks to photovoltaic technology and cogeneration.
More than 35% of our employees now work with environmental management systems audited in compliance with ISO 14001. We developed the underlying concept ourselves in a six-stage plan.
Our partnership with the United Nations Development Programme (UNDP) and the United Nations Offi ce for the Co-ordination of Humanitarian Aff airs (OCHA) forms a cornerstone of our socio-political commitment. We have enlarged our disaster relief organisation, which now comprises three well-qualifi ed teams in Singapore, Miami and Dubai. Th ese disaster response teams cover the Asia Pacifi c region, America, the Middle East and Africa – more than 80% of the world's territory most frequently visited by catastrophe – co-ordinating logistics for incoming aid at local airports in order to help avoid supply bottlenecks. In conjunction with the UNDP, we also improved our disaster mitigation provisions in 2007. Airport managers and employees are learning about pre-disaster planning through the GARD (Get Airports Ready for Disasters) programme.
We are supporting the United Nations Children's Fund (UNICEF) in the global struggle against infant mortality by providing logistics services and fi nancial aid, and through our employees' personal engagement. As reported in 2006, we helped UNICEF to distribute about 3.5 million mosquito nets in Kenya as part of Africa's largest vaccination campaign. We thus contributed to reducing the number of children under the age of fi ve dying from malaria from 34,000 in 2005, according to the World Health Organisation, to 16,000 in 2006. Twelve volunteers from Deutsche Post World Net spent two weeks working for UNICEF in Kenya and taking part in local preventive healthcare programmes. In 2008, we are extending the international reach of our co-operation with UNICEF to include Asia and South America.
In the year under review, our social responsibility found further expression in more than 250 regional and local initiatives. We transported and distributed aid, for example, following the extremely cold spell in Peru, and supported orphans in Angola. We also used Fair Trade products as giveaways, and sponsored school and cultural projects in Bonn, the home of our corporate headquarters.
Corporate Procurement purchased goods and services with a total value of about €10.3 billion in the year under review. Spending was higher than in 2006 (€9.5 billion) because of the integration of Williams Lea and other factors. Transport services are generally procured by the individual units, with Procurement providing advice on a project basis.
Procurement is a centralised function. Th e Group employs sixteen product group managers worldwide who work closely together with regional procurement managers. We have optimised Procurement's regional structure with eff ect from 1 December 2007; and the regions now comprise: Germany/Austria/Switzerland, UK/Ireland, Europe/Middle East/Africa, North America, South America and Asia Pacifi c. Product group managers and regional procurement managers report to the head of Corporate Procurement. Th is line reporting structure enables us to pool our needs worldwide while satisfying the service and quality requirements of internal customers.
We seek continuously to improve our performance. Our success in 2007 was corroborated by a study produced by the European Business School, which compared the purchasing departments of 35 other companies with our own. In direct comparison, Deutsche Post Procurement ranked amongst the leaders as regards both procurement cost and economies achieved in relation to procurement volume.
As ever, our success depends on the skills and quality of our employees. For this reason, we extended our Fit4 Procurement programme in the year under review to embrace all the regions; we also conducted numerous subject-specifi c training courses.
Th e principal procurement initiatives during the year attached a high priority to environmental aspects of our business. In Germany, for example, electricity supply agreements were concluded primarily with producers using renewable energy resources. From 2008 onwards, more than 60% of the electricity consumed by our headquarters and branches will come from eco-friendly sources. Th is will enable us to reduce CO2 emissions by more than 200,000 tonnes a year. Furthermore, purchasing in tranches enables us to pare administrative costs and secure price advantages for the next one to two years. Th is procedure allows us to take market pricing trends into account since purchasing is done in tranches throughout the year rather than all at once.
In the United Kingdom, the supply of electricity and gas was put out to tender. In the light of this, our Group subsidiary DHL converted its 104 main facilities to renewable energies. Th e target is to reduce annual CO2 emissions by 98,000 tonnes. In Asia and Europe, we have reduced the size of the air waybill, thus eliminating 200 tonnes of paper and the associated costs every year.
We also apply environmental criteria to the purchase of vehicles. Our focus here is on fuel consumption and emission class in accordance with the EU classifi cation.
We have stepped up our co-operation with our internal business partners. Th e First Choice programme was rolled out throughout Procurement. Th is Group-wide programme, which aims to enhance our customer relationships, has already given rise to several initiatives. It is driving our endeavour to understand and satisfy our partners' requirements more eff ectively.
Procurement regularly reviews key suppliers' service quality with its business partners in order to identify potential weaknesses at an early stage and arrange suitable improvement measures with the suppliers. Th is has enabled us to substantially raise both the quality of services and our internal customers' satisfaction.
We reach our customers in Germany via a nationwide transport and delivery network. At the heart of this network are 82 mail centres processing an average of around seventy million items per working day and 33 parcel centres with a handling volume of around 2.5 million units per working day. Th e extent of automation in our mail business continues to rise; we pushed up the rate from 89% of items in 2006 to more than 90% in the year under review.
We use all available technical and operational options to ensure high-quality and effi cient mail processing. In 2007, we tested new machines in our mail centres. Th ese are now capable of sorting fl at mail (large letters), achieve almost three times the throughput of current machines and off er enhanced functionality.
Regular market research and the focused processing of complaints tell us that our customers expect us to achieve the highest possible quality standards. Th e criterion they apply to evaluate the quality of our services is whether mailed items reach their destinations quickly, reliably and undamaged. To satisfy these requirements, we manage quality according to a system audited by the Technischer Überwachungsverein (TÜV – German technical inspection association) and certifi ed for compliance with ISO every year. We also have our performance evaluated by Quotas, a quality research institute.
In the year under review, we once again achieved the excellent mail transit times posted in 2006. In Germany, over 95% of the letters posted during our daily opening hours or before the fi nal collection are delivered to their recipients the next day.
We also improved our already outstanding parcel transit times: Delivery, or attempted delivery, of 95.5% of all parcels processed at outbound parcel centres to their recipients took place within the stipulated transit time – by either the next working day or the day aft er, depending on the distance.
Our transit times for international letters – as determined in a study by the Universal Postal Union – are signifi cantly better than the standard set by the European Union (EU). As in previous years, our quota for three-day delivery of cross-border items mailed within the EU was 96% against the EU requirement of 85%.
We regard working practices that protect the environment as a further yardstick of quality. In Germany, we employ environmental management systems in both our mail and parcel businesses. Within the framework of our GOGREEN initiative, we off er private and business customers climate-neutral shipping options.
Th e overriding goal of our quality endeavours in the fi eld of express delivery is to satisfy our customers. Our First Choice initiative ensures that we meet the customers' high demand for speed and reliability. We are focusing above all on operating performance and customer contact.
Th e capacity to deliver on time is an important quality indicator. Our central quality measuring programmes allow us to determine the punctuality of deliveries, to analyse delays in individual process stages and to seek ways of accelerating delivery to customers. For this purpose, we have set up global, regional and national teams that work closely together.
Th e Quality Control Centres are at the heart of our global network. Using state-ofthe-art equipment, their employees eff ectively monitor the performance of our intercontinental fl ight network and all other transport processes on a daily basis. Th ey track the course of shipments from collection to delivery in real time and provide customers with advance information. We will introduce further quality control centres in all regions. We are already operating such centres to good eff ect in 26 locations in the Asia Pacifi c region.
Consistently high quality of service is crucial for a global network operator. We therefore regularly monitor the compliance of our workfl ows, for instance, to establish whether the required data are delivered in full and on time.
We constantly strive to improve our services in order to more closely satisfy customers' wishes. By regularly conducting customer surveys, we determine whether we are succeeding in this respect. Amongst the key criteria are the availability of our customer service organisation and the speed with which customers' inquiries are processed.
Sustainability, page 76
Strategy and goals, page 31
In 2007, as in the preceding years, we once again received several awards from international media and our customers, including:
In the logistics business, we seek to dovetail our services with customers' needs. Since our business is built on long-term customer relationships, the extent to which existing agreements are renewed is a key indicator of quality. In 2007, the contract renewal rate was 84% (previous year: 77%).
In 2006, we began regularly and systematically polling our customers on their wishes and satisfaction with our services. Surveys were again conducted in the reporting period, covering customers in all business units and regions. Th e results are used to form part of our continuous improvement process.
In the year under review, we once again received several awards for the quality of our services. Th e principal ones were:
As the leading fi nancial services provider for private customers in Germany, Postbank measures the quality of its services, amongst other things, by the ease of access for its 14.5 million customers.
Postbank has also developed key indicators that are subject to regular internal measurement and evaluation procedures. Th ese include the average duration of customer transactions, the skills of employees who have direct contact with customers and waiting times in the Postbank branches.
Customer loyalty is another quality benchmark. It is measured by the number of regular customers and the average number of products purchased by each one.
At Global Business Services, the priority in the year under review was on further enhancing customer focus in internal services. Th is is closely linked with the First Choice initiative. We surveyed customers and business partners within the Group to fi nd out how satisfi ed they are with our services, and their responses have led to numerous improvements. Marked gains have already been achieved on a number of quality indicators such as response times and IT system availability. We will be repeating the customer satis faction survey yearly from now on.
Our "non-mobile" sales network of more than 13,500 retail outlets is one of the most extensive in Germany. Every day, these outlets welcome two to three million customers who come there to use postal services and, in many cases, to take care of their banking needs. We are also currently testing around 900 new Postpoint format outlets, which are located, as are our partner outlets, in diff erent kinds of shops, to ensure proximity to customers and high accessibility.
We have been co-operating successfully with the retail trade for fifteen years. Currently, more than 8,000 outlets are operated by partners off ering postal services and in most cases banking services in addition to their own main product range. As this sales model benefi ts everyone concerned we plan to expand it: Customers profi t from short distances; partners benefi t from growth in customer numbers and income; and Deutsche Post demonstrates its proximity to the customer whilst improving effi ciency. Th e postal services provided under the Deutsche Post and DHL brands are also available in the 855 fi nance centres of Postbank.
Deutsche Post World Net is active in the market with three brands: Deutsche Post, DHL and Postbank. Each stands for high-quality products and services, and market research studies have confi rmed that each is well established amongst its individual target groups. Th e awareness of Deutsche Post in Germany amongst both private and business customers has been measured at a consistently high 95% or so for many years.
Awareness of the Postbank brand is similarly high. With a score of around 95%, it ranks amongst Germany's most well-known fi nancial institutions.
In addition, the brand awareness of DHL is steadily increasing amongst its target audiences in the international mail, express and logistics segments. It currently stands at some 93%. In addition, we have further successful segment brands, regionally and at the business unit level, including Exel, Williams Lea, Th e Stationery Offi ce and BHW.
Our brands face tough competition from both domestic and international providers. To facilitate our customers' purchasing and investment decisions, we have adopted a clear orientation for each of our brands, in order to communicate clearly what they essentially stand for and the customer benefi ts they embody.
Th e Deutsche Post brand stands for personal proximity, reliable quality and groundbreaking services. Its success is built on industry leadership, a unique infrastructure in Germany and consistently high quality in the mail business.
DHL is a brand acknowledged for personal commitment, proactive solutions and local strengths in the global arena. Its commitment stems from the personal dedication of around 285,000 employees and their customer orientation. We employ our extensive services in a forward-looking manner in order to off er every customer a suitable solution. Our branches in 220 countries and territories make us a genuine global player.
Th e performance pledge of the Postbank brand is: simple, better and more fl exible. Above all, our success is founded on readily understood products, easy access to our services and competent fi nancial advice covering the entire product portfolio on attractive terms.
• FINANCIAL SERVICES
Brands are a vital factor in value creation, as illustrated by the eff orts of numerous market research institutes to determine the special value brands have for the companies they represent. Semion Brand Broker, for example, has analysed Deutsche Post according to the following criteria for its "famous German brands" ranking: fi nancial value, brand protection and image, and brand strength, which is expressed in terms of market share, marketing activities, distribution rate, awareness and coherence of the branding. For 2007, Semion calculated a brand value of €15,711 million for Deutsche Post. It thus ranks in fi ft h position amongst the leading German brands. Th e value of the DHL and Postbank brands has not as yet been assessed.
In the year under review, we invested some €120 million in directly establishing and developing our brands. Activities include advertising and sponsorship measures, as well as direct marketing campaigns, trade fair presentations, market research, internal communications, press relations and sales support.
In keeping with its global presence, the DHL brand attracted around half of the development budget. A quarter was earmarked for each of the German domestic brands, Deutsche Post and Postbank.
As a service provider, Deutsche Post World Net does not engage in research and development activities in the strict sense, and therefore has no signifi cant expenses to report in this connection.
Nonetheless, we are always seeking to harness technical innovation for our services. In Troisdorf near Bonn, for example, we opened the DHL Innovation Center in March 2007. Here, the Group is bringing together the various entities that have been responsible for managing technical innovation thus far. Th e goal and task is to place our practical knowledge at the disposal of our partners in such a way that emerging trends in logistics are translated into innovative, marketable products. Our technical partners in business include IBM, Intel and SAP. Th e Innovation Center comprises a vibrant exhibition area alongside a conference suite.
All business fundamentally involves opportunities and risks. Active control of these opportunities and risks is supported within Deutsche Post World Net by a Groupwide opportunity and risk management process. Th e objective is to strengthen the Group's fi rmly established culture of tackling risks and opportunities proactively in order to secure our business success for the long term. Th e process developed to this end is based on uniform methods and standards for identifying, analysing and communicating the issues concerned.
Tightly integrated into the existing controlling processes are quarterly opportunity and risk identifi cation and reappraisal. Th is analysis covers events and developments both within and outside the Group that might lead to deviations from the planned course of commercial success. In the event of signifi cant changes, ad-hoc announcements may be issued at any time.
Opportunity and risk analysis also involves the investigation of major infl uencing factors, the compiling of action plans and determining indicators for the early detection of critical situations. Th e analysis is performed on a results-orientated basis using scenarios. Opportunities and risks are assigned to managers responsible for taking action as appropriate to exploit the opportunity or control the risk. Th is helps clarify who is responsible, particularly with cross-cutting issues.
We deploy identical soft ware for recording, reporting and documenting risk throughout the Group. Th is replicates the multi-level risk reporting structure and ensures that the managers responsible are involved at various strata of the hierarchy. Th e process is closely integrated with management and control tools, safeguarding regular communication between the controlling function and management. Th e Board of Management is kept informed by central risk control, which is organisationally part of Corporate Controlling.
Note 48.1
Postbank's risk control system complies with the bank-specifi c requirements of the Basel Committee on Banking Supervision (Basel II in line with EU directives) and the Minimum Requirements for Risk Management (MaRisk, laid down by BaFin, Germany's federal fi nancial supervisory authority). Postbank is also integrated into the Group's opportunity and risk control process.
We consider the risks set out in the following to be the signifi cant negative factors currently aff ecting our net assets, fi nancial position and results of operations. However, these are not necessarily the only risks to which the Group is exposed. Risks of which we are currently unaware or which we do not yet consider to be material could also have an adverse eff ect on our business activities.
Our business success substantially depends on the fi nancial health of our customers. Despite turbulence in the fi nancial markets, the world's countries are expected on average to sustain their GDP growth, with particularly strong growth rates in emerging and developing economies. A sustained upturn is also accelerating the process of globalisation, leading to growth in demand for storage and transport. Th is can boost demand for the services of high-performance logistics providers but may also stoke regional and global competition with established and new market players. A cyclical slowdown could reduce customer demand to such an extent as to pose risks for our business activities. However, we do not currently perceive any far-reaching general economic risks facing the Group.
Risks associated with the general business environment primarily arise from the fact that both the Group and its subsidiaries provide some of their services in a regulated market. Our statutory exclusive licence was abolished in Germany on 1 January 2008. However, the Postgesetz (German postal act) has allowed exceptions enabling competitors to operate within the weight and price ceilings laid down in our exclusive licence from January 1998 onwards. As a result, around 55% of the revenue generated by competitors in 2007 was within the weight ceilings stipulated by the exclusive licence. By the end of the year, the regulatory authority (Bundesnetzagentur – Federal Network Agency) had issued licences to around 2,370 competitors.
On 7 November 2007, the regulatory authority announced its benchmark decision specifying the conditions which will apply from 2008 until the end of 2011 to regulations under the price cap procedure for mail prices requiring approval. Th is stipulates the general rate of infl ation and the expected productivity growth rate for Deutsche Post AG as the key factors applicable to mail prices. Prices have to be lowered if the infl ation rate in the reference period is less than the productivity growth rate specifi ed by the regulatory authority. No price cuts are required in 2008, allowing the mail prices requiring approval to remain unchanged. Th e regulatory authority accepted an application from Deutsche Post AG to this eff ect on 20 November 2007.
On 18 October 2006, the European Commission presented its proposal for a third Postal Directive and recommended opening the EU postal markets fully to competition starting in January 2009. Th e European Parliament and Council have begun consultations on the proposal under the EU co-decision procedure. In a fi rst hearing on 11 July 2007, the European Parliament came out in favour of fully opening the EU markets by 1 January 2011 – later than in the Commission proposal – and of granting certain member states a transitional period until 1 January 2013. Th e Council adopted its common position on 8 November, in which it endorsed the European Parliament's proposed date for market opening. Th e European legislative procedure continues.
Whilst liberalisation of postal markets entails risks for Deutsche Post AG due to increased competition in Germany, it also opens up new opportunities in other European mail markets.
In 2007, cross-border mail in Europe between Deutsche Post AG and fi ft een other western European postal operators was governed by the REIMS II agreement and with another nine eastern European postal companies by the REIMS EAST agreement. Th e postal operators are currently negotiating a new agreement called REIMS III, which is to come into force with retroactive eff ect from 1 January 2008 and replace the REIMS II and REIMS EAST agreements.
Discussions continue regarding the extent to which postal services should be exempt from value-added tax (VAT). In correspondence dated 10 April 2006, the European Commission initiated infringement proceedings against the Federal Republic of Germany with regard to the VAT exemption of postal universal services provided by Deutsche Post AG. Germany considers the current VAT exemption to be in compliance with applicable law and responded to the European Commission accordingly. On 24 July 2007, the Commission announced in its decision on the proceedings that the VAT exemption for postal universal services provided by Deutsche Post AG was too far-reaching and called on the German government to amend the applicable law. Independently of these infringement proceedings, the German government
announced that it would review the VAT exemption of Deutsche Post AG against the backdrop of the expiration of the exclusive licence on 31 December 2007. In a fi rst statement on the infringement proceedings, a spokesman for Germany's fi nance ministry stated that the German government considers the current VAT exemption in Germany to be tenable throughout Europe. Th e German cabinet has resolved to retain the VAT exemption for nationwide universal services in the postal sector.
Concurring with Deutsche Post AG, the regulatory authority is of the opinion that the prices it approved are net prices not including VAT. VAT could therefore be added to the approved prices. However, it cannot be ruled out that the application of VAT would lead to a decrease in revenue and earnings.
Deutsche Post World Net continues to focus on meeting the needs of its customers at all times. To do this, we aim to make optimum use of our global platform. In regional expansion of the services network, priority is given to organic growth over business acquisitions.
Starting 1 January 2008, our MAIL Division with its diverse range of mail and parcel services will face heightened competition in the liberalised German mail market. Th is may result in loss of market share, most of all in the business customer segment. Th e spread of digital technology also continues, with conventional mail increasingly being replaced by electronic communication methods. We aim to absorb impending losses of market share in the German mail market as far as possible through consistent customer focus, new products and further internationalisation of our mail business. Th e parcels business in Germany is unaff ected by mail market liberalisation, since it has been exposed to competition for many years.
Th e EXPRESS Division has unifi ed its worldwide management structure. Th e aim here is maximum possible effi ciency in marshalling resources and capital expenditure and to strengthen our position in the regions we serve. As refl ected in the successful launch of our First Choice programme, customer satisfaction is amongst our central strategic goals. In a fi ercely competitive environment, our focus on customer satisfaction and cost effi ciency forms the basis for numerous projects, including the cost-effi cient expansion of our infrastructure. Despite intensive planning, temporary quality lapses may arise in the course of complex infrastructure projects, in rare instances with an adverse eff ect on revenue and earnings.
Th e LOGISTICS Division has integrated logistics provider Exel sooner than planned. Th e division grew to take in the European overland transport business in 2006 and now off ers a full logistics service portfolio. We plan to extend our market lead, to enhance customer focus and to continue our predominantly organic growth. Our growth targets are dependent on growth in the global economy. If there were to be a cyclical slowdown, worldwide or in specifi c regions, our commercial success could suff er as a result.
Earnings in the FINANCIAL SERVICES Division are almost exclusively accounted for by Postbank, which plans to strengthen its position in the German banking market, particularly in the fi ercely contested private customer segment. To counter the heightened competition as well as meet customer and capital market needs, Postbank will continue to improve sales and internal processes.
Th e global expansion of our Group has placed increasing demands on our missioncritical infrastructure. Th is applies to posting and collection, sorting, transport, delivery and information technology. We aim to avoid business interruptions at key locations by continually monitoring critical infrastructure such as sorting and conveyor systems, air hubs and data centres. Th e precautions we take and our emergency and contingency plans are eff ective tools in preventing business interruptions or minimising their eff ects.
Following the complete opening up of the German mail market, our MAIL Division now faces growing competition. We are well prepared for the changed situation. With modern sorting facilities and effi cient processes, we set high quality standards. We are also optimising and rendering more fl exible the costs of our transport and delivery network. Consistent customer focus in conjunction with sales and marketing activities additionally reduce the risk of loss of market share.
Th e EXPRESS Division is exposed to fi erce competition both nationally and internationally. To hold our own in this business, we are optimising our global transport network, amongst other things by building or enlarging air hubs. All processes are subject to regular analysis with the aim of eff ective use of deployed resources. We continuously match up the product portfolio to customer needs. With our First Choice programme, we ensure workforce awareness of the need to view customer satisfaction as a key competitive criterion.
Th is applies equally in the LOGISTICS Division. Loss of customers, particularly major customers, could put the attainment of our earnings and revenue targets at risk. Farsighted management can limit this risk but not eliminate it altogether. With customtailored logistics solutions especially, our commercial success is closely bound to that of our customers. We therefore aim to support our customers with our experience, the quality of our work and a broad service portfolio.
Postbank accepts normal banking risks whilst strictly observing its risk-bearing capacity. Th e relevant risks are continuously measured and monitored, and regularly reported to the management. Th e Basel II capital adequacy requirements in force since 1 January 2007 and the Minimum Requirements for Risk Management (MaRisk) were integrated into Postbank's risk management system at an early stage. Germany's federal fi nancial supervisory authority (BaFin) has permitted Postbank to use its own rating and scoring models to assess risk and ensure capital adequacy for the majority of its transactions. In the course of credit substitute transactions, Postbank has also invested in structured credit products. It has closely monitored the disruption of the capital markets arising from the developments on the US real estate market with regard to potential defaults in its structured credit portfolio. Postbank has systematically analysed its holdings on an ongoing basis and tested them for impairment. Based on a conservative assessment of the portfolio, an impairment loss in the amount of €112 million was recognised in 2007. In the event of an appreciable increase in the turbulence arising from the US real estate market and the crisis spreading to the real economy, further fi nancial impacts cannot be ruled out.
Monitoring environmental regulations is an integral part of the Group-wide risk management process. We do not currently know of any signifi cant environmental risks with a substantial potential fi nancial impact on the Group. However, we are closely following political discussions within the EU that deal with the introduction of an emissions trading system, especially for the air transport sector. As it is impossible to foresee the outcome of the political discussions, we cannot assess the fi nancial impact, were such a system to be introduced.
Th e hard work, expertise and commitment of the workforce are essential to our commercial success. We therefore place high priority on initial and further training, and use motivation-enhancing, performance-based pay structures, with performance assessment that is standardised Group-wide. Th ese are linked to human resources development activities specially tailored for each employee target group. Th e increasing internationalisation of our business and the growing demands on management increase the need for highly qualifi ed young talent. We identify and promote outstanding managerial talent on an ongoing basis, amongst other things in connection with Berufsakademien (German universities of co-operative education) and the Group's own university. International education opportunities and challenging career openings make the Group highly attractive, enabling us to hold our own in the competition for highly qualifi ed specialists and managers as well as to actively counter the risks associated with workforce fl uctuation, demographic developments and loss of expertise.
Liberalisation of the German mail market may pose further personnel risks. If despite all eff orts Deutsche Post AG suff ers substantial losses in market share, jobs may come under threat within the Group.
Information technology is an integral part of our Group's production and service processes. Our business performance therefore depends heavily on the functioning and availability of our applications and infrastructure. Our three globally operating data centres constitute a key success factor. We prevent faults and any downtime by active risk management, and have set up redundant systems and developed detailed emergency plans.
In everyday use, the eff ectiveness of IT security relies largely on the workforce's implementation of our security guidelines. We have therefore taken steps to enhance workforce risk-awareness. Amongst other things, we have set up the Information Security Knowledge Centre, an interactive platform providing key information on IT security.
We block unauthorised data access and data manipulation with various measures involving the workforce, organisational structure, applications, systems and networks. We continuously improve security mechanisms and plans. Th e appointment of a global committee on IT security underscores the priority given to IT security within the Group.
Information on legal risks is provided in the Notes.
Employees, page 75
Note 50
Th e US Department of Transportation (DOT) has not yet completed a US citizenship test for ABX Air Inc. ABX Air Inc. is an independent company that provides transport services for DHL. Th ere is no deadline for the routine citizenship test by the DOT. ABX advises that it expects a positive outcome of this test that will confi rm that it is a US airline pursuant to US laws and DOT regulations. A similar review of ASTAR Air Cargo Inc. was decided positively by the DOT in 2003/2004.
External audits are currently underway at DHL Express (USA) and Airborne Inc. in line with the US unclaimed property laws. Th ese laws state that abandoned assets must either be returned to their rightful owner or transferred to the last known owner's home state or, if this is not known, to the state in which the company is domiciled.
In the course of its expansion, the Group has recognised significant goodwill. According to IAS 36, this goodwill must be subjected to an impairment test at least once a year. If the value of the goodwill is determined to be impaired, an impairment loss must be recognised.
Our insurance strategy separates insurable risks into two groups. Th e fi rst group comprises risks with a high probability of occurrence and low individual cost. Th ese risks are insured via a captive, an insurance company owned by the Group. Th e inhouse company is able to insure such risks at a lower cost than commercial insurers. Th e second group comprises risks that have a low probability of occurrence but could entail high losses, such as air transport risks. Th ese risks are transferred to commercial insurers. Th is global fi nancing and insurance strategy produced cost savings approaching €100 million during the year.
Th e threat of terrorist attacks could also have negative eff ects on our business and particularly on our air-based express operations. Higher insurance premiums cannot be ruled out in such an eventuality.
As a service provider, we do not conduct research and development in the narrower sense. Th ere are therefore no material risks to report in this area.
Signifi cant risks capable of threatening the attainment of our budgeted earnings fi gures are largely associated with the liberalisation of the German mail market. Our risk situation is also aff ected by fi erce competition in our other markets and businesses. Th e volume of the markets we serve primarily depends on the development of the world economy and cyclical trends in individual countries. In the past fi nancial year, there were no identifi able risks for the Group which, individually or collectively, cast signifi cant doubt upon the company's ability to continue as a going concern. Nor are any such risks apparent in the foreseeable future. For a description of the risk position of Deutsche Postbank AG, please refer also to the Postbank Group's risk report.
Deutsche Post World Net and Hewlett-Packard signed a letter of intent on 24 January 2008 to transfer responsibility for parts of our Group's global IT operations to HP Services. Under the terms of the agreement, we expect to save at least €1 billion over the next seven years by driving down overall IT costs and better leveraging IT resources needed to run the business and serve customers. Th e companies expect to reach a defi nitive agreement by mid 2008.
Dr Klaus Zumwinkel informed the Executive Committee of the Supervisory Board on 15 February 2008 of his decision to resign from his offi ces as chairman of the Board of Management of Deutsche Post AG and chairman of the Supervisory Board of Deutsche Postbank AG at the next meeting of the Supervisory Board.
Economic uncertainty is unusually high. Turbulent financial markets, a weak US dollar and high oil prices have the potential to noticeably hamper global expansion. Leading economic institutions and organisations forecast for 2008 that global GDP will advance more slowly and global trade grow a little faster than in the previous year.
| 2007 | 2008 | |
|---|---|---|
| Global trade volume1) | 6.3 | 6.9 2) |
| Real gross domestic product | ||
| Global | 4.9 | 4.1 |
| Industrial nations | 2.6 | 1.8 |
| Emerging markets | 7.8 | 6.9 |
| Central and Eastern Europe | 5.5 | 4.6 |
| Former CIS states | 8.2 | 7.0 |
| Asia | 9.6 | 8.6 |
| Middle East | 6.0 | 5.9 |
| Latin America/Caribbean | 5.4 | 4.3 |
| Africa | 6.0 | 7.0 |
1) Only goods (goods and services: 6.6% (2007), 6.7% (2008)).
2) IMF: 6.9%, OECD: 8.1%.
Source: International Monetary Fund, "World Economic Outlook", October 2007; International Monetary Fund, "World Economic Outlook Update", January 2008
Th e US economy will continue to suff er from the decline in residential property investment. Although foreign trade is again expected to exert a positive infl uence, growth will probably be as moderate as it was in 2007, around 2.2%.
Buoyed by both external trade and domestic demand, the Japanese economy is likely to expand further. Growth of between 1.6% and 1.8% appears feasible. China also remains on course for additional growth. A GDP advance of around 10% is anticipated for 2008.
Th e euro zone will maintain its upswing but at a slower pace. Its economy will continue to be driven by domestic demand, however foreign trade will restrain growth in the euro zone slightly, especially because of the strong euro. At 2.0%, expansion in the euro zone will be slower than in 2007 overall (IMF: 1.6%, OECD: 1.9%, Postbank Research: 2.0%).
Th e German economy is likely to remain programmed for growth but lose some of its vigour. Th anks to a fall in unemployment, higher collective pay agreements and therefore elevated income, an appreciable invigoration of private consumption is anticipated. With GDP advancing by some 2%, the upswing in Germany is expected to be sustained (OECD: 1.8%, German Council of Economic Experts: 1.9%, Postbank Research: 2.1%).
It is anticipated that the situation in the oil market will ease slightly as 2008 unfolds.
In January 2008, the US Federal Reserve cut its key interest rate by an additional 1.25 percentage points to 3.0% because of the economic risks that exist in the USA but further decreases are to be expected only if the economy enters a recession.
Given the persistent uncertainty of the economic climate, the ECB is likely to hold its key interest rate for the time being.
Th e demand for mail in Germany depends primarily on the economic climate and the extent to which electronic media such as fax, e-mail, text messaging and the internet take the place of the conventional letter. We expect the domestic market for mail communication to continue shrinking in the coming years. Full liberalisation of the market will also serve to reduce our share but we have prepared ourselves for the forthcoming changes.
Further moderate growth and a sustained trend towards targeted advertising are anticipated in the German advertising market. Although the market for paper-based advertising was opened up at the beginning of 2008, we intend to consolidate our position in this segment and to build on it in the advertising market as a whole. Th e press services market is likely to contract somewhat because of the increasing use of new media. We are seeking to maintain our revenue position here also by drawing on the growing signifi cance of subscriptions.
In the cross-border mail business, substitution by electronic media is being mitigated by a rise in direct marketing. We therefore expect the market as a whole to remain stable. We intend to hone our leading international position as a provider of corporate information solutions – a market we expect to grow steadily because more and more major companies are outsourcing the activities which are not part of their core businesses. In the light of this, we will continue to develop customised solutions.
Th e parcel market is growing at the same rate as e-commerce and we are eager to benefi t from this trend. We will also be leveraging synergies arising from integration of the parcel business in Germany by standardising IT platforms, optimising transport as well as combining further mail and parcel delivery districts outside cities. We are already delivering mail and parcels together in more than 30,000 districts. Despite growing competition, we intend to defend our share of the private customer market. Strong growth in demand is anticipated for the services we provide to business customers, principally as a result of the expanding e-commerce segment. We aim to profi t from this development with a modifi ed product portfolio.
Th e global express market remains on track for growth, with continuing increases in transported quantities and average weights. Double-digit growth rates are expected to persist in Asia and the emerging markets. Th e international CEP market in Europe is also likely to expand, at an average annual rate of 5% to 7%. In the United States, we expect ground-based shipments to increase at the expense of air-based shipments.
At Leipzig/Halle airport, the new European hub will become fully operational in 2008. Th is is also where we are establishing the new joint venture with Luft hansa Cargo, which is to assume control of the fl ight connections between Europe, the Middle East and Asia in spring 2009. By way of our partnership with Polar Air Cargo, we will be able to off er our customers additional fl ights on the trans-Pacifi c routes.
In Asia, plans for the new north Asia hub in Shanghai are entering the next phase. Completion is scheduled for 2010. Elsewhere, the construction project in Incheon, South Korea, will increase our capacities in the short term as well as further improve the region's links with the international trade lanes to Europe and the USA. In North America, we are planning to develop our air and ground-based shipments between the United States, Canada and Mexico and thus enhance the networking of our infrastructure in the NAFTA region.
We will complete the restructuring of our time-defi nite products in the regional markets and increase supply to meet demand. Off ering day-defi nite shipments in the intercontinental arena also forms part of our plans, with a view to satisfying the growing demand for cost-eff ective products and services. As regards sales activities, we intend to focus our organisation and programmes more sharply on the global trade lanes.
We intend to concentrate on the following three areas in the year ahead.
Th e economies of the emerging countries, in particular Brazil, India, China and Eastern Europe, will expand further in 2008. We are engaged in establishing new logistics centres to serve our customers operating in these markets.
We aim to continue raising the portion of revenues accounted for by our largest customers – although the enhanced service we are off ering will not in any way diminish our commitment to the small and medium-sized enterprises, which constitute our most important customer groups for the global forwarding and freight business.
In 2008, we will be extending our off ering in the areas of international supply chains, e-fulfi lment, service parts logistics and life science industry solutions, where we see real opportunities for growth. We will also be improving our standard services, including warehousing. For example, we are looking for further ways to create added value, such as by introducing campus solutions. Th ese are sites whose resources, typically staff and means of transport, are shared by several distribution centres.
In our capital markets programme Roadmap to Value we committed ourselves to improving the transparency of our fi nancial reporting for all capital markets audiences. We will therefore adjust our reporting structure and unbundle our SERVICES Division with eff ect from 1 January 2008. All costs of Global Business Services will be allocated to the operating divisions. Th e result will be a clean Corporate Centre/ Other segment, on which we will report starting in the fi rst quarter of 2008.
Strategy and goals, page 30
Th e following expected results for the divisions are based on the reporting structure for fi nancial year 2007. Aft er unbundling the SERVICES segment we will adjust this outlook for the divisions where appropriate.
For 2008, the Board of Management expects a profi t from operating activities (EBIT) of around €4.2 billion. We expect the MAIL Division to generate EBIT of around €1.9 billion. Th e EXPRESS Division will probably reach EBIT of around €0.65 billion, whilst EBIT at the LOGISTICS Division is likely to amount to around €1.05 billion. For the FINANCIAL SERVICES Division, the Board forecasts EBIT of at least €1.15 billion and for the SERVICES segment it expects a loss of no more than €0.6 billion.
Overall, the Group is aiming for EBIT of about €4.7 billion in 2009. For the mail business, there is a high degree of confi dence that a maximum of between 10% and 20% of EBIT will be aff ected by the full opening of the German mail market, compared with the 2006 level. Th us the company expects the MAIL Division to reach EBIT of between €1.65 billion and €1.85 billion for 2009. For the EXPRESS Division, Deutsche Post forecasts EBIT of between €0.9 billion and €1.1 billion. For the LOGISTICS Division, EBIT of between €1.15 billion and €1.25 billion is forecast, whilst the FINANCIAL SERVICES Division expects EBIT of at least €1.2 billion.
Please refer to Deutsche Postbank AG's annual report for details of Postbank's business development expectations.
| Profi t forecast1), 2008 and 2009 | ||||||
|---|---|---|---|---|---|---|
| €bn | 2008 | 2009 | ||||
| approx. 1.90 | 1.65 to 1.85 | |||||
| EXPRESS | approx. 0.65 | 0.90 to 1.10 | ||||
| LOGISTICS | approx. 1.05 | 1.15 to 1.25 | ||||
| FINANCIAL SERVICES | min. 1.15 | min. 1.20 | ||||
| SERVICES | max. –0.6 | –0.4 to –0.5 |
1) EBIT guidance excluding non-recurring effects and before effects due to unbundling the SERVICES segment.
In the following years, the Group intends to increase dividends broadly in line with underlying earnings growth. In addition to that the Group will consider other methods of cash return, such as share buybacks once proceeds from asset disposals reach €1 billion.
Group approx. 4.2 approx. 4.7
At the start of 2008, we launched a commercial paper programme with a maximum volume of €1 billion. Th is complements our portfolio of short-term fi nancing tools and enables us to issue notes in various currencies at short notice with maturities of generally less than ninety days. Th e lasting fundamental need for fi nancial resources will, however, continue to be met by long-term fi nancing tools, as short-term note issues under the commercial paper programme only meet the fi nancing requirements otherwise covered by short-term bank loans.
Th e 2008 budget earmarks expenditure in a slightly larger amount than in 2007. Property, plant and equipment will again attract the larger portion of spending, with more than three-quarters being allocated to the MAIL, EXPRESS and LOGISTICS divisions.
In the domestic mail and parcel business, we intend to improve production, amongst other things by testing machinery that sorts standard and compact letters. In Corporate Information Solutions we will focus on customer projects and the replacement of printers and enveloping machines. We also intend to improve the technical equipment of the international mail business. In the outlets, electronic POS hardware is to be renewed and the agency network expanded.
In the EXPRESS Division, we will complete the European hub in Leipzig/Halle, develop our infrastructure and renew the vehicle fl eet in several countries. In the United States, IT applications are to be developed and operating facilities modernised. Infrastructure projects are also envisaged in other regions – hubs in particular in the Asia Pacifi c region and primarily vehicles in the EEMEA region.
In the LOGISTICS Division, we will continue to invest chiefl y in customised transport services, appropriate warehousing solutions and the associated information systems. In view of the targeted business development, we expect capital expenditure to rise overall in the medium term.
Postbank will be primarily investing in the implementation of statutory requirements, including the fl at-rate withholding tax on investment income, Basel II and the liquidity management project. Th e purpose of this project is to appropriately control liquidity risks in compliance with the practices of the Basel Committee on Banking Supervision. Further improvements to branches will also be made.
Company-wide capex will concentrate on vehicle procurement on a scale similar to the previous year.
In future, all standard contracts will contain a Code of Conduct for suppliers. We shall thus ensure that all companies working with us comply with our ethical and environmental principles.
As a pure service provider, Deutsche Post World Net does not perform any notable research and development activities. Th is section therefore does not contain any dis closures.
Globalisation and outsourcing remain key growth drivers for our company, which will benefi t from these trends as a logistics provider with extensive reach and outstanding expertise in complex global supply chains. If the economic upswing continues, we will be able to stabilise and expand our business and increase revenue.
Although mail market liberalisation is progressing in the various European countries at diff erent speeds, we have an opportunity to gradually expand our presence in selected markets across Europe. Th ere are further opportunities for us in the North American and Asian mail markets.
On 8 November 2007, we presented our new Roadmap to Value capital markets programme, which we view as a further pillar of our future business success.
Our broad range and large geographical reach already make us the logistics provider of choice for discerning and in many cases globally operating customers. Our goal is to become the world's preferred logistics service provider. Th rough our First Choice programme, we aim to enhance customer loyalty and also attract new customers.
In the MAIL Division, we have signifi cantly enhanced our competitive focus and brought our portfolio clearly into line with customer needs in recent years. We are thus well prepared for full liberalisation of the German mail market. We aim to hold our market position as far as possible. As a full-service provider in international mail logistics, we are simultaneously pursuing profi table expansion in open markets.
Th e EXPRESS Division relies on strong regional units linked by a global network. We are optimising this network on an ongoing basis to secure our competitive position and hence our future success. Current major projects include the relocation of our central European air hub from Brussels to Leipzig/Halle and the construction of a new air hub in Shanghai to serve the northern Asian region. Our presence in countries with high rates of growth presents a further opportunity for future success.
Th e LOGISTICS Division is excellently positioned now that the integration of Exel has been successfully completed. Th rough close co-operation between our business units, we off er customers a comprehensive portfolio in air, ocean and road transport as well as in contract logistics from a single source. We are further extending our international market position by expanding in rapidly growing logistics markets such as China, India, Mexico and Brazil.
Postbank, whose core business includes retail banking, anticipates rising demand for asset accumulation and protection, mortgage and consumer loan products. It plans to use this trend to further expand its business and increase earnings per customer on a long-term basis.
In our Global Customer Solutions unit, we are intensifying co-operation within the Group for major customers in order to meet changing market conditions and customer needs. We see this as an opportunity to deploy our global expertise as a sustained competitive advantage and to translate it into commercial success.
Opportunities are also presented by the Global Business Services unit. We will increase effi ciency through continuous improvement of organisational structures and processes in internal services such as procurement, property management and IT.
This Annual Report contains forward-looking statements that relate to the business, fi nancial performance and results of operations of Deutsche Post AG. Forward-looking statements are not historical facts, and may be identifi ed by words such as "believes", "expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. As these statements are based on current plans, estimates and projections, they are subject to risks and uncertainties that could cause actual results to be materially different from the future development, performance or results expressly or implicitly assumed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this presentation. Deutsche Post AG does not intend or assume any obligation to update these forward-looking statements to refl ect events or circumstances after the date of this Annual Report.
Dr Jürgen Weber, Chairman
In fi nancial year 2007, Deutsche Post World Net consolidated its position as the world's leading logistics group and remains well-placed to tackle whatever challenges the future may bring. As a market leader in virtually all its business units, the Group is now focused on consolidation, organic growth and ensuring that shareholders participate in our added value.
We are confi dent that the Roadmap to Value programme launched in November 2007 will bring about a lasting improvement in our going concern value. Th rough organic growth, we aim to improve earnings power, focus on generating cash and give shareholders a larger stake in this positive development. We are keen to ensure that investors and analysts receive all the data needed to allow them to make an informed assessment of the Group's performance. In addition, the First Choice programme rolled out Group-wide in early 2007 is designed to enhance customer satisfaction, further improve the performance of each and every one of our 530,000 employees and promote profi table growth.
Supervisory Board continually advises and oversees the Board of Management In fi nancial year 2007, the Supervisory Board devoted close attention to the Group's strategic focus and business development in all areas. Key topics under debate in 2007 included the Roadmap to Value programme, the business development of the EXPRESS Division in the USA, the impact of the credit crisis, changes in the German mail market due to its complete liberalisation, the modifi ed price regulation system, the exemption from value-added tax for providers of a universal service and the minimum wage.
All major decisions aff ecting the company were discussed in detail with the Board of Management, which informed us in a timely and comprehensive manner on all key issues relating to planning and business development. We received regular reports on the risk situation and risk management, major business transactions and projects in the individual divisions, as well as on strategic measures and the company's future direction. In particular, all measures requiring the consent of the Supervisory Board were discussed in depth. Th e members of the Board of Management presented their reports on the basis of the related rules of procedure agreed with the Board of Management. Th e Board of Management kept the chairman of the Supervisory Board continuously updated on all key transactions and major impending decisions, also between Supervisory Board meetings. We prepared our approval for business measures in the relevant committees. Th e chairs of the committees reported regularly on the committees' work at Supervisory Board meetings.
Two Supervisory Board meetings were held in the fi rst half of the year and three in the second half. No member of the Supervisory Board was absent from more than half of the meetings. At all of its meetings, the Supervisory Board concerned itself with issues of corporate strategy, the business performance of the divisions and risk management.
At the fi nancial statements meeting on 13 March 2007, the Supervisory Board discussed and approved the annual and consolidated fi nancial statements for 2006, following in-depth discussions with the auditors by the Finance and Audit Committee and the chairman of the Supervisory Board. We also approved the joint report by the Board of Management and Supervisory Board on corporate governance, as well as the agenda and proposed resolutions for the 2007 Annual General Meeting (AGM). In addition and as in recent years, all Supervisory Board members completed a revised questionnaire that formed the basis of the recommended effi ciency review of the Supervisory Board's work. Th e meeting also addressed the retirement from offi ce of Prof. Dr Wulf von Schimmelmann and the appointment of Dr Wolfgang Klein to the Board of Management of Deutsche Post AG, as well as the effi ciency review of our activities and the remuneration system for the Board of Management. At the same meeting, we also approved two investments attributable to DHL Express.
At the meeting on 8 May 2007, which immediately preceded the AGM, Andrea Kocsis was elected - subject to her appointment by court order, which followed on 29 May deputy chair of the Supervisory Board, deputy chair of the Executive Committee and chair of the Personnel Committee. Rolf Büttner gave up his seat on the Supervisory Board and all associated duties with eff ect from the end of the AGM. Following the resignation of Dr Hans-Dieter Petram from his seat on the Board of Management, the duties of the individual Board members were re-allocated accordingly as at 1 July 2007, and Jürgen Gerdes was appointed as a new member of the Board of Management. Th e MAIL board department was sub-divided into MAIL and PARCEL Germany, headed by Jürgen Gerdes, and MAIL International, under the leadership of Dr Frank Appel, who also assumed responsibility for Corporate Regulation Management. We also consented to the acquisition of two holdings attributable to DHL Logistics.
In July, the Supervisory Board, voting under the circular procedure, approved the sale of all shares in PB Versicherung AG, PB Lebensversicherung AG, BHW Lebensversicherung AG and BHW Pensionskasse AG held by the Postbank Group.
At the meeting on 14 September 2007, the new allocation of duties in the Board of Management was discussed and approved following Prof. Dr Edgar Ernst's retirement from offi ce. John Allan was appointed CFO eff ective 1 October 2007, and was also placed in charge of Global Business Services, which combines a number of crossdivisional functions such as IT, Procurement, Real Estate and Legal Aff airs. Mr Allan was succeeded in his previous role as Board member responsible for the LOGISTICS Division by Dr Frank Appel. Th e Supervisory Board also discussed a possible joint venture between Deutsche Post World Net and Deutsche Luft hansa AG to create a freight airline.
On 7 November 2007, in an extraordinary meeting, the Supervisory Board debated at length the new capital markets programme presented to the general public on 8 November 2007.
At its fi nal meeting on 13 December 2007, the Supervisory Board approved the business plan for the period 2008 to 2010, apart from EXPRESS Americas. Th e Finance and Audit Committee, which was given delegated powers, approved this sub-segment of the business plan at its meeting on 23 January 2008. Th e Supervisory Board also approved the sale of shares in BHW Bank AG. Finally, we also adopted the Declaration of Conformity with the German Corporate Governance Code 2007. Following the Code's recommendations, we created a Nomination Committee which proposes suitable candidates for Supervisory Board nominations to the AGM. Th e Supervisory Board also adopted a resolution giving global authorisation for the award of loans to Board members by Postbank.
Th e Executive Committee met four times during the year under review. Agenda items included Board of Management and Supervisory Board business, as well as the further development of the company's corporate governance.
Th e Personnel Committee met three times and focused on a number of pivotal issues, including the mentoring programme, employee surveys, value management and leadership culture, as well as the Group's demographic development.
Th e Finance and Audit Committee met fi ve times, with meetings chaired by Prof. Dr Ralf Krüger. Th e committee discussed the acquisitions and disposals of companies, which were also addressed in the plenary sessions of the Supervisory Board, as well as the Group's business plan for the period 2008 to 2010. It also examined and approved the annual and consolidated fi nancial statements, discussed the interim reports and dealt with the review of the interim report on the fi rst half of the year. Th e auditors attended the committee's fi nancial statements meeting. Accounting and risk monitoring, as well as co-operation with the auditors, were also discussed in detail. Additionally, a number of real estate transactions were approved. Furthermore, individual Board of Management members gave presentations on the business performance of their respective divisions for discussion by the committee. Key topics included the express business in the United States, the mail business in Germany as well as the impact of the sub-prime credit crisis on Postbank. Th e committee also deliberated on the organisation of compliance activities and the compliance tools applied in the Group.
Th e Nomination Committee created in December 2007 did not meet during the year under review. Once again, the Mediation Committee, which must be formed pursuant to Section 27(3) of the Mitbestimmungsgesetz (German co-determination act), did not have to meet in the year under review.
Th e auditors appointed by the AGM, PricewaterhouseCoopers Aktiengesellschaft Wirtschaft sprüfungsgesellschaft (PwC), Düsseldorf, audited the annual and consolidated fi nancial statements for fi nancial year 2007, including the respective management reports, and issued unqualifi ed audit opinions.
Following a detailed preliminary assessment by the Finance and Audit Committee, the Supervisory Board reviewed the annual and consolidated fi nancial statements and the management reports for the fi nancial year 2007 in the fi nancial statements meeting. Th e auditors' reports were made available to all Supervisory Board members and were discussed intensively at the meeting with the Board of Management and the auditors in attendance. Th e audit included a review of the Board of Management's proposal for the appropriation of the unappropriated surplus. Th e Supervisory Board concurred with the results of the audit of the annual and consolidated fi nancial statements and the management reports, and approved the annual and consolidated fi nancial statements for the fi nancial year 2007 aft er detailed discussion with the Board of Management and the auditor's representative at today's meeting. Based on the fi nal outcome of the examination of the annual and consolidated fi nancial statements, the management reports and the proposal for the appropriation of the unappropriated surplus by the Supervisory Board and the Finance and Audit Committee, there are no objections to be raised. Th e Supervisory Board endorses the Board of Management's proposal for the appropriation of the unappropriated surplus and the payment of a dividend of €0.90 per share.
PwC also audited the Board of Management's report disclosing relations with affi liated companies (dependent company report) as required by Section 312 of the Aktiengesetz (German stock corporation act) and issued the following auditor's opinion: "On completion of our audit in accordance with professional standards, we confi rm that the factual statements made in the report are correct."
Th e dependent company report required for the period from 1 January 2007 to 8 January 2007 was audited in terms of completeness and accuracy. Th e Board of Management exercised due care in identifying the affi liated companies. It has taken the necessary precautions in recording legal transactions and other measures which the company undertook or refrained from undertaking during the fi nancial year under review either with, at the instigation of or in the interests of the German federal government as the controlling entity, or other companies affi liated with the federal government. According to the fi ndings of the audit, there are no grounds to suggest that legal transactions or measures have not been recorded in full. Th e Supervisory Board therefore endorses the auditor's fi ndings. No objections are to be raised against the Board of Management's declaration at the end of the report.
Th e following changes occurred in the Supervisory Board of Deutsche Post AG in 2007: Rolf Büttner left the Board with eff ect from the end of the AGM on 8 May 2007. Andrea Kocsis was appointed by court order to the Supervisory Board as an employee representative on 29 May 2007. Dr Hubertus von Grünberg retired from offi ce on 27 July 2007. On 6 August 2007, Prof. Dr Wulf von Schimmelmann was appointed to the Supervisory Board by court order as a shareholder representative. Th e appointment will be submitted to the shareholders for ratifi cation at the AGM on 6 May 2008. Ingrid Matthäus-Maier was elected as a shareholder representative for a fi ve-year term at the 2007 AGM.
Helmut Jurke and Franz Schierer retired from the Supervisory Board as at 31 December 2007, whilst Helmut Jurke also resigned from his positions as deputy chairman of the Finance and Audit Committee and member of the Executive Committee. A court order of 18 February 2008 appointed Rolf Bauermeister and Wolfgang Abel to the Supervisory Board as employee representatives.
Th e following changes occurred in the company's Board of Management: Prof. Dr Wulf von Schimmelmann and Dr Hans-Dieter Petram retired from offi ce as at 30 June 2007. On 1 July 2007, Dr Wolfgang Klein took over FINANCIAL SERVICES and was also appointed chairman of the Management Board of Deutsche Postbank AG. Since 1 July 2007, Jürgen Gerdes has been responsible for MAIL and PARCEL Germany. Aft er Prof. Dr Edgar Ernst had resigned from his seat on the Board of Management with eff ect from 30 September 2007, John Allan assumed responsibility for Finance and Global Business Services. On 1 October 2007, Dr Frank Appel took charge of the LOGISTICS Division, MAIL International, Corporate Regulation Management, Global Customer Solutions and the First Choice programme. On 18 February 2008, Dr Klaus Zumwinkel resigned from offi ce. Th e Supervisory Board accepted his resignation and, on the same day, unanimously appointed Dr Frank Appel as new chairman of the Board of Management. In addition to his previous duties, Dr Frank Appel also assumed responsibility for the chairman's board department.
In December 2007, the Board of Management and the Supervisory Board submitted an updated Declaration of Conformity pursuant to Section 161 of the Aktien gesetz and published it on the company's website. Th e previous declarations can also be viewed on this website. Deutsche Post AG is in compliance with all recommendations of the German Corporate Governance Code in the version dated 14 June 2007. Further information on corporate governance within the company, including the remuneration of the Board of Management and the Supervisory Board members, is contained in the Corporate Governance Report on page 112.
We would like to thank the Board of Management and all the employees of the Group for their commitment and successful eff orts in the fi nancial year 2007.
In particular, the Supervisory Board expresses its thanks to Dr Klaus Zumwinkel for his outstanding work during the past eighteen years in transforming Deutsche Post AG into a global company and into the number one in the logistics industry.
Bonn, 4 March 2008 Th e Supervisory Board
Yours sincerely, Dr Jürgen Weber Chairman
• Chairman of the Supervisory Board, Deutsche Lufthansa AG
• Management Consultant
• Management Consultant
• Chair of the Board of Managing Directors, KfW Bankengruppe
• Managing Director, E Toime Consulting Ltd.
• Managing Director, Deutsche Post AG
• Deputy Chair of Works Council, Deutsche Post AG, Mail Branch, Saarbrücken
• Deputy Chair of Works Council, Deutsche Postbank AG, Hamburg
• Chair of Deutsche Post World Net's Group Works Council
• Chair of Works Council, DHL Express Betriebs GmbH, Düsseldorf (Dortmund offi ce)
• Member of Works Council, parcel delegate, Mail Branch, Augsburg
■ Rolf Büttner (until 8 May 2007)
Deputy Chair
• Member of the ver.di National Executive Board (until 31 January 2007)
Top left to bottom right: Dr Frank Appel, John Allan, Jürgen Gerdes, Dr Wolfgang Klein, John P. Mullen, Walter Scheurle
Born in 1961, member of the Board of Management since 2002, appointed until October 2012, responsible for the LOGISTICS Division, the MAIL International unit within the MAIL Division, Corporate Regulation Management, as well as operational management of the Group-wide First Choice programme. In addition to his previous duties, he was appointed chairman on 18 February 2008 and thus assumed responsibility for Corporate Executives, Corporate Communications, Corporate Development, the Corporate Offi ce, Corporate Organisation, as well as Corporate Public Policy and Sustainability.
Born in 1948, member of the Board of Management since 2006, appointed until December 2010, responsible for Finance including Controlling, Corporate Accounting and Reporting, Investor Relations, Corporate Finance, Corporate Internal Audit/ Security, Taxes, as well as Global Business Services
Born in 1964, member of the Board of Management since 1 July 2007, appointed until June 2010, responsible for the MAIL and PARCEL Germany units within the MAIL Division.
Also chairman of the Management Board of Deutsche Postbank AG, born in 1964, member of the Board of Management since 1 July 2007, appointed until June 2012, responsible for the FINANCIAL SERVICES Division.
Born in 1955, member of the Board of Management since 2005, appointed until December 2010, responsible for the EXPRESS Division.
Born in 1952, member of the Board of Management since 2000, appointed until March 2010, responsible for Personnel including Corporate Compensation Policies/ Labour Law, Human Resources Services and Human Resources Development.
Bundesverband deutscher Banken e. V. (Berlin, Board of Directors)
John P. Mullen
Morgan Stanley (Board of Directors)
Prof. Dr Wulf von Schimmelmann (until 30 June 2007)
Deutsche Postbank Financial Services GmbH1) (Supervisory Board, Deputy Chair), until 30 June 2007
PB Capital Corp.1) (Board of Directors, Chair), until 30 June 2007
• Membership of supervisory boards required by law
• Membership of comparable supervisory bodies of German and foreign companies 1) Group company
SIREO REAL ESTATE ASSET MANAGEMENT GmbH (Advisory Board)
Ingrid Matthäus-Maier
Employee representatives
• Deutsche Postbank AG
• Bundesanstalt für Post und Telekommunikation (Administrative Board)
Left in 2007
MAN Aktiengesellschaft
Schindler Holding AG, Switzerland (Board of Directors)
On 13 December 2007, the Board of Management and Supervisory Board issued a Declaration of Conformity for the sixth consecutive year. It confi rms that since the previous Declaration of Conformity was issued on 14 December 2006, Deutsche Post complied with the recommendations of the German Corporate Governance Code in the version dated 12 June 2006. In future, we will also comply with the recommendations of the Government Commission on the German Corporate Governance Code in the current version dated 14 June 2007. Th e electronic forwarding of information to the shareholders requires the prior approval of the Annual General Meeting (AGM). Approval shall therefore be recommended to the 2008 AGM. Based on this resolution, the convention documents for the 2009 AGM could also be sent electronically upon request by the shareholder.
On 30 November 2007, our listed subsidiary Deutsche Postbank AG issued its own unqualifi ed Declaration of Conformity.
As a German public limited company, Deutsche Post operates a dual management system. Th e Board of Management is responsible for the management of the company, and is appointed, overseen and advised by the Supervisory Board. Following the departure of Board members Dr Hans-Dieter Petram and Prof. Dr Wulf von Schimmelmann as at 30 June 2007, Jürgen Gerdes and Dr Wolfgang Klein were appointed as their successors with eff ect from 1 July 2007. Prof. Dr Edgar Ernst resigned from the Board of Management as at 30 September 2007. On 18 February 2008, Dr Klaus Zumwinkel resigned from offi ce. Th e Supervisory Board accepted his resignation and, on the same day, unanimously appointed Dr Frank Appel as new chairman of the Board of Management.
Th e duties of individual members have been reallocated to refl ect these changes: Th e MAIL board department has been sub-divided into MAIL and PARCEL Germany, headed by Jürgen Gerdes, and MAIL International, under the management of Dr Frank Appel. John Allan, previously in charge of the LOGISTICS Division, is now responsible for Global Business Services (focusing on cross-divisional functions) and Finance as of 1 October 2007. Dr Frank Appel has also been responsible for the LOGISTICS Division and Corporate Regulation Management since the same date. Moreover, on 18 February 2008, Dr Frank Appel assumed responsibility for the chairman's board department in addition to his previous duties.
Th e Supervisory Board comprises twenty members, who are listed on page 107. Ten shareholder representatives are elected by the AGM, whilst a further ten are elected by the workforce in accordance with the provisions of the Mitbestimmungsgesetz ( German co-determination act). Information about additional mandates held by Board of Management and Supervisory Board members in the supervisory bodies of other companies may be found on pages 110 and 111. Th e Supervisory Board's report on its activities in fi nancial year 2007 is published on page 102.
At the AGM on 8 May 2007, Ingrid Matthäus-Maier was elected to the Supervisory Board for a fi ve-year term on an individual basis, following the retirement from offi ce of Dr Hubertus von Grünberg as at 27 July 2007. Prof. Dr Wulf von Schimmelmann was appointed to the Supervisory Board by court order on 6 August 2007. His election will feature on the agenda at this year's AGM. Rolf Büttner also retired from offi ce with eff ect from the end of the AGM on 8 May 2007. Andrea Kocsis was appointed as his successor by court order on 29 May 2007. On 31 December 2007, Helmut Jurke and Franz Schierer stepped down as members of the Supervisory Board. At the same time, Helmut Jurke also retired from his roles as deputy chairman of the Finance and Audit Committee and member of the Executive Committee. By court order of 18 February 2008, Rolf Bauermeister and Wolfgang Abel were appointed to the Supervisory Board as employee representatives. Th e fact that the majority of its Supervisory Board members are independent means that Deutsche Post AG complies with the corresponding recommendation in the Code.
Th e Supervisory Board has formed a total of fi ve committees. In addition to the Mediation Committee required by the Mitbestimmungsgesetz, these include the Executive Committee, the Finance and Audit Committee, the Personnel Committee and, new for 2007, the Nomination Committee, as per the Code's recommendation. Th e composition of these committees may be found on page 107. Th e Supervisory Board's report on the committees' activities in the year under review is published on page 104.
We are committed to open communication with our shareholders. All dates that might be of interest are displayed on our website, including the dates on which the annual report and interim reports are published. Th e website also contains up-to-date information about our shares and share price movements, as well as announcements regarding the purchase and sale of company shares and related fi nancial instruments pursuant to Article 15a of the Wertpapierhandelsgesetz (German securities trading act).
Members of the Board of Management and Supervisory Board are required to disclose immediately any potential confl icts of interest to the Supervisory Board. Outside activities pursued by members of the Board of Management are subject to the approval of the Supervisory Board.
Th e Group expects all its employees to base their actions and decisions on compliance with statutory and internal regulations. Based on the company's corporate values, the Board of Management has therefore introduced a Code of Conduct for the employees which all executives are required to sign. As part of our Group-wide compliance system, we have set up a Global Values Offi ce and Regional Values Offi ces to provide advice on and monitor implementation of the various compliance processes. Employees can also report any violations to the "whistle-blowing hotline".
In case of infringements, suitable measures will be taken, which can include action under labour and disciplinary law if appropriate. Compliance with the Code of Conduct is an issue regularly addressed by the Internal Audit department, which is part of the Finance board department. Th e subject of compliance is discussed at regular intervals by the Supervisory Board's Finance and Audit Committee.
Our opportunity and risk management system ensures that any risks are identifi ed early on. Th e system is continuously refi ned and updated to refl ect the latest developments. Further details can be found in our risk report starting on page 85.
The Group accounts are prepared in accordance with International Financial Reporting Standards (IFRSs). PricewaterhouseCoopers Aktiengesellschaft Wirtschaft sprüfungsgesellschaft (PwC), Düsseldorf, was appointed by the AGM as the auditor of the annual and consolidated fi nancial statements for the 2007 fi nancial year, and to review the half-year fi nancial report. Before engaging the auditors, the Supervisory Board took steps to ensure that the existing relationships between the auditors and the company or its executive and controlling bodies did not call into question the auditors' independence.
Th e following remuneration report also forms part of the Notes.
Th e total remuneration of the Board of Management members is determined by the Executive Committee, which is headed by the chairman of the Supervisory Board. Th e Supervisory Board discusses the structure of the remuneration system based on the recommendation submitted by the Executive Committee and reviews it regularly. Th e remuneration of the Board of Management refl ects the size and global reach of the company, its economic and fi nancial situation and the roles fulfi lled by the individual members. It is set to ensure competitiveness with comparable German and international companies, thus incentivising the Board of Management members to deliver maximum performance and achieve results. Th e Supervisory Board conducts regular reviews to determine whether the remuneration of the Board of Management is appropriate, taking into account the company's results, the industry in which it operates and its future prospects.
Th e remuneration of the Board of Management is performance-based and comprises fi xed and variable elements as well as long-term incentives.
Components not linked to performance are the basic salary, fringe benefi ts and pension commitments. Th e basic salary is paid monthly. Fringe benefi ts are comprised mainly of the use of company cars, the reimbursement of travel expenses, a telephone allowance, supplements for insurance premiums as well as special allowances and benefi ts for assignments outside Germany.
Th e variable, performance-linked element is the annual bonus. Th e Executive Committee of the Supervisory Board exercises its due discretion to determine the annual bonus on the basis of the company's performance. Th e amount of the bonus refl ects the extent to which predefi ned targets are achieved or exceeded. Achievement of the upper target for the fi nancial year is rewarded with the maximum annual bonus. Th e maximum annual bonus opportunity is 100% of the annual basic salary. In addition, the Supervisory Board can elect to award an appropriate special bonus for extraordinary achievement.
As a variable remuneration component with long-term incentive eff ect, the Board of Management members receive stock appreciation rights (SARs) issued on the basis of a long-term incentive plan.
Th e remuneration paid to active members of the Board of Management in the fi nancial year 2007 totalled €15.70 million (previous year: €18.50 million). Th is amount comprised €8.68 million in non-performance-related components (previous year: €9.65 million) and €7.02 million in bonuses (previous year: €8.85 million). Th e members of the Board of Management were granted a total of 1,375,000 SARs in fi nancial year 2007 with a total value of €6.37 million (previous year: €6.38 million) at the time of issue (1 July 2007).
Th e table below presents an individual breakdown of the remuneration paid and covers all activities of the members of the Board of Management within the Group:
| € | Components not linked to performance |
Performance-related components |
Components with long-term incentive effect |
||||
|---|---|---|---|---|---|---|---|
| Basic salary | Fringe benefi ts | Bonus | Total | Number of SARs |
Value of SARs on 1 July 2007 |
||
| Dr Klaus Zumwinkel, Chairman | 1,499,558 | 57,084 | 1,226,639 | 2,783,281 | 330,000 | 1,527,900 | |
| John Allan | 860,000 | 436,312 | 781,740 | 2,078,052 | 55,000 | 254,650 | |
| Dr Frank Appel | 867,167 | 31,527 | 709,342 | 1,608,036 | 220,000 | 1,018,600 | |
| Prof. Dr Edgar Ernst (until 30 September 2007) Jürgen Gerdes (since 1 July 2007) |
711,113 357,500 |
22,829 18,728 |
711,113 292,435 |
1,445,055 668,663 |
220,000 110,000 |
1,018,600 509,300 |
|
| Dr Wolfgang Klein (since 1 July 2007) | 437,500 | 24,947 | 397,688 | 860,135 | 0 | 0 | |
| John P. Mullen | 860,000 | 521,443 | 877,836 | 2,259,279 | 220,000 | 1,018,600 | |
| Dr Hans-Dieter Petram (until 30 June 2007) Walter Scheurle |
497,779 860,000 |
13,548 25,865 |
497,779 703,480 |
1,009,106 1,589,345 |
0 220,000 |
0 1,018,600 |
|
| Prof. Dr Wulf von Schimmelmann (until 30 June 2007) |
555,000 | 14,960 | 825,000 | 1,394,960 | 0 | 0 | |
| Total | 7,505,617 | 1,167,243 | 7,023,052 | 15,695,912 | 1,375,000 | 6,366,250 |
In 2006, the Executive Committee of the Supervisory Board adopted the long-term incentive plan 2006 (LTIP 2006) based closely on the lapsed stock option plan 2003 (SOP 2003). On 1 July 2006, the members of the Board of Management were for the fi rst time awarded SARs under this plan instead of the stock options granted in previous years.
Each SAR entitles the holder to receive a cash settlement equal to the diff erence between the issue price of the SAR and the closing price of the Deutsche Post share on the last trading day before the exercise date. As in the past, the members of the Board of Management must each invest 10% of their annual target salary in Deutsche Post shares. Th e number of SARs to be issued to the members of the Board of Management is determined by the Executive Committee of the Supervisory Board as each tranche is issued. Th e other essential features of the previous stock option plan have been retained. Following a three-year lock-up period that begins on the date of issue, the SARs, like the stock options, can be wholly or partially exercised within a period of two years only if an absolute or relative performance target is achieved. Any SARs not exercised during this two-year period expire.
To determine how many – if any – of the SARs granted can be exercised, the average share price or the average index is compared for the reference period and for the performance period. Th e reference period, as in the past, comprises the last twenty consecutive trading days before the issue date. Th e performance period is the last sixty trading days before the end of the lock-up period. Th e average share price (closing price) is calculated as the average of the closing rates of the Deutsche Post share in the Deutsche Börse AG's Xetra electronic trading system.
As in the past, the absolute performance target is achieved if the closing price of the Deutsche Post share is at least 10%, 15%, 20% or 25% above the issue price. Th e relative performance target is tied to the performance of the share in relation to the performance of the Dow Jones STOXX 600 Index (Bloomberg SXXP Index; ISIN EU0009658202). It is met if the share price is not outperformed by the index during the performance period or if it outperforms the index by at least 10%.
A maximum of four out of every six SARs can be "earned" via the absolute performance target and a maximum of two via the relative performance target. If neither an absolute or relative performance target is met by the end of the lock-up period, the SARs of the related tranche will expire and no replacement or compensation of any kind will be provided. Th e table below presents further details of the tranches of the LTIP 2006:
| Tranche 2006 | Tranche 2007 | |
|---|---|---|
| Issue date | 1 July 2006 | 1 July 2007 |
| Issue price | €20.70 | €24.02 |
| Expiry of lock-up period | 30 June 2009 | 30 June 2010 |
Th e value attributable to the fi nancial year 2007 for stock options issued in previous years amounted to €241,615.62 for Dr Klaus Zumwinkel, €161,075.58 for Dr Frank Appel, €161,075.58 for Walter Scheurle and €106,270.08 for John P. Mullen. Th e options granted to Jürgen Gerdes in previous fi nancial years have a value for the period from 1 July 2007 of €11,366.19. Th e pro rata value up to 30 June 2007 of options granted to Dr Hans-Dieter Petram and Prof. Dr Wulf von Schimmelmann is €117,656.04 each. Th e pro rata value of the options granted to Prof. Dr Edgar Ernst up to 30 September 2007 is €139,365.81. Th e table below provides detailed information on the individual tranches of the expired stock option plans:
| SOP 2000 | SOP 2003 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Tranche 2001 | Tranche 2002 | Tranche 2003 | Tranche 2004 | Tranche 2005 | |||||
| Issue date | 15 March 2001 | 1 July 2002 | 1 August 2003 | 1 July 2004 | 1 July 2005 | ||||
| Exercise price | €23.05 | €14.10 | €12.40 | €17.00 | €19,33 | ||||
| Expiry of lock-up period | 14 March 2004 | 30 June 2005 | 31 July 2006 | 30 June 2007 | 30 June 2008 | ||||
| Exercisable at 1/6 |
Exercisable at 6/6 |
Exercisable at 6/6 |
Exercisable at 4/6 |
||||||
| Expiry of exercise period | 14 March 2006 | 30 June 2007 | 31 July 2008 | 30 June 2009 | 30 June 2010 |
Any options of Tranche 2002 that had not been exercised expired on 1 July 2007 at the end of the exercise period, with no replacement or compensation provided.
Th e members of the Board of Management have direct pension commitments on the basis of their individual contracts, providing for benefi ts in case of permanent disability, death or retirement. If the contract of a member ends aft er at least fi ve years of service on the Board of Management, the entitlements he has acquired will vest. Members become entitled to benefi ts due to permanent disability aft er at least fi ve years of service. Eligibility for retirement benefi ts begins at the earliest at the age of 55, or 60 years of age in the case of John P. Mullen and 62 years of age for Jürgen Gerdes. Th e members of the Board of Management can choose between ongoing pension payments and a lump sum. Th e amount of benefi ts depends on the pensionable income and the number of years of service.
Pensionable income consists of the annual basic salary based on the average salary of the last twelve months of employment. Members of the Board of Management appointed for the fi rst time aft er 2001 attain a pension level of 25% aft er fi ve years of service on the Board of Management. Th e maximum pension level (50%) is attained aft er ten years of service. Th e maximum pension levels of members of the Board of Management appointed before 2002 are 60% and 75% respectively. Th e graduated increase in the pension level based on individual contractual arrangements depends either on the period of service or the periods of appointment on the Board of Management. Subsequent pension benefi ts will be adjusted (increased or decreased) to refl ect changes in the consumer price index in Germany.
| Pension commitments | |||
|---|---|---|---|
| Pension level on 31 Dec. 2007 |
Maximum pension level |
Service cost for pension obligation Financial year 2007 |
|
| % | % | € | |
| Dr Klaus Zumwinkel, | |||
| Chairman | 75 | 75 | 01) |
| Dr Frank Appel | 25 | 50 | 334,558 |
| Prof. Dr Edgar Ernst2) | 75 | 75 | 566,584 |
| Jürgen Gerdes3),4) | 0 | 50 | 76,011 |
| Dr Wolfgang Klein3),5) | 60 | 60 | 184,414 |
| John P. Mullen | 35 | 50 | 652,498 |
| Dr Hans-Dieter Petram6) | 75 | 01) | |
| Walter Scheurle | 30 | 60 | 627,516 |
| Prof. Dr Wulf von | |||
| Schimmelmann5),6) | 75 | 1,623,938 |
1) Ongoing fi nancing complete.
2) Member of the Board of Management until 30 September 2007.
3) Member of the Board of Management since 1 July 2007.
4) Minimum period not yet complete. In the event of immediate entitlement, the provisions of the existing pension plan apply.
5) The pension commitment is owed by Deutsche Postbank AG. The service cost is for the whole year.
6) Member of the Board of Management until 30 June 2007 (retirement).
Th e pension commitment made to Dr Wolfgang Klein relates to his function as chairman of the Management Board of Deutsche Postbank AG and is therefore owed in its entirety by Deutsche Postbank AG. Th e commitment therefore varies in certain respects from the arrangements discussed above at Deutsche Post AG; the basic structure is, however, identical. Th e benefi t amount depends on the pensionable income and the pension level derived from the years of service. Dr Wolfgang Klein has already attained the maximum pension level of 60%. According to his contract, retirement benefi ts are generally paid from the age of 62 or, if the employment contract is not renewed, aft er reaching the age of 55. A bridge allowance will be paid for a two-year period in addition to the retirement benefi ts if he leaves the employ of the company upon reaching the age limit of 62 or due to permanent disability. Subsequent adjustments of the retirement benefi ts will be based on the percentage change in the highest pay scale group in the collective agreement covering the Association of German Public Sector Banks.
Upon his appointment to the Board of Management, John Allan was not included in the pension scheme for members of the Board of Management. Due to his past contractual relationship with Exel, he will receive a taxable annual lump-sum payment of €363,017, in addition to the remuneration paid, that he can use to secure his own pension coverage. Th is amount is contained in the individual breakdown of fringe benefi ts.
Th e remuneration of former members of the Board of Management or their surviving dependants amounted to €13.58 million. Th e defi ned benefi t obligations (DBOs) for current pensions calculated under IFRSs amount to €27.0 million.
Dr Frank Appel, John Allan and John P. Mullen will receive their contractual remuneration until the end of the ordinary term of their contracts if the contract as a member of the Board of Management is terminated prematurely by Deutsche Post AG for good cause, provided this cause is not related to a serious breach of duty. Th e Board of Management contract of John Allan contains a non-compete clause for two years aft er the end of the contract. For this two-year period, he receives 50% of his basic salary. Any other income exceeding half of the basic salary will be credited against it.
In accordance with Article 17 of the Articles of Association of Deutsche Post AG as adopted by the AGM, the annual remuneration of the members of the Supervisory Board comprises a fi xed component, a short-term performance-related component and a performance-related component with a long-term incentive eff ect.
Th e fi xed component amounts to €20,000, the short-term performance-related component to €300 for every €0.03 by which the consolidated net profi t per share exceeds the amount of €0.50 in the fi nancial year in question. In 2007, the consolidated net profi t per share was €1.15 and therefore exceeded the amount of €0.50 by 21.67 x €0.03. Th e short-term performance-related remuneration came to 21.62% of the total remuneration of all the members of the Supervisory Board. For fi nancial year 2007, the members of the Supervisory Board are entitled to annual performance-related remuneration with a long-term incentive eff ect of €300 for every 3% by which the consolidated net profi t per share for fi nancial year 2009 exceeds the consolidated net profi t per share of fi nancial year 2006. Th e remuneration falls due for payment at the end of the 2010 AGM. Taken individually, the two variable remuneration components may not exceed the amount of the fi xed remuneration of €20,000.
Th e chairman of the Supervisory Board receives double the remuneration, his deputy one and half times the remuneration. Th e chairman of a Supervisory Board committee also receives double the remuneration, whilst a member of a committee receives one and a half times the remuneration. Th is does not apply for membership of the Mediation and Nomination Committee. Persons who only belong to the Supervisory Board and its committees for part of the year receive corresponding compensation on a pro rata basis. Th e members of the Supervisory Board are entitled to claim out-of-pocket expenses incurred in the exercise of their offi ce. Any value-added tax on the Supervisory Board remuneration and out-of-pocket expenses is reimbursed. In addition, each member of the Supervisory Board attending a meeting receives an attendance allowance of €500 for each plenary meeting of the Supervisory Board or committee meeting. In fi nancial year 2007, the total remuneration of the Supervisory Board, excluding the long-term performance-related remuneration, amounted to approximately €0.9 million (previous year: €1 million). Th e table below provides a breakdown of the remuneration:
| € | Value of long-term | ||||
|---|---|---|---|---|---|
| Short-term | performance-related | ||||
| Fixed component | performance-related remuneration |
Attendance allowance |
Total | remuneration claim1) |
|
| Current members | |||||
| Dr Jürgen Weber (Chair) | 70,000.00 | 22,050.00 | 6,500.00 | 98,550.00 | 0.00 |
| Rolf Büttner (Deputy Chair until 8 May 2007) | 22,500.00 | 7,087.50 | 3,500.00 | 33,087.50 | 0.00 |
| Andrea Kocsis (Deputy Chair since 29 May 2007) | 37,500.00 | 11,812.50 | 3,000.00 | 52,312.50 | 0.00 |
| Willem G. van Agtmael | 20,000.00 | 6,300.00 | 3,000.00 | 29,300.00 | 0.00 |
| Frank von Alten-Bockum | 20,000.00 | 6,300.00 | 3,000.00 | 29,300.00 | 0.00 |
| Hero Brahms | 40,000.00 | 12,600.00 | 6,500.00 | 59,100.00 | 0.00 |
| Marion Deutsch | 20,000.00 | 6,300.00 | 3,000.00 | 29,300.00 | 0.00 |
| Werner Gatzer | 40,000.00 | 12,600.00 | 7,500.00 | 60,100.00 | 0.00 |
| Dr Hubertus von Grünberg (until 27 July 2007) | 11,666.67 | 3,675.00 | 1,500.00 | 16,841.67 | 0.00 |
| Annette Harms | 20,000.00 | 6,300.00 | 3,000.00 | 29,300.00 | 0.00 |
| Helmut Jurke (until 31 December 2007) | 40,000.00 | 12,600.00 | 7,000.00 | 59,600.00 | 0.00 |
| Prof. Dr Ralf Krüger | 40,000.00 | 12,600.00 | 5,500.00 | 58,100.00 | 0.00 |
| Dirk Marx | 40,000.00 | 12,600.00 | 7,000.00 | 59,600.00 | 0.00 |
| Ingrid Matthäus-Maier | 20,000.00 | 6,300.00 | 2,500.00 | 28,800.00 | 0.00 |
| Roland Oetker | 30,000.00 | 9,450.00 | 5,500.00 | 44,950.00 | 0.00 |
| Silke Oualla-Weiß | 20,000.00 | 6,300.00 | 2,000.00 | 28,300.00 | 0.00 |
| Harry Roels | 20,000.00 | 6,300.00 | 3,000.00 | 29,300.00 | 0.00 |
| Franz Schierer (until 31 December 2007) | 20,000.00 | 6,300.00 | 2,500.00 | 28,800.00 | 0.00 |
| Prof. Dr Wulf von Schimmelmann (since 6 August 2007) | 8,333.33 | 2,625.00 | 1,500.00 | 12,458.33 | 0.00 |
| Elmar Toime | 20,000.00 | 6,300.00 | 2,000.00 | 28,300.00 | 0.00 |
| Stefanie Weckesser | 20,000.00 | 6,300.00 | 3,000.00 | 29,300.00 | 0.00 |
| Margrit Wendt | 40,000.00 | 12,600.00 | 6,000.00 | 58,600.00 | 0.00 |
| Total | 620,000.00 | 195,300.00 | 88,000.00 | 903,300.00 | 0.00 |
1) The basis for the measurement of the long-term performance-related remuneration claim is the provision that needs to be recognised for this purpose.
A provision was not recognised in 2007 because the profi t per share was lower than the previous year.
Eff ective 31 December 2007, shares held by the Board of Management and Supervisory Board of Deutsche Post AG amounted to less than 1% of the company's share capital.
150 31. Receivables and other securities from fi nancial services
151 32. Financial instruments
| 1 January to 31 December | |||
|---|---|---|---|
| €m | Note | 2006 | 2007 |
| Revenue and income from banking transactions | (9) | 60,545 | 63,512 |
| Other operating income | (10) | 2,821 | 2,586 |
| Total operating income | 63,366 | 66,098 | |
| Materials expense and expenses from banking transactions | (11) | –34,349 | –36,875 |
| Staff costs | (12) | –18,616 | –18,471 |
| Depreciation, amortisation and impairment losses | (13) | –1,771 | –2,357 |
| Other operating expenses | (14) | – 4,758 | –5,193 |
| Total operating expenses | –59,494 | – 62,896 | |
| Profi t from operating acitvities (EBIT) | 3,872 | 3,202 | |
| Net income from associates | (15) | 4 | 3 |
| Other fi nancial income | 198 | 998 | |
| Other fi nance costs | –1,232 | –2,011 | |
| Net other fi nance costs | (16) | –1,034 | –1,013 |
| Net fi nance costs | –1,030 | –1,010 | |
| Profi t before income taxes | 2,842 | 2,192 | |
| Income tax expense | (17) | –560 | –307 |
| Consolidated net profi t for the period | (18) | 2,282 | 1,885 |
| attributable to | |||
| Deutsche Post AG shareholders | 1,916 | 1,389 | |
| Minorities | (19) | 366 | 496 |
| € | € | ||
| Basic earnings per share | (20) | 1.60 | 1.15 |
| Diluted earnings per share | (20) | 1.60 | 1.15 |
| as at 31 December | |||
|---|---|---|---|
| €m | Note | 31 Dec. 2006 restated1) |
31 Dec. 2007 |
| ASSETS | |||
| Intangible assets | (22) | 14,652 | 14,226 |
| Property, plant and equipment | (23) | 9,388 | 8,754 |
| Investment property | (24) | 122 | 187 |
| Investments in associates | 63 | 203 | |
| Other non-current fi nancial assets | 931 | 857 | |
| Non-current fi nancial assets | (25) | 994 | 1,060 |
| Other non-current assets | (26) | 376 | 497 |
| Deferred tax assets | (27) | 542 | 1,020 |
| Non-current assets | 26,074 | 25,744 | |
| Inventories | (28) | 268 | 248 |
| Income tax assets | (29) | 281 | 312 |
| Receivables and other assets | (30) | 9,306 | 9,806 |
| Receivables and other securities from fi nancial services | (31) | 179,280 | 193,986 |
| Financial instruments | (32) | 42 | 72 |
| Cash and cash equivalents Non-current assets held for sale |
(33) (34) |
2,391 56 |
4,683 615 |
| Current assets | 191,624 | 209,722 | |
| Total assets | 217,698 | 235,466 | |
| EQUITY AND LIABILITIES | |||
| Issued capital | (35) | 1,202 | 1,207 |
| Other reserves | (36) | 1,528 | 875 |
| Retained earnings | (37) | 8,490 | 8,976 |
| Equity attributable to Deutsche Post AG shareholders | (38) | 11,220 | 11,058 |
| Minority interest | (39) | 2,732 | 2,801 |
| Equity | 13,952 | 13,859 | |
| Provisions for pensions and other employee benefi ts | (40) | 6,134 | 5,989 |
| Deferred tax liabilities | (27) | 1,426 | 1,569 |
| Other non-current provisions | (41) | 4,780 | 3,015 |
| Non-current provisions | 12,340 | 10,573 | |
| Non-current fi nancial liabilities | (42) | 8,543 | 8,625 |
| Other non-current liabilities | (43) | 237 | 361 |
| Non-current liabilities | 8,780 | 8,986 | |
| Non-current provisions and liabilities | 21,120 | 19,559 | |
| Income tax provisions | (44) | 237 | 334 |
| Other current provisions | (41) | 1,656 | 1,703 |
| Current provisions | 1,893 | 2,037 | |
| Current fi nancial liabilities | (42) | 1,945 | 1,556 |
| Trade payables | (45) | 5,069 | 5,384 |
| Liabilities from fi nancial services | (46) | 168,663 | 187,787 |
| Income tax liabilities | (29) | 101 | 139 |
| Other current liabilities | (43) | 4,938 | 5,101 |
| Liabilities associated with non-current assets held for sale | (34) | 17 | 44 |
| Current liabilities | 180,733 | 200,011 | |
| Current provisions and liabilities | 182,626 | 202,048 | |
| Total equity and liabilities | 217,698 | 235,466 | |
1) See Note 4.
| 1 January to 31 December | |||
|---|---|---|---|
| €m | Note | 2006 restated1) |
2007 |
| Net profi t before taxes | 2,842 | 2,192 | |
| Net fi nance costs | 1,030 | 1,010 | |
| Profi t from operating activities (EBIT) | 3,872 | 3,202 | |
| Depreciation/amortisation of non-current assets | 1,771 | 2,357 | |
| Net income from disposal of non-current assets | – 509 | –282 | |
| Non-cash income and expense | 453 | 385 | |
| Change in provisions | –783 | –753 | |
| Change in other assets and liabilities | –52 | –145 | |
| Taxes paid | –343 | –340 | |
| Net cash from operating activities before changes in working capital | 4,409 | 4,424 | |
| Changes in working capital | |||
| Inventories | –51 | 10 | |
| Receivables and other assets | – 876 | – 659 | |
| Receivables/liabilities from fi nancial services | –368 | 707 | |
| Liabilities and other items | 808 | 669 | |
| Net cash from operating activities | (47.1) | 3,922 | 5,151 |
| Proceeds from disposal of non-current assets | |||
| Divestitures | 331 | 622 | |
| Other non-current assets | 943 | 759 | |
| 1,274 | 1,381 | ||
| Cash paid to acquire non-current assets | |||
| Investments in companies | –2,094 | –347 | |
| Other non-current assets | –1,972 | –2,309 | |
| – 4,066 | –2,656 | ||
| Interest received | 100 | 520 | |
| Current fi nancial instruments | –5 | 2 | |
| Net cash used in investing activities | (47.2) | –2,697 | –753 |
| Change in fi nancial liabilities | 345 | – 439 | |
| Dividend paid to Deutsche Post AG shareholders | – 836 | –903 | |
| Dividend paid to other shareholders | –105 | –159 | |
| Issuance of shares under stock option plan | 124 | 73 | |
| Interest paid | –393 | – 659 | |
| Net cash used in fi nancing activities | (47.3) | – 865 | –2,087 |
| Net change in cash and cash equivalents | 360 | 2,311 | |
| Effect of changes in exchange rates on cash and cash equivalents | –38 | – 46 | |
| Changes in cash and cash equivalents associated with non-current assets held for sale | –15 | 0 | |
| Changes in cash and cash equivalents due to changes in consolidated group | 0 | 27 | |
| Cash and cash equivalents at beginning of reporting period | 2,084 | 2,391 | |
| Cash and cash equivalents at end of reporting period | (47.4) | 2,391 | 4,683 |
1) See Note 47.
| €m | Other reserves | Equity | ||||||
|---|---|---|---|---|---|---|---|---|
| Issued | Capital | IAS 39 | Currency trans | Retained | attributable to Deutsche Post AG |
Minority | ||
| capital | reserves | reserves | lation reserve | earnings | shareholders | interest | Total equity |
|
| Note | (35) | (36) | (36) | (36) | (37) | (38) | (39) | |
| Balance at 1 January 2006 | 1,193 | 1,893 | 169 | – 41 | 7,410 | 10,624 | 1,791 | 12,415 |
| Capital transactions with owner | ||||||||
| Capital contribution from retained earnings | 0 | 0 | ||||||
| Dividend | – 836 | – 836 | –105 | –941 | ||||
| Stock option plans (exercise) | 9 | 115 | 124 | 124 | ||||
| Stock option plans (issuance) | 29 | 29 | 29 | |||||
| – 683 | –105 | –788 | ||||||
| Other changes in equity not recognised in income |
||||||||
| Currency translation differences | – 410 | – 410 | – 40 | – 450 | ||||
| Other changes | –227 | –227 | 720 | 493 | ||||
| – 637 | 680 | 43 | ||||||
| Changes in equity recognised in income | ||||||||
| Consolidated net profi t | 1,916 | 1,916 | 366 | 2,282 | ||||
| Total changes in equity recognised in income and not recognised in income |
1,279 | 1,046 | 2,325 | |||||
| Balance at 31 December 2006 | 1,202 | 2,037 | –58 | – 451 | 8,490 | 11,220 | 2,732 | 13,952 |
| Balance at 1 January 2007 | 1,202 | 2,037 | –58 | – 451 | 8,490 | 11,220 | 2,732 | 13,952 |
| Capital transactions with owner | ||||||||
| Capital contribution from retained earnings | 0 | 0 | ||||||
| Dividend | –903 | –903 | –159 | –1,062 | ||||
| Stock option plans (exercise) | 5 | 68 | 73 | 73 | ||||
| Stock option plans (issuance) | 14 | 14 | 14 | |||||
| – 816 | –159 | –975 | ||||||
| Other changes in equity not recognised in income |
||||||||
| Currency translation differences | – 446 | – 446 | –23 | – 469 | ||||
| Other changes | –289 | –289 | –245 | –534 | ||||
| –735 | –268 | –1,003 | ||||||
| Changes in equity recognised in income | ||||||||
| Consolidated net profi t | 1,389 | 1,389 | 496 | 1,885 | ||||
| Total changes in equity recognised in income and not recognised in income |
654 | 228 | 882 | |||||
| Balance at 31 December 2007 | 1,207 | 2,119 | –347 | – 897 | 8,976 | 11,058 | 2,801 | 13,859 |
| €m | FINANCIAL | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| MAIL1) | EXPRESS1) | LOGISTICS1) | SERVICES | SERVICES1) | Consolidation1) | Group | |||||||||
| 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | ||
| External revenue | 14,944 | 15,108 | 12,910 | 13,366 | 23,642 | 25,141 | 9,019 | 9,871 | 30 | 26 | 0 | 0 | 60,545 | 63,512 | |
| Internal revenue | 346 | 376 | 553 | 508 | 763 | 598 | 574 | 555 | 2,171 | 2,331 | – 4,407 | – 4,368 | 0 | 0 | |
| Total revenue | 15,290 | 15,484 | 13,463 | 13,874 | 24,405 | 25,739 | 9,593 | 10,426 | 2,201 | 2,357 | – 4,407 | – 4,368 | 60,545 | 63,512 | |
| Profi t or loss from operating activities (EBIT) |
2,094 | 2,003 | 288 | –174 | 751 | 957 | 1,004 | 1,076 | –229 | – 660 | –36 | 0 | 3,872 | 3,202 | |
| Net income from associates | 0 | 0 | 5 | 3 | –1 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4 | 3 | |
| Segment assets2) | 5,646 | 5,588 | 9,607 | 9,160 | 14,540 | 14,472 182,325 197,448 | 2,259 | 2,514 | –1,554 | –1,604 | 212,823 227,578 | ||||
| Investments in associates2) | 22 | 22 | 35 | 174 | 5 | 6 | 0 | 0 | 1 | 1 | 0 | 0 | 63 | 203 | |
| Segment liabilities including non-interest-bearing |
|||||||||||||||
| provisions2) | 2,526 | 2,386 | 2,782 | 3,520 | 5,346 | 5,070 169,502 188,681 | 1,218 | 1,316 | –1,412 | –1,523 | 179,962 199,450 | ||||
| Segment investments | 1,018 | 630 | 769 | 961 | 773 | 756 | 1,708 | 152 | 379 | 509 | –233 | –116 | 4,414 | 2,892 | |
| Depreciation, amortisation and write-downs |
433 | 432 | 394 | 1,034 | 402 | 423 | 172 | 163 | 370 | 305 | 0 | 0 | 1,771 | 2,357 | |
| Other non-cash expenses | 166 | 14 | 179 | 105 | 204 | 166 | 499 | 508 | 127 | 169 | 0 | 0 | 1,175 | 962 | |
| Employees3) | 149,338 149,857 | 106,028 108,655 | 158,030 164,239 | 23,285 | 23,369 | 24,541 | 24,003 | 0 | 0 | 461,222 470,123 |
| Europe excluding €m |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Germany Germany |
Americas Asia Pacifi c |
Other regions | Group | |||||||||
| 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | |
| External revenue | 24,829 | 25,028 | 18,072 | 20,161 | 11,130 | 10,813 | 5,580 | 5,765 | 934 | 1,745 | 60,545 | 63,512 |
| Segment assets2) | 167,589 182,722 | 29,923 | 28,449 | 11,053 | 11,581 | 3,865 | 4,309 | 393 | 517 | 212,823 227,578 | ||
| Segment investments | 2,265 | 1,048 | 1,233 | 1,013 | 655 | 512 | 219 | 245 | 42 | 74 | 4,414 | 2,892 |
1) Prior-period amounts restated, see Note 8.
2) As at 31 December.
3) Average FTEs.
For segment reporting disclosures, see Note 8.
to the Consolidated Financial Statements of Deutsche Post AG for the Period Ended 31 December 2007
As a listed company, Deutsche Post AG prepared its consolidated fi nancial statements in accordance with the International Financial Reporting Standards (IFRSs) as adopted by the EU and the provisions of commercial law to be additionally applied in accordance with Section 315a(1) of the Handelsgesetzbuch (HGB – German Commercial Code).
Th e requirements of the standards applied have been satisfi ed in full, and the consolidated fi nancial statements of Deutsche Post World Net therefore provide a true and fair view of its net assets, fi nancial position and results of operations.
Th e consolidated fi nancial statements consist of the income statement, balance sheet, cash fl ow statement, statement of changes in equity as well as the Notes. Th e disclosures in the Notes also include a segment report. In order to improve the clarity of presentation, various items in the balance sheet and in the income statement have been combined. Th ese items are disclosed and explained separately in the Notes. Th e income statement has been classifi ed in accordance with the nature of expense method.
Th e accounting policies, as well as the explanations and disclosures in the Notes to the IFRS consolidated fi nancial statements for fi nancial year 2007, are generally based on the same accounting policies used in the 2006 consolidated fi nancial statements. Exceptions to this are the changes in international accounting under IFRSs described in Note 4 that have been required to be applied by the Group since 1 January 2007 and the restatement of prior-period amounts. Th e accounting policies are explained in Note 6.
Th e fi nancial year of Deutsche Post AG and its consolidated subsidiaries is the calendar year. Deutsche Post AG, whose registered offi ce is in Bonn, is entered in the commercial register of the Bonn Local Court.
Th e consolidated fi nancial statements are prepared in euros (€). Unless otherwise stated, all amounts are given in millions of euros (€ million, €m).
| Equity interest | Date of acquisition/ | |||
|---|---|---|---|---|
| % | Inclusion method | initial inclusion | Notes | |
| The Stationery Offi ce Holdings Limited, United Kingdom | 100 | Fully consolidated | 10 January 2007 | Purchased |
| EXPRESS | ||||
| ASTAR Air Cargo Holdings LLC, USA | 49 | Fully consolidated | 8 June 2007 | Purchased |
| Polar Air Cargo Worldwide Inc., USA | 49 | Measured using equity method | 25 June 2007 | Purchased |
| AeroLogic GmbH, Germany | 50 | Proportionately consolidated | 26 September 2007 | Formed |
| LOGISTICS | ||||
| FC (Flying Cargo) International Transportation Ltd., Israel | 100 | Fully consolidated | 31 December 2007 | Purchased |
| FINANCIAL SERVICES | ||||
| Postbank Versicherungsvermittlung GmbH, Germany | 100 | Fully consolidated | 8 May 2007 | Formed |
In addition to Deutsche Post AG, the consolidated fi nancial statements for the period ended 31 December 2007 generally include all German and foreign operating companies in which Deutsche Post AG directly or indirectly holds a majority of voting rights, or whose activities it can in some other way control. Th e companies are consolidated from the date on which Deutsche Post World Net is able to exercise control.
Th e companies listed in the table below are consolidated in addition to the parent company Deutsche Post AG.
| 2006 | 2007 | |
|---|---|---|
| Number of fully consolidated companies (subsidiaries) |
||
| German | 133 | 113 |
| Foreign | 920 | 857 |
| Number of proportionately consolidated joint ventures |
||
| German | 2 | 1 |
| Foreign | 6 | 12 |
| Number of companies accounted for at equity (associates) |
||
| German | 4 | 3 |
| Foreign | 32 | 18 |
Th e list of the Group's shareholdings in accordance with Section 313(2) Nos. 1 to 4 and (3) of the HGB is published in the Electronic Federal Gazette. In addition, a complete list of Deutsche Post AG's shareholdings has been fi led with the commercial register of the Bonn Local Court. A list of the signifi cant subsidiaries, joint ventures and associates included in the consolidated fi nancial statements is presented in Note 53.
Th e following table gives an overview of signifi cant acquisitions required to be included and new company formations in fi nancial year 2007:
Williams Lea acquired 100% of the shares of Th e Stationery Offi ce Holdings Limited (TSO), London, on 10 January 2007. Th e Stationery Offi ce provides print and document management services primarily for UK government agencies and public-sector organisations, is the market leader in the public sector and has built excellent relationships with clients in public administration. At the same time, the acquisition will strengthen the position of Williams Lea as a global leader in corporate information management solutions. Th e allocation of the purchase price for TSO is presented below. As part of the acquisition, Deutsche Post World Net repaid fi nancial liabilities in the amount €135 million. TSO contributed €25 million to the Group's EBIT.
| €m | 10 January 2007 |
|---|---|
| Cost of the investment | 22 |
| Transaction costs | 1 |
| Total cost | 23 |
| Less net assets acquired at fair value | –116 |
| Goodwill | 139 |
| €m | Carrying amount | Adjustments | Fair value |
|---|---|---|---|
| Intangible assets | 0 | 83 | 83 |
| Property, plant and equipment | 3 | 0 | 3 |
| Non-current fi nancial assets | 0 | 0 | 0 |
| Current assets and cash and cash equivalents Non-current liabilities and |
22 | 0 | 22 |
| provisions | –158 | – 4 | –162 |
| Current liabilities and provisions | –34 | –3 | –37 |
| Deferred taxes, net | 0 | –25 | –25 |
| Net assets acquired | –167 | 51 | –116 |
| €m | 10 January 2007 |
|---|---|
| Brand name | 11 |
| Customer list | 72 |
| Pension obligations | – 4 |
| Other non-current provisions | –3 |
| Deferred taxes, net | –25 |
| Adjustments to assets and liabilities | 51 |
On 8 June 2007, Deutsche Post World Net acquired 49% of the shares and 24.9% of the voting rights of US airline ASTAR Air Cargo Holdings LLC (Astar) for a purchase price amounting to €66 million. In accordance with SIC 12, the company was fully consolidated. Owing to past business arrangements, Astar aircraft had already been included in the consolidated fi nancial statements since 1 January 2006 as fi nance leases in accordance with IFRIC 4 in conjunction with IAS 17. Th ose aircraft were therefore included in the consolidated fi nancial statements at their existing carrying amounts. Astar's principal activity is the provision of services for Group companies.
| €m | 8 June 2007 |
|---|---|
| Cost of the investment | 66 |
| Transaction costs | 1 |
| Total cost | 67 |
| Less proportionate net assets measured at fair value (49%) | –11 |
| Goodwill | 78 |
| €m | Carrying amount | Adjustments | Fair value |
|---|---|---|---|
| Intangible assets (customer list) | 10 | – 4 | 6 |
| Receivables from fi nance leases (aircraft) |
65 | 0 | 65 |
| Other property, plant and equipment |
5 | 0 | 5 |
| Non-current fi nancial assets | 1 | 0 | 1 |
| Current assets and cash and cash equivalents |
68 | 0 | 68 |
| Non-current liabilities and provisions |
–94 | 0 | –94 |
| Current liabilities and provisions | – 87 | 0 | – 87 |
| Deferred tax assets, net | 12 | 2 | 14 |
| Net assets acquired | –20 | –2 | –22 |
On 26 September 2007, Deutsche Post World Net and Deutsche Lufthansa AG launched a joint cargo carrier, AeroLogic GmbH ( AeroLogic), through their subsidiaries DHL Express und Luft hansa Cargo. The company's registered office is located in Leipzig. DHL Express and Luft hansa Cargo each hold 50% of the shares. In future, AeroLogic will provide cargo services to and from Asia. Flight operations are scheduled to begin in April 2009. Initially, eight aircraft are being leased under the terms of operating lease agreements for this purpose. Th e resulting fi nancial obligations will be reported from the beginning of the lease term (January 2009) under other fi nancial obligations. AeroLogic's lease counterparty and lessor is Deucalion Capital VII Ltd., Cayman Islands.
On 25 June 2007, Deutsche Post World Net acquired a 49% interest in US company Polar Air Cargo Worldwide, Inc. (Polar Air Cargo), a leading provider of global air freight services. Polar Air Cargo is included in the consolidated fi nancial statements as an associate. Th e total purchase price, including a post-acquisition adjustment, amounts to €129 million, of which €56 million was paid on completion of the transaction and €16 million in November 2007. Th e balance of the purchase price will be paid on 15 January 2008 and on 17 November 2008. In addition, DHL is to conclude a twenty-year fi xed capacity agreement with Polar Air Cargo, guaranteeing it a certain amount of capacity on routes to major Asian destinations.
With eff ect as at 31 December 2007, DHL Global Forwarding acquired all of the shares in FC (Flying Cargo) International Transportation Ltd., Tel Aviv. Th e company is the market leader in air and ocean freight in Israel and has acted there for many years as an agent for DHL Global Forwarding. Th e purchase price amounts to €74 million; the fi rst instalment of €43 million is due in January 2008, whilst the second instalment of €31 million is due in January 2010. Goodwill is provisionally estimated to be €73 million. Th e allocation of the purchase price is expected to be completed in the 2nd quarter of 2008.
In total, around €347 million was spent on acquisitions in fi nancial year 2007 (previous year: €2.2 billion). Th e purchase prices of the acquired companies were paid by transferring cash and cash equivalents. Further details about cash fl ows can be found in Note 47.
Th e following disposal and deconsolidation eff ects from fully consolidated companies have been determined:
In March 2007, Deutsche Post World Net sold 100% of the shares of Vfw AG, Germany. Th is resulted in a deconsolidation gain of €59 million, which was reported in other operating income.
In addition, BHW Lebensversicherung AG, including its special funds, and the 50% interests in PB Versicherung AG and PB Lebensversicherung AG were sold eff ective 30 September 2007. Th e gain on deconsolidation amounted to €391 million and was reported in other operating income.
In October 2007, DHL EXPRESS sold Dedicated Distribution Services B.V., the Netherlands, and Van Osselaer-Pieters Colli Service B.V.B.A., Belgium, to Österreichische Post AG. Th e transaction gave rise to a gain on deconsolidation amounting to €7 million.
| Disposal and deconsolidation effects of fully consolidated companies |
|---|
| ---------------------------------------------------------------------- |
| €m | 2007 |
|---|---|
| Disposal effects | |
| Intangible assets | 7 |
| Property, plant and equipment | 15 |
| Non-current fi nancial assets | 3 |
| Inventories | 1 |
| Receivables and other assets | 154 |
| Receivables from fi nancial services | 2,546 |
| Cash and cash equivalents | 47 |
| IAS 39 reserves | – 6 |
| Provisions | –1,807 |
| Trade payables and other liabilities | –139 |
| Liabilities from fi nancial services | –31 |
| Financial liabilities | –2 |
| Deferred taxes, net | – 6 |
| Revenue | 51 |
| Effect of deconsolidation | 456 |
Th e following table provides information about the balance sheet and income statement items attributable to the signifi cant joint ventures included in the consolidated fi nancial statements:
| As at 31 December | ||
|---|---|---|
| €m | 20061) | 20071) |
| Balance sheet | ||
| Intangible assets | 46 | 48 |
| Property, plant and equipment | 10 | 8 |
| Receivables and other assets | 69 | 93 |
| Cash and cash equivalents | 24 | 18 |
| Trade payables and other liabilities | –77 | –93 |
| Provisions | –1 | –2 |
| Financial liabilities | –14 | –20 |
| Income statement | ||
| Revenue | 433 | 352 |
| Profi t from operating activities (EBIT) | 17 | 19 |
1) Proportionate amounts.
Th e consolidated joint ventures relate primarily to Express Courier Ltd. (New Zealand) and Exel-Sinotrans Freight Forwarding Co. Ltd., China.
In addition to the acquisitions and disposals cited in Note 2, the following signifi cant transactions aff ected the Group's net assets, fi nancial position and results of operations in fi nancial year 2007:
As a result of the 2008 corporate tax reform, the nominal rate of income tax applying to German Group companies was reduced from 39.9% to 29.8% (corporation tax and solidarity surcharge 15.8%, municipal trade tax 14%). As the amount of deferred tax liabilities reported by German Group companies is considerably higher than the amount of deferred tax assets reported, remeasurement in fi nancial year 2007 resulted in a tax benefi t of around €188 million.
Th e sale of the Deutsche Postbank Group's insurance companies resulted in a deconsolidation gain amounting to €391 million. Th is was off set by losses from the sale of low-interest securities (€–183 million), additional portfolio optimisation measures, transaction costs, write-downs in connection with the subprime crisis (€–112 million), extraordinary eff ects relating to administrative expenses and non-recurring eff ects in net interest income, resulting in a net eff ect of €–25 million.
In December 2007, an impairment loss of €594 million was recognised in respect of the non-current assets of the EXPRESS Americas cashgenerating unit, which were written down to their fair value less costs to sell.
Th e table below presents an overview of the signifi cant non-recurring eff ects in fi nancial year 2007 (at Group level):
| €m | 2007 |
|---|---|
| Profi t from operating activities (EBIT) before non-recurring effects | 3,762 |
| Deutsche Postbank Group non-recurring effects, net | –25 |
| Sale of Vfw AG | 59 |
| Impairment of non-current assets | –594 |
| Profi t before operating activities (EBIT) after non-recurring effects | 3,202 |
| Tax benefi t from the 2008 tax reform | 188 |
Th e following standards, changes to standards and interpretations are required to be applied on or aft er 1 January 2007:
Th e fi rst-time application of IFRS 7 (Financial Instruments: Disclosures) improves the information provided about fi nancial instruments from both a qualitative and a quantitative point of view. Disclosures about the extent of risks arising from fi nancial instruments, including specifi c minimum disclosures relating to credit, liquidity and market risk, as well as sensitivity analyses, provide a more complete picture of existing market risks. Th e new standard replaces IAS 30 (Disclosures in the Financial Statements of Banks and Similar Financial Institutions), as well as the disclosure requirements of IAS 32 (Financial Instruments: Disclosure and Presentation). Amendments to IAS 1 for the fi rst time set out additional disclosure requirements relating to the amount of the entity's capital and the objectives, policies and processes for managing it.
IFRIC 7 (Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinfl ationary Economies) clarifi es questions arising in connection with the application of IAS 29 in cases where the economy of the country whose currency is the functional currency of the reporting entity becomes hyperinfl ationary. Th e fi rst-time application of IFRIC 7 has had no eff ect on the consolidated fi nancial statements.
IFRIC 8 (Scope of IFRS 2) clarifi es how IFRS 2 (Share-based Payment) should be applied to arrangements where the reporting entity makes share-based payments for nil or inadequate consideration. Th e fi rst-time application of IFRIC 8 has had no eff ect on the consolidated fi nancial statements.
IFRIC 9 (Reassessment of Embedded Derivatives) deals with the question of whether an assessment should be made of whether a contract contains an embedded derivative in accordance with IAS 39 (Financial Instruments: Recognition and Measurement) only when an entity fi rst becomes party to the contract or throughout its life. Th e fi rst-time application of IFRIC 9 has had no eff ects on the consolidated fi nancial statements.
IFRIC 10 (Interim Financial Reporting and Impairment) addresses the interaction between the requirements of IAS 34 relating to interim fi nancial reporting and the provisions of IAS 36 and IAS 39 concerning the reversal of impairment losses for certain assets. Th e Interpretation concludes that impairment losses recognised in respect of certain assets in interim fi nancial statements may not be reversed in the fi nancial statements for a subsequent period. Th e fi rst-time application of IFRIC 10 has had no eff ect on the consolidated fi nancial statements.
IFRS 8 (Operating Segments), which supersedes the existing IAS 14 (Segment Reporting), contains new provisions relating to the presentation of segment reporting. IFRS 8 requires segment reporting to be based on the management approach. Under this approach, the defi nition of the segments and the disclosures for each segment are based on the information used internally by management for the purposes of allocating resources to the components of the entity and assessing their performance. Application of IFRS 8 is mandatory for periods beginning on or aft er 1 January 2009. Th e fi rst-time application of IFRS 8 is not expected to have any signifi cant eff ects on the consolidated fi nancial statements.
IFRIC 11 (IFRS 2 Group and Treasury Share Transactions) clarifi es the issue of how IFRS 2 should be applied to share-based payment arrangements involving the grant of the entity's own equity instruments or equity instruments of another entity within the same group. Th e Interpretation is eff ective for fi nancial years beginning on or aft er 1 March 2007. Th e fi rst-time application of IFRIC 11 is not expected to have any signifi cant eff ect on the consolidated fi nancial statements.
Th e IASB and the IFRIC have issued further Standards and Interpretations whose application is not yet mandatory for fi nancial year 2007. Th e application of these IFRSs is dependent on their adoption by the European Union.
Th e revised version of IAS 23 (Borrowing Costs) issued in 2007 requires borrowing costs that are directly attributable to the acquisition, construction, or production of qualifying assets to be capitalised. The existing option to recognise borrowing costs immediately as an expense will no longer be available. Application of IAS 23 (as revised in 2007) is mandatory for fi nancial years beginning on or aft er 1 January 2009. Th e eff ects on the consolidated fi nancial statements of applying the new provisions are currently being assessed.
IFRIC 12 (Service Concession Arrangements) sets out the accounting treatment for arrangements whereby public-sector bodies grant contracts for the supply of public services to private operators. In order to supply these services, the private operator makes use of infrastructure that remains within the control of the public-sector grantor. Th e private operator is responsible for the construction, operation and maintenance of the infrastructure. Application of the Interpretation is mandatory for fi nancial years beginning on or aft er 1 January 2008. Th e eff ects of the fi rst-time application of IFRIC 12 on the consolidated fi nancial statements of Deutsche Post AG are currently being assessed.
IFRIC 13 (Customer Loyalty Programmes) sets out the accounting treatment of revenues arising in connection with customer loyalty programmes operated by the manufacturers or service providers themselves or by third parties. Th e Interpretation is eff ective for fi nancial years beginning on or aft er 1 July 2008. Th e eff ect of the fi rst-time application of IFRIC 13 on the consolidated fi nancial statements is currently being assessed.
IFRIC 14 (IAS 19 – Th e Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and their Interaction) was published on 5 July 2007 and supplements the existing provisions of IAS 19 relating to the limit on the measurement of a defi ned benefi t asset (IAS 19.58 ff .). In addition, the Interpretation sets out how the requirement to limit a defi ned benefi t asset should be applied in the event of statutory or contractual minimum funding requirements. Th e Interpretation is eff ective for fi nancial years beginning on or aft er 1 January 2008. Deutsche Post World Net has already applied IFRIC 14 as at 31 December 2007 with no eff ects on its pension provisions or pension expenses.
Th e revised version of IAS 1 (Presentation of Financial Statements) is intended to improve users' ability to analyse and compare the information given in fi nancial statements. Application of the revised standard is mandatory for fi nancial years beginning on or aft er 1 January 2009; earlier adoption is permitted. First-time application of the revised standard will have no signifi cant eff ects on the presentation of the consolidated fi nancial statements.
Th e carrying amounts in the consolidated fi nancial statements as at 31 December 2006 have been restated, fi rstly because of the reclassifi cation of the Deutsche Postbank Group's subordinated debt from other liabilities to fi nancial liabilities in order to report all interest-bearing liabilities under the same item. Secondly, a change was made to the method of reporting income tax assets and liabilities. Th e other types of taxes previously included – together with income taxes – under the tax items were reclassifi ed as receivables and other assets, other liabilities and other provisions.
| as at 31 December | 2006 | |||
|---|---|---|---|---|
| €m | 2006 | Adjustments | restated | Notes |
| Tax receivables | ||||
| (new term: income tax assets) | 670 | –389 | 281 | Reclassifi cation of other tax receivables |
| Receivables and other assets | 8,917 | 389 | 9,306 | Reclassifi cation of other tax receivables |
| Tax liabilities | ||||
| (new term: income tax liabilities) | 875 | –774 | 101 | Reclassifi cation of other tax liabilities |
| Other liabilities | 4,164 | 774 | 4,938 | Reclassifi cation of other tax liabilities |
| Tax provisions | ||||
| (new term: income tax provisions) | 460 | –223 | 237 | Reclassifi cation of other tax provisions |
| Other provisions | 1,433 | 223 | 1,656 | Reclassifi cation of other tax provisions |
| Non-current fi nancial liabilities | 3,495 | 5,048 | 8,543 | Reclassifi cation of subordinated debt |
| Other non-current liabilities | 5,285 | –5,048 | 237 | Reclassifi cation of subordinated debt |
Th e fi nancial statements of consolidated companies prepared in foreign currencies are translated into euros (€) in accordance with IAS 21 using the functional currency method. Th e functional currency of foreign companies is determined by the primary economic environment in which they mainly generate and use cash. Within Deutsche Post World Net, the functional currency is predominantly the local currency. In the consolidated fi nancial statements, assets and liabilities are therefore translated at the closing rates, whilst income and expenses are generally translated at the monthly closing rates. Th e resulting currency translation diff erences are taken directly to equity. In fi nancial year 2007, currency translation diff erences amounting to €446 million (previous year: €410 million) were recognised directly in equity (see also the statement of changes in equity).
Goodwill arising from business combinations aft er 1 January 2005 is treated as an asset of the acquired company and carried in the functional currency of the acquired company accordingly.
Th e following exchange rates were generally applied to foreign currency translation in the Group:
| Currency | Country | Closing rates | Average rates | |||
|---|---|---|---|---|---|---|
| 2006 EUR 1 = |
2007 EUR 1 = |
2006 EUR 1 = |
2007 EUR 1 = |
|||
| USD | USA | 1.3175 | 1.4708 | 1.25586 | 1.37145 | |
| CHF | Switzerland | 1.60735 | 1.65708 | 1.57308 | 1.64364 | |
| GBP | UK | 0.67101 | 0.73558 | 0.68182 | 0.68441 | |
| SEK | Sweden | 9.0391 | 9.41621 | 9.25353 | 9.25393 |
Th e carrying amounts of non-monetary assets recognised in the case of consolidated companies operating in hyperinfl ationary economies are generally indexed in accordance with IAS 29 and thus refl ect the current purchasing power at the balance sheet date.
In accordance with IAS 21, receivables and liabilities in the single-entity fi nancial statements of consolidated companies that have been prepared in local currencies are translated at the closing rate as at the balance sheet date. Currency translation diff erences are recognised in other operating income and expenses in the income statement. In fi nancial year 2007, income of €262 million (previous year: €207 million) and expenses of €266 million (previous year: €272 million) resulted from currency translation diff erences. In contrast, currency translation differences relating to net investments in a foreign operation are recognised in equity.
Th e consolidated fi nancial statements are prepared on the basis of historical costs, with the exception of available-for-sale fi nancial assets as well as fi nancial assets and fi nancial liabilities at fair value through profi t or loss (especially derivative fi nancial instruments).
Th e overriding principle was applied in respect of a transaction relating to fi nancial years 2005 and 2006. On 3 July 2006, Deutsche Post AG as the debtor exercised its option under the terms and conditions of the bond to call the exchangeable bond on Postbank shares prior to maturity eff ective 31 July 2006. Following this transaction, Deutsche Post AG holds an interest in the Deutsche Postbank Group of 50% plus one share. Th e €276 million gain on disposal of the Postbank shares based on the conversion right was reported in other operating income. Of this amount, €100 million represented income from the reversal of a liability recognised in connection with the measurement of the conversion right. Th e conversion right was measured on the basis of Postbank's retained earnings. Deutsche Post AG deviated from measurement of the conversion right based on market data in accordance with IAS 32.26 in conjunction with IAS 39.47(a), citing IAS 1.17. If Deutsche Post AG had measured the conversion right in accordance with IAS as a derivative liability, an additional liability totalling €239 million chargeable as an expense would have had to be recognised in fi nancial year 2005. Th is liability would have had to be reversed to the income statement in fi nancial year 2006. Th e net disposal gain would thus have increased by €239 million.
Revenue and income from banking transactions, as well as other operating income, is generally recognised when services are rendered, the amount of revenue and income can be reliably measured and in all probability the economic benefi ts from the transactions will fl ow to the Group. Operating expenses are recognised in the income statement when the service is utilised or when the expenses are incurred.
Intangible assets are measured at amortised cost. Intangible assets reported include internally generated and purchased intangible assets and purchased goodwill.
Internally generated intangible assets are capitalised at cost, if it is probable that their production will generate an infl ow of future economic benefi ts and the costs can be reliably measured. At Deutsche Post World Net, this concerns internally developed soft ware. If the criteria for capitalisation are not met, the expenses are recognised immediately in the income statement in the year in which they are incurred. In addition to direct costs, the production cost of internally developed soft ware includes an appropriate share of allocable production overhead costs. Any borrowing costs incurred are not included in production costs. Valueadded 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 soft ware is amortised using the straight-line method over useful lives of between two to fi ve years.
Intangible assets are amortised using the straight-line method over their useful lives. Licences are amortised over the term of the licence agreement. Capitalised customer relationships are amortised using the straight-line method over a period of 5 to 18 years. Impairment losses are recognised in accordance with the principles described in the section headed "Impairment".
Intangible assets with indefi nite useful lives (e.g. brand names) are not amortised but are tested for impairment annually or whenever there are indications of impairment. Impairment testing is carried out in accordance with the principles described in the section headed "Impairment".
Property, plant and equipment is carried at cost, reduced by accumulated depreciation and valuation allowances. In addition to direct costs, production costs include an appropriate share of allocable production overhead costs. Borrowing costs are not included in the production costs. Th ey are expensed directly. 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 generally charged using the straight-line method. Deutsche Post World Net uses the estimated useful lives indicated below for depreciation. If there are indications of impairment, the principles described in the section headed "Impairment" are applied.
| Years | 2006 | 2007 |
|---|---|---|
| Buildings | 5 to 50 | 5 to 50 |
| Technical equipment and machinery | 3 to 10 | 3 to 10 |
| Passenger vehicles | 4 to 6 | 4 to 6 |
| Trucks | 5 to 8 | 5 to 8 |
| Aircraft | 15 to 20 | 15 to 20 |
| Other vehicles | 3 to 8 | 3 to 8 |
| IT systems | 3 to 8 | 3 to 8 |
| Other operating and offi ce equipment | 3 to 10 | 3 to 10 |
At each balance sheet 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 must be carried out. For this purpose, the recoverable amount of the relevant asset is determined and compared with its carrying amount.
In accordance with IAS 36, the recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Th e value in use is the present value of the pre-tax cash fl ows expected to be derived from the asset in future. Th e discount rate used is a pre-tax rate refl ecting current market conditions. If the recoverable amount cannot be determined for an individual asset, the recoverable amount is determined for the smallest identifi able group of assets (cash-generating unit, CGU) to which the asset in question can be allocated and which generates independent cash fl ows. If the recoverable amount of an asset is lower than its carrying amount, an impairment loss is recognised immediately in respect of the asset. If, aft er an impairment loss has been recognised, a higher recoverable amount is determined for the asset or the CGU at a later date, the impairment loss is reversed up to a carrying amount which does not exceed the recoverable amount. Th e increased carrying amount attributable to the reversal of the impairment loss is limited to the carrying amount that would have been determined (net of amortisation or depreciation) if no impairment loss had been recognised in the past. Th e reversal of the impairment loss is recognised in the income statement. Impairment losses recognised in respect of goodwill may not be reversed.
Against the background of the performance of the US economy, there has been no noticeable improvement in the results of CGU EXPRESS Americas. Th is is also refl ected in the medium-term planning for the CGU for the period 2008 to 2010, with the result that it must be assumed that the CGU is permanently impaired. As the consequence of an impairment test carried out, the impairment write-down calculated to be necessary was allocated to the non-current assets in CGU EXPRESS Americas. Th e write-downs were limited to the amount which resulted in a carrying amount for the particular asset equal to its fair value less costs to sell.
Since January 2005, goodwill has been accounted for using the "impairment only" approach in accordance with IFRS 3. Th is 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 annually tested for impairment in accordance with IAS 36, regardless of whether any indication of possible impairment exists. In addition, the obligation remains to conduct an impairment test if there is any indication of impairment, as in the case of intangible assets with an indefi nite useful life. Goodwill resulting from company acquisitions is allocated to the identifi able groups of assets (CGUs or groups of CGUs) that are expected to benefi t from the synergies of the acquisition. Th ese groups represent the lowest reporting level at which the goodwill is monitored for internal management purposes. Th e carrying amount of a CGU to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the unit may be impaired. Where impairment losses are recognised in connection with CGUs to which goodwill has been allocated, the existing carrying amount of the goodwill is reduced fi rst. If the amount of the impairment loss exceeds the carrying amount of the goodwill, the diff erence is allocated to the remaining non-current assets in the CGU.
For operating leases, Deutsche Post World Net as the lessor reports the leased asset at amortised cost as an asset under property, plant and equipment. Th e lease payments recognised in the period are shown under other operating income. As a lessee, the lease payments made are recognised as lease expense under materials expense.
A lease fi nancing transaction is an agreement in which the lessor conveys to the lessee the right to use an asset for a specifi ed period in return for a payment or a number of payments. In accordance with IAS 17, benefi cial ownership of leased assets is attributed to the lessee if the lessee bears substantially all the risk and rewards incident to ownership of the leased asset. To the extent that benefi cial ownership is attributable to Deutsche Post World Net, the asset is capitalised at the date on which use starts, either at fair value or at the present value of the minimum lease payments if this is less than the fair value. A lease liability in the same amount is recognised under non-current liabilities. Th e lease is measured subsequently at amortised cost using the eff ective interest method. Th e depreciation methods and estimated useful lives correspond to those of comparable purchased assets.
Deutsche Post World Net applied the fair value option for the fi rst time for fi nancial year 2006. Under this option, fi nancial assets or fi nancial liabilities may be measured at fair value through profi t or loss on initial recognition if this eliminates or signifi cantly reduces a measurement or recognition inconsistency (accounting mismatch). Th e Group made use of the option in two instances in order to avoid accounting mismatches. Th e Deutsche Postbank Group applies the fair value option solely in relation to specifi c building fi nance loan portfolios that are hedged by interest rate derivatives. Th e use of the fair value option avoids an accounting mismatch that arises from reporting the loans at amortised cost whilst changes in the fair value of the hedging instruments are recognised in profi t or loss. In another case, the fair value option has been applied in order to neutralise the eff ects on the income statement of a liability indexed to share prices that is linked to fi nancial instruments which would originally have been classifi ed as available for sale. Th e cash fl ows arising from the contract vary depending on the movement in the index. Under the terms of IAS 39, changes in the fair value of the related fi nancial assets would have had to be reported directly in equity. As a result of applying the fair value option, the eff ects of changes in the fair value of both fi nancial instruments off set each other in the income statement.
Investments in associates are carried at equity in accordance with IAS 28 (Accounting for Investments in Associates). Based on the cost of acquisition at the time of purchase of the investments, the carrying amount of the investment is increased or reduced to refl ect the share of earnings, dividends distributed and other changes in the equity of the associates attributable to the investments of Deutsche Post AG or its consolidated subsidiaries. Th e goodwill contained in the carrying amounts of the investments is accounted for in accordance with IFRS 3. Investments in companies accounted for using the equity method are written down as impaired if the recoverable amount falls below the carrying amount.
A fi nancial instrument is any contract that gives rise to a fi nancial asset of one entity and a fi nancial liability or equity instrument of another entity. Financial assets include in particular cash and cash equivalents, trade receivables, originated loans and receivables, and primary and derivative fi nancial assets held for trading. Financial liabilities include contractual obligations to deliver cash or another fi nancial asset to another entity. Th ese mainly comprise trade payables, liabilities to banks, liabilities arising from bonds and fi nance leases, and derivative fi nancial liabilities.
Financial assets are accounted for in accordance with the provisions of IAS 39 which distinguishes between four categories of fi nancial instruments.
Available-for-sale fi nancial instruments are non-derivative fi nancial assets and are carried at their fair value where this can be measured reliably. If a fair value cannot be determined, they are carried at cost. Changes in fair value between reporting dates are generally recognised in the revaluation reserve in equity. Th e reserve is reversed to income either upon disposal or if the fair value falls below cost more than temporarily. If, at a subsequent balance sheet date, the fair value has increased objectively as a result of events occurring aft er the impairment loss was recognised, the impairment loss is reversed in the appropriate amount. Impairment losses recognised in respect of unquoted equity instruments may not be reversed. Available-for-sale fi nancial instruments are allocated to non-current assets unless the intention is to dispose of them within twelve months of the balance sheet date. In particular, investments in unconsolidated subsidiaries, fi nancial instruments and other equity investments are reported in this category.
Financial instruments are classifi ed as held to maturity if there is an intention to hold the instrument to maturity and the economic conditions for doing so are met. Held-to-maturity fi nancial instruments are non-derivative fi nancial assets that are measured at amortised cost using the eff ective interest method.
Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments which are not quoted on an active market. Unless held for trading, they are recognised at cost or amortised cost at the balance sheet date. Th e carrying amounts of money market placements correspond approximately to their fair values due to their short maturity. Loans and receivables are considered current assets if their maturity is not more than twelve months aft er the balance sheet date; otherwise, they are recognised as non-current assets. If the recoverability of receivables is in doubt, they are recognised at amortised cost, less appropriate specifi c allowances. A write-down on trade receivables is recognised if there are objective indications that the amount of the outstanding receivable cannot be collected in full. Th e amount of the write-down is recognised in income.
All fi nancial instruments held for trading and derivatives that do not satisfy the criteria for hedge accounting are assigned to the category "at fair value through profi t and loss". Th ey are generally measured at fair value. All changes in fair value are recognised in income. All fi nancial instruments in this category are accounted for at the trade date. Assets in this category are recognised as current assets if they are either held for trading or will likely be realised within twelve months of the balance sheet date.
To avoid variations in net profi t resulting from changes in the fair value of derivative fi nancial instruments, hedge accounting is applied where possible and economically useful. Gains and losses from the derivative and the related hedged item are simultaneously recognised in income. Depending on the hedged item and the risk to be hedged, Deutsche Post World Net uses fair value hedges and cash fl ow hedges.
Th e carrying amounts of fi nancial assets not carried at fair value through profi t or loss are tested for impairment at each balance sheet date and whenever there are indications of impairment. Th e amount of any impairment loss is determined by comparing the carrying amount and the fair value. If there are objective indications of impairment, an impairment loss is recognised in the income statement under other operating expenses or net fi nance costs. Impairment losses are reversed if there are objective reasons arising aft er the balance sheet date indicating that the reasons for impairment no longer exist. Th e increased carrying amount resulting from the reversal of the impairment loss may not exceed the carrying amount that would have been determined (net of amortisation or depreciation) if the impairment loss had not been recognised.
Impairment losses are recognised within the Group if the debtor is experiencing signifi cant fi nancial diffi culties, it is highly probable that the debtor will be the subject of bankruptcy proceedings, there ceases to be an active market for a fi nancial instrument, there are material changes in the issuer's technological, economic, legal, or market environment, or the fair value of a fi nancial instrument falls below its amortised cost for a signifi cant period.
A fair value hedge hedges the fair value of recognised assets and liabilities. Changes in the fair value of both the derivatives and the hedged item are simultaneously recognised in income.
A cash fl ow hedge hedges the fl uctuations in future cash fl ows from recognised assets and liabilities (in the case of interest rate risks), highly probable forecast transactions as well as unrecognised fi rm commitments that entail a currency risk. Th e eff ective portion of a cash fl ow hedge is recognised in the hedging reserve in equity. Ineff ective portions resulting from changes in the fair value of the hedging instrument are recognised directly in income. Th e gains and losses generated by the hedging transactions are initially recognised in equity and are then reclassifi ed into profi t or loss in the period in which the asset acquired or liability assumed aff ects profi t or loss. If a hedge of a fi rm commitment subsequently results in the recognition of a non-fi nancial asset, the gains and losses recognised directly in equity are included in the initial carrying amount of the asset (basis adjustment).
Hedges of net investments (net investment hedges) in foreign entities are treated in the same way as cash fl ow hedges. Th e gain or loss from the eff ective portion of the hedge is recognised in equity, whilst the gain or loss attributable to the ineff ective portion is recognised directly in income. Th e gains or losses taken directly to equity continue to be recognised in equity until the disposal or partial disposal of the net investment. Detailed information on hedging transactions can be found in Note 48.2.
Regular way purchases and sales of fi nancial assets are recognised at the settlement date. A fi nancial asset is derecognised if the rights to receive the cash fl ows from the asset have expired. Upon transfer of a fi nancial asset, a review is made under the disposal rules pursuant to IAS 39 as to whether the asset should be derecognised. A disposal gain/loss arises upon disposal. Th e remeasurement gains/losses recognised directly in equity in prior periods must be reversed as of the disposal date. Financial liabilities are derecognised if the payment obligations arising from them have expired.
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 or for administrative purposes or for sale in the normal course of the company's business. It is measured in accordance with the cost model. Depreciable investment property is depreciated over a period of between fi ve and 50 years. Th e fair value is determined on the basis of expert opinions. Impairment losses are recognised in accordance with the principles described under the section headed "Impairment".
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. Th ey are measured at the lower of cost and net realisable value. Valuation allowances are charged for obsolete inventories and slow-moving goods.
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. Th e grants are reported in the income statement and are generally recognised as income over the periods in which the costs which 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.
Non-current assets held for sale are assets available for sale in their present condition and whose sale is highly probable. Th ey may consist of individual non-current assets, groups of assets (disposal groups), or components of an entity (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 non-current assets held for sale. Non-current assets held for sale are no longer depreciated or amortised, but are recognised at the lower of their fair value less costs to sell and the carrying amount. Gains and losses arising from the remeasurement of individual non-current assets or disposal groups classifi ed as held for sale are reported in the profi t or loss from continuing operations until the fi nal date of disposal. Gains and losses arising from the measurement to fair value less costs to sell of discontinued operations classifi ed as held for sale are reported in the profi t or loss from discontinued operations. Th is also applies to the profi t or loss from operations of these components of an entity and the gain or loss on disposal.
Th e operating activities of the Deutsche Postbank Group are presented under the balance sheet items receivables and other securities from fi nancial services and liabilities from fi nancial services. Th e classifi cation of fi nancial instruments required by IFRS 7.6 is as follows:
| Measured at amortised cost1) | ||
|---|---|---|
| Balance sheet item | IAS 39 category | |
| Loans and advances to other banks | Loans and receivables | |
| Loans and advances to customers | Loans and receivables Held to maturity |
|
| Non-current fi nancial assets | Held to maturity Loans and receivables |
|
| Deposits from other banks | Liabilities at amortised cost | |
| Amounts due to customers | Liabilities at amortised cost | |
| Securitised liabilities | Liabilities at amortised cost | |
| Subordinated debt | Liabilities at amortised cost | |
| Measured at fair value | ||
| Balance sheet item | IAS 39 category | |
| Loans and advances to customers | Designated as at fair value | |
| Investment securities | Available for sale | |
| Trading assets | Held for trading | |
| Trading liabilities | Held for trading | |
| Hedging derivatives (assets) | ||
| Hedging derivatives (fair values) |
1) Including fair value changes to hedged risk for hedged items (fair value hedge).
Loans and advances to other banks and customers are generally recognised at amortised cost ("loans and receivables" category). Th is category also includes money market lendings. Premiums and discounts including transaction costs are recognised in the income statement under net interest income. Interest accrued on loans and advances as well as premiums and discounts are reported together with the loans and advances to which they relate under the relevant balance sheet items. Premiums and discounts are deferred using the eff ective interest method.
Identifi able credit risks are covered by specifi c valuation allowances (or collective valuation allowances). In addition, portfolio-based valuation allowances are recognised for groups of fi nancial assets with similar default risk profi les in respect of risks that have arisen but have not yet been identifi ed. Th e amounts of the allowances are determined on the basis of Basel II parameters (expected default rates and probability). Th e allowance for losses on loans and advances is deducted from assets as a separate balance sheet item. It comprises the allowance for losses on loans and advances to other banks and customers.
Trading assets comprise securities and derivatives with positive fair values acquired for the purpose of generating a profi t from short-term fl uctuations in market prices or dealing margins. Th ey also include the positive fair values of banking book derivatives and derivatives associated with hedged items measured under the fair value option. Th ese transactions are recognised at the trade date. Trading assets are measured at their fair values. Remeasurement gains and losses as well as gains or losses on the sale or disposal of trading assets are recognised in net trading income. If there are publicly quoted market prices on an active market as defi ned by IAS 39.AG 71 ff ., these are generally used as the fair value; if this is not the case, fair value is determined using recognised valuation models.
Investment securities are composed of bonds not held for trading and other fi xed-income securities, equities and other non-fi xed-income securities. Investment securities are recognised at the settlement date and are measured at cost at the time of initial recognition. Held-tomaturity bonds and securities not listed on an active market are carried at amortised cost. Premiums and discounts are allocated directly to the fi nancial instruments and deferred over the remaining maturity using the eff ective interest method.
Liabilities and subordinated debt are carried at amortised cost (IAS 39.47). Th e carrying amount of hedged liabilities that meet the requirements for hedge accounting is adjusted for the gains and losses from changes in fair value attributable to the hedged risk. Premiums, discounts and issue costs are recognised in net interest income by applying the eff ective interest method.
Trading liabilities comprise derivatives with negative fair values that were acquired for the purpose of generating a profi t from short-term fl uctuations in market prices or dealing margins. Th ey also include the negative fair values of banking book derivatives. Remeasurement gains and losses as well as gains or losses realised on the settlement of trading liabilities are recognised in net trading income. Derivatives carried under trading liabilities are recognised at the trade date.
Cash and cash equivalents comprise cash, demand deposits and other short-term liquid fi nancial assets with an original maturity of up to three months and are carried at their principal amount. Overdraft facilities used are recognised in the balance sheet as amounts due to banks.
In accordance with IFRS 2, the stock option plan for executives is measured using investment techniques based on option pricing models. Th e objective is to determine a fair value for options. A stochastic simulation model is used for this purpose, which assumes a logarithmic normal distribution of the returns on Deutsche Post shares and the Dow Jones EURO STOXX Total Return Index and is therefore based on the same fundamental assumption as the Black-Scholes model. Th e options are measured at fair value on the grant date. Th e option price thus calculated is recognised in income under staff costs and spread over the term of the options.
Stock appreciation rights (SARs) issued to members of the Board of Management and executives are measured using investment techniques based on option pricing models in accordance with IFRS 2. Th e objective is to determine their fair value. A stochastic simulation model is used for this purpose, which assumes a logarithmic normal distribution of the returns and is therefore based on the same fundamental assumption as the Black-Scholes model. Th e SARs are measured at each reporting date and at the settlement date. Th e amount determined is recognised in income under staff costs to refl ect the services rendered as consideration during the vesting period (lock-up period). A provision is recognised for the same amount.
In a number of countries Deutsche Post World Net maintains defi ned benefi t pension plans based on the pensionable compensation and length of service of employees. Most of these benefi t plans are funded through external pension funds. Provisions for pensions are measured using the projected unit credit method prescribed by IAS 19 for defi ned benefi t plans. In accordance with IAS 19.92, actuarial gains and losses are recognised only to the extent that they exceed the greater of 10% of the present value of the obligations or of the fair value of plan assets. Th e excess is allocated over the remaining working lives of active employees and recognised in income. Th e interest component of pension expenses is reported under net fi nance costs.
Th e Group also contributes to a number of defi ned contribution plans. Contributions to these defi ned contribution pension plans are recognised as staff costs when they are due. In 2007 employer contributions amounting to €175 million were paid in respect of these plans.
Pension plans for civil servant employees in Germany: In addition to the state pension system operated by the statutory pension insurance funds, to which contributions for hourly workers and salaried employees are remitted in the form of non-wage costs, Deutsche Post AG and Deutsche Postbank AG pay contributions to defi ned contribution plans in accordance with statutory provisions.
Until 2000, Deutsche Post AG and Deutsche Postbank AG each operated a separate pension fund for their active and former civil servant employees. Th ese funds were merged with the pension fund of Deutsche Telekom AG to form the joint special pension fund Bundes-Pensions-Service für Post und Telekommunikation e.V. (BPS-PT).
Under the provisions of the Gesetz zur Neuordnung des Postwesens und der Telekommunikation (PTNeuOG – German posts and telecommunications reorganisation act), Deutsche Post AG and Deutsche Postbank AG make benefi t and assistance payments via a special pension fund to retired employees or their surviving dependants who are entitled to benefi ts on the basis of a civil service appointment. Th e amount of the payment obligations of Deutsche Post AG and Deutsche Postbank AG is governed by Section 16 of the Postpersonalrechtsgesetz (Deutsche Bundespost former employees act). Since 2000, both companies have been legally obliged to pay into this special pension fund an annual contribution of 33% of the pensionable gross compensation of active civil servants and the notional pensionable gross compensation of civil servants on leave of absence. In the year under review, Deutsche Post AG paid contributions of €560 million (previous year: €559 million) and Deutsche Postbank AG paid contributions of €111 million (previous year: €111 million) to Bundes-Pensions-Service für Post und Telekommunikation e.V.
Under the PTNeuOG, the federal government takes appropriate measures to make good the diff erence between the current payment obligations of the special pension fund on the one hand, and the current contributions of Deutsche Post AG and Deutsche Postbank AG, or the return on assets on the other, and guarantees that the special pension fund is able at all times to meet the obligations it has assumed in respect of its funding companies. Where the federal government makes payments to the special pension fund under the terms of this guarantee, it cannot claim reimbursement from Deutsche Post AG and Deutsche Postbank AG.
Pension plans for hourly workers and salaried employees: Th e benefi t obligations for the Group's hourly workers and salaried employees relate primarily to pension obligations in Germany and signifi cant funded obligations in the UK, the Netherlands, Switzerland and the USA. Th ere are various commitments to individual groups of employees. Th e commitments usually depend on length of service and fi nal salary. Th e provisions for defi ned benefi t plans are measured using the projected unit credit method prescribed by IAS 19. Future obligations are determined using actuarial principles and actuarial assumptions. Th e expected benefi ts are built up over the entire length of service of the employees, taking into account changes in key parameters.
Th e majority of the defi ned benefi t plans in Germany relate to Deutsche Post AG. In the UK, signifi cant liabilities were acquired as part of the Exel plc acquisition in December 2005. Th e defi ned benefi t liabilities of Deutsche Postbank Group are almost entirely related to pension plans in Germany. Th e pension liabilities of BHW Holding AG, which was acquired in 2006, are included as part of the Deutsche Postbank Group.
Other provisions are recognised for all legal or constructive obligations to third parties existing at the balance sheet date that have arisen as a result of past events, are expected to result in an outfl ow of future economic benefi ts and whose amount can be measured reliably. Th ey represent uncertain obligations that are carried at the best estimate of the expenditure required to settle the obligation. Provisions with more than one year to maturity are discounted at market rates of interest that refl ect the risk and time until settlement of the obligation.
Th e unearned premiums and aggregate policy reserves for the Group's own insurance business included in the technical reserves (insurance) of the Deutsche Postbank Group are calculated on the basis of the eff ective start date for each individual insurance policy. Provisions for claims not yet processed and policy redemptions that are known at the balance sheet date are generally determined according to the details of the individual cases. For claims that only become known aft er the balance sheet date, a provision is recognised in the amount of the probable cost. Th e provisions for the home savings group insurance policies are compared with the level of payments made during the fi nancial year in respect of claims relating to prior years. If the amount of the provision is signifi cantly below the fi gures for the prior years, the resulting diff erence is refl ected in an increase in the provision for claims not yet processed, because of the particular factors aff ecting this business.
For the home savings business, provisions are recognised, based on the diff erent tariff s and conditions applicable to the contracts, for uncertain liabilities relating to reimbursements of arrangement fees and for retroactively payable interest rate bonuses where loans have not been taken up or there has been a change in the applicable interest rate or tariff of the contract. Th ese provisions are calculated as a percentage of the total potential liability, based on the statistical data available relating to customer behaviour and taking into account the general environment likely to aff ect the business in the future.
On initial recognition, fi nancial liabilities are carried at fair value less transaction costs. Th e price determined on a price-effi cient and liquid market or a fair value determined using the treasury risk management system deployed within the Group is taken as the fair value. In subsequent periods the fi nancial liabilities are measured at amortised cost. Any diff erences between the amount received and the amount repayable are recognised in income over the term of the loan using the eff ective interest method. Measurement is performed on a historical cost basis and any premiums or discounts are accrued or deferred over the term to maturity. Th e balance of issue costs and discounts on the Group's own bond issues is deferred over the bond term. Any discount not yet earned or not yet paid on money market securities is accrued or deferred over the term to maturity.
Trade payables and other liabilities are carried at amortised cost. Th e fair value of the liabilities corresponds more or less to their carrying amount.
In accordance with IAS 12, deferred taxes are recognised for temporary diff erences between the carrying amounts in the IFRS fi nancial statements and the tax accounts of the individual entities. Deferred tax assets also include tax reduction claims which arise from the expected future utilisation of existing tax loss carryforwards and which are likely to be realised. In compliance with IAS 12.24 (b) and IAS 12.15 (b), deferred tax assets or liabilities were only recognised for temporary diff erences between the carrying amounts in the IFRS fi nancial statements and in the tax accounts of Deutsche Post AG and Deutsche Postbank AG where the diff erences arose aft er 1 January 1995. No deferred tax assets or liabilities can be recognised for temporary diff erences resulting from initial differences in the opening tax accounts of Deutsche Post AG and Deutsche Postbank AG as at 1 January 1995. Additional disclosures on deferred taxes from tax loss carryforwards can be found in Note 17.
In accordance with IAS 12, deferred tax assets and liabilities are calculated by using the tax rates applicable in the individual countries at the balance sheet date or announced for the time when the deferred tax assets and liabilities are realised. Th e tax rate of 29.8% applied to German Group companies comprises the corporation tax rate plus the solidarity surcharge, as well as a municipal trade tax rate which is calculated as the average of the diff erent municipal trade tax rates. Foreign Group companies use their individual income tax rate to calculate deferred tax items. Th e income tax rates applied for foreign companies range from 15% to 48%.
Contingent liabilities represent possible obligations whose existence will be confi rmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise. Contingent liabilities also include certain obligations that will probably not lead to an outfl ow of resources embodying economic benefi ts, or where the amount of the outfl ow of resources embodying economic benefi ts cannot be measured with suffi cient reliability. In accordance with IAS 37, contingent liabilities are not recognised as liabilities (see also Note 49).
Th e preparation of IFRS-compliant consolidated fi nancial statements requires the exercise of judgement by management. All estimates are reassessed on an ongoing basis and are based on historical experience and expectations with regard to future events that appear reasonable under the given circumstances. Th is applies to the following matters in particular:
Th e preparation of the consolidated fi nancial statements in accordance with IFRSs requires assumptions and estimates to be made that aff ect the amounts of the assets and liabilities included in the balance sheet, the amounts of income and expenses, and the disclosures relating to contingent liabilities.
Amongst other things, these assumptions relate to the recognition and measurement of provisions. When determining the provisions for pensions and other employee benefi ts, the discount rate used is an important factor that has to be estimated. An increase or reduction of one percentage point in the discount rate used would result in a reduction or increase of around €990 million in the pension obligations of our pension plans in Germany. A similar change in the discount rate used to measure the pension obligations of the Group companies in the UK would result in a reduction or increase of around €490 million. Since actuarial gains and losses are only recognised if they exceed 10% of the higher of the defi ned benefi t obligation and the fair value of the plan assets, changes in the discount rate used for Deutsche Post World Net's benefi t plans generally have little or no eff ect on the expense or the carrying amount of the provisions recognised in the following fi nancial year.
Th e 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. 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 diff erence between actual events and the estimate made could have an eff ect on tax liabilities and deferred taxes in the particular period in which the matter is fi nally decided. Th e amount recognised for deferred tax assets could be reduced if the estimates of planned taxable income or the tax benefi ts achievable as a result of tax planning strategies are revised downwards, or in the event that changes to current tax laws restrict the extent to which future tax benefi ts 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 fi nancial statements, all identifi able assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition. One of the most important estimates this requires is the determination of the fair values of these assets and liabilities at the date of acquisition. Land, buildings and offi ce equipment are generally valued by independent experts, whilst securities for which there is an active market are recognised at the quoted exchange price. If intangible assets are identifi ed in the course of an acquisition, then in the majority of cases their measurement is 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. Th e independent expert determines the fair value using appropriate valuation techniques, normally based on expected future cash fl ows. In addition to the assumptions about the development of future cash fl ows, these valuations are also signifi cantly aff ected by the discount rates used.
Impairment testing for goodwill is based on assumptions with respect to the future. Th e Group carries out these tests annually and also whenever there are indications that goodwill may have become impaired. Th e recoverable amount of the CGU must then be calculated. Th is amount is the higher of fair value less costs to sell and value in use. Th e determination of value in use requires adjustments and estimates to be made with respect to forecasted future cash fl ows and the discount rate applied. Although management believes that the assumptions made for the purpose of calculating the recoverable amount are appropriate, possible unforeseeable changes in these assumptions could result in an impairment loss that could negatively aff ect the Group's net assets, fi nancial position and results of operations.
Th e pending legal proceedings in which Deutsche Post World Net is involved are reported under Note 50. Th e outcome of these proceedings could have a signifi cant eff ect on the net assets, fi nancial position and results of operations of the Group. Management regularly analyses the information currently available about these proceedings and recognises provisions for probable obligations including estimated legal costs. Internal and external legal advisers participate in making this assessment. In 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 suffi cient reliability. Th e 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 any provision recognised for the associated risk is adequate.
All assumptions and estimates are based on the circumstances prevailing and assessments made at the balance sheet 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 diff erent sectors and regions in which the Group operates. In the event of developments in this general environment that diverge from the assumptions made, the actual amounts may diff er from the estimated amounts. In such cases, the assumptions made and, where necessary, the carrying amounts of the relevant assets and liabilities are adjusted accordingly.
At the date of preparation of the consolidated fi nancial statements, there is no indication that any signifi cant 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 any signifi cant adjustments in fi nancial year 2008 to the carrying amounts of the assets and liabilities recognised in the fi nancial statements.
Th e consolidated fi nancial statements are based on the IFRS fi nancial statements of Deutsche Post AG and the subsidiaries, joint ventures and associates included in the consolidated fi nancial statements, prepared in accordance with uniform accounting policies as at 31 December 2007 and audited by independent auditors.
Acquisition accounting for subsidiaries included in the consolidated fi nancial statements uses the purchase method of accounting. Th e cost of the acquisition corresponds to the fair value of the assets given up, the equity instruments issued and the liabilities incurred or assumed at the transaction date, plus any costs directly attributable to the acquisition.
Joint ventures are proportionately consolidated in accordance with IAS 31. Assets and liabilities, as well as income and expenses, of jointly controlled companies are included in the consolidated fi nancial statements in proportion to the interest held in these companies. Proportionate acquisition accounting as well as recognition and measurement of goodwill use the same methods as applied to the consolidation of subsidiaries.
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 in associates.
Intra-Group revenue, other operating income and expenses as well as receivables, liabilities and provisions between consolidated companies are eliminated. Inter-company profi ts or losses from intra-Group deliveries and services not realised by sale to third parties are eliminated.
Segment reporting was prepared in accordance with IAS 14 (Segment Reporting). Th e presentation of specifi c data from the consolidated fi nancial statements is classifi ed by divisions and regions, based on the Group's internal reporting and organisational structure. Segment reporting is designed to enable a transparent view of the earnings power, net assets and fi nancial position of the individual components of the Group's activities and regions. For the segment reporting which forms part of the Notes, see page 126.
Prior-period amounts were restated due to the transfer of the German parcel business from the EXPRESS Division to the MAIL Division as at 1 January 2007 and the transfer of DHL Freight from the EXPRESS Division to the LOGISTICS Division and of the hubs and aviation services from the SERVICES segment to the EXPRESS Division as at 1 July 2006. In addition, some companies were transferred in the course of portfolio optimisation measures.
Refl ecting the Group's predominant organisational structure, the primary reporting format is based on the divisions. Deutsche Post World Net distinguishes between the following divisions:
In addition to the transport and delivery of written communications, the MAIL Division is positioning itself as an end-to-end service provider for the management of written communications. Th e division comprises the following business units: Mail Communication, Dialogue Marketing, Press Services, Parcel Germany, Global Mail and Corporate Information Solutions.
Th e EXPRESS Division off ers national and international courier, express and parcel services (DHL EXPRESS) under the DHL brand. Eff ective 1 July 2006, the European overland transport business – now the DHL Freight Business Unit – was transferred from the EXPRESS Division to the LOGISTICS Division. As part of the reorganisation of the global express network, hubs and global network aviation were removed from the SERVICES segment and transferred to the EXPRESS Division.
Th e LOGISTICS Division comprises the national and international logistics services of the DHL Global Forwarding and DHL Exel Supply Chain business units and, since 1 July 2006, the European overland transport business DHL Freight under the DHL brand.
Th e FINANCIAL SERVICES Division consists of the Deutsche Postbank Group's activities. Deutsche Postbank Group off ers a wide range of standardised banking services, including payments, deposits, retail and corporate banking, fund products and investment securities services. Eff ective 1 January 2006, Deutsche Postbank AG took over DP Retail GmbH, thus acquiring 850 retail outlets of Deutsche Post AG. Th e transfer of ownership led to a change of employer for around 9,600 employees. Th e retail outlets still owned by Deutsche Post AG are reported in the SERVICES segment. In addition, the FINANCIAL SERVICES segment includes the Pension Service.
Th e following table shows a breakdown of the FINANCIAL SERVICES Division's profi t from operating activities (EBIT) by segment component:
| €m | 2006 | 2007 | ||||||
|---|---|---|---|---|---|---|---|---|
| Deutsche Postbank Group |
Pension Service | Other | Total | Deutsche Postbank Group |
Pension Service | Other | Total | |
| EBIT | 1,000 | 7 | –3 | 1,004 | 1,069 | 7 | 0 | 1,076 |
Th e SERVICES segment contains the company's Global Business Services with the following areas: Legal, Insurance, Procurement, Finance Operations, IT Services, Real Estate, Fleet Management and Business Consulting. It also includes the Corporate Centre and those retail outlets still belonging to Deutsche Post AG. Th is segment also reports Deutsche Post AG income and expenses which cannot be allocated to an individual division. As part of the reorganisation of the global express network, hubs and global network aviation were removed from the SERVICES segment with eff ect from 1 July 2006 and transferred to the EXPRESS segment.
Th e amounts for the divisions are presented aft er consolidating intersegment transactions, which are eliminated in the consolidation column.
Th e reconciliation column contains the eff ects of consolidation adjustments and the amounts from the diff ering defi nitions of segment items compared with the corresponding item for the Group.
| €m | Segments total | Reconciliation | Consolidated amount | ||||
|---|---|---|---|---|---|---|---|
| 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | ||
| External revenue | 60,545 | 63,512 | 0 | 0 | 60,545 | 63,512 | |
| Internal revenue | 4,407 | 4,368 | – 4,407 | – 4,368 | 0 | 0 | |
| Total revenue | 64,952 | 67,880 | – 4,407 | – 4,368 | 60,545 | 63,512 | |
| Other operating income | 4,766 | 4,219 | –1,945 | –1,633 | 2,821 | 2,586 | |
| Materials expense | –39,216 | – 41,265 | 4,867 | 4,390 | –34,349 | –36,875 | |
| Staff costs | –18,631 | –18,491 | 15 | 20 | –18,616 | –18,471 | |
| Other operating expenses | – 6,192 | – 6,784 | 1,434 | 1,591 | – 4,758 | –5,193 | |
| Depreciation, amortisation and impairment losses | –1,771 | –2,357 | 0 | 0 | –1,771 | –2,357 | |
| Profi t from operating activities (EBIT) | 3,908 | 3,202 | –36 | 0 | 3,872 | 3,202 | |
| Net income from associates | 4 | 3 | 0 | 0 | 4 | 3 | |
| Net other fi nance costs | –1,034 | –1,013 | |||||
| Income taxes | –560 | –307 | |||||
| Consolidated net profi t | 2,282 | 1,885 | |||||
| of which attributable to Deutsche Post AG shareholders | 1,916 | 1,389 | |||||
| of which attributable to minorities | 366 | 496 | |||||
| Assets | 214,440 | 229,385 | 3,258 | 6,081 | 217,698 | 235,466 | |
| of which investments in associates | 63 | 203 | 0 | 0 | 63 | 203 | |
| Liabilities | 181,374 | 200,973 | 22,372 | 20,634 | 203,746 | 221,607 | |
| of which investments in associates | 0 | 0 | 0 | 0 | 0 | 0 |
External revenue is the revenue generated by the divisions from non-Group third parties. Internal revenue is revenue generated with other divisions. If comparable external market prices exist for services or products off ered internally within the Group, these market prices or market-oriented prices are used as transfer prices (arm's length principle). Th e transfer prices for services for which no external market exists are generally based on incremental costs.
Th e expenses for IT services provided in the IT service centres are allocated to the divisions by cause. Th at portion of the expenses which cannot be passed on to the divisions according to the arm's length principle continues to be included in the SERVICES segment. Th e additional costs resulting from Deutsche Post AG's postal universal service obligation (nationwide retail outlet network, delivery every working day), and from its obligation to assume the compensation structure as the legal successor to Deutsche Bundespost, are allocated to the MAIL Division. Th e segment income and expense of the FINANCIAL SERVICES Division also include the Deutsche Postbank Group's interest, fee and commission income and expense because these are allocated to the business operations of this division. Segment assets are composed of non-current assets (excluding non-current fi nancial assets) and current assets (excluding income tax receivables, cash and cash equivalents and current fi nancial instruments). Th e receivables and other securities from fi nancial services are reported under the FINANCIAL SERVICES segment. Purchased goodwill is allocated to the divisions.
| €m | 2006 | 2007 |
|---|---|---|
| Total assets | 217,698 | 235,466 |
| Investment property | –122 | –187 |
| Non-current fi nancial assets | –994 | –1,060 |
| Other non-current assets | –303 | – 413 |
| Deferred tax assets | –542 | –1,020 |
| Income tax assets | –281 | –312 |
| Receivables and other assets | –200 | –141 |
| Financial instruments | – 42 | –72 |
| Cash and cash equivalents | –2,391 | – 4,683 |
| Reconciliation to segment assets | 212,823 | 227,578 |
Segment liabilities relate to non-interest-bearing provisions and liabilities (excluding income tax liabilities) and to liabilities from fi nancial services.
| €m | 2006 | 2007 |
|---|---|---|
| Total assets | 217,698 | 235,466 |
| Equity | –13,952 | –13,859 |
| Non-current provisions | –12,340 | –10,573 |
| Non-current liabilities | – 8,780 | – 8,986 |
| Current provisions | – 616 | – 693 |
| Current liabilities | –2,048 | –1,905 |
| Reconciliation to segment liabilities | 179,962 | 199,450 |
Th e segment investments relate to intangible assets (including purchased goodwill) and property, plant and equipment. Depreciation, amortisation and write-downs relate to the segment assets allocated to the individual divisions. Other non-cash expenses relate primarily to expenses from the recognition of provisions.
Th e allocation of external revenue is based on the location of the customers. Only revenue generated from non-Group third parties is disclosed. Segment assets are allocated according to the location of the assets. Th ey are composed of the non-current assets (excluding non-current fi nancial assets) and current assets (excluding income tax assets, cash and cash equivalents, and current fi nancial instruments) of the individual regions. Segment assets also include receivables and other securities from fi nancial services, as well as purchased goodwill, which are generally allocated on the basis of the domicile of the Group companies. Segment investments are also allocated on the basis of the location of the assets. Th ey include investments in intangible assets (including purchased goodwill) and property, plant and equipment.
| 2006 | 2007 |
|---|---|
| 51,592 | 53,719 |
| 8,953 | 9,793 |
| 60,545 | 63,512 |
As in the prior-year period, there was no revenue or income from banking transactions in fi nancial year 2007 that was generated on the basis of barter transactions.
Th e LOGISTICS Division in particular achieved a substantial increase in revenue primarily due to the 10-year contract with the British National Health Service (NHS). Th e revenue contribution from TSO, which was consolidated for the fi rst time in the year under review, was €106 million (see Note 2).
Th e further classifi cation of revenue by division and the allocation of revenue and income from banking transactions to geographical regions is presented in the segment reporting.
| €m | 2006 | 2007 |
|---|---|---|
| Interest income | ||
| Interest income from credit and money market transactions |
5,058 | 5,409 |
| Interest income from fi xed-income securities and book-entry securities |
2,068 | 2,491 |
| Income from equities and other non-fi xed-income securities |
231 | 103 |
| Interest income from trading operations | 249 | 347 |
| Net gains/losses from remeasurement of hedges |
8 | –1 |
| 7,614 | 8,349 | |
| Commission income | 1,075 | 1,154 |
| Net trading income | 264 | 290 |
| Income from banking transactions | 8,953 | 9,793 |
Th e method of reporting the net gains/losses from the fair value option was changed compared with the prior year. Changes in the fair value of the related fi nancial instruments are now reported in net trading income, rather than in net interest income. Th e prior-year amounts have been restated accordingly. Interest relating to fi nancial instruments covered by the fair value option and to the associated interest rate swaps is reported in net interest income as before.
| €m | 2006 | 2007 |
|---|---|---|
| Net income from investment securities and | ||
| insurance business (Deutsche Postbank Group) | 234 | 294 |
| Gains on disposal of non-current assets | 274 | 275 |
| Income from the reversal of provisions | 294 | 272 |
| Income from currency translation differences | 207 | 262 |
| Income from work performed and capitalised | 197 | 190 |
| Insurance income | 164 | 176 |
| Rental and lease income | 91 | 95 |
| Reversals of impairment losses on receivables and other assets |
58 | 85 |
| Commission income | 75 | 78 |
| Income from prior-period billings | 86 | 76 |
| Income from fees and reimbursements | 59 | 73 |
| Income from the sale of Vfw AG, Germany | 0 | 59 |
| Income from the derecognition of liabilities | 91 | 54 |
| Income from loss compensation | 34 | 27 |
| Income from payments received on bad debt | 10 | 17 |
| Subsidies | 11 | 11 |
| Income from non-hedging derivatives | 46 | 7 |
| Gains on disposal of Postbank shares due to conversion right from exchangeable bond |
276 | 0 |
| Income from arbitration proceedings against Deutsche Telekom AG |
99 | 0 |
| Income from the reversal of the provision for Bundes-Pensions-Service für Post und |
||
| Telekommunikation e.V. | 80 | 0 |
| Income from the sale of Modra Pyramida | 64 | 0 |
| Income from cost transfers in connection with BAnstPT (Federal Posts and Telecommunications |
||
| Agency) | 55 | 0 |
| Income from the sale of McPaper AG | 10 | 0 |
| Miscellaneous | 306 | 535 |
| Other operating income | 2,821 | 2,586 |
Income from investment securities and insurance business ( Deutsche Postbank Group) includes a number of non-recurring effects (see Note 3).
Th e decline in other operating income primarily refl ects the non-recurring income in the previous year from the sale of the shares in Postbank and the positive outcome of the arbitration proceedings against Deutsche Telekom AG. Miscellaneous other operating income contains a number of individual items.
| €m | 2006 | 2007 |
|---|---|---|
| Materials expense | 28,641 | 30,488 |
| Expenses from banking transactions | 5,708 | 6,387 |
| Materials expense and expenses from | ||
| banking transactions | 34,349 | 36,875 |
| €m | 2006 | 2007 |
|---|---|---|
| Cost of raw materials, consumables and supplies, and of goods purchased and held for resale |
||
| Fuel | 669 | 934 |
| Aircraft fuel | 571 | 601 |
| Packaging material | 223 | 397 |
| Goods purchased and held for resale | 128 | 1,295 |
| Offi ce supplies | 102 | 100 |
| Spare parts and repair materials | 69 | 90 |
| Other expenses | 100 | 112 |
| 1,862 | 3,529 | |
| Cost of purchased services | ||
| Transportation costs | 19,757 | 18,450 |
| Cost of temporary staff | 1,690 | 2,469 |
| Expenses from non-cancellable leases | 1,297 | 1,709 |
| Expenses from cancellable leases | 497 | 508 |
| Other lease expenses (incidental expenses) | 346 | 173 |
| Maintenance costs | 953 | 1,130 |
| IT services | 916 | 896 |
| Commissions paid | 294 | 313 |
| Other purchased services | 1,029 | 1,311 |
| 26,779 | 26,959 | |
| Materials expense | 28,641 | 30,488 |
Th e increase in materials expense was a result of the expansion of the LOGISTICS and EXPRESS divisions' business activities, in particular in the Europe and Asia Pacifi c regions. Th e increase in the expense for goods purchased and held for resale relates to the procurement logistics for the NHS (see Note 9). An amount of €30 million of the expenses for materials related to TSO. Other purchased services include a number of individual items.
| €m | 2006 | 2007 |
|---|---|---|
| Interest expense on liabilities | 3,566 | 4,315 |
| Interest expense on securitised liabilities | 833 | 587 |
| Interest expense on subordinated debt | 253 | 280 |
| Commission expense | 214 | 244 |
| Other interest expenses | 842 | 961 |
| Expenses from banking transactions | 5,708 | 6,387 |
| €m | 2006 | 2007 |
|---|---|---|
| Wages, salaries and compensation | 15,281 | 15,200 |
| of which expenses for options under the stock option plans |
29 | 14 |
| of which expenses for SARs under the stock option plans |
2 | 2 |
| of which expenses from SAR Plan 2006/LTIP | 14 | 21 |
| Social security contributions | 2,198 | 2,252 |
| Retirement benefi t expenses | 1,137 | 1,019 |
| Staff costs | 18,616 | 18,471 |
Staff costs include an amount of €29 million relating to the acquisition of TSO.
Retirement benefit expenses include €560 million (previous year: €559 million) relating to contributions by Deutsche Post AG and €111 million (previous year: €111 million) relating to contributions by Deutsche Postbank AG to Bundes-Pensions-Service für Post und Telekommunikation e.V. Further details can be found in Note 6.
Staff costs relate mainly to wages, salaries and compensation, as well as all other benefi ts paid to employees of the Group for their services in the year under review. Social security contributions relate in particular to statutory social security contributions paid by employers.
Retirement benefi t expenses relate to current and former employees or their surviving dependants. Th ese expenses consist of additions to pension provisions, employer contributions to supplementary occupational pension plans and retirement benefi t payments by employers for their employees.
Th e average number of employees of Deutsche Post World Net in the year under review, classifi ed by employee group, was as follows:
| 2006 | 2007 | |
|---|---|---|
| Hourly workers and salaried employees | 440,203 | 459,162 |
| Civil servants | 62,560 | 61,172 |
| Trainees | 4,878 | 4,469 |
| Employees | 507,641 | 524,803 |
Th e number of full-time equivalents as at 31 December 2007 was 475,100 employees (31 December 2006: 463,350 employees). Th e employees of companies acquired or disposed of during the year under review were included ratably. Th e employees of the joint venture companies have been included proportionately.
| €m | 2006 | 2007 |
|---|---|---|
| Amortisation of intangible assets, | ||
| excluding the impairment of goodwill | 479 | 587 |
| Depreciation of property, plant and equipment | ||
| Land and buildings | 285 | 508 |
| Technical equipment and machinery | 343 | 499 |
| Other equipment, operating and offi ce | ||
| equipment, vehicle fl eet | 558 | 629 |
| Aircraft | 106 | 126 |
| Advance payments | 0 | 6 |
| 1,292 | 1,768 | |
| Depreciation/amortisation | ||
| of other non-current assets | 0 | 2 |
| 1,771 | 2,357 | |
| Impairment of goodwill | 0 | 0 |
| Depreciation, amortisation and | ||
| impairment losses | 1,771 | 2,357 |
Depreciation, amortisation and impairment losses include €612 million (previous year: €44 million) in respect of impairment write-downs. Of that amount, €97 million relates to intangible assets (previous year: €27 million) and €253 million to land and buildings (previous year: €17 million), whilst €262 million relates to the remaining property, plant and equipment. At segment level, the amounts of impairment writedowns were as follows:
| €m | |
|---|---|
| 3 | |
| EXPRESS | 596 |
| LOGISTICS | 13 |
In the EXPRESS Americas Division, intangible assets (excluding goodwill) were written down fully in an amount of €90 million whilst items of property, plant and equipment were written down in an amount of €504 million to their fair value less costs to sell.
| €m | 2006 | 2007 |
|---|---|---|
| Public relations expenses | 594 | 586 |
| Travel and training costs | 479 | 524 |
| Legal, consulting and audit costs | 498 | 516 |
| Other business taxes | 300 | 384 |
| Warranty expenses, refunds and compensation payments |
306 | 363 |
| Allowance for losses on loans and advances from fi nancial services (Deutsche Postbank Group) |
337 | 338 |
| Telecommunication costs | 312 | 328 |
| Cost of purchased cleaning, transportation and security services |
254 | 305 |
| Expenses from currency translation differences | 272 | 266 |
| Offi ce supplies | 239 | 257 |
| Write-downs of current assets | 253 | 227 |
| Entertainment and corporate hospitality expenses | 159 | 181 |
| Cost of asset disposal | 142 | 167 |
| Insurance costs | 128 | 139 |
| Commissions paid | 64 | 136 |
| Voluntary social benefi ts | 110 | 129 |
| Services provided by the Federal Posts and | ||
| Telecommunications Agency | 79 | 76 |
| Contributions and fees | 41 | 50 |
| Other property-related expenses | 56 | 35 |
| Monetary transaction costs | 29 | 34 |
| Prior-period other operating expenses | 18 | 32 |
| Donations | 13 | 17 |
| Expenses from non-hedging derivatives | 30 | 4 |
| Expenses from arbitration proceedings against Deutsche Telekom AG |
10 | 0 |
| Miscellaneous | 35 | 99 |
| Other operating expenses | 4,758 | 5,193 |
Th e allowance for losses on loans and advances from fi nancial services (Deutsche Postbank Group) includes a number of non-recurring eff ects (see Note 3).
Other operating expenses amounting to €26 million relate to TSO, which was consolidated for the fi rst time in 2007. Miscellaneous other operating expenses include a number of individual items.
Taxes other than income taxes are either recognised under the related expense item or, if no specific allocation is possible, under other operating expenses. Th e rise in other business taxes was attributable to an increase in additions to provisions recognised by Deutsche Post AG.
Investments in companies on which a signifi cant infl uence can be exercised and which are accounted for using the equity method contributed €3 million (previous year: €4 million) to net fi nancial income.
| €m | 2006 | 2007 |
|---|---|---|
| Financial income | ||
| Interest income | 63 | 69 |
| Income from other equity investments and fi nancial instruments |
13 | 21 |
| Income from currency translation differences | 81 | 438 |
| Other fi nancial income | 41 | 470 |
| 198 | 998 | |
| Finance costs | ||
| Interest expenses | –1,040 | –1,055 |
| of which interest cost on discounted | ||
| provisions for pensions and other provisions | –704 | –723 |
| Cost of loss absorption | 0 | –1 |
| Write-downs on fi nancial instruments | –11 | –2 |
| Expenses from currency translation differences | –95 | –576 |
| Other fi nance costs | – 86 | –377 |
| –1,232 | –2,011 | |
| Net other fi nance costs | –1,034 | –1,013 |
Income and expenses from the Deutsche Postbank Group's banking transactions are not recognised under net other fi nance costs. Whilst income – in particular in the form of interest, fee and commission income as well as income from equities and securities – is recognised under revenue and income from banking transactions (see Note 9), expenses – in particular interest, fee and commission expenses – are carried under materials expense and expenses from banking transactions (see Note 11). Th e increases in income and expenses from currency translation diff erences and in other fi nancial income and other fi nance costs were primarily due to changes in the hedging procedures for foreign currencies.
| €m | 2006 | 2007 |
|---|---|---|
| Current income tax expense | –338 | – 453 |
| Current recoverable income tax | 62 | 10 |
| –276 | – 443 | |
| Deferred tax income (previous year: tax expense) from temporary differences |
–221 | 183 |
| Deferred tax expense from the reduction in deferred tax assets from tax loss carryforwards |
– 63 | – 47 |
| –284 | 136 | |
| Income tax expense | –560 | –307 |
Th e reconciliation to the eff ective income tax expense is shown below, based on consolidated net profi t before income taxes, and the expected income tax expense:
| €m | 2006 | 2007 |
|---|---|---|
| Consolidated net profi t before income taxes | 2,842 | 2,192 |
| Expected income tax expense | 1,134 | 875 |
| Deferred tax assets from temporary differences not recognised for |
||
| Initial differences | – 483 | –735 |
| Restructuring provisions | –70 | 0 |
| Deferred tax assets of German Group companies not recognised for tax loss carryforwards |
139 | 376 |
| Deferred tax assets of foreign Group companies not recognised for tax loss carryforwards |
440 | 98 |
| Changes in tax rates at German Group companies | 0 | –188 |
| Effect of current taxes from previous years | –31 | 68 |
| Tax-exempt income and non-deductible expenses, effects from Section 8b KStG |
||
| (German corporate income tax act) | –503 | –83 |
| Differences in tax rates at foreign companies | –50 | –103 |
| Other | –16 | –1 |
| Effective income tax expense | 560 | 307 |
The difference between the expected and the effective income tax expense is due in particular to temporary diff erences between the carrying amounts in the IFRS fi nancial statements and in the tax accounts of Deutsche Post AG resulting from initial diff erences in the opening tax accounts as at 1 January 1995. In accordance with IAS 12.15 (b) and IAS 12.24 (b), the Group did not recognise any deferred tax assets on these temporary diff erences, which relate mainly to property, plant and equipment as well as to provisions for pensions and other employee benefi ts.
Th e remaining temporary diff erences between the carrying amounts in the IFRS fi nancial statements and in the opening tax accounts amount to €3.4 billion as at 31 December 2007 (previous year: €5.2 billion). Th e eff ects from deferred tax assets not recognised on tax loss carryforwards relate primarily to Deutsche Post AG and members of its consolidated tax group. Eff ects from deferred tax assets not recognised on tax loss carryforwards in respect of foreign companies relate primarily to the Americas region.
Eff ects from deferred tax assets not recognised amounting to €122 million (previous year: €–40 million) were due to the reversal of a writedown of deferred tax assets recognised in a prior period. Th e income tax expense was reduced by an amount of €51 million (previous year: €44 million) as a result of the utilisation of tax losses not previously refl ected in the fi nancial statements.
Th e change in the tax rate applying to German Group companies relates to the eff ects of the 2008 corporate tax reform. As the amount of deferred tax liabilities reported by German Group companies is considerably higher than the amount of deferred tax assets reported, remeasurement in fi nancial year 2007 resulted in a tax benefi t of around €188 million. Th e change in the tax rate in some foreign tax jurisdictions did not lead to any signifi cant eff ects. Th e eff ects from Section 8b Körperschaft ssteuergesetz (KStG – German corporate income tax act) relate primarily to the special funds, shares and equity investments of the Deutsche Postbank Group.
In fi nancial year 2007, Deutsche Post World Net generated a consoli dated net profi t for the period of €1,885 million (previous year: €2,282 million). Of this amount, €1,389 million (previous year: €1,916 million) is attributable to Deutsche Post AG shareholders.
Th e net profi t of €496 million attributable to minorities increased by €130 million year-on-year.
Basic earnings per share are computed in accordance with IAS 33 (Earnings per Share) by dividing consolidated net profi t by the average number of shares. Basic earnings per share for fi nancial year 2007 were €1.15 (previous year: €1.60).
| 2006 | 2007 | |
|---|---|---|
| Consolidated net profi t attributable to Deutsche Post AG shareholders (€m) |
1,916 | 1,389 |
| Weighted average number of shares outstanding | 1,196,244,814 | 1,205,101,455 |
| Basic earnings per share (€) | 1.60 | 1.15 |
To compute diluted earnings per share, the average number of shares outstanding is adjusted for the number of all potentially dilutive shares. Th ere were 13,184,482 stock options for executives as at the reporting date (previous year: 21,823,394), of which 2,489,720 were dilutive (previous year: 3,395,362).
| 2006 | 2007 | |
|---|---|---|
| Consolidated net profi t attributable to Deutsche Post AG shareholders (€m) |
1,916 | 1,389 |
| Weighted average number of shares outstanding | 1,196,244,814 | 1,205,101,455 |
| Potentially dilutive shares | 3,395,362 | 2,489,720 |
| Weighted average number of shares for diluted net income |
1,199,640,176 | 1,207,591,175 |
| Diluted earnings per share (€) | 1.60 | 1.15 |
A dividend per share of €0.90 is being proposed for fi nancial year 2007. Based on the 1,207,470,598 shares recorded in the commercial register as at 31 December 2007, this corresponds to a dividend distribution of €1,087 million. Further details on the dividend distribution can be found in Note 38.
| €m | Internally | Advance payments and intangible |
|||||
|---|---|---|---|---|---|---|---|
| generated intangible assets |
Purchased brand names |
Purchased customer lists |
Other purchased intangible assets |
Goodwill | assets under development |
Total | |
| Cost | |||||||
| Balance at 1 January 2006 | 1,020 | 540 | 576 | 1,490 | 11,060 | 273 | 14,959 |
| Additions to consolidated group | 29 | 345 | 485 | 70 | 1,031 | 52 | 2,012 |
| Additions | 137 | 0 | 0 | 387 | 98 | 150 | 772 |
| Reclassifi cations | 130 | 0 | 0 | 267 | 0 | –259 | 138 |
| Disposals | –120 | 0 | 0 | –352 | – 159 | – 84 | –715 |
| Reclassifi cation to current assets | 0 | 0 | 0 | –1 | 0 | 0 | –1 |
| Currency translation differences | –11 | 13 | –21 | –33 | –287 | –2 | –341 |
| Balance at 31 December 2006/ 1 January 2007 |
1,185 | 898 | 1,040 | 1,828 | 11,743 | 130 | 16,824 |
| Additions to consolidated group | 0 | 11 | 78 | 5 | 296 | 0 | 390 |
| Additions | 136 | 0 | 0 | 114 | 121 | 101 | 472 |
| Reclassifi cations | 16 | 0 | 0 | 13 | 0 | –39 | –10 |
| Disposals | –27 | 0 | –70 | –147 | –1 | –36 | –281 |
| Reclassifi cation to current assets | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Currency translation differences | –12 | –51 | –62 | –40 | –389 | –3 | –557 |
| Balance at 31 December 2007 | 1,298 | 858 | 986 | 1,773 | 11,770 | 153 | 16,838 |
| Amortisation and impairment losses/ reversals |
|||||||
| Balance at 1 January 2006 | 533 | 0 | 0 | 866 | 440 | 94 | 1,933 |
| Additions to consolidated group | 1 | 0 | 0 | 7 | 0 | 0 | 8 |
| Amortisation | 106 | 0 | 89 | 257 | 0 | 0 | 452 |
| Impairment losses | 27 | 0 | 0 | 0 | 0 | 0 | 27 |
| Reclassifi cations | 18 | 0 | 0 | –16 | 0 | 0 | 2 |
| Disposals | –97 | 0 | 0 | –56 | 0 | –75 | –228 |
| Currency translation differences | – 6 | 0 | –1 | –14 | 0 | –1 | –22 |
| Balance at 31 December 2006/ | |||||||
| 1 January 2007 | 582 | 0 | 88 | 1,044 | 440 | 18 | 2,172 |
| Additions to consolidated group | 0 | 0 | 0 | 2 | 0 | 0 | 2 |
| Amortisation | 146 | 0 | 83 | 261 | 0 | 0 | 490 |
| Impairment losses | 54 | 0 | 0 | 30 | 0 | 13 | 97 |
| Reclassifi cations | – 8 | 0 | 0 | 8 | 0 | 0 | 0 |
| Disposals | – 10 | 0 | 0 | –105 | 0 | 0 | –115 |
| Currency translation differences | – 5 | 0 | 7 | –35 | 0 | –1 | –34 |
| Balance at 31 December 2007 | 759 | 0 | 178 | 1,205 | 440 | 30 | 2,612 |
| Carrying amount at 31 December 2007 | 539 | 858 | 808 | 568 | 11,330 | 123 | 14,226 |
| Carrying amount at 31 December 2006 | 603 | 898 | 952 | 784 | 11,303 | 112 | 14,652 |
Purchased soft ware, concessions, industrial rights, licences and similar rights and assets are reported under purchased intangible assets. Internally generated intangible assets relate to development costs for internally developed soft ware.
Purchased customer lists of €402 million relate to Exel (previous year: €494 million), €188 million to Williams Lea (previous year: €220 million) and €156 million to BHW (previous year: €238 million). Th e brand names relate primarily to Exel (€504 million; previous year: €552 million), Williams Lea (€24 million; previous year: €27 million) and BHW (€319 million, unchanged from previous year).
Th e increase in goodwill (at the date of acquisition) related to TSO in the MAIL Division in an amount of €139 million, and to Astar in the EXPRESS Division in an amount of €78 million. Th e decline in the carrying amount of goodwill in the LOGISTICS Division is mainly the result of currency translation diff erences.
1) Goodwill from reconciliation amounts to €–114 million (previous year: €–114 million).
For the purposes of the impairment test carried out annually in accordance with IAS 36, the Group determines the recoverable amount of a CGU on the basis of its value in use. Th is calculation is based on projections of free cash fl ow that are fi rst discounted at a rate corresponding to the post-tax cost of capital. Pre-tax discount rates are then determined iteratively.
Th e cash fl ow projections are based on management's adopted detailed budgets for EBIT and capital expenditure with a three-year planning horizon. Th e perpetual annuity is determined using a long-term growth rate of up to 3%. Th e growth rate used refl ects expectations regarding industry growth for the CGUs, but does not exceed the estimated longterm growth rate for the countries with the highest contribution to earnings in the relevant CGUs. Th e cash fl ow forecasts are based on both historical amounts and the anticipated future general market trend. In addition, the forecasts take into account growth in the respective national business operations and in international trade, and the ongoing trend towards outsourcing logistics activities. Cost estimates for the transportation network and services also have an impact on value in use.
Th e pre-tax cost of capital is based on the weighted average cost of capital. Th e following table shows the discount rates used for the individual CGUs:
| % | 2006 | 2007 |
|---|---|---|
| LOGISTICS | ||
| DHL Exel Supply Chain | 9.0 | 10.4 |
| Freight Europe | n/a | 11.1 |
| DHL Global Forwarding | 9.7 | 10.8 |
| International | 10.4 | 10.9 |
| National | 9.9 | 11.5 |
| EXPRESS | 9.6 | 9.9 |
On the basis of these assumptions and the impairment tests carried out for the individual CGUs to which goodwill was allocated, it was established that the recoverable amounts of the CGUs exceeded their carrying amounts in every case. No impairment write-downs were therefore necessary.
Th e recoverable amount of the DHL Exel Supply Chain CGU exceeds its carrying amount by around 1%. If the discount rate were increased by 5% or the sustainable EBIT margin reduced by 5% to 3.9%, an impairment write-down of around €300 million would have to be recognised in each case.
| €m | Advance | ||||||
|---|---|---|---|---|---|---|---|
| Technical | Other equipment, | Vehicle fl eet | payments, | ||||
| Land and buildings |
equipment and machinery |
operating and offi ce equipment |
Aircraft | and transport equipment |
assets under development |
Total | |
| Cost | |||||||
| Balance at 1 January 2006 | 7,889 | 4,249 | 3,182 | 1,211 | 1,916 | 112 | 18,559 |
| Additions to consolidated group | 227 | 36 | 143 | 0 | 25 | 4 | 435 |
| Additions | 319 | 119 | 285 | 41 | 306 | 187 | 1,257 |
| Reclassifi cations | –109 | –195 | 174 | 67 | 50 | – 60 | –73 |
| Disposals | – 672 | –215 | – 423 | –13 | –284 | –59 | –1,666 |
| Reclassifi cation to current assets | – 8 | 0 | 0 | 0 | 0 | 0 | – 8 |
| Currency translation differences | – 67 | –93 | –55 | –24 | –7 | –2 | –248 |
| Balance at 31 December 2006/ 1 January 2007 |
7,579 | 3,901 | 3,306 | 1,282 | 2,006 | 182 | 18,256 |
| Additions to consolidated group | 42 | 31 | 38 | 56 | 9 | 2 | 178 |
| Additions | 358 | 346 | 412 | 117 | 277 | 349 | 1,859 |
| Reclassifi cations | –75 | 60 | 34 | –7 | 14 | –137 | –111 |
| Disposals | –521 | –170 | –291 | –55 | –219 | – 84 | –1,340 |
| Reclassifi cation to current assets | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Currency translation differences | –115 | –92 | – 68 | –26 | – 41 | –7 | –349 |
| Balance at 31 December 2007 | 7,268 | 4,076 | 3,431 | 1,367 | 2,046 | 305 | 18,493 |
| Depreciation and impairment losses | |||||||
| Balance at 1 January 2006 | 2,215 | 2,756 | 2,341 | 292 | 1,047 | 0 | 8,651 |
| Additions to consolidated group | 21 | 22 | 37 | 0 | 28 | 1 | 109 |
| Depreciation | 268 | 343 | 365 | 106 | 193 | 0 | 1,275 |
| Impairment losses | 17 | 0 | 0 | 0 | 0 | 0 | 17 |
| Reversal of impairment losses | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Reclassifi cations | 175 | –297 | 93 | 0 | 36 | –9 | –2 |
| Disposals | –320 | –191 | –318 | –11 | –233 | 0 | –1,073 |
| Reclassifi cation to current assets | –1 | 0 | 0 | 0 | 0 | 0 | –1 |
| Currency translation differences | –19 | – 41 | – 40 | –3 | –5 | 0 | –108 |
| Balance at 31 December 2006/ | |||||||
| 1 January 2007 | 2,356 | 2,592 | 2,478 | 384 | 1,066 | – 8 | 8,868 |
| Additions to consolidated group | 19 | 22 | 26 | 15 | 4 | 0 | 86 |
| Depreciation | 255 | 309 | 362 | 126 | 201 | 0 | 1,253 |
| Impairment losses | 253 | 190 | 47 | 0 | 19 | 6 | 515 |
| Reversal of impairment losses | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Reclassifi cations | –57 | 33 | –5 | –7 | –2 | –1 | –39 |
| Disposals | –206 | –126 | –254 | –25 | –167 | 0 | –778 |
| Reclassifi cation to current assets | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Currency translation differences | –37 | – 47 | –50 | –10 | –22 | 0 | –166 |
| Balance at 31 December 2007 | 2,583 | 2,973 | 2,604 | 483 | 1,099 | –3 | 9,739 |
| Carrying amount at 31 December 2007 | 4,685 | 1,103 | 827 | 884 | 947 | 308 | 8,754 |
| Carrying amount at 31 December 2006 | 5,223 | 1,309 | 828 | 898 | 940 | 190 | 9,388 |
Advance payments relate only to advance payments on items of property, plant and equipment where Deutsche Post World Net has paid advances in connection with uncompleted transactions. Assets under development relate to items of property, plant and equipment in progress at the balance sheet date for whose production internal or third-party costs have already been incurred. Items of property, plant and equipment pledged as collateral amount to less than €1 million (previous year: €5 million).
Th e following assets are carried as non-current assets resulting from fi nance leases:
| €m 2006 |
2007 |
|---|---|
| Intangible assets 4 |
2 |
| Land and buildings 52 |
52 |
| Technical equipment and machinery 45 |
35 |
| Other equipment, operating and offi ce equipment 61 |
122 |
| Aircraft 633 |
491 |
| Vehicle fl eet and transport equipment 13 |
7 |
| Finance leases 808 |
709 |
Th e corresponding liabilities from fi nance leases are included under fi nancial liabilities (see Note 42).
| €m | 2006 | 2007 |
|---|---|---|
| Cost | ||
| Balance at 1 January | 143 | 157 |
| Additions to consolidated group | 0 | 0 |
| Additions | 0 | 20 |
| Reclassifi cations | 19 | 122 |
| Disposals | –5 | –37 |
| Reclassifi cation to current assets | 0 | 0 |
| Currency translation differences | 0 | –2 |
| Balance at 31 December | 157 | 260 |
| Impairment losses | ||
| Balance at 1 January | 36 | 35 |
| Additions to consolidated group | 0 | 0 |
| Impairment losses | 1 | 2 |
| Changes in fair value | 0 | 0 |
| Reclassifi cations | 0 | 39 |
| Disposals | –2 | –3 |
| Reclassifi cation to current assets | 0 | 0 |
| Currency translation differences | 0 | 0 |
| Balance at 31 December | 35 | 73 |
| Carrying amount at 31 December | 122 | 187 |
€99 million (previous year: €31 million) of investment property relates to Deutsche Post AG and €73 million (previous year: €72 million) to the Deutsche Postbank Group. Rental income for this property amounted to €9 million (previous year: €2 million), whilst the related expenses were also €9 million (previous year: €3 million). Th e fair value amounted to €187 million.
| €m | 2006 | 2007 |
|---|---|---|
| Investments in associates | 63 | 203 |
| Other non-current fi nancial assets | ||
| Available for sale | 805 | 743 |
| Loans | 126 | 114 |
| Non-current fi nancial assets | 994 | 1,060 |
Write-downs amounting to €4 million (previous year: €8 million) were included in the income statement.
Compared with the market rates of interest prevailing at 31 December 2007 for comparable fi nancial assets, most of the housing promotion loans are low-interest or interest-free loans. Th ey are recognised in the balance sheet at a present value of €19 million (previous year: €17 million). Th e principal amount of these loans totals €27 million (previous year: €25 million). As in the previous year, investments in associates and other investees were not subject to restraints on disposal.
| €m | 2006 | 2007 |
|---|---|---|
| Pension assets | 196 | 247 |
| Derivatives | 35 | 27 |
| Sureties provided | 13 | 33 |
| Miscellaneous | 132 | 190 |
| Other non-current assets | 376 | 497 |
Th e derivatives – interest rate swaps/fair value hedges – relate to bonds issued by Deutsche Post Finance, the Netherlands, and were entered into with external banks. Further information on pension assets can be found in Note 40.
| €m | 2006 | 2007 |
|---|---|---|
| Deferred tax assets for tax loss carryforwards | 270 | 227 |
| Deferred tax assets for temporary differences | 272 | 793 |
| 542 | 1,020 | |
| Deferred tax liabilities for temporary differences | 1,426 | 1,569 |
No deferred tax assets were recognised for tax loss carryforwards of around €11.7 billion (previous year: €10.3 billion) and for temporary differences of around €1.2 billion (previous year: €1.9 billion), as it can be assumed that the Group will not be able to use these tax loss carryforwards and temporary diff erences within the framework of tax planning. It will be possible to utilise these tax loss carryforwards for an indefi nite period of time. Most of the loss carryforwards are attributable to Deutsche Post AG. Deferred taxes have not been recognised for temporary diff erences of €468 million (previous year: €380 million) relating to earnings of German and foreign subsidiaries because it is probable that these temporary diff erences will not reverse in the foreseeable future.
| €m | 2006 | 2007 |
|---|---|---|
| Deferred taxes for German tax loss carryforwards | ||
| Corporation tax and solidarity surcharge | 111 | 80 |
| Trade tax | 95 | 70 |
| Deferred taxes for foreign tax loss carryforwards | 64 | 77 |
| 270 | 227 |
| €m | 2006 | 2007 |
|---|---|---|
| Less than 1 year | 48 | 10 |
| 1 to 2 years | 42 | 9 |
| 2 to 3 years | 111 | 86 |
| 3 to 4 years | 15 | 84 |
| 4 to 5 years | 18 | 4 |
| More than 5 years | 36 | 34 |
| 270 | 227 |
| €m | 2006 | 2007 | ||
|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | |
| Less than 1 year | 61 | 141 | 220 | 12 |
| 1 to 2 years | 35 | 18 | 67 | 18 |
| 2 to 3 years | 26 | 4 | 38 | 7 |
| 3 to 4 years | 12 | 90 | 20 | 417 |
| 4 to 5 years | 19 | 903 | 285 | 542 |
| More than 5 years | 119 | 270 | 163 | 573 |
| 272 | 1,426 | 793 | 1,569 |
Th e following deferred tax assets and liabilities for temporary diff erences result from diff erences in the carrying amounts of individual balance sheet items:
| €m | 2006 | 2007 | |||
|---|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | ||
| Intangible assets | 58 | 727 | 72 | 701 | |
| Property, plant and | |||||
| equipment | 24 | 71 | 17 | 75 | |
| Non-current fi nancial assets | 0 | 1 | 26 | 0 | |
| Other non-current assets | 3 | 117 | 14 | 37 | |
| Current assets | |||||
| Receivables and other securities from fi nancial |
|||||
| services | 139 | 1,965 | 394 | 2,205 | |
| Other current assets | 203 | 49 | 143 | 10 | |
| Provisions | 367 | 27 | 434 | 131 | |
| Financial liabilities | 25 | 0 | 4 | 0 | |
| Liabilities from fi nancial | |||||
| services | 1,154 | 83 | 1,653 | 97 | |
| Other liabilities | 20 | 107 | 31 | 313 | |
| 1,993 | 3,147 | 2,788 | 3,569 | ||
| Balance of deferred tax assets and liabilities |
|||||
| of which for tax loss | |||||
| carryforwards | 0 | 0 | 0 | –5 | |
| of which for temporary | |||||
| differences | –1,721 | –1,721 | –1,995 | –1,995 | |
| Carrying amount | 272 | 1,426 | 793 | 1,569 |
Standard costs for inventories of postage stamps and spare parts in freight centres amounted to €12 million (previous year: €14 million). Th ere was no requirement to charge signifi cant valuation allowances on these inventories.
| €m | 2006 | 2007 |
|---|---|---|
| Finished goods and goods purchased and held for resale |
120 | 59 |
| Spare parts for aircraft | 2 | 6 |
| Raw materials and supplies | 117 | 164 |
| Work in progress | 28 | 18 |
| Advance payments | 1 | 1 |
| Inventories | 268 | 248 |
All income tax assets are current and have maturities of less than one year.
| €m | 2006 | 2007 |
|---|---|---|
| Income tax assets | 281 | 312 |
| Income tax liabilities | 101 | 139 |
| €m | 2006 | 2007 |
|---|---|---|
| Trade receivables | 6,395 | 6,377 |
| Prepaid expenses | 990 | 1,038 |
| Deferred revenue | 403 | 558 |
| Current tax receivables | 389 | 461 |
| Receivables from sales of assets | 5 | 196 |
| Income from cost absorption | 47 | 83 |
| Creditors with debit balances | 51 | 63 |
| Receivables from Group companies | 80 | 53 |
| Current derivatives | 57 | 52 |
| Receivables from insurance business | 13 | 32 |
| Receivables from employees | 52 | 30 |
| Land rights | 15 | 22 |
| Receivables from loss compensation | ||
| (recourse claims) | 10 | 19 |
| Receivables from cash-on-delivery | 28 | 18 |
| Rent receivables | 16 | 17 |
| Receivables from residential housing construction | ||
| pools | 14 | 14 |
| Receivables from BAnstPT (Federal Posts and | ||
| Telecommunications Agency) | 4 | 0 |
| Receivables from private postal agencies | 2 | 7 |
| Miscellaneous other assets | 735 | 766 |
| Receivables and other assets1) | 9,306 | 9,806 |
1) Prior period amount restated, see Note 4.
€317 million of the tax receivables (previous year: €262 million) relates to VAT, €60 million (previous year: €36 million) to customs and duties, and €84 million (previous year: €91 million) to other tax receivables. Miscellaneous other assets include a large number of individual items. Further information on derivatives can be found in Note 48.2 ff .
| €m | 2006 | 2007 |
|---|---|---|
| Loans and advances to other banks | ||
| Loans and advances to other banks (loans and receivables) |
16,350 | 24,581 |
| of which fair value hedges: 1,516 (previous year: 2,136) |
||
| Loans and advances to customers | ||
| of which secured by mortgage charges: 50,372 (previous year: 45,565) |
||
| Loans and advances to customers (loans and receivables) |
80,425 | 84,133 |
| of which fair value hedges: 1,356 (previous year: 1,500) |
||
| Loans and advances to customers (held to maturity) | 518 | 456 |
| Loans and advances to customers (fair value option) | 6,181 | 7,110 |
| 87,124 | 91,699 | |
| Allowance for losses on loans and advances | ||
| Loans and advances to other banks | 0 | 0 |
| Loans and advances to customers | –1,155 | –1,154 |
| –1,155 | –1,154 | |
| Trading assets | ||
| Bonds and other fi xed-income securities | 9,755 | 4,139 |
| Held-for-trading building loans held for sale | 208 | 209 |
| Equities and other non-fi xed-income securities | 28 | 161 |
| Positive fair value of trading derivatives | 2,942 | 5,155 |
| Positive fair value of banking book derivatives | 276 | 131 |
| Positive fair value of derivatives in connection with | ||
| underlyings relating to the fair value option | 71 | 141 |
| 13,280 | 9,936 | |
| Hedging derivatives (positive fair values) | ||
| Assets | 300 | 265 |
| Liabilities | 185 | 156 |
| 485 | 421 | |
| Investment securities | ||
| Bonds and other fi xed-income securities | ||
| Investment securities (loans and receivables) | 19,031 | 26,600 |
| of which fair value hedges: 5,447 (previous year: 5,369) |
||
| Held to maturity | 4,956 | 730 |
| Available for sale | 33,379 | 38,755 |
| of which fair value hedges: 14,633 (previous year: 15,770) |
||
| 57,366 | 66,085 | |
| Equities and other non-fi xed-income securities | ||
| Available for sale | 5,830 | 2,418 |
| 63,196 | 68,503 | |
| Receivables and other securities from fi nancial services |
179,280 | 193,986 |
Receivables and other securities from fi nancial services relate exclusively to the Deutsche Postbank Group. Of the loans and advances to customers, €3,546 million is attributable to public-sector loans (previous year: €5,444 million), and €64,781 million to private building fi nance (previous year: €59,148 million). Th e allowance for losses on loans and advances covers all identifi able credit risks. Portfolio-based valuation allowances were recognised for the potential credit risk. €31 million (previous year: €27 million) of nonperforming loans and advances was written off directly and charged to income in the year under review. Recoveries on loans previously written off amounted to €11 million (previous year: €14 million).
Trading assets relate to trading in bonds and other fi xed-income securities, equities and other non-fi xed-income securities, foreign currencies, as well as derivatives that do not satisfy the IAS 39 criteria for hedge accounting. €4,109 million (previous year: €9,720 million) of the bonds and other fi xed-income securities and €161 million (previous year: €28 million) of the equities and other non-fi xed-income securities relate to securities listed on a stock exchange.
€65,649 million (previous year: €59,951 million) of the investment securities relates to listed securities. Changes in the fair value of unhedged available-for-sale securities were charged to the revaluation reserve in the amount of €–515 million (previous year: €–125 million). €24 million (previous year: €177 million) reported in the revaluation reserve was reversed to income in the period under review as a result of the disposal of investment securities and the recognition of impairment losses.
Postbank issued letters of pledge to the European Central Bank for securities with a lending value of €23 billion (previous year: €15 billion) for open market operations. Open market operations at the balance sheet date amounted to €15 billion (previous year: €10 billion). Th e securities deposited as collateral continue to be reported as non-current fi nancial assets.
Impairment losses of €130 million (previous year: €128 million) were recognised in fi nancial year 2007 to refl ect developments in the values of fi nancial instruments (see Note 3). Of this amount, €112 million relates to structured credit products and €18 million to write-downs in respect of retail funds.
| €m | Payable | Less than | 3 months | 1 year | 2 years | 3 years | 4 years | More than | |
|---|---|---|---|---|---|---|---|---|---|
| on demand | 3 months | to 1 year | to 2 years | to 3 years | to 4 years | to 5 years | 5 years | Total | |
| 2007 | |||||||||
| Loans and advances to other banks | 1,601 | 14,071 | 2,038 | 1,624 | 772 | 679 | 1,846 | 1,950 | 24,581 |
| Loans and advances to customers | 2,931 | 10,413 | 8,586 | 7,177 | 5,852 | 6,627 | 7,085 | 43,028 | 91,699 |
| Trading assets | 1 | 1,002 | 1,568 | 1,691 | 456 | 346 | 301 | 4,571 | 9,936 |
| Hedging derivatives | 1 | 44 | 5 | 18 | 15 | 7 | 23 | 308 | 421 |
| Investment securities | 0 | 2,100 | 4,926 | 7,469 | 6,545 | 5,133 | 7,094 | 35,236 | 68,503 |
| 4,534 | 27,630 | 17,123 | 17,979 | 13,640 | 12,792 | 16,349 | 85,093 | 195,140 | |
| 2006 | |||||||||
| Loans and advances to other banks | 1,906 | 5,470 | 1,733 | 934 | 1,254 | 858 | 846 | 3,349 | 16,350 |
| Loans and advances to customers | 2,193 | 5,719 | 8,340 | 8,429 | 8,976 | 7,129 | 10,050 | 36,288 | 87,124 |
| Trading assets | 0 | 643 | 827 | 6,817 | 1,365 | 568 | 708 | 2,352 | 13,280 |
| Hedging derivatives | 0 | 63 | 15 | 11 | 22 | 31 | 21 | 322 | 485 |
| Investment securities | 46 | 1,845 | 5,714 | 4,484 | 5,127 | 4,594 | 5,540 | 35,846 | 63,196 |
| 4,145 | 13,740 | 16,629 | 20,675 | 16,744 | 13,180 | 17,165 | 78,157 | 180,435 |
| Portfolio-based Specifi c valuation allowances valuation allowances Total |
||||||
|---|---|---|---|---|---|---|
| €m | ||||||
| 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | |
| Balance at 1 January | 732 | 1,090 | 44 | 65 | 776 | 1,155 |
| Reclassifi cation due to IFRS 7 | 0 | –30 | 0 | 0 | 0 | –30 |
| Changes in consolidated group | 267 | 0 | 2 | 0 | 269 | 0 |
| Additions | 384 | 415 | 19 | 19 | 403 | 434 |
| Utilisation | –161 | –236 | 0 | 0 | –161 | –236 |
| Reversal | –100 | –130 | 0 | –1 | –100 | –131 |
| Unwinding | –29 | –34 | 0 | 0 | –29 | –34 |
| Currency translation differences | –3 | – 4 | 0 | 0 | –3 | – 4 |
| Balance at 31 December | 1,090 | 1,071 | 65 | 83 | 1,155 | 1,154 |
Hedges with positive fair values that qualify for hedge accounting under IAS 39 are composed of the following items:
| €m | Fair value hedges 2006 |
Fair value hedges 2007 |
|---|---|---|
| Assets | ||
| Hedging derivatives on loans to other banks | ||
| Loans and receivables | 8 | 11 |
| Hedging derivatives on loans to customers | ||
| Loans and receivables | 11 | 13 |
| Hedging derivatives on investment securities | ||
| Bonds and other fi xed-income securities | 281 | 241 |
| 300 | 265 | |
| Liabilities | ||
| Deposits from other banks | 35 | 17 |
| Amounts due to customers | 41 | 14 |
| Securitised liabilities | 101 | 98 |
| Subordinated debt | 8 | 27 |
| 185 | 156 | |
| Hedging derivatives | 485 | 421 |
Current financial instruments rose by €30 million year-on-year to €72 million primarily as a result of loans granted.
| €m | 2006 | 2007 |
|---|---|---|
| Cash | 453 | 508 |
| Money in transit | 475 | 920 |
| Bank balances | 1,123 | 3,061 |
| Cash equivalents | 122 | 46 |
| Other cash and cash equivalents | 218 | 148 |
| Cash and cash equivalents | 2,391 | 4,683 |
Th e amounts reported under these items relate mainly to Deutsche Postbank AG's planned sale of the credit card and sales fi nancing business of BHW Bank AG to Landesbank Berlin.
| €m | Assets | Liabilities | ||
|---|---|---|---|---|
| 2006 | 2007 | 2006 | 2007 | |
| Deutsche Postbank Group – BHW Bank's credit card and sales fi nancing business |
0 | 565 | 0 | 44 |
| DHL Express (France) SAS – land/buildings |
0 | 26 | 0 | 0 |
| Deutsche Post AG – real estate |
0 | 18 | 0 | 0 |
| Other | 0 | 6 | 0 | 0 |
| Vfw AG, Germany | 39 | 0 | 17 | 0 |
| SCM Supply Chain Manage ment Inc., Canada – land |
16 | 0 | 0 | 0 |
| DHL Express Denmark A/S, Denmark – buildings |
1 | 0 | 0 | 0 |
| Non-current assets held for sale and liabilities associated with non |
||||
| current assets held for sale | 56 | 615 | 17 | 44 |
Th e sale of the credit card and sales fi nancing business of BHW Bank AG relates to the items receivables and other securities from fi nancial serv ices – of which loans and advances to customers accounted for €595 million and the allowance for losses on loans and advances for €–30 million – and liabilities from fi nancial services (amounts due to customers).
On 8 January 2007, 99.58% of the exchangeable bond on Deutsche Post AG shares issued by KfW in December 2003 was converted. Th e bond was issued in the amount of €1.15 billion and with a maturity date of 8 January 2007. Th e exchange placed approximately 55.8 million of the shares held by KfW Bankengruppe (KfW) – formerly Kreditanstalt für Wiederaufb au – onto the market. Th e conversion price per share was €20.54. Th e transaction reduced the number of Deutsche Post AG shares held by KfW to approximately 368.3 million shares. Th is fi gure equates to 30.5% of Deutsche Post AG's share capital. Th e transaction also increased the percentage of free-fl oating shares to 69.5%.
| Number of shares | 2006 | 2007 |
|---|---|---|
| KfW | 410,522,634 | 368,277,358 |
| Free fl oat | 791,797,226 | 839,193,240 |
| Share capital as at 31 December | 1,202,319,860 | 1,207,470,598 |
Th e issued capital increased by €5.1 million in fi nancial year 2007 from €1,202.3 million to €1,207.4 million. It is now composed of 1,207,470,598 no-par value registered shares (ordinary shares), with each individual share having a notional interest of €1 in the share capital. Th e increase in issued capital is attributable to the servicing of stock options from the Stock Option Plans 2000 and 2003.
| € | 2006 | 2007 |
|---|---|---|
| As at 1 January | 1,192,633,739,00 | 1,202,319,860,00 |
| Exercise of options from 2002, 2003 and 2004 SOP tranches – contingent |
||
| capital | 9,686,121,00 | 5,150,738,00 |
| As at 31 December | 1,202,319,860,00 | 1,207,470,598,00 |
| Capital as at | ||
| 31 December 2007 | Amount (€) Purpose |
|
| 2005 authorised capital | 174,796,228.00 | To increase share |
| 2005 authorised capital | 174,796,228.00 | To increase share capital against non-cash contributions (until 17 May 2010) |
|---|---|---|
| Contingent Capital II | 13,184,482.00 | Executive Stock Option Plan 2003 (until 31 July 2005) |
| Contingent Capital III | 56,000,000.00 | Exercise of option/ conversion rights (until 5 May 2012) |
In accordance with the resolution by the Annual General Meeting on 8 May 2007, the company's share capital has been contingently increased by up to a further €56 million through the issue of up to 56,000,000 new, no-par value registered shares (Contingent Capital III). Th is resolution supersedes the contingent capital resolution of 6 May 2004. Contingent Capital III was entered in the commercial register on 22 May 2007 (adjusted on 29 May 2007). Its purpose is to service warrant or conversion rights and obligations from bonds with warrants or convertible bonds and income bonds or a combination of these instruments, which may be issued or guaranteed by the company up to 5 May 2012. Th e aggregate principal amount of the instruments is €1 billion.
By way of a resolution adopted by the Annual General Meeting on 8 May 2007, the company is authorised to acquire, until 31 October 2008, own shares amounting to up to a total of 10% of the share capital existing at the date the resolution is adopted. Th e authorisation permits the Board of Management to exercise it for every purpose authorised by law, particularly to pursue the goals mentioned in the resolution of the Annual General Meeting. Deutsche Post AG did not hold any own shares on 31 December 2007.
Th e equity ratio stood at 31.4% in fi nancial year 2007 (previous year: 31.6%). Corporate capital is controlled by the net gearing ratio which is defi ned as net debt divided by the total of equity and net debt. Th e ratio in 2007 was 20.3% (previous year: 21.4%). All ratios are based on Postbank being carried at equity.
| €m | 2006 | 2007 |
|---|---|---|
| Aggregate fi nancial liabilities | 5,443 | 4,978 |
| Less fi nancial instruments | – 42 | –74 |
| Less cash and cash equivalents | –1,761 | –1,339 |
| Less long-term deposits | –372 | – 456 |
| Less fi nancial liabilities to minority shareholders | ||
| of Williams Lea | –185 | –251 |
| Net debt | 3,083 | 2,858 |
| Plus total equity | 11,348 | 11,204 |
| Total equity plus net debt | 14,431 | 14,062 |
| Net gearing ratio (%) | 21.4 | 20.3 |
In the 2000 Stock Option Plan (SOP), eligible participants were granted stock options in two annual tranches. Certain employees (Group management levels one to three and some specialists) were granted stock options for the fi rst time on 15 March 2001 (Tranche 2001). Th e second tranche was issued on 1 July 2002 (Tranche 2002). On the basis of the SOP 2003 resolved by the Annual General Meeting on 5 June 2003, no further options will be granted under the previous plan. Options were granted under the new SOP for the fi rst time on 1 August 2003 (Tranche 2003). Th e second tranche (Tranche 2004) was granted to executives on 1 July 2004. Th e third – and last – tranche under this plan (Tranche 2005) was granted on 1 July 2005.
In comparison with the SOP 2000, the SOP 2003 allows for a larger number of eligible participants and a change in the percentage distributions of the stock options amongst the diff erent groups of eligible participants, in addition to an increase in the total stock options to be issued. Th e grant of stock options to members of the Board of Management and executives in Group management level two still requires eligible participants to invest in shares of Deutsche Post AG. Eligible participants in Group management levels three and four receive stock options without any requirement to buy shares.
| Number | Stock appreciation | |
|---|---|---|
| Stock options | rights (SARs)1) | |
| Tranche 2001 | ||
| Board of Management | 466,908 | 0 |
| Other senior executives | 5,070,576 | 345,432 |
| Tranche 2002 | ||
| Board of Management | 1,223,418 | 0 |
| Other senior executives | 9,082,620 | 446,934 |
| Tranche 2003 | ||
| Board of Management | 1,096,236 | 0 |
| Other senior executives | 11,953,356 | 731,736 |
| Tranche 2004 | ||
| Board of Management | 841,350 | 0 |
| Other senior executives | 8,486,946 | 1,116,374 |
| Tranche 2005 | ||
| Board of Management | 829,362 | 0 |
| Other senior executives | 9,233,310 | 1,216,320 |
1) Due to legal restrictions SARs were granted in some countries instead of stock options. The provision amounts to €5 million (previous year: €6 million).
Th e stock options issued under both stock option plans can only be exercised within a two-year period following the expiration of a lockup period of three years aft er the relevant grant date. Th e options can only be exercised if the absolute or the relative performance targets have been satisfi ed at the end of the lock-up period. Unexercised options lapse aft er the end of the exercise period.
Th e average price or average index performance during two periods (reference period = exercise price; performance period = fi nal price) is compared to establish whether and to what extent the performance targets have been satisfi ed. Th e reference period is the 20 consecutive trading days prior to the grant date. Th e performance period is the last 60 trading days before the end of the lock-up period. Th e average price is calculated as the average closing price of Deutsche Post shares in Deutsche Börse AG's Xetra trading system.
The absolute performance target depends on the performance of Deutsche Post shares and is deemed to have been satisfi ed if the increase in the Deutsche Post share price exceeds 10, 15, 20, or 25% or more (expressed as the fi nal price divided by the exercise price). Th e relative performance target is tied to the performance of the shares versus the performance of the Dow Jones EURO STOXX Total Return Index. Th e relative performance target is satisfi ed if the performance of Deutsche Post shares during the above-mentioned performance period matches the performance of the Index or outperforms it by at least 10%.
For every six options, a maximum of four may be earned on the basis of the absolute performance target, and a maximum of two on the basis of the relative performance target. Th e respective stock options of the tranche concerned lapse without compensation if the absolute or the relative performance targets are not satisfi ed by the end of the lock-up period.
Each option entitles the holder either to purchase one share in the company or to receive a cash settlement in the amount of the diff erence between the exercise price and the average price of Deutsche Post shares during the last fi ve trading days prior to the exercise date, at the Board of Management's discretion.
| SOP 2000 | SOP 2003 | ||||
|---|---|---|---|---|---|
| Tranche 2001 | Tranche 2002 | Tranche 2003 | Tranche 2004 | Tranche 2005 | |
| Grant date | 15 March 2001 | 1 July 2002 | 1 August 2003 | 1 July 2004 | 1 July 2005 |
| Stock options granted | 5,537,484 | 10,306,038 | 13,049,592 | 9,328,296 | 10,062,672 |
| SARs granted | 345,432 | 446,934 | 731,736 | 1,116,374 | 1,216,320 |
| Exercise price | €23.05 | €14.10 | €12.40 | €17.00 | €19.33 |
| Lock-up expires | 14 March 2004 | 30 June 2005 | 31 July 2006 | 30 June 2007 | 30 June 2008 |
| Dividend yield Deutsche Post AG | – | – | 2.55% | 3.05% | 3.22% |
| Dividend yield Dow Jones EURO STOXX Index | – | – | 1.4% | 1.7% | 2.06% |
| Yield volatility of Deutsche Post AG share | – | – | 39.3% | 28.9% | 17.07% |
| Yield volatility of Dow Jones EURO STOXX Index | – | – | 32.1% | 14.8% | 10.10% |
| Number | |||||
| Outstanding stock options as at 1 January 2007 | 0 | 537,474 | 3,959,426 | 7,921,776 | 9,404,718 |
| Outstanding SARs as at 1 January 2007 | 0 | 120,060 | 217,798 | 595,190 | 760,026 |
| Options exercised | – | 492,664 | 2,731,894 | 1,926,180 | – |
| SARs exercised | – | 120,060 | 100,674 | 117,964 | – |
| Options lapsed | – | 44,810 | 29,994 | 2,824,656 | 588,714 |
| of which lapsed before end of the lock-up period | – | – | – | 266,226 | 588,714 |
| of which lapsed because performance targets not met | – | – | – | 2,558,430 | – |
| of which lapsed after end of lock-up period | – | 44,810 | 29,994 | – | – |
| SARs lapsed | – | 0 | 0 | 209,246 | 64,950 |
| of which lapsed before end of the lock-up period | – | – | – | 16,284 | 64,950 |
| of which lapsed because performance targets not met | – | – | – | 192,962 | – |
| of which lapsed after end of lock-up period | – | – | – | – | – |
| Outstanding stock options as at 31 December 2007 | – | – | – | – | 8,816,004 |
| Outstanding SARs as at 31 December 2007 | – | – | – | – | 695,076 |
| Exercisable stock options as at 31 December 2007 | 0 | 0 | 1,197,538 | 3,170,940 | – |
| Exercisable SARs as at 31 December 2007 | 0 | 0 | 117,124 | 267,980 | – |
Unexercised options from Tranche 2001 lapsed without compensation following the expiration of the exercise period on 15 March 2006, those from Tranche 2002 on 1 July 2007.
Stock options outstanding on 31 December 2007 have an average remaining maturity of 2.08 years. Th e weighted average exercise price of the stock options from Tranches 2002, 2003 and 2004 exercised in the fi nancial year is €14.28 (previous year: €12.86). Th ese options were settled at the weighted average share price of €23.33 (previous year: €20.87).
Starting in fi nancial year 2002, the SOP has been measured using investment techniques by applying option pricing models (fair value measurement). Th e expense of €16 million attributable to fi nancial year 2007 (previous year: €31 million), comprising €14 million for the stock options (previous year: €29 million) and €2 million for the SARs (previous year: €2 million), was reported under staff costs.
Th e 2006 SAR Plan supersedes the 2003 SOP described above, under which options could last be issued in 2005. As at 3 July 2006, selected executives received stock appreciation rights (SARs) under the new plan. Th is gives executives the chance to receive a cash payment within a defi ned period in the amount of the diff erence between the respective closing price of Deutsche Post shares on the previous day and the fi xed issue price, if demanding performance targets are met.
A successor plan was also launched for members of the Board of Management: Under the new Long-Term Incentive Plan (2006 LTIP), members were granted SARs for the fi rst time as at 1 July 2006. Th e new plan is largely identical in nature to the previous stock option plan. Th e main diff erence is that it is paid out in cash and therefore no longer leads to dilution to the detriment of the shareholders. As previously, members of the Board of Management must invest in Deutsche Post shares to receive SARs. As with the former stock option plan, SARs may only be paid out under the 2006 LTIP at the earliest aft er the three-year lock-up period, and only if the demanding performance targets agreed have been met. Further details can be found in the Corporate Governance Report. Th e remuneration report contained in the Corporate Governance Report also forms part of the Notes.
Th e fair value of the 2006 SAR Plan and the 2006 LTIP was determined using a stochastic simulation model. Th is led to an expense of €20.8 million in fi nancial year 2007 (previous year: €14 million), which was recorded in provisions. €2.5 million of this (previous year: €1.0 million) is attributable to the SARs granted to the Board of Management.
| €m | 2006 | 2007 |
|---|---|---|
| Capital reserve | 2,037 | 2,119 |
| Revaluation reserve in accordance with IAS 39 | 36 | –251 |
| Hedging reserve in accordance with IAS 39 | –94 | –96 |
| Currency translation reserve | – 451 | – 897 |
| Other reserves | 1,528 | 875 |
| €m | 2006 | 2007 |
|---|---|---|
| Capital reserves as at 1 January | 1,893 | 2,037 |
| Additions | ||
| of which exercise of stock options plans | 115 | 68 |
| of which issue of stock option plans | 29 | 14 |
| Capital reserves as at 31 December | 2,037 | 2,119 |
Th e measurement of the 2000 and 2003 Stock Option Plans resulted in staff costs for the stock options in the amount of €14 million in fi nancial year 2007 (previous year: €29 million); this amount was charged to capital reserves. Further details of the stock option plans can be found in Note 35.
Th e revaluation reserve contains gains and losses from changes in the fair values of available-for-sale fi nancial instruments that have been taken directly to equity. Th is reserve is reversed to income either when the assets are sold or otherwise disposed of, or if the fair value of the assets falls permanently below their cost.
| €m | 2006 | 2007 |
|---|---|---|
| As at 1 January | 220 | 36 |
| Additions (+) / disposals (–) | –114 | –439 |
| Transfer to minority interest | –52 | 0 |
| Deferred taxes recognised directly in equity | 65 | 88 |
| Changes in consolidated group | 0 | 3 |
| Reversed to income | – 83 | 61 |
| Revaluation reserve as at 31 December | 36 | –251 |
In financial year 2007, on the one hand available-for-sale financial instruments in the amount of €61 million (previous year: €–83 million) were reversed to income; on the other the reserve was reduced by €439 million (previous year: €114 million) as a result of the remeasurement of available-for-sale fi nancial instruments. Further details can be found in Note 31. Th e revaluation reserve relates almost entirely to gains or losses on the fair value remeasurement of fi nancial instruments of the Deutsche Postbank Group.
Th e hedging reserve is adjusted by the eff ective portion of a cash fl ow hedge. Th e hedging reserve is released to income when the hedged item is settled.
| €m | 2006 | 2007 |
|---|---|---|
| As at 1 January | –51 | –94 |
| Additions | – 40 | –42 |
| Disposals | –3 | 40 |
| Hedging reserve as at 31 December | –94 | –96 |
Th e change in the hedging reserve is mainly the result of the increase in unrealised losses and of hedging future operating foreign currency transactions. In the fi nancial year, unrealised losses of €38 million were taken from the hedging reserve and recognised in operating profi t; €2 million were transferred from the hedging reserve to net fi nance cost/fi nancial income.
Th e change is due to the decrease in exchange rates for major foreign currencies.
| €m | 2006 | 2007 |
|---|---|---|
| As at 1 January | – 41 | – 451 |
| Changes not recognised in income | – 410 | – 446 |
| Currency translation reserve | ||
| as at 31 December | – 451 | – 897 |
Retained earnings contain the undistributed consolidated profi ts generated in prior periods. Changes in the reserves during the year under review are also presented in the statement of changes in equity.
| €m | 2006 | 2007 |
|---|---|---|
| As at 1 January | 7,410 | 8,490 |
| Dividend payment | – 836 | –903 |
| Consolidated net profi t | 1,916 | 1,389 |
| Retained earnings as at 31 December | 8,490 | 8,976 |
38 Equity attributable to Deutsche Post AG shareholders
Th e equity attributable to Deutsche Post AG shareholders in fi nancial year 2007 amounted to €11,058 million (previous year: €11,220 million).
Dividends paid to the shareholders of Deutsche Post AG are based on the unappropriated surplus of €1,338 million (previous year: €1,262 million) reported in the annual financial statements of Deutsche Post AG prepared in accordance with the German Commercial Code. Th e amount of €251 million remaining aft er deduction of the planned total dividend of €1,087 million will be transferred to the retained earnings of Deutsche Post AG. €903 million were distributed for fi nancial year 2006 and €359 million were transferred to retained earnings. Th e dividend is tax-exempt for shareholders resident in Germany. No capital gains tax (investment income tax) will be withheld on the distribution.
Minority interest includes adjustments for the interests of non-Group shareholders in the consolidated equity from acquisition accounting, as well as their interests in profi t and loss. Th e interests relate primarily to the following companies:
| €m | 2006 | 2007 |
|---|---|---|
| Deutsche Postbank Group | 2,604 | 2,656 |
| DHL Sinotrans | 63 | 60 |
| Other companies | 65 | 85 |
| Minority interest | 2,732 | 2,801 |
Th e following information on pension obligations is broken down into the following areas: Germany (excluding Postbank), UK (excluding Postbank), Other (excluding Postbank) and the Deutsche Postbank Group.
| €m | Deutsche | ||||
|---|---|---|---|---|---|
| Postbank | |||||
| Germany | UK | Other | Group | Total | |
| 31 December 2007 | |||||
| Provisions for pensions and other employee |
|||||
| benefi ts | 4,383 | 267 | 196 | 1,143 | 5,989 |
| Pension assets | 0 | –127 | –120 | 0 | –247 |
| Net pension provisions | 4,383 | 140 | 76 | 1,143 | 5,742 |
| 31 December 2006 | |||||
| Provisions for pensions and other employee |
|||||
| benefi ts | 4,524 | 296 | 199 | 1,115 | 6,134 |
| Pension assets | 0 | –122 | –74 | 0 | –196 |
| Net pension provisions | 4,524 | 174 | 125 | 1,115 | 5,938 |
Th e majority of the Group's defi ned benefi t obligations relate to plans in Germany and the UK. In addition, signifi cant pension plans are provided in other euro zone countries, Switzerland and the US. Th e actuarial measurement of the main benefi t plans was based on the following assumptions:
| % | Other | Switzer | |||
|---|---|---|---|---|---|
| Germany | UK | euro zone | land | US | |
| 2007 | |||||
| Discount rate | 5.50 | 5.75 | 5.50 | 3.25 | 6.00 |
| 3.00 – | 2.00 – | ||||
| Future salary increase | 2.50 | 4.75 | 4.00 | 3.00 | 3.75 |
| Future infl ation rate | 2.00 | 3.25 | 2.00 | 1.50 | 2.50 |
| 2006 | |||||
| Discount rate | 4.50 | 5.00 | 4.50 | 3.00 | 5.75 |
| 2.50 – | 3.75 – | 2.00 – | |||
| Future salary increase | 3.00 | 4.50 | 4.00 | 3.00 | 4.00 |
| Future infl ation rate | 2.00 | 3.00 | 2.00 | 1.50 | 2.75 |
For the German Group companies, longevity was calculated using the mortality tables Richttafeln 2005 G published by Klaus Heubeck. For the British benefi t plans longevity was based on the mortality rates used in the last funding valuation. Th ese are based on mortality analyses specifi c to the plan and include a premium for an expected increase in future life expectancy. Other countries used their own mortality tables.
Th e following average expected return on plan assets was used to compute the expenses for the period:
| % | Other | Switzer | |||
|---|---|---|---|---|---|
| Germany | UK | euro zone | land | US | |
| 31 December 2007 | |||||
| Average expected return | 3.25 – | 4.50 – | 5.00 – | ||
| on plan assets | 4.25 | 7.25 | 7.00 | 4.25 | 7.50 |
| 31 December 2006 | |||||
| Average expected return | 3.00 – | 6.50 – | 4.25 – | 8.00 – | |
| on plan assets | 4.25 | 7.00 | 6.50 | 4.25 | 8.50 |
The expected return on plan assets was determined by taking into account current long-term rates of return on bonds (government and corporate) and then applying to these rates a suitable risk premium for other asset classes based on historical market returns and current market expectations.
| €m | Deutsche Post | ||||
|---|---|---|---|---|---|
| Germany | UK | Other | bank Group | Total | |
| 2007 | |||||
| Present value of defi ned benefi t obligations at 31 December for wholly or partly funded benefi ts |
3,686 | 3,743 | 1,250 | 698 | 9,377 |
| Present value of defi ned benefi t obligations at 31 December for unfunded benefi ts | 3,237 | 9 | 177 | 729 | 4,152 |
| Present value of total defi ned benefi t obligations at 31 December | 6,923 | 3,752 | 1,427 | 1,427 | 13,529 |
| Fair value of plan assets at 31 December | –1,914 | – 4,048 | –1,418 | –392 | –7,772 |
| Unrecognised net gains (+) / losses (–) | – 622 | 435 | 26 | 108 | –53 |
| Unrecognised past service cost | – 4 | 0 | 0 | 0 | – 4 |
| Asset adjustment for asset limit | 0 | 1 | 41 | 0 | 42 |
| Net pension provisions at 31 December | 4,383 | 140 | 76 | 1,143 | 5,742 |
| Pension assets at 31 December | 0 | –127 | –120 | 0 | –247 |
| Provisions for pensions and other employee benefi ts at 31 December | 4,383 | 267 | 196 | 1,143 | 5,989 |
| 2006 | |||||
| Present value of defi ned benefi t obligations at 31 December for wholly or partly funded benefi ts |
4,150 | 4,198 | 1,340 | 773 | 10,461 |
| Present value of defi ned benefi t obligations at 31 December for unfunded benefi ts | 3,749 | 0 | 171 | 824 | 4,744 |
| Present value of total defi ned benefi t obligations at 31 December | 7,899 | 4,198 | 1,511 | 1,597 | 15,205 |
| Fair value of plan assets at 31 December | –1,852 | – 4,177 | –1,374 | –381 | –7,784 |
| Unrecognised net gains (+) / losses (–) | –1,518 | 152 | – 48 | –101 | –1,515 |
| Unrecognised past service cost | –5 | 0 | 0 | 0 | –5 |
| Asset adjustment for asset limit | 0 | 1 | 36 | 0 | 37 |
| Net pension provisions at 31 December | 4,524 | 174 | 125 | 1,115 | 5,938 |
| Pension assets at 31 December | 0 | –122 | –74 | 0 | –196 |
| Provisions for pensions and other employee benefi ts at 31 December | 4,524 | 296 | 199 | 1,115 | 6,134 |
Th e most signifi cant changes to pension obligations during 2007 relate to the acquisition of TSO (net pension provisions of €11 million, defi ned benefi t obligations of €37 million, fair value of plan assets of €26 million).
| €m | Deutsche Post | ||||
|---|---|---|---|---|---|
| Germany | UK | Other | bank Group | Total | |
| 2007 | |||||
| Present value of total defi ned benefi t obligations at 1 January | 7,899 | 4,198 | 1,511 | 1,597 | 15,205 |
| Current service cost, excluding employee contributions | 105 | 102 | 58 | 34 | 299 |
| Employee contributions | 0 | 22 | 13 | 0 | 35 |
| Interest cost | 339 | 206 | 59 | 72 | 676 |
| Benefi t payments | – 490 | –194 | – 69 | –71 | – 824 |
| Past service cost | – 40 | 1 | 4 | –14 | – 49 |
| Curtailments | –26 | 0 | – 43 | 0 | – 69 |
| Settlements | 0 | 0 | –19 | 0 | –19 |
| Transfers | 5 | 0 | 23 | 4 | 32 |
| Acquisitions | 2 | 37 | 6 | 16 | 61 |
| Actuarial gains (–) / losses (+) | – 871 | –257 | –76 | –210 | –1,414 |
| Currency translation effects | 0 | –363 | – 40 | –1 | – 404 |
| Present value of total defi ned benefi t obligations at 31 December | 6,923 | 3,752 | 1,427 | 1,427 | 13,529 |
| 2006 | |||||
| Present value of total defi ned benefi t obligations at 1 January | 8,051 | 4,096 | 1,520 | 834 | 14,501 |
| Current service cost, excluding employee contributions | 110 | 110 | 84 | 38 | 342 |
| Employee contributions | 0 | 24 | 15 | 0 | 39 |
| Interest cost | 326 | 197 | 58 | 68 | 649 |
| Benefi t payments | – 499 | –189 | – 63 | – 69 | – 820 |
| Past service cost | 22 | –31 | –5 | 1 | –13 |
| Curtailments | –20 | –10 | –16 | 0 | – 46 |
| Settlements | 0 | 0 | – 6 | 0 | – 6 |
| Transfers | –52 | 0 | –5 | 79 | 22 |
| Acquisitions | 0 | 19 | 0 | 726 | 745 |
| Actuarial gains (–) / losses (+) | –39 | –112 | –31 | – 80 | –262 |
| Currency translation effects | 0 | 94 | – 40 | 0 | 54 |
| Present value of total defi ned benefi t obligations at 31 December | 7,899 | 4,198 | 1,511 | 1,597 | 15,205 |
| €m | Deutsche Post | ||||
|---|---|---|---|---|---|
| Germany | UK | Other | bank Group | Total | |
| 2007 | |||||
| Fair value of plan assets at 1 January | 1,852 | 4,177 | 1,374 | 381 | 7,784 |
| Employer contributions | 200 | 67 | 45 | 16 | 328 |
| Employee contributions | 0 | 22 | 13 | 0 | 35 |
| Expected return on plan assets | 71 | 272 | 79 | 17 | 439 |
| Gains (+) / losses (–) on plan assets | –10 | 62 | –11 | –7 | 34 |
| Benefi t payments | –199 | –193 | –53 | –26 | – 471 |
| Transfers | 0 | 0 | 17 | 1 | 18 |
| Acquisitions | 0 | 26 | 0 | 11 | 37 |
| Settlements | 0 | 0 | –12 | 0 | –12 |
| Currency translation effects | 0 | –385 | –34 | –1 | – 420 |
| Fair value of plan assets at 31 December | 1,914 | 4,048 | 1,418 | 392 | 7,772 |
| 2006 | |||||
| Fair value of plan assets at 1 January | 1,791 | 3,869 | 1,330 | 59 | 7,049 |
| Employer contributions | 217 | 40 | 60 | 16 | 333 |
| Employee contributions | 0 | 24 | 15 | 0 | 39 |
| Expected return on plan assets | 53 | 245 | 77 | 16 | 391 |
| Gains (+) / losses (–) on plan assets | –1 | 80 | –21 | –1 | 57 |
| Benefi t payments | –208 | –189 | – 47 | –25 | – 469 |
| Transfers | 0 | 0 | 0 | –2 | –2 |
| Acquisitions | 0 | 17 | 0 | 316 | 333 |
| Settlements | 0 | 0 | –5 | 0 | –5 |
| Currency translation effects | 0 | 91 | –35 | 2 | 58 |
| Fair value of plan assets at 31 December | 1,852 | 4,177 | 1,374 | 381 | 7,784 |
Th e plan assets are composed of fi xed-income securities (32%; previous year: 29%), equities and investment funds (36%; previous year: 42%), real estate (16%; previous year: 16%), cash and cash equivalents (9%; previous year: 8%), insurance contracts (5%; previous year: 4%) and other assets (2%; previous year: 1%).
81% (previous year: 83%) of the real estate, which has a fair value of €1,040 million (previous year: €1,029 million), is owner-occupied by Deutsche Post AG.
| €m | 2005 | 2006 | 2007 |
|---|---|---|---|
| Present value of defi ned benefi t obligations at 31 December |
14,501 | 15,205 | 13,529 |
| Fair value of plan assets at 31 December |
–7,049 | –7,784 | –7,772 |
| Funded status | 7,452 | 7,421 | 5,757 |
| €m | 2005 | 2006 | 2007 |
|---|---|---|---|
| Actual return on plan assets | 187 | 448 | 473 |
| Expected return on plan assets | 129 | 391 | 439 |
| Experience gains (+) / losses (–) on plan assets |
58 | 57 | 34 |
| €m | 2005 | 2006 | 2007 |
| Experience gains (+) / losses (–) on defi ned benefi t obligations |
12 | –226 | 116 |
| Gains (+) / losses (–) in defi ned benefi t obligations arising from changes in |
|||
| assumptions | –1,080 | 488 | 1,298 |
| Total actuarial gains (+) / losses (–) | |||
| on defi ned benefi t obligations | –1,068 | 262 | 1,414 |
| €m | Deutsche Post | ||||
|---|---|---|---|---|---|
| Germany | UK | Other | bank Group | Total | |
| 2007 | |||||
| Net pension provisions at 1 January | 4,524 | 174 | 125 | 1,115 | 5,938 |
| Pension expense | 343 | 39 | –1 | 81 | 462 |
| Benefi t payments | –291 | –1 | –16 | – 45 | –353 |
| Contributions to funds | –200 | – 67 | – 45 | –16 | –328 |
| Acquisitions | 2 | 11 | 6 | 5 | 24 |
| Transfers | 5 | 0 | 6 | 3 | 14 |
| Currency translation effects | 0 | –16 | 1 | 0 | –15 |
| Net pension provisions at 31 December | 4,383 | 140 | 76 | 1,143 | 5,742 |
| 2006 | |||||
| Net pension provisions at 1 January | 4,654 | 183 | 145 | 585 | 5,567 |
| Pension expense | 430 | 24 | 59 | 101 | 614 |
| Benefi t payments | –291 | 0 | –16 | – 44 | –351 |
| Contributions to funds | –217 | – 40 | – 60 | –16 | –333 |
| Acquisitions | 0 | 2 | 0 | 410 | 412 |
| Transfers | –52 | 0 | –5 | 81 | 24 |
| Currency translation effects | 0 | 5 | 2 | –2 | 5 |
| Net pension provisions at 31 December | 4,524 | 174 | 125 | 1,115 | 5,938 |
Payments amounting to €663 million are expected with regard to net pension provisions in 2008 (€353 million of this relates to the Group's expected direct benefi t payments and €310 million to expected payments to pension funds).
| €m | Deutsche Post | ||||
|---|---|---|---|---|---|
| Germany | UK | Other | bank Group | Total | |
| 2007 | |||||
| Current service cost, excluding employee contributions | 105 | 102 | 58 | 34 | 299 |
| Interest cost | 339 | 206 | 59 | 72 | 676 |
| Expected return on plan assets | –71 | –272 | –79 | –17 | – 439 |
| Recognised past service cost | –39 | 1 | 4 | –14 | – 48 |
| Recognised actuarial gains (–) / losses (+) | 42 | 2 | –2 | 5 | 47 |
| Effects of curtailments | –33 | 0 | –39 | 0 | –72 |
| Effects of settlements | 0 | 0 | – 8 | 1 | –7 |
| Effects of asset limit | 0 | 0 | 6 | 0 | 6 |
| Pension expense | 343 | 39 | –1 | 81 | 462 |
| 2006 | |||||
| Current service cost, excluding employee contributions | 110 | 110 | 84 | 38 | 342 |
| Interest cost | 326 | 197 | 58 | 68 | 649 |
| Expected return on plan assets | –53 | –245 | –77 | –16 | –391 |
| Recognised past service cost | 23 | –31 | –5 | 1 | –12 |
| Recognised actuarial gains (–) / losses (+) | 44 | 2 | 6 | 10 | 62 |
| Effects of curtailments | –20 | –10 | –16 | 0 | – 46 |
| Effects of settlements | 0 | 0 | 0 | 0 | 0 |
| Effects of asset limit | 0 | 1 | 9 | 0 | 10 |
| Pension expense | 430 | 24 | 59 | 101 | 614 |
In accordance with IAS 19.92 actuarial gains and losses are recognised only to the extent that they exceed the greater of 10% of the present value of the obligations or of the fair value of plan assets. Th e excess amount is spread over the expected remaining working lives of the active employees and recognised in the income statement.
| €m | 2006 | 2007 |
|---|---|---|
| Other non-current provisions | 4,780 | 3,015 |
| Other current provisions | 1,656 | 1,703 |
| Other provisions | 6,4361) | 4,718 |
1) Prior-period amount restated, see Note 4.
| €m | Other | Technical | |||
|---|---|---|---|---|---|
| employee benefi ts |
reserves (insurance) |
Postage stamps |
Miscellaneous provisions |
Total | |
| As at 1 January 2007 | 1,694 | 2,059 | 500 | 2,183 | 6,436 |
| Changes in consolidated group | 53 | –1,800 | 0 | 12 | –1,735 |
| Utilisation | – 657 | –241 | –500 | –904 | –2,302 |
| Currency translation differences | –15 | –29 | 0 | –33 | –77 |
| Reversal | –122 | 0 | 0 | –104 | –226 |
| Interest cost added back | 41 | 1 | 0 | 5 | 47 |
| Reclassifi cation | 8 | 0 | 0 | –3 | 5 |
| Additions | 652 | 499 | 500 | 919 | 2,570 |
| As at 31 December 2007 | 1,654 | 489 | 500 | 2,075 | 4,718 |
Of the additions to provisions for other employee benefi ts amounting to €652 million, €136 million is attributable to Deutsche Post AG and €10 million to the Deutsche Postbank Group. Th is provision primarily covers workforce reduction expenses (severance payments, transitional benefi ts, partial retirement, etc.).
Technical reserves (insurance) mainly include unearned premiums and aggregate policy reserves for the insurance business of BHW Lebensversicherung AG, PB Lebensversicherung AG and PB Versicherung AG. Th e provisions were reduced to €489 million due to Deutsche Postbank Group selling the insurance companies.
Th e provision for postage stamps covers outstanding obligations to customers for mail and parcel deliveries from postage stamps sold but still unused by customers, and is based on studies by market research companies. It is measured at the nominal value of the stamps issued.
| €m | 2006 | 2007 |
|---|---|---|
| Provisions for the home savings business | 727 | 710 |
| Tax provisions | 223 | 256 |
| STAR restructuring provision | 277 | 175 |
| Risks from business activities | 162 | 141 |
| Postal Civil Service Health Insurance Fund | 97 | 97 |
| Litigation costs | 68 | 84 |
| Welfare benefi ts for civil servants | 33 | 29 |
| Staff-related provisions | 27 | 25 |
| Other provisions | 569 | 558 |
| Miscellaneous provisions | 2,183 | 2,075 |
Provisions for BHW Bausparkasse AG's home savings business were recognised for the reimbursement of arrangement fees and for interest rate bonuses to be paid retroactively.
Of the tax provisions, €133 million (previous year: €61 million) are accounted for by VAT, €27 million (previous year: €52 million) by customs and duties and €96 million (previous year: €110 million) by other tax provisions.
Th e provisions for restructuring measures, which relate primarily to termination benefi t obligations to employees (partial retirement programmes, transitional benefi ts) and expenses from the closure of terminals, were recognised as part of the Group-wide STAR value creation and integration programme.
Risks from business activities comprise obligations such as expected losses and warranty obligations.
Miscellaneous other provisions include a large number of individual items, none of which exceeds €30 million.
| €m | More than | ||||||
|---|---|---|---|---|---|---|---|
| Less than 1 year | 1 to 2 years | 2 to 3 years | 3 to 4 years | 4 to 5 years | 5 years | Total | |
| 2007 | |||||||
| Other employee benefi ts | 377 | 349 | 191 | 187 | 135 | 415 | 1,654 |
| Technical reserves (insurance) | 144 | 81 | 19 | 17 | 16 | 212 | 489 |
| Postage stamps | 500 | 0 | 0 | 0 | 0 | 0 | 500 |
| Miscellaneous provisions | 682 | 554 | 221 | 149 | 115 | 354 | 2,075 |
| 1,703 | 984 | 431 | 353 | 266 | 981 | 4,718 | |
| 2006 | |||||||
| Other employee benefi ts | 303 | 394 | 201 | 187 | 181 | 428 | 1,694 |
| Technical reserves (insurance) | 152 | 106 | 69 | 10 | 2 | 1,720 | 2,059 |
| Postage stamps | 500 | 0 | 0 | 0 | 0 | 0 | 500 |
| Miscellaneous provisions | 701 | 576 | 234 | 210 | 210 | 252 | 2,183 |
| 1,656 | 1,076 | 504 | 407 | 393 | 2,400 | 6,436 |
Financial liabilities represent all interest-bearing obligations of Deutsche Post World Net not classifi ed as liabilities from fi nancial services.
| €m | 2006 | 2007 |
|---|---|---|
| Non-current fi nancial liabilities | ||
| Bonds | 1,794 | 1,950 |
| Due to banks | 455 | 616 |
| Finance lease liabilities | 711 | 551 |
| Liabilities to Group companies | 30 | 42 |
| Other fi nancial liabilities1) | 5,553 | 5,466 |
| 8,543 | 8,625 | |
| Current fi nancial liabilities | ||
| Bonds | 634 | 2 |
| Due to banks | 351 | 362 |
| Finance lease liabilities | 24 | 74 |
| Liabilities to Group companies | 28 | 23 |
| Other fi nancial liabilities | 908 | 1,095 |
| 1,945 | 1,556 | |
| Financial liabilities1) | 10,488 | 10,181 |
1) Prior-period amount restated, see Note 4.
Th e decline in current liabilities is caused by the fact that on 4 October 2007 the fi ve-year, fi xed-income bond issued in 2002 by Deutsche Post Finance B.V. was repaid from operating cash fl ows in a principal amount of €636 million.
Th e following table contains further details on the company's bonds totalling €1,952 million (previous year: €2,428 million). Th e bonds issued by Deutsche Post Finance B.V. are fully guaranteed by Deutsche Post AG.
| 2006 | 2007 | ||||||
|---|---|---|---|---|---|---|---|
| Nominal | Carrying | Fair value | Carrying | Fair value | |||
| coupon | Issue volume | Issuer | amount €m | €m | amount €m | €m | |
| Bond 2002/2007 | 4.25% | €636 million | Deutsche Post Finance B.V. | 634 | 637 | 0 | 0 |
| Bond 2002/2012 | 5.125% | €679 million | Deutsche Post Finance B.V. | 692 | 706 | 677 | 686 |
| Bond 2003/2014 | 4.875% | €926 million | Deutsche Post Finance B.V. | 960 | 948 | 952 | 916 |
| Bond 2003 | 1.15% | US\$230 million | DHL Holdings Inc., USA, via Kenton County Airport Board | 142 | 142 | 129 | 129 |
| Bond 2007 | variable | US\$270 million | Wilmington Airpark LLC, USA, via Dayton-Montgomery | ||||
| County Port | 0 | 0 | 194 | 194 | |||
| 2,428 | 2,433 | 1,952 | 1,925 |
In April 2007 an interest-subsidised municipal bond of US\$270 million was issued by the Dayton-Montgomery County Port Authority to fi nance the Wilmington Airpark LLC hub in Ohio, USA. Th e bond is tax exempt with a term of 30 years.
Th e following table contains the terms and conditions of signifi cant individual contracts reported under amounts due to banks (€978 million; previous year: €806 million):
| 2006 | 2007 | |||
|---|---|---|---|---|
| Carrying amount | Carrying amount | |||
| Interest rate | Term | €m | €m | |
| Deutsche Post International B.V., Netherlands | 4.923 | Dec. 2011 | 125 | 112 |
| Deutsche Post International B.V., Netherlands | 3-month fl oater | June 2011 | 72 | 57 |
| Deutsche Post International B.V., Netherlands | 5.81 | Feb. 2011 | 51 | 34 |
| Deutsche Post AG, Germany | 4.565 | Dec. 2010 | 0 | 200 |
| 248 | 403 |
Th e above-mentioned liabilities due to banks are fully guaranteed by Deutsche Post AG.
Finance lease liabilities of €625 million (previous year: €735 million) mainly relate to the following items:
| €m | Leasing partner | Interest rate | Maturity | Asset | 2006 | 2007 |
|---|---|---|---|---|---|---|
| DHL Operations B.V., Netherlands | Barclays Mercantile Business Financing Limited, London |
3.745% | 2027/2028 | 16 aircraft | 419 | 382 |
| Deutsche Post AG, Germany | T-Systems Enterprise Services GmbH, | |||||
| Deutschland | – | 2011 | IT equipment | 46 | 33 | |
| DHL Networks Operations Corp., USA | Abx Air Inc., USA | 7.55% | 2010 | 59 aircraft | 26 | 18 |
Th e leased assets are recognised in property, plant and equipment at carrying amounts of €709 million (previous year: €808 million). Th e diff erence between the carrying amounts and the liabilities results from longer economic useful lives of the assets compared with a shorter repayment period for the rental. Th e notional amount of the minimum lease payments totals €1,084 million.
| €m | Present value Notional amount | |
|---|---|---|
| Less than 1 year | 74 | 56 |
| 1 to 2 years | 49 | 55 |
| 2 to 3 years | 32 | 72 |
| 3 to 4 years | 30 | 42 |
| 4 to 5 years | 26 | 35 |
| More than 5 years | 414 | 824 |
| Maturity structure of minimum | ||
| lease payments in 2007 | 625 | 1,084 |
| €m | 2006 | 2007 | |
|---|---|---|---|
| Subordinated debt | Deutsche Postbank Group | 5,048 | 5,603 |
| Loan from Deutsche Post-Betriebsrenten |
|||
| Service e.V. | Deutsche Post AG | 0 | 347 |
| Loan notes due to Exel's existing shareholders |
Deutsche Post AG | 164 | 126 |
| Loan from Bundes Pensions-Service für Post und Telekommunikation |
Deutsche Post AG | 800 | 42 |
| Miscellaneous fi nancial liabilities |
Other Group companies | 449 | 443 |
| Other fi nancial | |||
| liabilities1) | 6,461 | 6,561 |
1) Prior-period amount restated, see Note 4.
Subordinated debt of Deutsche Postbank Group relates to subordinated liabilities, hybrid capital instruments, profi t participation certifi cates outstanding and contributions by typical silent partners. Due to the current residual maturity structure, only €3,521 million (previous year: €3,354 million) of these items represents liable capital as defi ned by the Basel Capital Accord. A total of €2,006 million (previous year: €1,668 million) of the subordinated debt is hedged against changes in fair value. €4.1 billion (previous year: €4.2 billion) of the subordinated debt bears fi xed interest rates, whilst €1.6 billion (previous year: €0.8 billion) bears fl oating rates of interest.
| €m | 2006 | 2007 |
|---|---|---|
| Other non-current liabilities1) | 237 | 361 |
| Other current liabilities | 4,938 | 5,101 |
| Other liabilities1) | 5,175 | 5,462 |
1) Prior-period amount restated, see Note 4.
| €m | 2006 | 2007 |
|---|---|---|
| Tax liabilities | 774 | 841 |
| Payable to employees and members | ||
| of executive bodies | 530 | 486 |
| Deferred income | 481 | 453 |
| Compensated absences | 406 | 420 |
| Incentive bonuses | 350 | 391 |
| Wages, salaries, severance | 288 | 312 |
| Liabilities from the sale of residential building loans, of which non-current: |
||
| 106 (previous year: 104) | 251 | 234 |
| Social security liabilities | 171 | 223 |
| Derivatives, of which long-term 97 | ||
| (previous year: 67) | 165 | 157 |
| Overtime claims | 89 | 98 |
| COD liabilities | 67 | 78 |
| Debtors with credit balances | 65 | 71 |
| Liabilities to Group companies | 69 | 69 |
| Other compensated absences | 61 | 65 |
| Accrued interest | 74 | 59 |
| Liabilities from commissions and premiums | 43 | 43 |
| Insurance liabilities | 34 | 41 |
| Settlement offered to BHW minority shareholders | 0 | 39 |
| Accrued rentals | 31 | 25 |
| Liabilities for damages | 14 | 18 |
| Accrued insurance premiums for damages and similar liabilities |
17 | 17 |
| Early termination fees | 15 | 15 |
| Liabilities from cheques issued | 19 | 8 |
| Liabilities from defi ned contribution pension | ||
| plans | 6 | 5 |
| Other liabilities to customers | 23 | 5 |
| Liabilities to Bundes-Pensions-Service für Post und Telekommunikation e.V. |
9 | 4 |
| Miscellaneous other liabilities | 1,123 | 1,285 |
| Other liabilities1) | 5,175 | 5,462 |
1) Prior-period amount restated, see Note 4.
Of the tax liabilities, €341 million (previous year: €316 million) are accounted for by VAT, €181 million (previous year: €209 million) by customs and duties and €319 million (previous year: €249 million) by other tax liabilities.
Th e liabilities from the sale of residential building loans relate to obligations of Deutsche Post AG to pay interest subsidies to borrowers to off set 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.
| €m | 2006 | 2007 |
|---|---|---|
| Less than 1 year | 4,938 | 5,101 |
| 1 to 2 years | 49 | 128 |
| 2 to 3 years | 24 | 20 |
| 3 to 4 years | 20 | 30 |
| 4 to 5 years | 28 | 36 |
| More than 5 years | 116 | 147 |
| Maturity structure of other liabilities1) | 5,175 | 5,462 |
1) Prior-period amount restated, see Note 4.
Short maturities or marking-to-market means that there are no signifi cant diff erences between the carrying amounts and fair value of primary fi nancial instruments. Th ere is no signifi cant interest rate risk because most of these instruments bear fl oating rates of interest at market rates.
Income tax provisions, which relate mainly to Deutsche Post AG in the amount of €51 million (previous year: €51 million), whilst €121 million (previous year: €82 million) relates to the Deutsche Postbank Group, developed as follows:
| €m | 2006 | 2007 |
|---|---|---|
| As at 1 January | 394 | 237 |
| Changes in consolidated group | 42 | – 8 |
| Utilisation | –250 | –318 |
| Reclassifi cation | –25 | 2 |
| Reversal | –24 | –13 |
| Currency translation differences | – 6 | – 6 |
| Additions | 106 | 440 |
| As at 31 December | 237 | 334 |
€930 million of the trade payables amounting to €5,384 million (previous year: €5,069 million) relate to Deutsche Post AG (previous year: €937 million). Trade payables primarily have a maturity of less than one year. Th e reported carrying amount of trade payables corresponds to their fair value.
| €m | 2006 | 2007 |
|---|---|---|
| Deposits from other banks | ||
| of which payable on demand: 3,292 | ||
| (previous year: 2,719) | ||
| of which fair value hedges: 783 | ||
| (previous year: 2,802) | 47,319 | 61,146 |
| Due to customers | ||
| of which fair value hedges: 4,542 (previous year: 4,761) |
||
| Savings deposits | 36,034 | 34,996 |
| Home savings deposits | 16,981 | 16,915 |
| Other current liabilities | ||
| of which payable on demand: 26,589 | ||
| (previous year: 23,525) | 47,867 | 58,705 |
| 100,882 | 110,616 | |
| Securitised liabilities | ||
| of which fair value hedges: 5,797 (previous year: 8,012) |
||
| Mortgage bonds | 53 | 11 |
| Public-sector mortgage bonds (Pfandbriefe) | 81 | 59 |
| Other debt instruments | 15,752 | 9,488 |
| 15,886 | 9,558 | |
| Trading liabilities | ||
| Negative fair values of trading derivatives | 2,864 | 4,955 |
| Negative fair values of banking book hedging derivatives |
351 | 330 |
| Negative fair values of derivatives in connection with | ||
| underlyings relating to the fair value option | 401 | 308 |
| Delivery obligations for short sales of securities | 2 | 1 |
| 3,618 | 5,594 | |
| Hedging derivatives (negative fair values) | 958 | 873 |
| Liabilities from fi nancial services | 168,663 | 187,787 |
Fair value hedges with negative fair values that satisfy the requirements of IAS 39 for hedge accounting are composed of the following items:
| €m | 2006 | 2007 |
|---|---|---|
| Assets | ||
| Hedging derivatives on loans to other banks | ||
| Loans and receivables | 66 | 34 |
| Purchased loans (available for sale) | 0 | 0 |
| 66 | 34 | |
| Hedging derivatives on loans to customers | ||
| Loans and receivables | 50 | 31 |
| Purchased loans (available for sale) | 0 | 0 |
| 50 | 31 | |
| Hedging derivatives on investment securities | ||
| Bonds and other fi xed-income securities | 344 | 267 |
| Equities and other non-fi xed-income securities | 0 | 0 |
| 344 | 267 | |
| 460 | 332 | |
| Liabilities | ||
| Deposits from other banks | 63 | 6 |
| Due to customers | 78 | 51 |
| Securitised liabilities | 237 | 311 |
| Subordinated liabilities | 120 | 173 |
| 498 | 541 | |
| Hedging derivatives | 958 | 873 |
| €m | Payable on | Less than | 3 months to | More than | |||||
|---|---|---|---|---|---|---|---|---|---|
| demand | 3 months | 1 year | 1 to 2 years | 2 to 3 years | 3 to 4 years | 4 to 5 years | 5 years | Total | |
| 2007 | |||||||||
| Deposits from other banks | 3,293 | 41,068 | 5,332 | 2,515 | 830 | 898 | 1,299 | 5,911 | 61,146 |
| Due to customers | 26,509 | 45,538 | 6,312 | 1,755 | 1,811 | 3,451 | 5,439 | 19,801 | 110,616 |
| Securitised liabilities | 0 | 992 | 1,173 | 3,913 | 1,206 | 258 | 248 | 1,768 | 9,558 |
| Trading liabilities | 0 | 508 | 211 | 233 | 201 | 193 | 336 | 3,912 | 5,594 |
| Hedging derivatives | 0 | 138 | 39 | 131 | 67 | 29 | 69 | 400 | 873 |
| 29,802 | 88,244 | 13,067 | 8,547 | 4,115 | 4,829 | 7,391 | 31,792 | 187,787 | |
| 2006 | |||||||||
| Deposits from other banks | 2,719 | 30,719 | 4,645 | 1,614 | 2,224 | 508 | 488 | 4,402 | 47,319 |
| Due to customers | 21,436 | 47,945 | 2,539 | 793 | 982 | 453 | 2,406 | 24,328 | 100,882 |
| Securitised liabilities | 0 | 5,227 | 2,600 | 1,818 | 3,552 | 1,210 | 116 | 1,363 | 15,886 |
| Trading liabilities | 0 | 749 | 116 | 151 | 272 | 193 | 170 | 1,967 | 3,618 |
| Hedging derivatives | 0 | 123 | 27 | 65 | 148 | 129 | 50 | 416 | 958 |
| 24,155 | 84,763 | 9,927 | 4,441 | 7,178 | 2,493 | 3,230 | 32,476 | 168,663 |
Th e consolidated cash fl ow statement is prepared in accordance with IAS 7 (Cash Flow Statements) and discloses the cash fl ows in order to present the source and application of cash and cash equivalents. It distinguishes between cash fl ows from operating, investing and fi nancing activities. Cash and cash equivalents are composed of cash, cheques and bank balances with a maturity of not more than three months, and correspond to the cash and cash equivalents reported on the balance sheet. Th e eff ects of currency translation and changes in the consolidated group are adjusted when calculating cash and cash equivalents.
To enhance the clarity of the cash fl ow statement, changes in other assets and liabilities were added to the cash fl ows from operating activities before changes in working capital. Th ese refl ect changes in non-current assets and liabilities which are not part of the working capital. Th e previous year's amounts were adjusted accordingly.
Cash fl ows from operating activities are calculated by adjusting net profit before taxes for net fi nancial income/net fi nance costs and non-cash factors, as well as taxes paid, changes in provisions and in other assets and liabilities (net profi t before changes in working capital). Adjustments for changes in working capital (excluding fi nancial liabilities) result in net cash from or used in operating activities. Net cash from operating activities can be broken down into net cash from operating activities before changes in working capital and net infl ows from changes in working capital.
Net cash from operating activities before changes in working capital amounts to €4,424 million, thus being largely on the previous year's level (€4,409 million). EBIT was reduced amongst other things by the non-cash write-down for the Americas region, which was added back in the depreciation/amortisation of non-current assets account. Other than in the previous year, EBIT includes fewer gains on the disposal of non-current assets. Resulting cash fl ows are transferred to cash fl ows from investing activities. Th e increase in cash payments for other assets and liabilities reduced liquidity. At €340 million, tax payments are roughly on a level with the previous year (€343 million). €62 million of this amount relates to Deutsche Postbank Group and €278 million to other Group companies.
Whereas the previous year saw an outfl ow of working capital, cash from changes in working capital was received in the amount of €727 million in 2007. Th e main reason for this change are receivables and/or liabilities from fi nancial services which refl ected a cash outfl ow in the previous year in the amount of €–368 million, whereas cash in the amount of €707 million was provided from this account in the year under review.
Overall, net cash from operating activities increased year-on-year by an aggregate of €1,229 million to €5,151 million.
| €m | 2006 | 2007 |
|---|---|---|
| Expense from remeasurement of assets | 96 | 54 |
| Income from remeasurement of liabilities | –10 | –26 |
| Staff costs relating to stock option plan | 30 | 14 |
| Non-cash income and expense of Deutsche | ||
| Postbank Group | 337 | 338 |
| Other | 0 | 5 |
| Other non-cash income and expense | 453 | 385 |
Cash fl ows from investing activities mainly result from cash received from disposals of non-current assets and cash paid for investments in non-current assets. Net cash in the amount of €753 million was used in investing activities in the year under review, thus falling by €1,944 million below the previous year's amount (previous year: €2,697 million).
Th e disposal of non-current assets generated cash and cash equivalents in the amount of €1,381 million (previous year: €1,274 million). Divestitures of operations brought cash infl ows of €622 million, mainly from the sale of the insurance equity investments of Deutsche Postbank Group (€550 million) and from the sale of Vfw AG (€75 million). €759 million of cash was received from the sale of other non-current assets.
Cash paid to acquire non-current assets totalled €2,656 million compared with €4,066 million in the previous year. Of this amount, €347 million was attributable to the acquisition of companies, such as the acquisition of TSO (€156 million), Astar (€68 million), Polar Air Cargo (€73 million), and to an increase in the share in Lemuir India (€34 million). Th e total cash and cash equivalents acquired with these acquisitions amounted to €23 million (previous year: €127 million).
Th e following assets and liabilities were acquired on the acquisition of companies (see also Note 2):
| €m | 2006 | 2007 |
|---|---|---|
| Non-current assets | 905 | 98 |
| Receivables and other securities from fi nancial services |
40,385 | 26 |
| Current assets (excluding cash and cash equivalents) |
958 | 212 |
| Provisions | –3,018 | –70 |
| Liabilities from fi nancial services | –36,863 | 0 |
| Other liabilities | –1,220 | –214 |
Net cash used for the acquisition of other non-current assets amounted to €2,309 million, a year-on-year increase of €337 million. Th is increase relates to capital expenditure (€2,210 million compared with €1,931 million in the previous year) and to cash paid for other non-current fi nancial assets (€99 million compared with €41 million in the previous year). In addition, interest received increased cash fl ows from investing activities by €520 million (previous year: €100 million). Th is increase is mainly accounted for by the fact that fi nancial derivatives have been presented in gross amounts since the beginning of the year. No data were available to determine the previous year's amounts.
Free cash fl ows are a combination of net cash provided by operating activities and net cash used in investing activities. Free cash fl ows are deemed an indicator to show how much cash is available to the company for dividend payments or the repayment of debt. Free cash fl ows amounted to €4,398 million in the year under review and improved by €3,173 million year-on-year.
Cash fl ows from fi nancing activities result from the issue and repayment of fi nancial liabilities and from distributions. In addition, interest paid in the amount of €659 million (previous year: €393 million) is included in net cash used in fi nancing activities, which increased mainly due to the change in the gross recognition of fi nancial derivatives since the beginning of the year.
Net cash used in fi nancing activities rose from €865 million in the previous year to €2,087 million in the year under review. Th is increase, in addition to the gross recognition of interest payments mentioned above, mainly refl ects a reduction in fi nancial liabilities. Th e changes in fi nancial liabilities resulted in cash infl ows amounting to €345 million in the previous year, whereas the year under review saw cash outfl ows of €439 million, refl ecting the repayment of current and non-current liabilities. Amongst other items, the Group repaid a fi xed-income bond in the principal amount of €636 million in October and issued a municipal bond amounting to US\$270 million in April. In addition, increased dividends paid to shareholders of Deutsche Post AG (€903 million) and minority shareholders (€159 million) resulted in a cash outfl ow from fi nancing activities.
Th e cash infl ows and outfl ows described above produced cash and cash equivalents of €4,683 million (see Note 33). Th is is a year-on-year increase of €2,292 million. Currency translation diff erences reduced cash and cash equivalents by €46 million, changes in the consolidated group, by contrast, brought an increase of €27 million.
Financial instruments are contractual obligations to receive or deliver cash and cash equivalents. In accordance with IAS 32 and IAS 39, these include both primary and derivative fi nancial instruments. Primary fi nancial instruments include in particular bank balances, all receivables, liabilities, securities, loans and accrued interest. Examples of derivatives include options, swaps and futures.
Th e Deutsche Postbank Group accounts for most of the fi nancial instruments in Deutsche Post World Net. Th e risks and derivatives of the Deutsche Postbank Group's fi nancial instruments are therefore presented separately below.
Taking risks in order to generate earnings is the core function of the Deutsche Postbank Group's business activities. One of the Deutsche Postbank Group's core competencies is to assume normal banking risks within a strictly defi ned framework, whilst at the same time maximising the potential return arising from them. In the process, each of the relevant risks is thoroughly identifi ed, continuously measured and monitored as well as regularly reported. To this end, the Deutsche Postbank Group has established a risk management organisation as the basis for risk- and earnings-based overall bank management.
In accordance with the requirements of MaRisk (Minimum Requirements for Risk Management), the risk strategy is consistent with the business strategy and takes into account all signifi cant areas of business and types of risk. In addition to an overarching, group-wide risk strategy, Postbank's Management Board has resolved specifi c risk strategies for market, credit, liquidity and operational risk.
Th e nature and extent of the risks taken, as well as the strategy for managing such risks, depends on the individual business units, whose actions are prescribed by the business strategy. Th e Deutsche Postbank Group is active in the Retail Banking, Corporate Banking, Transaction Banking and Financial Markets areas.
Operational responsibility for risk management is spread across several units in the Deutsche Postbank Group, primarily the Financial Markets board department, Domestic/Foreign Credit Management and the credit functions of the private customer business and, at a decentralised level, the subsidiaries BHW Bausparkasse AG, BHW Bank AG, Deutsche Postbank International S.A. and PB Capital Corp, as well as the London branch.
Risk Controlling, part of the Finance board department, is the independent, group-wide risk monitoring unit. Risk Controlling is authorised to make decisions regarding the methods and models applied in risk identifi cation, measurement and limitation. In co-operation with the risk control units at the BHW Bausparkasse AG, BHW Bank AG, Deutsche Postbank International S.A. and PB Capital Corp. subsidiaries and the London branch, the department is responsible for operational risk control and reporting at group level.
Th e Internal Audit unit is a key element of the Deutsche Postbank Group's business and process-independent monitoring system. In terms of the Bank's organisational structure, it is assigned to the Chairman of the Management Board and reports independently to the Group Management Board. Th e Postbank Group Management Board is responsible for risk strategy, the appropriate organisation of risk management, monitoring the risk content of all transactions and risk control. In conjunction with the Risk Committees, the Group Management Board has defi ned the underlying strategies for activities on the fi nancial markets and the other business sectors of the group.
Th e Deutsche Postbank Group distinguishes between the following risk types:
Settlement risk: Risk of possible losses during the settlement or netting of transactions.
Counterparty risk: Th e risk of possible losses arising from potential default by a counterparty, and hence the risk to unrealised profi ts on executory contracts (replacement risk).
Th e importance of risk control has further increased against the background of continuously volatile capital markets due to the crisis on the fi nancial markets, low interest rates as against previous years and continued intense competition in the markets for deposits and loans, with consequent pressure on interest margins. An additional factor is the insolvency trend in the economy as a whole. In fi nancial year 2007, the Deutsche Postbank Group further sophisticated the structures, instruments and processes for risk management and controlling for the relevant risk types and has state-of-the-art tools for overall bank management. BHW, which was acquired in 2006, has now also been fully integrated in the risk control processes. As a result, the Deutsche Postbank Group is in a position to meet the challenges it faces in the market, and to manage and limit all types of risk across all business units in a way that minimises risk whilst maximising earnings. Th e methods and procedures employed meet the current statutory and regulatory requirements.
The risks arising from the structured credit portfolio of Deutsche Postbank Group are systematically and intensively analysed and closely monitored within the scope of an internal project structure. Where impairment testing resulted in impairments likely to be permanent, the appropriate impairment losses were recognised.
With respect to other risk not related to structured loans, Postbank maintained the relatively low risk profi le of its credit business during 2007, having comparatively low risk costs. Amongst other things, the increasing credit risks in the retail segment in Germany were countered by a restrictive scoring-based lending policy as well as by more effi cient and faster workout processes for loans in default. Th e additions to the allowance for losses on loans and advances mainly result from the planned expansion of the retail business in fi nancial year 2007. In return, the allowance recognised in previous periods could be reversed due to the positive economic environment. Th e net addition was therefore signifi cantly reduced. Th e Deutsche Postbank Group will continue to pursue its risk-sensitive business policy in the future.
With regard to the allocation of risk capital, the Postbank Group has been, and continues to be able to allow the business units suffi cient scope to achieve business growth in line with its strategy. Should the turbulences triggered by the US real estate market intensify notably and spill over into the real economy, an additional fi nancial burden cannot be excluded. No risks that could impair the Deutsche Postbank Group's development or even jeopardise its continued existence have been identifi ed amongst the above-mentioned risk types.
Th e Deutsche Postbank Group uses derivatives for hedging purposes as part of its asset/liability management policy. Derivatives are also used for trading. Foreign currency derivatives are mainly used in the form of currency forwards, currency swaps, cross-currency swaps and currency options. Interest rate derivatives mainly consist of interest rate swaps, forward rate agreements, interest futures and interest options; in isolated cases, forward transactions in fi xed-interest securities were conducted. Equity derivative contracts are signed in particular in the form of stock options and equity/index futures. Only a few credit derivatives (credit default swaps) were entered into. Credit derivatives (credit default swaps) are basically the result of derivatives separated from synthetic CDOs. Th e notional amounts represent the gross volume of all sales and purchases. Th e notional amount is a reference value for determining reciprocally agreed settlement payments; it does not represent recognisable receivables or liabilities. Th e fair values of the individual contracts were calculated using recognised valuation models and do not refl ect any netting agreements. Th e derivatives portfolio is classifi ed by economic purpose as follows:
| €m | Notional amounts | Positive fair values | Negative fair values | ||||
|---|---|---|---|---|---|---|---|
| 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | ||
| Trading derivatives | 438,244 | 518,853 | 3,289 | 5,427 | 3,616 | 5,593 | |
| Hedging derivatives | 43,568 | 34,052 | 485 | 421 | 958 | 873 | |
| Total | 481,812 | 552,905 | 3,774 | 5,848 | 4,574 | 6,466 |
Th e following table presents the open interest rate and foreign currency forward transactions and option contracts of the Deutsche Postbank Group at the balance sheet date.
| €m | 2006 Fair value |
2007 Fair value |
||||
|---|---|---|---|---|---|---|
| Notional | Positive | Negative | Notional | Positive | Negative | |
| amount | fair values | fair values | amount | fair values | fair values | |
| Trading derivatives | ||||||
| Currency derivatives | ||||||
| OTC products | ||||||
| Currency forwards | 4,115 | 36 | 22 | 2,273 | 35 | 50 |
| Currency swaps | 17,767 | 152 | 129 | 22,518 | 202 | 270 |
| Total portfolio of currency derivatives | 21,882 | 188 | 151 | 24,791 | 237 | 320 |
| Interest rate derivatives | ||||||
| OTC products | ||||||
| Interest rate swaps | 398,821 | 3,068 | 3,436 | 469,220 | 5,142 | 5,046 |
| Cross-currency swaps | 55 | 2 | – | 146 | 4 | 5 |
| FRAs | 2,632 | 9 | 1 | 5,723 | – | 2 |
| OTC interest rate options | 645 | – | 1 | 673 | 1 | 1 |
| Other interest-related contracts | 479 | 1 | 1 | 871 | 3 | 2 |
| Exchange-traded products | ||||||
| Interest-rate futures | 4,131 | – | – | 9,893 | – | – |
| Interest-rate options | 7,996 | 1 | – | 490 | 1 | – |
| Total portfolio of interest-rate derivatives | 414,759 | 3,081 | 3,439 | 487,016 | 5,151 | 5,056 |
| Equity/index derivatives | ||||||
| OTC products | ||||||
| Equity options (long/short) | 165 | 13 | 19 | 453 | 10 | 66 |
| Exchange-traded products | ||||||
| Equity/index futures | 8 | – | 2 | 117 | – | – |
| Equity/index options | 83 | 1 | 1 | 259 | 2 | 1 |
| Total portfolio of equity/index derivatives | 256 | 14 | 22 | 829 | 12 | 67 |
| Credit derivatives | ||||||
| Credit default swaps | 1,347 | 6 | 4 | 6,217 | 27 | 150 |
| Total portfolio of credit derivatives | 1,347 | 6 | 4 | 6,217 | 27 | 150 |
| Total portfolio of derivatives held for trading | 438,244 | 3,289 | 3,616 | 518,853 | 5,427 | 5,593 |
| of which banking book derivatives | 22,214 | 276 | 351 | 15,416 | 131 | 330 |
| of which derivatives in connection with underlyings | ||||||
| relating to the fair value option | 8,097 | 71 | 401 | 12,767 | 141 | 308 |
| Hedging derivatives | ||||||
| Fair value hedges | ||||||
| Interest rate swaps | 41,423 | 482 | 733 | 32,560 | 410 | 621 |
| Cross-currency swaps | 1,796 | 3 | 222 | 1,338 | 10 | 252 |
| Credit default swaps | 349 | – | 3 | 154 | 1 | – |
| Total portfolio of hedging derivatives | 43,568 | 485 | 958 | 34,052 | 421 | 873 |
| Total portfolio of derivatives | 481,812 | 3,774 | 4,574 | 552,905 | 5,848 | 6,466 |
Th e following table provides an overview of the recognised derivative assets and liabilities, structured by remaining maturity:
| €m | Hedging derivatives | Trading and banking book derivatives | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 2006 | 2007 | 2006 | 2007 | ||||||
| Positive fair values |
Negative fair values |
Positive fair values |
Negative fair values |
Positive fair values |
Negative fair values |
Positive fair values |
Negative fair values |
||
| Less than 3 months | 63 | 123 | 45 | 138 | 471 | 749 | 316 | 508 | |
| 3 months to 1 year | 15 | 27 | 5 | 39 | 105 | 116 | 144 | 211 | |
| 1 to 2 years | 11 | 65 | 18 | 131 | 120 | 151 | 147 | 233 | |
| 2 to 3 years | 22 | 148 | 15 | 67 | 182 | 272 | 205 | 201 | |
| 3 to 4 years | 31 | 129 | 7 | 29 | 226 | 193 | 197 | 193 | |
| 4 to 5 years | 21 | 50 | 23 | 69 | 144 | 170 | 270 | 336 | |
| More than 5 years | 322 | 416 | 308 | 400 | 2,041 | 1,965 | 4,148 | 3,911 | |
| 485 | 958 | 421 | 873 | 3,289 | 3,616 | 5,427 | 5,593 |
Th e following table presents the positive and negative fair values of derivatives by counterparty.
| €m | 2006 | 2007 | ||||
|---|---|---|---|---|---|---|
| Positive fair values |
Negative fair values |
Positive fair values |
Negative fair values |
|||
| Banks in OECD countries |
3,699 | 4,457 | 5,720 | 6,132 | ||
| Public institutions in OECD countries |
17 | 26 | – | – | ||
| Other counterparties in OECD countries |
58 | 91 | 117 | 250 | ||
| Counterparties outside the OECD |
– | – | 11 | 84 | ||
| 3,774 | 4,574 | 5,848 | 6,466 |
Fair values of fi nancial instruments which are carried at amortised cost or at the hedged fair value are compared with the carrying amounts in the following table.
| €m | 2006 | 2007 | |||
|---|---|---|---|---|---|
| Carrying | Fair | Carrying | Fair | ||
| amount | value | amount | value | ||
| Assets | |||||
| Cash reserve | 1,015 | 1,015 | 3,352 | 3,352 | |
| Loans and advances to other banks (loans and receivables) |
16,350 | 16,357 | 24,581 | 24,510 | |
| Loans and advances to customers (loans and receivables) |
80,483 | 82,496 | 85,159 | 85,414 | |
| Loans and advances to customers (held to maturity) |
518 | 518 | 456 | 456 | |
| Allowance for losses on loans and advances |
–1,155 | –1,155 | –1,184 | –1,184 | |
| Investment securities (loans and receivables) |
19,031 | 18,838 | 26,600 | 25,922 | |
| Investment securities | |||||
| (held to maturity) | 4,956 | 5,025 | 730 | 731 | |
| Liabilities | |||||
| Deposits from other | |||||
| banks | 47,319 | 47,366 | 61,146 | 60,935 | |
| Due to customers | 101,316 | 101,439 | 110,740 | 110,335 | |
| Securitised liabilities and subordinated |
|||||
| debt | 20,934 | 21,019 | 15,161 | 14,753 | |
A fair value is generally determined for all financial instruments. Exceptions are transactions due on demand and savings deposits with an agreed withdrawal notice of less than one year. If there is an active market for a fi nancial instrument (e.g. stock exchange), the fair value is expressed by the market or quoted exchange price at the balance sheet date. If there is no active market, the fair value is determined by an established valuation technique. Th e valuation techniques used incorporate the major factors establishing a fair value for the fi nancial instruments using valuation parameters which are the result of the market conditions at the balance sheet date. Th e cash fl ows used under the present value method are based on the contractual data of the fi nancial instruments.
Deutsche Post World Net's operating activities result in fi nancial risks that may arise from changes in exchange risks, commodity prices and interest rates. Th e Group uses both primary and derivative fi nancial instruments to manage these risks. Th e use of derivatives is limited to the management of primary risks. Any use for speculative purposes is not permitted under Deutsche Post World Net's internal guidelines.
Th e fair values of the derivatives used may be subject to substantial fl uctuations depending on future changes in exchange rates, interest rates or commodity prices. Th ese fl uctuations in fair values are not to be viewed in isolation from the underlying transactions to be hedged. Derivatives and hedged transactions form a unity with regard to their off setting value development.
Internal guidelines govern the universe of actions, responsibilities and controls necessary for using derivatives. Suitable risk management soft ware is used to record, assess and process hedging transactions. It is also used to regularly assess the eff ectiveness of the hedging relationships. Deutsche Post World Net only enters into hedging transactions with prime-rated banks. Each bank is assigned a counterparty limit, the use of which is regularly monitored.
Th e Group's Board of Management receives regular internal information on the existing fi nancial risks and the hedging instruments deployed to limit them. Th e fi nancial instruments used are accounted for in accordance with IAS 39.
Deutsche Post World Net ensures a suffi cient supply of cash for Group companies at all times via a largely centralised liquidity management system. Along with bilateral credit lines committed by banks in the amount of €4.2 billion (previous year: €4.2 billion), the Group issued a commercial paper programme in December 2007 in the amount of €1 billion as another liquidity reserve. Th us, Deutsche Post World Net continues to have suffi cient funds to fi nance necessary investments.
Th e maturity structure of primary fi nancial liabilities to be applied within the scope of IFRS 7 based on cash fl ows is as follows:
| €m | Less than | More than | ||||
|---|---|---|---|---|---|---|
| 1 year | 1 to 2 years | 2 to 3 years | 3 to 4 years | 4 to 5 years | 5 years | |
| As at 31 December 2007 | ||||||
| Financial liabilities | –189 | –371 | –448 | –319 | –851 | –2,275 |
| Other liabilities | 0 | –106 | –10 | –14 | –9 | –85 |
| Non-current liabilities | –189 | –477 | –458 | –333 | –860 | –2,360 |
| Financial liabilities | –928 | 0 | 0 | 0 | 0 | 0 |
| Trade payables | –5,210 | 0 | 0 | 0 | 0 | 0 |
| Other liabilities | –355 | 0 | 0 | 0 | 0 | 0 |
| Current liabilities | –6,493 | 0 | 0 | 0 | 0 | 0 |
| As at 31 December 2006 | ||||||
| Financial liabilities | –313 | –264 | –239 | –214 | –171 | –2,990 |
| Other liabilities | –2 | –9 | – 8 | – 8 | –7 | –71 |
| Non-current liabilities | –315 | –273 | –247 | –222 | –178 | –3,061 |
| Financial liabilities | –1,988 | 0 | 0 | 0 | 0 | 0 |
| Trade payables | – 4,930 | 0 | 0 | 0 | 0 | 0 |
| Other liabilities | –338 | 0 | 0 | 0 | 0 | 0 |
| Current liabilities | –7,256 | 0 | 0 | 0 | 0 | 0 |
Cash fl ows which do not fall under the scope of IFRS 7 were not included in the table.
Derivative fi nancial instruments entail both rights and obligations. Th e contractual arrangement defi nes whether these rights and obligations can be off set against each other, thus leading to a net settlement, or whether both parties to the contract will have to fully fulfi l their obligations (gross settlement). Th e maturity structure of payments under derivative fi nancial instruments is as follows:
| €m | Less than | More than | ||||
|---|---|---|---|---|---|---|
| 1 year | 1 to 2 years | 2 to 3 years | 3 to 4 years | 4 to 5 years | 5 years | |
| As at 31 December 2007 | ||||||
| Derivative receivables - gross settlement | ||||||
| Cash outfl ows | –1,685 | –16 | –15 | –15 | –16 | –160 |
| Cash infl ows | 1,730 | 16 | 16 | 16 | 16 | 191 |
| Net settlement | ||||||
| Cash infl ows | 7 | 2 | 0 | 0 | 0 | 0 |
| Derivative liabilities - gross settlement | ||||||
| Cash outfl ows | –1,810 | –116 | –185 | –113 | –91 | –212 |
| Cash infl ows | 1,739 | 97 | 166 | 94 | 77 | 180 |
| Net settlement | ||||||
| Cash outfl ows | – 6 | –7 | 0 | 0 | 0 | 0 |
| As at 31 December 2006 | ||||||
| Derivative receivables - gross settlement | ||||||
| Cash outfl ows | –2,280 | –204 | – 48 | – 47 | – 47 | –223 |
| Cash infl ows | 2,337 | 203 | 51 | 50 | 50 | 241 |
| Net settlement | ||||||
| Cash infl ows | 3 | 0 | 0 | 0 | 0 | 0 |
| Derivative liabilities - gross settlement | ||||||
| Cash outfl ows | –2,874 | –125 | –74 | –72 | – 69 | – 64 |
| Cash infl ows | 2,801 | 111 | 60 | 59 | 57 | 55 |
| Net settlement | ||||||
| Cash outfl ows | –33 | 0 | 0 | 0 | 0 | 0 |
Th e Group's global activities expose it to currency risks from planned and completed transactions in foreign currencies. Corporate Treasury is responsible for the central recognition and management of these risks. Th e Group companies report their foreign-currency risks to Corporate Treasury, which calculates a net position per currency on the basis of these fi gures and hedges this position externally, where applicable. Currency forwards, currency swaps and currency options are used for this purpose. Th e notional amount of outstanding currency forwards and swaps was €3,745 million as at the reporting date (previous year: €5,499 million). Th e corresponding fair value was €–31 million (previous year: €–37 million). Th ese transactions were used to hedge planned and recorded operational risks and to hedge internal and external fi nance and investments. For reasons of simplifi cation, fair value hedge accounting in accordance with IAS 39 was not used for currency forwards and swaps.
In addition, currency options with a nominal value of €460 million (previous year: €162 million) and a fair value of €–11 million (previous year: €3 million) were used to hedge operational currency risks and risks arising from investing activities. Th e Group also held cross-currency swaps with a nominal value of €299 million (previous year: €328 million) and a fair value of €–12 million (previous year €–19 million) to hedge longterm foreign currency fi nancing.
Currency risks resulting from translating assets and liabilities of foreign operations into the Group's currency (translation risk) were not hedged as at 31 December 2007. Th e net investment hedge recognised as at 31 December 2006 ceased to be accounted for in 2007. Th e fair value of currency forwards was measured on the basis of current market prices, taking forward premiums and discounts into account. Th e currency options were measured using the Black & Scholes option pricing model. Of the unrealised losses from currency derivatives that were recognised in equity as at 31 December 2007 in accordance with IAS 39, a loss of €–17 million (previous year: €–8 million) is expected to be recognised in income in the course of 2008.
IFRS 7 requires a company to disclose a sensitivity analysis, showing how profi t or loss and equity are aff ected by hypothetical changes in exchange rates at the reporting date. In this process, the hypothetical changes in exchange rates are analysed in relation to the portfolio of fi nancial instruments not denominated in their functional currency and being of a monetary nature. It is assumed that the portfolio as at the reporting date is representative for the whole year.
Eff ects of hypothetical changes in exchange rates on the translation risk do not fall within the scope of IFRS 7. Th e following assumptions are taken as a basis for the sensitivity analysis:
Primary monetary fi nancial instruments used by Group companies are either denominated directly in the functional currency or the currency risk was transferred to Deutsche Post AG at the exchange rates Deutsche Post AG has guaranteed. Exchange-rate-induced changes have therefore no eff ect on the profi t or loss and equity of the Group companies.
Some isolated Group companies are legally not entitled to participate in inhouse banking. Th ese companies hedge their currency risks from primary monetary fi nancial instruments linked with Deutsche Post AG by using derivatives. Th e internal derivatives are consolidated in the Group. Th e risk remaining at Group level is taken into account when computing the net position.
Hypothetical changes in exchange rates aff ect the fair values of the external derivatives used by Deutsche Post AG with changes in fair value reported in profi t or loss; they also aff ect the currency results from the measurement at closing date of the inhouse bank balances denominated in foreign currency, the balances of external bank accounts as well as internal and external loans of Deutsche Post AG.
In addition, hypothetical changes in exchange rates aff ect equity and the fair values of those derivatives used to hedge fi rm off -balance sheet obligations and highly probable future currency transactions – designated as cash fl ow hedges.
A 10% appreciation of the euro against all currencies as at 31 December 2007 would have reduced profi t by €–8 million (previous year: €–13 million). Th ese hypothetical eff ects on profi t or loss are mainly the result of a sensitivity to changes in the euro against US\$ (€–18 million; previous year: €–8 million), GBP (€2 million; previous year: €–5 million), BHD (€5 million; previous year: €0.1 million) and CNY (€4 million; previous year: €2 million). A devaluation of the euro would lead to exactly the opposite sensitivities.
A 10% appreciation of the euro would have changed the hedging reserve accounted for in equity by €–25 million (previous year: €40 million). Th e hypothetical change in equity is mainly the result of the euro's sensitivity to the US\$ (€–76 million; previous year: €–29 million) and the GBP (€14 million; previous year: €49 million). A devaluation of the euro would mainly have had the opposite eff ect on equity .
Most of the risks arising from the purchase of fuels and fuel oil are passed on to customers via surcharges and contract clauses. Th ere was no additional hedging using derivatives at the reporting date (nominal amount in the previous year: €374 million/fair value: €–31 million).
A hypothetical increase in fuel prices by 10% would have changed the hedging reserve recognised in equity by €0 million (previous year: €19 million); a fair-value decline by 10% would have led to a change by €0 million (previous year: €–21 million).
Th e Group's primary debt currency is the euro. Euro funds are transformed into foreign currencies using derivative fi nancial instruments, to cover the liquidity needs of the respective operations. Taking into account these transactions, the euro's portion in the Group's net debt was 60% (previous year: 40%), the portion of the US dollar stood at 28% (previous year: 27%). Th e increase in the euro's share is mainly accounted for by adjusting the foreign-currency loan portfolio.
Th e fair value of interest rate hedging instruments was calculated on the basis of the discounted expected future cash fl ows, using the Group's treasury risk management system.
At 31 December 2007, Deutsche Post World Net had entered into interest rate swaps with a notional volume of €1,209 million (previous year: €1,764 million). Th e fair value of this interest rate swap position was €–24 million (previous year: €11 million). Th e Group had not engaged in interest-rate options as at the reporting date (notional amount in the previous year: €150 million).
Deutsche Post World Net moderately increased the proportion of instruments with long-term interest-rate lock-in in the fi rst half of 2007. To take appropriate account of the unsteadiness in the fi nancial markets in the second half of 2007, the proportion between instruments with short-term and with long-term interest-rate lock-ins was well balanced. Forecasts for 2008 are diffi cult to make, given the very volatile capital markets at the beginning of the year; Deutsche Post World Net anticipates slightly falling interest rates in the euro zone, in particular for instruments with shorter maturities. Th e eff ect of interest rate changes on the Group's fi nancial position continues to be immaterial.
To present the interest-rate risks in accordance with IFRS 7, a sensitivity analysis is performed. Th is method is used to determine the eff ects hypothetical changes in market interest rates have on interest income, interest expense and on equity at the reporting date. Th e following assumptions are taken as a basis for the sensitivity analysis:
Primary variable-interest fi nancial instruments are subject to interest rate risks and will therefore have to be included in the sensitivity analysis. Primary variable-interest fi nancial instruments which were transformed into fi xed-income fi nancial instruments in a cash-fl ow hedge are not included. Changes in market interest rates in derivative fi nancial instruments used as a cash fl ow hedge aff ect equity by a change in fair values and must therefore be included in the sensitivity analysis.
Fixed-interest fi nancial instruments measured at amortised cost are not subject to interest rate risk.
Designated fair value hedges of interest rate exposures are not included in the sensitivity analysis because the interest-related changes in the fair-value of the hedged item and the hedging transaction almost fully off set each other in the profi t or loss for the period. Only the variable portion of the hedging instrument aff ects net fi nance costs or fi nancial income and is to be included in the sensitivity analysis.
Interest-rate derivatives outside the scope of a hedging relationship which would aff ect net fi nance costs or net fi nancial income due to changes in market rates were not to be recognised as at 31 December 2007. Th ere were such interest rate derivatives as at 31 December 2006 which were to be accounted for in the 2006 analysis.
If the interest rate level on the market as at 31 December 2007 had been higher by 100 basis points, profi t would have decreased by €13 million (previous year: €15 million). A lowering of the market rate level by 100 basis points would have had the opposite eff ect. A change of the market interest rate level by 100 basis points would aff ect the fair values of the interest rate derivatives recognised in equity. A rise in interest rates would have resulted in unrecognised gains in equity of €16 million (previous year: €1 million); a reduction would have had the opposite eff ect.
Th e credit risk incurred by the Group is the risk that counterparties fail to meet their obligations arising from operating activities and from fi nancial transactions. To minimise credit risk from fi nancial transactions, the Group only enters into transactions with prime-rated counterparties. Default risks are continuously monitored in the operating business. Th e aggregate carrying amounts of fi nancial assets represent the maximum default risk.
Trade receivables amounting to €6,377 million (previous year: €6,395 million) are due within one year. Th e following table provides an overview of past-due receivables:
| €m | Carrying amount before |
Neither impaired nor due at |
Past due at reporting date and not impaired |
||||||
|---|---|---|---|---|---|---|---|---|---|
| impairment loss | reporting date | Less than 30 days |
31 to 60 days |
61 to 90 days |
91 to 120 days |
121 to 150 days |
151 to 180 days |
> 180 days |
|
| As at 31 December 2007 | |||||||||
| Trade receivables | 6,595 | 4,373 | 1,168 | 361 | 152 | 80 | 43 | 28 | 65 |
| As at 31 December 2006 | |||||||||
| Trade receivables | 6,651 | 4,167 | 1,227 | 371 | 184 | 101 | 64 | 46 | 88 |
Trade receivables developed as follows:
| €m | 2006 | 2007 |
|---|---|---|
| Gross receivable | ||
| As at 1 January | 6,371 | 6,651 |
| Changes | 280 | –56 |
| As at 31 December | 6,651 | 6,595 |
| Valuation allowances | ||
| As at 1 January | –221 | –256 |
| Changes | –35 | 38 |
| As at 31 December | –256 | –218 |
| Carrying amount as at 31 December | 6,395 | 6,377 |
All other fi nancial assets are neither past due nor impaired. Th ese assets are expected to be collectible at any time.
Th e following table gives an overview of the derivatives used within Deutsche Post World Net (excluding Deutsche Postbank Group) and their fair values. Derivatives with amortising notional volumes are reported in the full amount at maturity:
| €m | Fair values 2007 according to maturity | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 | 2007 | Assets | Liabilities | |||||||||||||||
| Up | Up | Up | Up | Up | Up | Up | Up | Up | Up | |||||||||
| Notional | Fair | Notional | Fair value | Fair value | Total fair | to 1 | to 2 | to 3 | to 4 | to 5 | > 5 | to 1 | to 2 | to 3 | to 4 | to 5 | > 5 | |
| amount | value | amount | of assets | of liabilities | value | year | years | years | years | years | years | year | years | years | years | years | years | |
| Interest rate products | ||||||||||||||||||
| Interest rate swaps | 1,764 | 11 | 1,209 | 2 | –26 | –24 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 0 | 0 | 0 | –2 | –24 |
| of which cash fl ow | ||||||||||||||||||
| hedges | 186 | 6 | 367 | 2 | –15 | –13 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 0 | 0 | 0 | 0 | –15 |
| of which fair value hedges | 1,478 | 9 | 842 | 0 | –11 | –11 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | –2 | –9 |
| of which held for trading | 100 | – 4 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| FRAs | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Interest rate options | 150 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which cash fl ow | ||||||||||||||||||
| hedges | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which held for trading | 150 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 1,914 | 11 | 1,209 | 2 | –26 | –24 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 0 | 0 | 0 | –2 | –24 | |
| Currency derivatives | ||||||||||||||||||
| Currency forwards | 1,603 | – 63 | 1,768 | 23 | – 63 | – 40 | 23 | 0 | 0 | 0 | 0 | 0 | –35 | – 8 | – 8 | –7 | – 4 | –1 |
| of which cash fl ow | ||||||||||||||||||
| hedges | 557 | –38 | 1,063 | 18 | –59 | – 41 | 18 | 0 | 0 | 0 | 0 | 0 | –31 | – 8 | – 8 | –7 | – 4 | –1 |
| of which net investment | ||||||||||||||||||
| hedges | 315 | –16 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which held for trading | 731 | –9 | 705 | 5 | – 4 | 1 | 5 | 0 | 0 | 0 | 0 | 0 | – 4 | 0 | 0 | 0 | 0 | 0 |
| Currency options | 162 | 3 | 460 | 1 | –12 | –11 | 0 | 1 | 0 | 0 | 0 | 0 | –5 | –7 | 0 | 0 | 0 | 0 |
| of which cash fl ow | ||||||||||||||||||
| hedges | 162 | 3 | 460 | 1 | –12 | –11 | 0 | 1 | 0 | 0 | 0 | 0 | –5 | –7 | 0 | 0 | 0 | 0 |
| Currency swaps | 3,896 | 26 | 1,977 | 28 | –19 | 9 | 28 | 0 | 0 | 0 | 0 | 0 | –19 | 0 | 0 | 0 | 0 | 0 |
| of which cash fl ow | ||||||||||||||||||
| hedges | 62 | –1 | 311 | 8 | –7 | 1 | 8 | 0 | 0 | 0 | 0 | 0 | –7 | 0 | 0 | 0 | 0 | 0 |
| of which held for trading | 3,834 | 27 | 1,666 | 20 | –12 | 8 | 20 | 0 | 0 | 0 | 0 | 0 | –12 | 0 | 0 | 0 | 0 | 0 |
| Cross-currency swaps | 328 | –19 | 299 | 24 | –36 | –12 | 0 | 0 | 0 | 0 | 0 | 24 | 0 | 0 | 0 | –7 | –29 | 0 |
| of which cash fl ow | ||||||||||||||||||
| hedges | 214 | 7 | 203 | 24 | –7 | 17 | 0 | 0 | 0 | 0 | 0 | 24 | 0 | 0 | 0 | –7 | 0 | 0 |
| of which fair value | ||||||||||||||||||
| hedges | 114 | –26 | 95 | 0 | –29 | –29 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | –29 | 0 |
| of which held for trading | 0 5,989 |
0 –53 |
0 4,505 |
0 76 |
0 –130 |
0 –54 |
0 51 |
0 1 |
0 0 |
0 0 |
0 0 |
0 24 |
0 –59 |
0 –15 |
0 – 8 |
0 –14 |
0 –33 |
0 –1 |
| Transactions based on commodity prices |
||||||||||||||||||
| Fuel hedging programme | 374 | –31 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which cash fl ow | ||||||||||||||||||
| hedges | 374 | –31 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| of which held for trading | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Interest rate swaps were used to hedge the fair value risk of fi xed-interest euro-denominated liabilities. Th e fair values of these interest rate swaps amount to €–11 million (previous year: €9 million). Th e sharp reduction in fair value in 2007 is due to interest rate movements. As at 31 December 2007, there was also a €35 million (previous year: €40 million) adjustment to the carrying amount of the underlying arising from an interest rate swap unwound in the past. Th e adjustment to the carrying amount is amortised over the remaining term of the liability using the eff ective interest method, and reduces future interest expense.
In addition, cross-currency swaps were used to hedge liabilities in foreign currency against negative changes in the market, with the liability being transformed into a variable interest euro-denominated liability. Th is hedged the fair value risk of the interest and currency component. Th e fair value of these cross-currency swaps as at 31 December 2007 is €–29 million (previous year: €–26 million).
Th e following table provides an overview of the gains and losses arising from the hedged items and the respective hedging transactions:
| €m | 2006 | 2007 |
|---|---|---|
| Gains (–) / losses (+) on hedged items | –57 | –20 |
| Gains (–) / losses (+) on hedging transactions | 57 | 19 |
| Balance (ineffective portion) | 0 | –1 |
Th e Group uses currency forwards and currency swaps to hedge the future cash fl ow risks from foreign currency revenue and expenses relating to the Group's operating business. Th e fair values of the currency forwards and swaps amount to €–2 million (previous year: €–4 million). Th ere were no currency options used to hedge operating risks at the reporting date (fair value in the previous year: €3 million). Th e underlyings will be recognised in the income statement in 2008.
Currency forwards with a fair value of €–37 million (previous year: €–35 million) as at the reporting date were entered into to hedge the currency risk of future lease payments and annuities denominated in foreign currencies. Th e payments for the underlyings are made in instalments, with the fi nal payment due in 2013.
Cash fl ow risks arise for the Group from contracted aircraft purchases in connection with future payments in US dollars. Th ese risks were hedged in 2007 using forwards and options. Th e fair value of these cash fl ow hedges as at 31 December 2007 amounted to €–11 million for currency options and €–1 million for currency forwards. Th e aircraft will be added in 2009 and 2010. Gains or losses on hedges are off set against cost and recognised in profi t or loss upon the amortisation of the asset.
Risks arising from fi xed-interest foreign currency investments were hedged using synthetic cross-currency swaps, with the investments being transformed into fi xed-interest euro investments. Th ese synthetic cross-currency swaps hedge the currency risk, and their fair values at the balance sheet date amounted to €26 million (previous year: €13 million). Th e investments relate to internal Group loans which mature in 2014.
Th e Group is exposed to cash fl ow risks arising from variable-interest liabilities. Th ese risks were hedged using interest rate swaps which off set the interest rate risk in the underlying. Th e respective cash fl ow hedges had a fair value of €–15 million as at 31 December 2007 (previous year: €–1 million). Th e hedged currency liabilities are due in 2020 and/or in 2037. In addition, a fi xed-interest currency liability was transformed into a fi xed-interest euro-denominated liability using a cross-currency swap. Th e fair value of the derivative was €–7 million (previous year: €–6 million) at the reporting date.
Aircraft kerosene ceased to be hedged in 2007. Negative fair values amounting to €–31 million were recognised in the accounts as at 31 December 2006.
Foreign currency investments in foreign subsidiaries may result in risks to the Group's equity. Th ese risks ceased to be hedged at the reporting date (fair value in the previous year: €–16 million).
Deutsche Post World Net classifi es fi nancial instruments in relation to the respective balance sheet accounts. Th e following table reconciles the balance sheet accounts to the categories given in IAS 39 and the respective fair values:
€m
| Carrying amount | Carrying amount measured | |||||||
|---|---|---|---|---|---|---|---|---|
| Financial assets recognised at fair value through profi t and loss |
Available-for-sale fi nancial assets | Loans and receivables |
Held-to-maturity fi nancial assets |
|||||
| Trading | Fair value option | |||||||
| Fair value | Fair value | Fair value | Amortised cost | Amortised cost | Amortised cost | |||
| ASSETS | ||||||||
| Non-current fi nancial assets | 1,060 | 431 | 301 | 115 | 10 | |||
| Other non-current assets | 497 | 66 | ||||||
| Receivables and other assets Receivables and other securities from fi nancial |
9,806 | 25 | 6,679 | |||||
| services | 193,986 | 9,936 | 7,109 | 41,174 | 134,160 | 1,186 | ||
| Financial instruments | 72 | 19 | 52 | 1 | ||||
| Cash and cash equivalents | 4,683 | 4,683 | ||||||
| Assets held for sale | 615 | 565 | ||||||
| Total assets | 210,719 | 9,961 | 7,175 | 41,624 | 301 | 146,254 | 1,197 | |
| EQUITY AND LIABILITIES | ||||||||
| Non-current fi nancial liabilities1) |
– 8,625 | |||||||
| Other non-current liabilities | –361 | |||||||
| Current fi nancial liabilities | –1,556 | |||||||
| Trade payables Liabilities from fi nancial |
–5,384 | |||||||
| services | –187,787 | |||||||
| Other current liabilities | –5,101 | |||||||
Total equity and liabilities –208,814
1) Some of the bonds included in fi nancial liabilities were designated as a hedged item in a fair value hedge thus being subject to a basis adjustment.
Accounting is therefore neither fully at fair value nor at amortised cost.
| Fair value of fi nancial instruments under IFRS 7 |
Outside IFRS 7 | Carrying amount pursuant to IAS 17 |
pursuant to IAS 39 | ||||
|---|---|---|---|---|---|---|---|
| Finance lease liabilities | Derivatives designated as hedging instruments |
Miscellaneous fi nancial liabilities |
through profi t and loss | Financial liabilities recognised at fair value | |||
| Fair value option | Trading | ||||||
| Amortised cost | Fair value | Amortised cost | Fair value | Fair value | |||
| 857 | 203 | ||||||
| 94 | 403 | 28 | |||||
| 6,730 | 3,076 | 26 | |||||
| 193,493 | 421 | ||||||
| 72 | |||||||
| 4,683 | |||||||
| 565 | 50 | ||||||
| 3,732 | 475 | ||||||
| –8,403 | –251 | –551 | –7,823 | ||||
| –337 | –40 | –97 | –224 | ||||
| –1,556 | 0 | –74 | –1,482 | ||||
| –5,384 | –5,384 | ||||||
| –186,763 | –873 | –181,320 | –5,594 | ||||
| –570 | –4,531 | –44 | –510 | –16 | |||
| –4,822 | – 625 | –1,014 | –196,743 | –5,610 |
€m
| Carrying amount | Carrying amount measured | |||||||
|---|---|---|---|---|---|---|---|---|
| Financial assets recognised at fair value through profi t and loss |
Available-for-sale fi nancial assets | Loans and receivables |
Held-to-maturity fi nancial assets |
|||||
| Trading | Fair value option | |||||||
| Fair value | Fair value | Fair value | Amortised cost | Amortised cost | Amortised cost | |||
| ASSETS | ||||||||
| Non-current fi nancial assets | 994 | 459 | 336 | 126 | 10 | |||
| Other non-current assets | 376 | 41 | 50 | |||||
| Receivables and other assets | 9,306 | 50 | 6,854 | |||||
| Receivables and other securities from fi nancial services |
179,280 | 13,280 | 6,180 | 39,210 | 114,650 | 5,475 | ||
| Financial instruments | 42 | 10 | 32 | |||||
| Cash and cash equivalents | 2,391 | 2,391 | ||||||
| Total assets | 192,389 | 13,330 | 6,221 | 39,679 | 336 | 124,103 | 5,485 | |
| EQUITY AND LIABILITIES | ||||||||
| Non-current fi nancial liabilities1) |
– 8,543 | |||||||
| Other non-current liabilities | –237 | |||||||
| Current fi nancial liabilities | –1,945 | |||||||
| Trade payables | –5,069 | |||||||
| Liabilities from fi nancial services |
–168,663 | |||||||
| Other current liabilities | –4,938 | |||||||
| Total equity and liabilities | –189,395 |
1) Some of the bonds included in fi nancial liabilities were designated as a hedged item in a fair value hedge thus being subject to a basis adjustment.
Accounting is therefore neither fully at fair value nor at amortised cost.
| Fair value of fi nancial instruments under IFRS 7 |
Outside IFRS 7 | Carrying amount pursuant to IAS 17 |
pursuant to IAS 39 | ||||
|---|---|---|---|---|---|---|---|
| Derivatives designated | Miscellaneous | Financial liabilities recognised at fair value | |||||
| Finance lease liabilities | as hedging instruments | fi nancial liabilities | through profi t and loss | ||||
| Fair value option | Trading | ||||||
| Amortised cost | Fair value | Amortised cost | Fair value | Fair value | |||
| 931 | 63 | ||||||
| 127 | 249 | 36 | |||||
| 6,911 | 2,395 | 7 | |||||
| 181,176 | 485 | ||||||
| 42 | |||||||
| 2,391 | |||||||
| 2,707 | 528 | ||||||
| –8,171 | –350 | –711 | –7,482 | ||||
| –174 | – 63 | –68 | –106 | ||||
| –1,945 | –24 | –1,921 | |||||
| –5,069 | –5,069 | ||||||
| –168,918 | –958 | –164,086 | –3,619 | ||||
| –561 | – 4,377 | –61 | – 464 | –36 | |||
| – 4,790 | –735 | –1,087 | –179,128 | –3,655 |
If there is an active market for a financial instrument (e.g. stock exchange), the fair value is expressed by the market or quoted exchange price at the balance sheet date. If there is no active market, the fair value is determined by an established valuation technique (e.g. presentvalue method, option pricing models). Th e valuation techniques used incorporate the major factors establishing a fair value for the fi nancial instruments using valuation parameters which are derived from the market conditions at the balance sheet date. Th e cash fl ows used under the present value method are based on the contractual data of the fi nancial instruments. Th e fair values of other non-current receivables and fi nancial investments held to maturity with remaining maturities of more than one year equal the present values of the payments related to the assets, taking into account the current interest rate parameters which refl ect market- and partner-related changes in the conditions and expectations.
Most of cash and cash equivalents, trade receivables and other receivables have short remaining maturities. Th us, their carrying amounts at the reporting date are largely equivalent to their fair values. Trade payables and other liabilities generally have short remaining maturities; the amounts carried in the balance sheet are similar to their fair values.
Th e fi nancial assets classifi ed as available for sale include shares in partnerships and corporations in the amount of €301 million (previous year €336 million) for which a fair value cannot be determined reliably. Th e shares in these companies are not quoted on an active market; they are therefore recognised at cost. Th ere are no plans to sell a material number of shares in the near future. Shares measured at cost in the amount of €68 million (previous year: €83 million) were sold, however, in the fi nancial year at a disposal loss of €3 million (previous year: €14 million).
Th e Group is allowed only to reclassify fi nancial instruments out of the category "available for sale" into the category "held to maturity". No assets were reclassifi ed in fi nancial years 2007 and 2006.
Th e net gains and losses from fi nancial instruments classifi ed in accordance with the measurement categories of IAS 39 and the total interest income and expense of fi nancial instruments not included in profi t or loss at fair value are composed as follows:
| €m | 2006 | 2007 |
|---|---|---|
| Loans and receivables | 93 | 175 |
| Held-to-maturity fi nancial assets | 0 | 0 |
| Financial liabilities recognised at fair value through profi t and loss |
||
| Trading | –217 | –375 |
| Fair value option | –19 | –20 |
| Other fi nancial liabilities | –102 | –110 |
Th e net gains and losses mainly account for the eff ects of fair-value measurement, valuation allowances and disposals (disposal gains/ losses). No dividends or interest are taken into account in the fi nancial instruments recognised in profi t or loss at fair value. Details of net gains or losses on the fi nancial assets available for sale can be found in Note 36.
Income and expense from interest and commission agreements of the fi nancial instruments not measured at fair value through profi t or loss are explained in the income statement disclosures.
Th e Group's contingent liabilities total €2,058 million (previous year: €2,840 million). €1,552 million of this relates to guarantee obligations and €204 million to liabilities from litigation risks. In addition to these contingent liabilities, the Deutsche Postbank Group has irrevocable loan commitments amounting to €23,480 million (previous year: €21,369 million).
Due to our market-leading position, a large number of Deutsche Post AG services are subject to sectoral regulation in accordance with the Postgesetz (German postal act). Th e regulatory authority approves or reviews prices in particular, formulates the terms of downstream access and conducts general checks for market abuse. Any resulting proceedings may lead to a drop in revenue and earnings.
Legal risks arise from, amongst other things, appeals pending before the administrative courts against the regulatory authority's July 2002 ruling concerning the conditions for the price-cap procedure, from two appeals each against price approvals granted under the price-cap procedure for the years 2003, 2004 and 2005, and from appeals against other price approval decisions handed down by the regulatory authority.
European Commission competition proceedings were initiated on the basis of allegations about excessive mail prices made by the Deutscher Verband für Post und Telekommunikation (German association for posts and telecommunications). In these proceedings, Deutsche Post AG has presented detailed evidence to support its argument that the prices are reasonable.
Conditions determined by the regulator oblige Deutsche Post AG to allow customers and competitors downstream access to its network. Proceedings are pending before German administrative and civil courts and the European courts against the relevant rulings by the regulatory authority, the Bundeskartellamt (German federal antitrust authority) and the European Commission. Deutsche Post AG believes that the postal act (including the exclusive licence up to its expiry on 31 December 2007) is in compliance with EU and anti-trust law, and more specifi cally with the EU Postal Directive and the anti-trust rules stipulated by the EC Treaty. Depending on the outcome of the proceedings, Deutsche Post AG could be faced with further losses of revenue and earnings.
In response to a complaint from a third party, the European Commission made requests for information to the German government concerning an allegation by the Monopolkommission (German monopoly commission). Th e allegation is that Deutsche Post AG contravenes the prohibition on state aid under the EC Treaty by allowing Deutsche Postbank AG to use Deutsche Post outlets at below-market rates. In the opinion of Deutsche Post AG and Deutsche Postbank AG, this allegation is incorrect and the fee paid by Deutsche Postbank AG complies with the provisions on competition and state aid stipulated in European law. Th e European Commission is also asking the Federal Republic of Germany to comment on the sale of its entire interest in Deutsche Postbank AG to Deutsche Post AG in 1999. However, the Commission has already investigated the acquisition of Postbank as part of the state aid proceedings that were concluded with the ruling dated 19 June 2002. At the time, it explicitly concluded that the acquisition of Postbank involved "no grant of state aid".
Th e German government has already argued before the European Commission that the allegations are in its opinion unfounded. Nevertheless, with regard to the two allegations relating to the requests for information, no assurance can be given that the Commission will not fi nd that the facts of the case constitute state aid.
On 12 September 2007, the European Commission initiated a formal investigation against Germany concerning possible subsidies to Deutsche Post. Th e investigation will focus on whether Germany, using state resources, overcompensated Deutsche Post AG or its legal predecessor Deutsche Bundespost POSTDIENST for the cost of providing universal services between 1989 and 2007 and whether the company was thereby granted state aid incompatible with EU law. According to the decision opening the investigation, the Commission intends to examine all public transfers, public guarantees, statutorily granted exclusive rights, the price regulation of letter services and the public funding of civil servants' pensions during the period in question. Also to be investigated is the cost allocation within Deutsche Post AG and its predecessor between the regulated letter service, the universal service and competitive services. Th is also relates to co-operation agreements between Deutsche Post AG and Postbank as well as between Deutsche Post AG and the business parcel service marketed by DHL Vertriebs GmbH.
Deutsche Post AG and Deutsche Postbank AG hold that the new investigation lacks any factual basis. All public transfers associated with the privatisation of Deutsche Bundespost, the public guarantees and the funding of pension obligations formed part of the subject matter of the state aid procedure closed by the decision of 19 June 2002. Th at decision did not identify the measures concerned as incompatible state aid. Deutsche Post AG and Deutsche Postbank AG are further of the opinion that the statutorily granted exclusive rights and the regulated letter prices do not fulfi l the legal criteria to be considered a form of state aid in the fi rst place. Deutsche Post AG also considers the internal allocation of costs with its subsidiaries to be consistent with EU state aid rules and the case law of the European Court of Justice. Nonetheless, based on an overall appraisal the possibility of the Commission fi nding a case of incompatible state aid cannot be ruled out.
On 22 November 2006, the European Commission opened formal proceedings with regard to possible state aid in connection with the construction of the DHL European air hub at Leipzig/Halle airport. Th e Commission notably has doubts that the fi nancing of the new southern runway by the German state of Saxony, fi nancial guarantees endorsed by Saxony and certain operational undertakings on the part of the airport operator are compatible with European law on state aid. In the opinion of Deutsche Post AG and DHL, the arrangements entered into with the state of Saxony and the airport comply with the law relating to state aid. It cannot be ruled out, however, that the Commission will deem specifi c features of these arrangements to be unlawful. Th is could result in additional costs for DHL in operating the air hub.
In October 2007 DHL Global Forwarding, along with all other major players in the freight forwarding industry, received a request for information from the Competition Directorate of the European Commission, a subpoena from the United States Department of Justice's Antitrust Division, and information requests from competition authorities in other jurisdictions, in connection with a formal investigation into the setting of surcharges and fees in the international freight forwarding industry.
In January 2008, an anti-trust class action law suit was initiated in the New York district court on behalf of purchasers of freight forwarder services in which Deutsche Post AG and DHL are named as defendants. Th is civil law suit appears to be based on the fact that anti-trust investigations are on-going, but not on any known outcome or quantifi ed loss.
Deutsche Post World Net is not able to predict or comment on the outcome of the investigations or the merits of the class action law suit, but believes its fi nancial exposure in relation to both is limited and has not, therefore, taken any provision in its accounts.
In addition to provisions, liabilities and contingent liabilities, there are other fi nancial obligations amounting to €7,041 million (previous year: €6,414 million) from non-cancellable operating leases as defi ned by IAS 17.
Th e Group's future non-cancellable payment obligations under leases are attributable to the following asset classes:
| €m | 2006 | 2007 |
|---|---|---|
| Land and buildings | 5,637 | 6,310 |
| Technical equipment and machinery | 214 | 470 |
| Other equipment, operating and offi ce equipment | 324 | 96 |
| Aircraft | 222 | 165 |
| Other | 17 | 0 |
| Leases | 6,414 | 7,041 |
| €m | 2006 | 2007 |
| Year 1 after reporting date | 1,160 | 1,285 |
| Year 2 after reporting date | 958 | 1,069 |
| Year 3 after reporting date | 779 | 871 |
| Year 4 after reporting date | 611 | 700 |
| Year 5 after reporting date | 468 | 561 |
| Year 6 after reporting date and thereafter | 2,438 | 2,555 |
| Maturity structure of minimum lease payments |
6,414 | 7,041 |
Th e present value of discounted minimum lease payments is €5,326 million (previous year: €4,975 million), based on a discount factor of 5.75% (previous year: 5.00%) Overall, rental and lease payments of €2,390 million (previous year: €2,140 million) arose in 2007, of which €1,709 million (previous year: €1,297 million) relates to non-cancellable leases. Future lease obligations from non-cancellable leases relate primarily to the following companies:
| €m | 2006 | 2007 |
|---|---|---|
| Deutsche Post AG/ | ||
| Deutsche Post Immobilien GmbH | 2,306 | 2,468 |
| Express and logistics companies | 3,392 | 4,182 |
| Other Group companies | ||
| (including Deutsche Postbank Group) | 716 | 391 |
| Future lease obligations | 6,414 | 7,041 |
Th e purchase obligation for investments in non-current assets amounted to €332 million.
All companies classifi ed as related parties that are controlled by Deutsche Post World Net or on which the Group can exercise signifi cant infl uence are recorded in the list of shareholdings together with information on the equity interest held, their equity and their net profi t or loss for the period, broken down by division. Th e list of shareholdings is fi led with the commercial register of the Bonn Local Court.
Deutsche Post AG and Deutsche Postbank AG have a variety of relationships with the Federal Republic of Germany and other companies controlled by the Federal Republic of Germany.
Th e federal government is a customer of Deutsche Post AG and as such uses the company's services. Deutsche Post AG's business relationships are entered into with the individual public authorities and other government agencies as independent individual customers. Th e services provided to the respective individual customers are immaterial to the overall revenue of Deutsche Post AG.
Th e Federal Republic of Germany manages its interest in Deutsche Post AG and exercises its shareholder rights via the Bundesanstalt für Post und Telekommunikation ("Bundesanstalt") which has legal capacity and falls under the supervision of the German Federal Ministry of Finance. Th e Gesetz über die Errichtung einer Bundesanstalt für Post und Telekommunikation or Bundesanstalt Post Gesetz (BAnstG – German act to establish a Deutsche Bundespost Federal Posts and Telecommunications Agency) transferred specifi c legal rights and duties to the Bundesanstalt that relate to matters jointly aff ecting Deutsche Post AG, Deutsche Postbank AG and Deutsche Telekom AG. In addition, the Bundesanstalt manages the Postal Civil Service Health Insurance Fund, the recreation programme, the Versorgungsanstalt der Deutsche Bundespost ("VAP") and the welfare service for Deutsche Post AG, Deutsche Postbank AG, Deutsche Telekom AG and the Bundesanstalt. Th e co-ordination and administration tasks are performed on the basis of agency agreements. In 2007, Deutsche Post AG was invoiced for €65 million (previous year: €68 million) in instalment payments relating to services provided by the Bundesanstalt, and Deutsche Postbank AG was invoiced for €4 million (previous year: €5 million).
In fi nancial year 2001, the Bundesministerium der Finanzen (BMF – German Federal Ministry of Finance) and Deutsche Post AG entered into an agreement that governs the terms and conditions of the transfer of income received by Deutsche Post AG from the levying of the settlement payment under the Gesetze über den Abbau der Fehlsubventionierung im Wohnungswesen (German acts on the reduction of misdirected housing subsidies) relating to housing benefi ts granted by Deutsche Post. In fi nancial year 2007 Deutsche Post AG paid to the federal government the aggregate amount of approximately €1.3 million for fi nancial year 2006 and around €1 million in monthly instalments relating to fi nancial year 2007. As agreed, the fi nal settlement for fi nancial year 2007 will be made by 1 July 2008.
Deutsche Post AG also entered into an agreement with the BMF dated 30 January 2004 relating to the transfer of civil servants to German federal authorities. Under this agreement, civil servants are seconded with the aim of transferring them initially for six months, and are then transferred permanently if they successfully complete their probation. Once a permanent transfer is completed, Deutsche Post AG contributes to the cost incurred by the federal government by paying a fl at fee. In 2007, this initiative resulted in 33 permanent transfers (previous year: 37) and two secondments with the aim of a permanent transfer (previous year: 22).
In fi nancial year 2007, Deutsche Post World Net provided goods and services for Deutsche Telekom AG amounting to €0.4 billion (previous year: €0.6 billion). Th ese were mainly transportation services for letters and parcels. In the same period, Deutsche Post World Net purchased goods and services (including IT products and services) worth €0.4 billion (previous year: €0.3 billion) from Deutsche Telekom. Deutsche Telekom AG and Deutsche Postbank AG have also entered into a master loan agreement for €0.6 billion (previous year: €0.6 billion). In addition, there are links between Deutsche Post AG and Deutsche Telekom AG in terms of personnel. For example, the chairman of the Board of Management of Deutsche Post AG, Dr Klaus Zumwinkel, is also chairman of the Supervisory Board of Deutsche Telekom AG.
Information on the Bundes-Pensions-Service für Post- und Telekommunikation e.V. can be found in Note 6.
Th e real estate, with a fair value of €1,040 million, of which Deutsche Post Betriebsrenten Service e.V. (DPRS) and/or Deutsche Post Pensionsfonds GmbH & Co. KG are the legal or benefi cial owners, is exclusively let to Deutsche Post Immobilien GmbH. Rental expense for Deutsche Post Immobilien GmbH amounts to €56.4 million in 2007 (previous year: €34.7 million). Th e rent was always paid on time. Th erefore no expense was incurred for bad debt losses in 2007 and is not expected to be incurred in future years. Th ere were no sales relationships between external authorities and a Group company of Deutsche Post AG in 2007.
In addition to the consolidated subsidiaries, Deutsche Post World Net has direct and indirect relationships with a large number of unconsolidated subsidiaries and associates deemed to be related parties to the Group, in the course of its ordinary business activities. In the course of these activities, all transactions for the provision of goods and services entered into with unconsolidated companies were conducted on an arm's length basis at standard market terms and conditions. Transactions were made in fi nancial year 2007 with major related parties, resulting in the following items in the fi nancial statements of Deutsche Post World Net:
| €m | 2006 | 2007 |
|---|---|---|
| Receivables | 73 | 43 |
| Loans | 18 | 17 |
| Receivables from inhouse banking | 14 | 6 |
| Financial liabilities | –32 | –45 |
| Liabilities | –61 | –57 |
| Liabilities from inhouse banking | –13 | –15 |
In accordance with IAS 24, Deutsche Post World Net also reports on transactions between Deutsche Post World Net and related parties or the members of their families. Related parties are defi ned as the Board of Management, Supervisory Board, heads of corporate departments or business departments (second-level executives) and the members of their families.
Th ere were no reportable transactions between members of the Board of Management and their families and Deutsche Post World Net in fi nancial year 2007. In some cases, members of the Supervisory Board were involved in legal transactions with Deutsche Post AG. Th ese mainly related to services rendered and loans granted by Deutsche Postbank AG. Th e volume of these transactions was approximately €2 million. In two cases, second-level executives indicated to have concluded agreements with Deutsche Post. Th e transactions mainly consisted of rendering consulting and other services for Deutsche Post World Net; the transactions had a total volume of €0.5 million. Deutsche Postbank AG granted loans to the second-level executives in the total amount of €2.6 million. Th e terms to maturity vary between fi ve and 15 years. Unless a variable interest rate had been agreed, the rate is between 3.20% and 4.79%. Th e amount of the loans was €2.3 million as at 31 December 2007. All transactions were conducted at conditions customary in the market and within the scope of global authorisations adopted in relation to loans to managers by Deutsche Postbank AG in accordance with Section 15 of the Kreditwesengesetz (German banking act).
Th e remuneration of key management personnel of the Group requiring disclosure under IAS 24 comprises the remuneration of the active Board of Management and Supervisory Board members. Th e active members of the Board of Management and the Supervisory Board were remunerated as follows:
| T € | 2006 | 2007 |
|---|---|---|
| Short-term employee benefi ts | ||
| (less share-based remuneration) | 19,555 | 16,599 |
| Post-employment benefi ts | 4,227 | 4,066 |
| Termination benefi ts | 0 | 8,363 |
| Share-based remuneration | 3,620 | 3,571 |
| Total | 27,402 | 32,599 |
Th e post-employment benefi ts are recognised as the service cost resulting from the pension provisions for active members of the Board of Management.
Th e share-based remuneration amount relates to the share-based remuneration expense recognised in 2007.
Th e share-based remuneration expense for fi nancial year 2007 is shown in the table below:
| € | Stock options | SARs | Total |
|---|---|---|---|
| Dr Klaus Zumwinkel, Chairman |
241,616 | 646,850 | 888,466 |
| John Allan | 0 | 34,833 | 34,833 |
| Dr Frank Appel | 161,076 | 431,233 | 592,309 |
| Prof. Dr Edgar Ernst (Member of the Board of Management until 30 September 2007) |
139,366 | 288,592 | 427,958 |
| Jürgen Gerdes (Member of the Board of Management since 1 July 2007) |
11,366 | 104,672 | 116,038 |
| Dr Wolfgang Klein (Member of the Board of Management since 1 July 2007) |
0 | 0 | 0 |
| John P. Mullen | 106,270 | 431,233 | 537,503 |
| Dr Hans-Dieter Petram (Member of the Board of Management until 30 June 2007) |
117,656 | 145,950 | 263,606 |
| Walter Scheurle | 161,076 | 431,233 | 592,309 |
| Prof. Dr Wulf von Schimmelmann (Member of the Board of Management until 30 June 2007) |
117,656 | 0 | 117,656 |
| Share-based remuneration | 1,056,082 | 2,514,596 | 3,570,678 |
Further details on the remuneration of, and the shares held by, the Board of Management and the Supervisory Board can be found in the Corporate Governance Report. Th e remuneration report contained in the Corporate Governance Report also forms part of the Notes.
For the transactions of Board of Management and Supervisory Board members involving securities of the company and notifi ed to Deutsche Post AG in accordance with Section 15a of the Wertpapierhandelsgesetz (German securities trading act), please refer to the company website at www.dpwn.com.
184
| 53 | Signifi cant subsidiaries, joint ventures and associates | |
|---|---|---|
| Country | Equity interest and share of voting rights % |
Revenue1) €m |
|||
|---|---|---|---|---|---|
| 31 Dec. 2006 | 31 Dec. 2007 | 2006 | 2007 | ||
| Signifi cant subsidiaries | |||||
| DHL Vertriebs GmbH & Co. OHG | Germany | 100.00 | 100.00 | 1,576 | 1,597 |
| Global Mail Inc. | USA | 100.00 | 100.00 | 647 | 556 |
| Williams Lea Limited | UK | 66.15 | 66.15 | 336 | 484 |
| Williams Lea Inc. | USA | 66.15 | 66.15 | 182 | 249 |
| DHL Global Mail (UK) Ltd. | UK | – | 100.00 | – | 1722) |
| Koba SA | France | 100.00 | 100.00 | 41 | 113 |
| The Stationery Offi ce Limited | UK | – | 66.15 | – | 1063) |
| Williams Lea Inhouse Solutions GmbH | Germany | 100.00 | 100.00 | 71 | 81 |
| Interlanden B.V. | Netherlands | 100.00 | 100.00 | 71 | 73 |
| Deutsche Post Customer Service Center GmbH | Germany | 100.00 | 100.00 | 69 | 69 |
| Deutsche Post Selekt Mail Nederland C.V. | Netherlands | 51.49 | 51.49 | 64 | 65 |
| EXPRESS/LOGISTICS | |||||
| Exel Europe Ltd. | UK | 100.00 | 100.00 | 2,303 | 3,283 |
| DHL Express (USA) Inc. | USA | 100.00 | 100.00 | 3,359 | 3,127 |
| Air Express International USA Inc. | USA | 100.00 | 100.00 | 1,574 | 1,848 |
| Exel Inc. | USA | 100.00 | 100.00 | 1,420 | 1,508 |
| DHL Freight GmbH | Germany | 100.00 | 100.00 | 1,307 | 1,434 |
| DHL Express (France) SAS | France | 100.00 | 100.00 | 988 | 999 |
| DHL Global Forwarding GmbH | Germany | 100.00 | 100.00 | 625 | 964 |
| DHL Express (Sweden) AB | Sweden | 100.00 | 100.00 | 901 | 957 |
| DHL Express (Italy) S.r.L. | Italy | 100.00 | 100.00 | 851 | 891 |
| Danzas Z.F. Freight Agency Co. Ltd. | China | 100.00 | 100.00 | 444 | 719 |
| DHL Express (UK) Ltd. | UK | 100.00 | 100.00 | 526 | 714 |
| Exel UK Ltd. | UK | 100.00 | 100.00 | 795 | 708 |
| DHL Global Forwarding (UK) Ltd. | UK | 100.00 | 100.00 | 426 | 687 |
| DHL Express (Netherlands) B.V. | Netherlands | 100.00 | 100.00 | 390 | 682 |
| DHL Global Forwarding (HK) Ltd. | China | 100.00 | 100.00 | 451 | 628 |
| DHL Solutions GmbH | Germany | 100.00 | 100.00 | 612 | 623 |
| DHL International (UK) Ltd. | UK | 100.00 | 100.00 | 582 | 607 |
| DHL Express Germany GmbH | Germany | 100.00 | 100.00 | 557 | 581 |
| DHL Express Iberia S.L. (Group) | Spain | 100.00 | 100.00 | 549 | 533 |
| Exel Transportation Services Inc. | USA | 100.00 | 100.00 | 570 | 490 |
| DHL Global Forwarding (Italy) S.p.A. | Italy | 100.00 | 100.00 | 469 | 479 |
| DHL Danzas Air & Ocean (France) SAS | France | 100.00 | 100.00 | 423 | 477 |
| DHL Sinotrans International Air Courier Ltd. | China | 51.68 | 51.68 | 416 | 458 |
| DHL Exel Supply Chain (Spain) S.L. | Spain | 100.00 | 100.00 | 359 | 420 |
| DHL Global Forwarding (Sweden) AB | Sweden | 100.00 | 100.00 | 211 | 411 |
| DHL Logistics (Schweiz) AG | Switzerland | 100.00 | 100.00 | 233 | 400 |
| FINANCIAL SERVICES | |||||
| Deutsche Postbank AG (Group) | Germany | 50.00 + 1 share | 50.00 + 1 share | 9,525 | 10,344 |
| SERVICES4) | |||||
| Signifi cant joint ventures5) | |||||
| Exel-Sinotrans Freight Forwarding Co. Ltd. | China | 50.00 | 50.00 | 316 | 211 |
| Express Couriers Ltd. | New Zealand | 50.00 | 50.00 | 72 | 84 |
| AeroLogic GmbH | Germany | – | 50.00 | – | – 6) |
| Signifi cant associates | 7) | ||||
| Polar Air Cargo Worldwide Inc. | USA | – | 49.00/25.00 | ||
| Air Hong Kong Ltd. | China | 40.00 | 40.00 |
1) IAS amounts reported in single-entity fi nancial statements.
2) Transfer of operations of several companies to DHL Global Mail (UK) Ltd. after merger.
3) Acquired on 10 January 2007.
4) Almost exclusively internal revenue. 5) Proportionate amounts.
6) Established on 26 September 2007. Start of aircraft movement operations planned for April 2009.
7) Acquired on 25 June 2007.
For fi nancial year 2007, Deutsche Post AG has exercised the simplifi cation options allowed by Section 264(3) of the Handelsgesetzbuch (HGB – German commercial code) and applicable to Subpart One (annual fi nancial statements of the corporation and management report) and Subpart Four (publication) for the following companies:
On 13 December 2007, the Board of Management and the Supervisory Board of Deutsche Post AG together published the Declaration of Conformity with the German Corporate Governance Code for fi nancial year 2007 required by Section 161 of the Aktiengesetz (AktG – German stock corporation act).
Th e Board of Management and the Supervisory Board of Deutsche Postbank AG, whose fi nancial statements are included in the consolidated fi nancial statement of Deutsche Post AG, made the Declaration of Conformity on 30 November 2007. Th e Declarations of Conformity can be accessed on the Internet at www.corporate-governance-code.de and on the homepage at www.dpwn.com. and/or www.postbank.com.
Deutsche Postbank Group intends to sell the credit card and sales fi nancing business of BHW Bank AG to Landesbank Berlin (Note 34) in January 2008.
Deutsche Post World Net and Hewlett-Packard Services (HP) signed a letter of intent in January 2008 with the aim of delegating responsibility for parts of the world-wide IT activities of Deutsche Post World Net to HP Services. Pursuant to the planned agreement Deutsche Post World Net expects to save costs of at least €1 billion over a period of seven years. Th is cost reduction is to be achieved on the one hand by reducing general IT costs. On the other hand, IT resources required to manage own business and to render customer services are intended to be used more effi ciently. Th e parties are confi dent that a binding agreement will be signed by the middle of 2008. HP would then take over the approximately 2,500 employees who are currently providing services for the IT centres of Deutsche Post World Net – including information and data management, infrastructure and networking management as well as application management. Th e IT locations aff ected are Prague (Czech Republic), Scottsdale (Arizona, USA), Cyberjaya (Malaysia) and locations in some European countries.
Dr Klaus Zumwinkel informed the Executive Committee of the Supervisory Board on 15 February 2008 of his decision to resign from his offi ces as chairman of the Board of Management of Deutsche Post AG and chairman of the Supervisory Board of Deutsche Postbank AG at the next meeting of the Supervisory Board.
Th e following fees for services rendered by the auditor of the consolidated fi nancial statements, PricewaterhouseCoopers Aktiengesellschaft Wirtschaft sprüfungsgesellschaft , in fi nancial year 2007 and in the preceding fi nancial year, were recognised as expense:
| €m | 2006 | 2007 |
|---|---|---|
| Audits of the fi nancial statements | 14.2 | 13.7 |
| Other assurance or valuation services | 3.5 | 5.9 |
| Tax advisory services | 0.4 | 0.3 |
| Other services | 7.6 | 4.6 |
| Auditors' fees | 25.7 | 24.5 |
DHL Exel Supply Chain Hong Kong intends to acquire the remaining 50% interest in its joint venture Exel-Sinotrans Freight Forwarding from Sinotrans Air Transportation Development in fi nancial year 2008.
In addition to the consolidated fi nancial statements with their full inclusion of Deutsche Postbank Group, consolidated fi nancial statements were prepared including the Deutsche Postbank Group at equity, since the activities of the Deutsche Postbank Group diff er substantially from the ordinary activities of the other companies in Deutsche Post World Net. Deutsche Postbank Group was excluded from full consolidation in the following consolidated fi nancial statements as at 31 December 2007. Th e Deutsche Postbank Group is accounted for in these supplemental fi nancial statements only as a fi nancial investment carried at equity. Th e accounting treatment in these fi nancial statements diff ers from the standards required by the IFRSs to the extent that the Deutsche Postbank Group was not fully consolidated, as required by IAS 27, but was accounted for at equity.
Th e following tables show the reconciliation of the fi nancial statements of Deutsche Post World Net to those of Deutsche Post World Net including Postbank at equity. Transactions between the Deutsche Postbank Group and the other Group companies are generally included in the fi nancial statements.
As the starting point of the reconciliation of the income statement, column 1 contains the data for Deutsche Post World Net including the fully consolidated Deutsche Postbank Group.
Column 2 contains the IFRS income statement of the Deutsche Postbank Group that has been excluded from the overall fi nancial statements here. Th e income statement of the Deutsche Postbank Group shown here in the standard commercial and industrial format includes all transactions for the provision of goods and services entered into with the rest of Deutsche Post World Net.
The intra-Group relationships recognised in the income statement between the Deutsche Postbank Group and the rest of Deutsche Post World Net that were eliminated during the transition to the overall Group are reincluded in column 3. In particular, these relate to the counter services provided by Deutsche Post AG for the Deutsche Postbank Group.
Column 4 contains the interest of Deutsche Post AG in the net profi t for the period of the Deutsche Postbank Group. Column 5 contains the data for Deutsche Post World Net including Postbank at equity.
As the starting point of the reconciliation of the balance sheet, column 1 contains the data for Deutsche Post World Net including the fully consolidated Deutsche Postbank Group.
Column 2 contains the IFRS balance sheet of the Deutsche Postbank Group that is excluded from the overall fi nancial statements here. Th e balance sheet of the Deutsche Postbank Group shown here in the standard commercial and industrial format includes all transactions for the provision of goods and services entered into with the rest of Deutsche Post World Net.
Th e intra-Group relationships between the Deutsche Postbank Group and the rest of Deutsche Post World Net that were eliminated during the transition to the overall Group are reincluded in column 3.
Column 4 contains the investments in the Deutsche Postbank Group reported under non-current fi nancial assets and measured at equity. Column 5 contains the data for Deutsche Post World Net including Postbank at equity.
Th e cash fl ow statement including Postbank at equity is based on the consolidated fi nancial statements including Postbank at equity. Th is means that the cash fl ows of Deutsche Postbank Group are eliminated, but the cash fl ows between Deutsche Post World Net and Deutsche Postbank Group are reincluded. In addition, net income from the measurement of Deutsche Postbank Group at equity is included as non-cash income in net cash from operating activities. Th e dividend paid by Deutsche Postbank AG to Deutsche Post AG is included in cash fl ows from investing activities. All other items are treated in the same way as in the consolidated cash fl ow statement. Further disclosures relating to the cash fl ow statement can be found in Note 47.
| €m | (1) | (2) | (3) | (4) | (5) | |
|---|---|---|---|---|---|---|
| Consolidation | ||||||
| of income and | ||||||
| expense and | Deutsche Post | Deutsche Post | ||||
| Deutsche Post | Deutsche Post | inter-company | World Net (Post | World Net (Post | ||
| World Net | bank Group | balances | Other | bank at equity) | bank at equity) | |
| 2007 | 2007 | 2007 | 2007 | 2007 | 2006 | |
| Revenue | 63,512 | –10,344 | 875 | 0 | 54,043 | 51,939 |
| Other operating income | 2,586 | – 477 | 234 | 0 | 2,343 | 2,295 |
| Total operating income | 66,098 | –10,821 | 1,109 | 0 | 56,386 | 54,234 |
| Materials expense | –36,875 | 7,061 | – 889 | 0 | –30,703 | –28,928 |
| Staff costs | –18,471 | 1,311 | –9 | 0 | –17,169 | –17,301 |
| Depreciation, amortisation and impairment losses | –2,357 | 161 | 0 | 0 | –2,196 | –1,601 |
| Other operating expenses | –5,193 | 1,219 | –211 | 0 | – 4,185 | –3,805 |
| Total operating expenses | – 62,896 | 9,752 | –1,109 | 0 | –54,253 | –51,635 |
| Profi t or loss from operating activities (EBIT) | 3,202 | –1,069 | 0 | 0 | 2,133 | 2,599 |
| Net income from associates | 3 | 0 | 0 | 0 | 3 | 4 |
| Net income from measurement of Deutsche Postbank Group | ||||||
| at equity | 0 | 0 | 0 | 435 | 435 | 663 |
| Other fi nancial income | 998 | –7 | 104 | –103 | 992 | 189 |
| 0ther fi nance costs | –2,011 | 72 | –1 | 0 | –1,940 | –1,159 |
| Net other fi nance costs | –1,013 | 65 | 103 | –103 | –948 | –970 |
| Net fi nance costs | –1,010 | 65 | 103 | 332 | –510 | –303 |
| Profi t before income taxes | 2,192 | –1,004 | 103 | 332 | 1,623 | 2,296 |
| Income tax expense | –307 | 134 | 0 | 0 | –173 | –315 |
| Consolidated net profi t for the period | 1,885 | – 870 | 103 | 332 | 1,450 | 1,981 |
| attributable to | ||||||
| Deutsche Post AG shareholders | 1,389 | – 869 | 103 | 766 | 1,389 | 1,916 |
| Minorities | 496 | –1 | 0 | – 434 | 61 | 65 |
| €m | (1) | (2) | (3) | (4) | (5) | |
|---|---|---|---|---|---|---|
| Consolidation of | Deutsche Post | Deutsche Post | ||||
| Deutsche Post World Net |
Deutsche Post bank Group |
inter-company balances |
Other | World Net (Post bank at equity) |
World Net (Post bank at equity) |
|
| 31 Dec. 2007 | 31 Dec. 2007 | 31 Dec. 2007 | 31 Dec. 2007 | 31 Dec. 2007 | 31 Dec. 2006 | |
| ASSETS | ||||||
| Intangible assets | 14,226 | –2,425 | 0 | 991 | 12,792 | 13,138 |
| Property, plant and equipment | 8,754 | –928 | 0 | 0 | 7,826 | 8,446 |
| Investment property | 187 | –72 | 0 | 0 | 115 | 50 |
| Investments in associates | 203 | 0 | 0 | 0 | 203 | 63 |
| Investments in Deutsche Postbank Group | 0 | 0 | 0 | 1,662 | 1,662 | 1,611 |
| Other non-current fi nancial assets | 857 | –103 | 0 | 0 | 754 | 829 |
| Non-current fi nancial assets | 1,060 | –103 | 0 | 1,662 | 2,619 | 2,503 |
| Other non-current assets | 497 | 0 | 0 | 0 | 497 | 376 |
| Deferred tax assets | 1,020 | – 483 | 0 | 0 | 537 | 298 |
| Non-current assets | 25,744 | – 4,011 | 0 | 2,653 | 24,386 | 24,811 |
| Inventories | 248 | 0 | 0 | 0 | 248 | 268 |
| Income tax assets | 312 | –117 | 0 | 0 | 195 | 195 |
| Receivables and other assets | 9,806 | –961 | 532 | 0 | 9,377 | 8,808 |
| Receivables and other securities from fi nancial services | 193,986 | –193,986 | 0 | 0 | 0 | 0 |
| Financial instruments | 72 | 2 | 0 | 0 | 74 | 42 |
| Cash and cash equivalents | 4,683 | –3,352 | 8 | 0 | 1,339 | 1,761 |
| Non-current assets held for sale | 615 | –565 | 0 | 0 | 50 | 56 |
| Current assets | 209,722 | –198,979 | 540 | 0 | 11,283 | 11,130 |
| Total assets | 235,466 | –202,990 | 540 | 2,653 | 35,669 | 35,941 |
| EQUITY AND LIABILITIES | ||||||
| Issued capital | 1,207 | – 410 | 0 | 410 | 1,207 | 1,202 |
| Other reserves | 875 | – 485 | 0 | 485 | 875 | 1,528 |
| Retained earnings | 8,976 | – 4,412 | 0 | 4,412 | 8,976 | 8,490 |
| Equity attributable to Deutsche Post AG shareholders | 11,058 | –5,307 | 0 | 5,307 | 11,058 | 11,220 |
| Minority interest | 2,801 | –2 | 0 | –2,653 | 146 | 128 |
| Equity | 13,859 | –5,309 | 0 | 2,654 | 11,204 | 11,348 |
| Provisions for pensions and other employee benefi ts | 5,989 | –1,143 | 0 | 0 | 4,846 | 5,019 |
| Deferred tax liabilities | 1,569 | –1,102 | 0 | 0 | 467 | 452 |
| Other non-current provisions | 3,015 | –942 | 0 | 0 | 2,073 | 2,243 |
| Non-current provisions | 10,573 | –3,187 | 0 | 0 | 7,386 | 7,714 |
| Non-current fi nancial liabilities | 8,625 | – 4,963 | 160 | 0 | 3,822 | 3,495 |
| Other non-current liabilities | 361 | 0 | 4 | 0 | 365 | 242 |
| Non-current liabilities | 8,986 | – 4,963 | 164 | 0 | 4,187 | 3,737 |
| Non-current provisions and liabilities | 19,559 | – 8,150 | 164 | 0 | 11,573 | 11,451 |
| Income tax provisions | 334 | –121 | 0 | 0 | 213 | 155 |
| Other current provisions | 1,703 | –23 | 0 | 0 | 1,680 | 1,616 |
| Current provisions | 2,037 | –144 | 0 | 0 | 1,893 | 1,771 |
| Current fi nancial liabilities | 1,556 | – 642 | 242 | 0 | 1,156 | 1,948 |
| Trade payables | 5,384 | –173 | 0 | 0 | 5,211 | 4,930 |
| Liabilities from fi nancial services | 187,787 | –187,787 | 0 | 0 | 0 | 0 |
| Income tax liabilities | 139 | 0 | 0 | 0 | 139 | 101 |
| Other current liabilities | 5,101 | –741 | 134 | –1 | 4,493 | 4,375 |
| Liabilities associated with non-current assets held for sale | 44 | – 44 | 0 | 0 | 0 | 17 |
| Current liabilities | 200,011 | –189,387 | 376 | –1 | 10,999 | 11,371 |
| Current provisions and liabilities | 202,048 | –189,531 | 376 | –1 | 12,892 | 13,142 |
| Total equity and liabilities | 235,466 | –202,990 | 540 | 2,653 | 35,669 | 35,941 |
| €m | 2006 restated1) |
2007 |
|---|---|---|
| Net profi t before taxes | 2,296 | 1,623 |
| Net fi nance cost excluding net income from measurement at equity | 966 | 945 |
| Net income from measurement at equity | – 663 | – 435 |
| Profi t from operating activities (EBIT) | 2,599 | 2,133 |
| Depreciation/amortisation of non-current assets | 1,601 | 2,196 |
| Net income from disposal of non-current assets | –174 | –226 |
| Non-cash income and expense | 115 | 47 |
| Change in provisions | –1,055 | – 877 |
| Change in other assets and liabilities | –19 | –146 |
| Taxes paid | –251 | –278 |
| Net cash from operating activities before changes in working capital | 2,816 | 2,849 |
| Changes in working capital | ||
| Inventories | –54 | 10 |
| Receivables and other assets | – 824 | – 657 |
| Liabilities and other items | 240 | 606 |
| Net cash from operating activities | 2,178 | 2,808 |
| Proceeds from disposal of non-current assets | ||
| Divestitures | 239 | 62 |
| Other non-current assets | 925 | 756 |
| 1,164 | 818 | |
| Cash paid to acquire non-current assets | ||
| Investments in companies | – 440 | –334 |
| Other non-current assets | –1,813 | –2,009 |
| –2,253 | –2,343 | |
| Interest received | 86 | 514 |
| Postbank dividend | 137 | 103 |
| Current fi nancial instruments | –5 | 0 |
| Net cash used in investing activities | – 871 | – 908 |
| Change in fi nancial liabilities | 272 | –757 |
| Dividend paid to Deutsche Post AG shareholders | – 836 | –903 |
| Dividend paid to other shareholders | –37 | –56 |
| Issuance of shares under stock option plan | 124 | 73 |
| Interest paid | –399 | – 660 |
| Net cash used in fi nancing activities | – 876 | –2,303 |
| Net change in cash and cash equivalents | 431 | –403 |
| Effect of changes in exchange rates on cash and cash equivalents | –38 | – 46 |
| Change in cash and cash equivalents due to changes in consolidated group | –16 | 27 |
| Cash and cash equivalents at 1 January | 1,384 | 1,761 |
| Cash and cash equivalents at 31 December | 1,761 | 1,339 |
1) Prior-period amounts restated in accordance with the consolidated fi nancial statements.
To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated fi nancial statements give a true and fair view of the assets, liabilities, fi nancial position and profi t or loss of the Group, and the management report of the Group includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.
Bonn, 15 February 2008
Th e Board of Management
Dr Klaus Zumwinkel
Dr Frank Appel John Allan Jürgen Gerdes
Dr Wolfgang Klein John P. Mullen Walter Scheurle
We have audited the consolidated fi nancial statements prepared by the Deutsche Post AG, Bonn, comprising the balance sheet, the income statement, statement of changes in equity, cash fl ow statement and the notes to the consolidated fi nancial statements, together with the group management report for the business year from 1 January to 31 December 2007. Th e preparation of the consolidated fi nancial statements and the group management report in accordance with the IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB ("Handelsgesetzbuch": German Commercial Code) and supplementary provisions of the articles of incorporation are the responsibility of the parent Company᾿s Board of Managing Directors. Our responsibility is to express an opinion on the consolidated fi nancial statements and on the group management report based on our audit.
We conducted our audit of the consolidated fi nancial statements in accordance with § 317 HGB and German generally accepted standards for the audit of fi nancial statements promulgated by the Institut der Wirtschaft sprüfer (Institute of Public Auditors in Germany) (IDW) and additionally observed the International Standards on Auditing (ISA). Th ose standards require that we plan and perform the audit such that misstatements materially aff ecting the presentation of the net assets, fi nancial position and results of operations in the consolidated fi nancial statements in accordance with the applicable fi nancial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. Th e eff ectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated fi nancial statements and the group management report are examined primarily on a test basis within the framework of the audit. Th e audit includes assessing the annual fi nancial statements of those entities included in consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and signifi cant estimates made by the Company's Board of Managing Directors, as well as evaluating the overall presentation of the consolidated fi nancial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion based on the fi ndings of our audit the consolidated fi nancial statements comply with the IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB and supplementary provisions of the articles of incorporation and full IFRS and give a true and fair view of the net assets, fi nancial position and results of operations of the Group in accordance with these requirements. Th e group management report is consistent with the consolidated fi nancial statements and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.
Düsseldorf, 15 February 2008
PricewaterhouseCoopers Aktiengesellschaft Wirtschaft sprüfungsgesellschaft
Frank Brebeck Klaus-Dieter Ruske Wirtschaft sprüfer Wirtschaft sprüfer
(German Public Auditor) (German Public Auditor)
Third-party logistics provider primarily using its own equipment and resources.
Sealed, reusable metal box for carrying goods by ship or rail.
Performance of complex logistics and logistics-related tasks along the value chain by a service provider. Services tailored to the particular industry and customer are provided under contracts lasting several years.
Finishing, order picking and packaging under customer contract.
Delivery of express shipments on a specifi ed day.
Market-orientated activities which draw on direct communications to selectively reach target groups through a personal, individualised approach and to enter into dialogue.
Process fl ows in the sales channel from producers via wholesalers/retailers to consumers.
As the dominant company in the market, Deutsche Post is obliged to make parts of the mail value chain available separately to customers and, under certain conditions, other postal service providers.
Legal framework for the postal markets in the member states of the European Union.
In accordance with the German postal act, Deutsche Post AG had the exclusive licence until the end of 2007 to commercially transport certain items. The exclusive licence expired with effect from 1 January 2008.
Everyday consumer goods that sell quickly.
(Bundesnetzagentur) National regulator for electricity, gas, telecommunications, post and railway. Previously the Regulatory Authority for Telecommunications and Posts (Regulierungsbehörde für Telekommunikation und Post).
Group-wide programme aimed at improving service quality and enhancing customer focus.
Shipments which completely fi ll a container.
Account management organisation for the Group's largest global clients.
Main transshipment base. Collection centre for the transshipment and consolidation of fl ows of goods.
International Air Transport Association.
Transport chain integrating different modes of transport, often combining road and rail.
Loads that will not fi ll a container by themselves and are therefore grouped for ocean transport.
Location where several distribution centres share certain resources such as staff and means of transport to save time and maximise cost effi ciency.
The subcontracting of tasks to external service providers.
Parcel machine where parcels and small packets can be deposited and collected around the clock.
Postbox for franked parcels and small packets (maximum dimensions: 50 x 40 x 30cm).
The study of stamps. Systematic collection of postage stamps.
(Postgesetz)
The purpose of the German postal act, which was adopted on 1 January 1998, is to promote postal competition through regulation and ensure the nationwide provision of appropriate and suffi cient postal services. The postal act includes regulations on licensing, price control and the universal service.
A press product of which more than 30% consists of journalistic reporting.
Procedure whereby the Federal Network Agency approves prices for key mail products. The agency approves prices on the basis of parameters it stipulates in advance, which set the average changes in these prices within baskets of services defi ned by the agency.
Same-day delivery of express shipments.
Letter measuring max. 235 x 125 x 5mm and weighing up to 20g.
A press product of which no more than 30% consists of journalistic reporting.
A series of connected resources and processes from sourcing materials to delivering goods to consumers.
Twenty-foot equivalent unit. Standardised container unit measuring 20 feet in length (1 foot = approximately 30cm).
Delivery of express shipments at a specifi ed time.
Services which go beyond core services offered and thus create added value.
| Acquisitions | 19, 35, 127 ff. |
|---|---|
| Air freight | 29, 61, 64, 81 |
| Annual General Meeting | 6, 14, 19, 23 ff., 37, 103 ff., 112 ff., 152 f. |
| Auditor's report | 189 |
| Balance sheet | 45 f., 123, 130 ff., 145 ff. |
|---|---|
| Board of Management | 12 ff. , 19, 23 ff., 94, |
| 102 ff.,106, 108 f., 112 ff., 188 | |
| Bonds | 41, 162 |
| Brands | 23, 83 f., 145 |
| Brand awareness | 83 |
| Capital expenditure | 41 ff., 84, 99, 166 |
|---|---|
| Cash fl ow | 38, 44 f., 165 f. |
| Cash fl ow statement | 44, 124, 165 f., 186, 188 |
| Consolidated EBIT | 36, 98, 122 |
| Consolidated net profi t | 37, 119, 144 |
| Consolidated revenue | 35 |
| Contract logistics | 22, 62, 101, 190 |
| Corporate governance | 23, 106, 112 ff., 185 |
| Credit lines | 39, 170 |
| Declaration of Conformity | 106, 112, 185 | |
|---|---|---|
| Dialogue Marketing | 48, 53, 139 | |
| Disposals | 19, 35, 129 | |
| Dividend | 6, 14, 15, 19, 31, 37, 98, 105, 144 |
| Earnings per share | 15, 21, 37, 122, 144 |
|---|---|
| EBIT after asset charge | 4, 34 |
| Economic profi t | 32 f. |
| EXPRESS | 22, 55 ff., 80 f., 96, |
| 98, 101, 126, 139 |
| FINANCIAL SERVICES | 22, 66 ff., 82, 98, 126, 139 |
|---|---|
| First Choice | 10, 31 f., 79 ff., 100, 190 |
| Free fl oat | 17 |
| G |
LOGISTICS 22, 61 ff., 81 f., 89 f., 97 ff., 101, 126, 139
| 22, 48 ff., 79 f., 95 f., 98, | |
|---|---|
| 126, 139 | |
| Mail Communication | 48, 52, 95, 139 |
| Mail International | 23, 50 ff., 80, 96 |
| Mandates | 110 f. |
| Ocean freight | 29, 61 ff., 81, 101 |
|---|---|
| Opportunities | 85 f., 100 f. |
| Outlook | 94 ff. |
| Outsourcing | 29, 100, 191 |
Quality 79 ff. P
| 136, 142 |
|---|
| 22, 139 |
| 38 ff., 46, 185 ff. |
| 49, 53, 139 |
| Rating | 40, 76 |
|---|---|
| Regulation | 30, 51, 86 ff., 180 |
| Remuneration of the | |
| Board of Management | 114 f. |
| Remuneration of the | |
| Supervisory Board | 119 f. |
| Responsibility statement | 188 |
| Retail banking | 22, 66, 101 |
| Return on sales | 21, 54, 60, 65 |
| Risk management | 85 ff., 114, 166 ff., 170 |
| Roadmap to Value | 2 ff., 17, 19, 30 f., 97, 100 |
| Segment reporting | 126, 139 ff. |
|---|---|
| SERVICES | 8, 22 f., 31, 70, 97 f., 139 |
| Share capital | 17, 23 ff., 120, 152 |
| Share price | 15 f. |
| Shareholder structure | 17 |
| Staff costs | 36, 71, 122, 142 |
| Stock option plan | 25, 116 f., 135 |
| Supervisory Board | 24 ff., 102 ff., 107, 112 ff. |
| Supervisory Board committees | 104, 107, 113 |
| Trade fl ows | 28 f. |
|---|---|
| Transaction banking | 22, 67 f. |
| Value-added services | 61, 191 |
|---|---|
| Value-based Group management | 32 ff. |
| W | |
Wage increase 72
| €m | 2000 restated |
2001 restated |
2002 restated |
2003 restated |
2004 restated |
2005 restated |
2006 restated |
2007 |
|---|---|---|---|---|---|---|---|---|
| Revenue | ||||||||
| 11,733 | 11,707 | 12,129 | 12,495 | 12,747 | 12,878 | 15,290 | 15,484 | |
| EXPRESS | 6,022 | 6,421 | 14,637 | 15,293 | 17,557 | 16,831 | 13,463 | 13,874 |
| LOGISTICS | 8,289 | 9,153 | 5,817 | 5,878 | 6,786 | 9,933 | 24,405 | 25,739 |
| FINANCIAL SERVICES | 7,990 | 8,876 | 8,676 | 7,661 | 7,349 | 7,089 | 9,593 | 10,426 |
| SERVICES | – | – | – | – | – | 3,874 | 2,201 | 2,357 |
| Divisions total | 34,034 | 36,157 | 41,259 | 41,327 | 44,439 | 50,605 | 64,952 | 67,880 |
| Consolidation (until 2004 Other/Consolidation) | –1,326 | –2,778 | –2,004 | –1,310 | –1,271 | –6,011 | –4,407 | –4,368 |
| Total | 32,708 | 33,379 | 39,255 | 40,017 | 43,168 | 44,594 | 60,545 | 63,512 |
| Profi t or loss from operating activities before goodwill amortisation (EBITA) |
||||||||
| 2,004 | 1,960 | 2,144 | 2,082 | 2,085 | 2,030 | 2,094 | 2,003 | |
| EXPRESS | 76 | 176 | 270 | 365 | 373 | 411 | 288 | –174 |
| LOGISTICS | 113 | 159 | 173 | 206 | 281 | 346 | 751 | 957 |
| FINANCIAL SERVICES | 505 | 522 | 679 | 568 | 716 | 869 | 1,004 | 1,076 |
| SERVICES | – | – | – | – | – | 679 | –229 | –660 |
| Divisions total | 2,698 | 2,817 | 3,266 | 3,221 | 3,455 | 4,335 | 3,908 | 3,202 |
| Consolidation (until 2004 Other/Consolidation) | –319 | –270 | –297 | –246 | – 84 | –131 | –36 | 0 |
| Total | 2,379 | 2,547 | 2,969 | 2,975 | 3,371 | 4,204 | 3,872 | 3,202 |
| Profi t or loss from operating activities (EBIT) |
||||||||
| 2,003 | 1,958 | 2,138 | 2,067 | 2,072 | 2,030 | 2,094 | 2,003 | |
| EXPRESS | 33 | 126 | –79 | 152 | 117 | –23 | 288 | –174 |
| LOGISTICS | 13 | 42 | 80 | 116 | 182 | 346 | 751 | 957 |
| FINANCIAL SERVICES | 505 | 520 | 678 | 567 | 714 | 863 | 1,004 | 1,076 |
| SERVICES | – | – | – | – | – | 679 | –229 | –660 |
| Divisions total | 2,554 | 2,646 | 2,817 | 2,902 | 3,085 | 3,895 | 3,908 | 3,202 |
| Consolidation (until 2004 Other/Consolidation) | –319 | –270 | –297 | –246 | –84 | –131 | –36 | 0 |
| Total | 2,235 | 2,376 | 2,520 | 2,656 | 3,001 | 3,764 | 3,872 | 3,202 |
| Consolidated net profi t for the period | 1,527 | 1,587 | 1,590 | 1,342 | 1,740 | 2,448 | 2,282 | 1,885 |
| Cash fl ow/investments/depreciation and amortisation |
||||||||
| Cash fl ow from operating activities | 2,216 | 3,059 | 2,967 | 3,006 | 2,336 | 3,624 | 3,922 | 5,151 |
| Cash fl ow from investing activities | –2,098 | –2,380 | –2,226 | –2,133 | – 385 | – 5,052 | –2,697 | –753 |
| Cash fl ow from fi nancing activities | – 89 | – 619 | 147 | –304 | –493 | –1,288 | –865 | –2,087 |
| Investments | 3,113 | 3,468 | 3,100 | 2,846 | 2,536 | 6,176 | –4,066 | –2,656 |
| Depreciation and amortisation | 1,204 | 1,285 | 1,893 | 1,693 | 1,821 | 1,961 | 1,771 | 2,357 |
| Assets and capital structure | ||||||||
| Non-current assets1) | 11,081 | 12,304 | 14,536 | 15,957 | 17,027 | 25,223 | 26,074 | 25,744 |
| Current assets (until 2003: including deferred tax assets)1) |
139,199 | 144,397 | 148,111 | 138,976 | 136,369 | 147,417 | 191,624 | 209,722 |
| Equity (excluding minority interest) | 4,001 | 5,353 | 5,095 | 6,106 | 7,242 | 10,624 | 11,220 | 11,058 |
| Minority interest | 79 | 75 | 117 | 59 | 1,623 | 1,791 | 2,732 | 2,801 |
| Current and non-current provisions | 11,107 | 10,971 | 12,684 | 12,673 | 12,441 | 12,161 | 14,233 | 12,610 |
| Current and non-current liabilities2) | 9,723 | 8,770 | 11,900 | 12,778 | 15,064 | 19,371 | 20,850 | 21,210 |
| Total assets | 150,280 | 156,701 | 162,647 | 154,933 | 153,396 | 172,640 | 217,698 | 235,466 |
| 2000 restated |
2001 restated |
2002 restated |
2003 restated |
2004 restated |
2005 restated |
2006 restated |
2007 | ||
|---|---|---|---|---|---|---|---|---|---|
| Employees/staff costs | |||||||||
| Total number of employees | |||||||||
| (headcount including trainees) | at 31 Dec. | 324,203 | 321,369 | 371,912 | 383,173 | 379,828 | 502,545 | 520,112 | 536,350 |
| Full time equivalents (excluding trainees)3) | at 31 Dec. | 284,890 | 283,330 | 334,952 | 348,781 | 340,667 | 455,115 | 463,350 | 475,100 |
| Average number of employees (headcount) | 319,998 | 323,298 | 375,890 | 375,096 | 381,492 | 393,463 | 507,641 | 524,803 | |
| Staff costs | €m | 11,056 | 11,246 | 13,313 | 13,329 | 13,840 | 14,337 | 18,616 | 18,471 |
| Staff cost ratio4) | % | 33.8 | 33.7 | 33.9 | 33.3 | 32.1 | 32.2 | 30.7 | 29.1 |
| Key fi gures revenue/income/assets and capital structure |
|||||||||
| Return on sales5) | % | 7.3 | 7.6 | 7.6 | 7.4 | 7.0 | 8.4 | 6.4 | 5.0 |
| Return on equity (ROE) before taxes6) | % | 62.1 | 45.9 | 35.5 | 34.2 | 29.2 | 28.7 | 21.6 | 15.8 |
| Return on total assets7) | % | 2.0 | 1.5 | 1.6 | 1.7 | 1.9 | 2.3 | 2.0 | 1.4 |
| Tax rate8) | % | 25.1 | 26.1 | 14.3 | 29.9 | 20.2 | 19.8 | 19.7 | 14.0 |
| Equity ratio9) | % | 2.7 | 3.4 | 3.1 | 3.9 | 5.8 | 7.2 | 6.4 | 5.9 |
| Net debt (Postbank at equity)10) | €m | 2,010 | 1,750 | 1,494 | 2,044 | – 32 | 4,193 | 3,083 | 2,858 |
| Net gearing (Postbank at equity)11) | % | 33.4 | 24.6 | 22.7 | 25.1 | – 0.4 | 28.1 | 21.4 | 20.3 |
| Dynamic gearing (Postbank at equity)12) | years | 0.96 | 0.64 | 0.46 | 0.82 | 0.00 | 2.44 | 1.42 | 1.02 |
| Key share data | |||||||||
| (Diluted) earnings per share13) | € | 1.36 | 1.42 | 0.59 | 1.18 | 1.44 | 1.99 | 1.60 | 1.15 |
| (Diluted) earnings per share13) | |||||||||
| before extraordinary expense | € | 1.36 | 1.42 | 1.41 | 1.18 | 1.44 | 1.99 | 1.60 | 1.15 |
| Cash fl ow per share13),14) | € | 1.99 | 2.75 | 2.67 | 2.70 | 2.10 | 3.23 | 3.28 | 4.27 |
| Dividend distribution | €m | 300.46 | 411.74 | 445.12 | 489.63 | 556.40 | 835.71 | 903.00 | 1,086.72 |
| Payout ratio (distribution to consolidated net profi t) |
% | 19.87 | 26.11 | 67.54 | 37.41 | 34.82 | 37.39 | 47.13 | 78.25 |
| Dividend per share | € | 0.27 | 0.37 | 0.40 | 0.44 | 0.50 | 0.70 | 0.75 | 0.9015) |
| Dividend yield (based on year-end closing price) |
% | 1.2 | 2.5 | 4.0 | 2.7 | 3.0 | 3.4 | 3.3 | 3.8 |
| (Diluted) price/earnings ratio before extraordinary expense16) |
16.8 | 10.6 | 7.1 | 13.9 | 11.7 | 10.3 | 14.3 | 20.4 | |
| Number of shares carrying dividend rights | millions | 1,112.8 | 1,112.8 | 1,112.8 | 1,112.8 | 1,112.8 | 1,193.9 | 1,204.0 | 1,207.5 |
| Year-end closing price | € | 22.90 | 14.99 | 10.00 | 16.35 | 16.90 | 20.48 | 22.84 | 23.51 |
1) From 2004 balance sheet presented in accordance with the new IAS 1 as explained
in item 5 of the Notes to the 2005 consolidated fi nancial statements.
2) Excluding liabilities from fi nancial services. 3) Until 2004 including trainees.
4) Staff costs/revenue.
5) Total EBITA/revenue; from 2004: total EBIT/revenue.
6) Profi t before income taxes/average equity (from 2004 including minority interest).
7) Profi t from operating activities (EBIT)/average total assets.
8) Income tax expense/profi t before income taxes.
9) Equity (from 2004 including minority assets)/total assets.
10) Financial liabilities excluding cash and cash equivalents, current fi nancial instruments,
long-term deposits and fi nancial liabilities to minority shareholders of Williams Lea.
11) Net debt/net debt and equity (from 2004 including minority interest).
12) Net debt/cash fl ow from operating activities.
13) The weighted average number of shares for the period was used for the calculation.
14) Cash fl ow from operating activities. 15) Proposal.
16) Year-end closing price/earnings per share before extraordinary expense.
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| 10 – 11 September 2008 | UBS Best of Germany Conference (New York) |
|---|---|
| 23 – 24 June 2008 | Goldman Business Services Conference (London) |
| 4 – 5 June 2008 | Deutsche Bank German Corporate Conference (Frankfurt) |
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Nick Daly, London (title page and introductory photographs) Andreas Pohlmann, Munich (photographs of Board members)
This Annual Report was published in German and English on 6 March 2008.
English translation by Deutsche Post Foreign Language Service et al.
The English version of the Annual Report 2007 of Deutsche Post AG constitutes a translation of the original German version. Only the German version is legally binding, in so far as this does not confl ict with legal provisions in other countries.
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