Deutsche Post AG

Well, thank you and good afternoon everyone out there to our Q3 2016 conference call. We're going to follow the usual pattern.

So I've got Frank Appel, our CEO with me and our CFO Melanie Kreis, both going to take you through the presentations that I think you have in front of you and after that we're happy to deal with your questions and without further ado over to you Frank.

Thank you, Martin as well good afternoon or good morning from my side. I'm very pleased to explain a little bit of the highlights of the quarter as much as the growth agenda and then Melanie will talk a little bit more about the financial numbers.

So let's go to page 3 of the presentation. You’re used to that page on the left side at least, where we last year said that 2015 will be a year of transition and 2016 will significantly better and we gave the guidance already a while ago that we want to deliver 3.4 to 3.7 EBITDA this year.

We're well on our way Q3 confirmed all the progress we have made in all the visions and I'm very pleased about the progress because it's pretty consistent across the board. So, PeP is continuing to grow the parcel business in Germany and to the investment into the international parcel business are getting traction now.

Express is continuing and enlarging their margins and is growing above the market. The turnaround in DGFF is progressing and we are well on our way with the IT renewal roadmap, supply chain very strong performance in Q3 which is based on the strategic measures, John Gilbert and his team has taken.

So overall, we can reconfirm today that we are on the right path to deliver Strategy 2020. We have a structure growth trends behind us which is just e-commerce in one and of course the capabilities that will help us to continue our growth rate as well in the future.

So overall, we are well on track for 2016 and beyond. On page 4, you see what it means for the volume and revenue growth for parcel and PeP, it's double digit now, we had a very strong quarter.

Revenue growth is even higher in parcel growth it shows that we are also looking to yield in this area. We have very strict discipline as well on cost of course to drive profitability.

This is now the third year in a row that we see an increase in volume growth, as you see on the bottom left and that's above what we promised or suggested as the growth rate of the market in 2014. If you go to page 5, very good development as well on the mail side, we have revenue increase in the third quarter for communication, slight decrease in dialogue marketing.

That's the reflection of the overall market trends you see. If you look on to the bottom left, as we said, we will see a normalization of the decline in the mail products this year and we are now very close again to the range we have predicted years ago already at minus 2 to 3, significantly less decline in the last year when we had a strike, so we are very confident that we will get to the same range as predicted originally going forward.

We also have some flexibility on pricing for business customers after we had concluded on a significant stamp price increase this year, which is stable until 2018 but we have some possibilities to reduce the discount rate that should give us some help next year. If you look on page 6 that shows you on one on the nice growth we see in parcel revenue in Europe and e-commerce, so we are getting traction here all over the place, our network covers 18 countries and will cover very soon if we add Portugal and Iberia 20 and the proposed acquisition is successful in the UK, then we will even have 21 countries.

So we see very good development also outside of Europe via the US where we see good growth in India where our business is developing well and also our start-up in Thailand is what really got to volume growth ahead of our expectations, so that is doing well. Coming to Express on page 7, another quarter where we have seen quality growth which is now at about 7% in the quarter and revenue growth is more than 5 which is definitely a factor as well of few development in currencies and whatsoever.

So overall, very good development, you see on the bottom left, we are well above the expected market growth of 5% to 6% and that for many years. You see as well the pattern, this time we had our strongest growth in Americas and Europe as you might remember that moved around the world continuously, Asia Pacific was the least growing region this quarter but it might change again in the next quarter.

So with regard to B2C and we explained that at the recent market tutorial. We are gaining also here significant volume and that will help us to grow even but to continue our growth above the market growth going forward.

You might ask if B2C gets larger that might be a fret for the profitability, as you will later it had so far no impact, it helped us to enlarge our margin and to continue to grow our absolute EBIT and the reason is shown on page 8 many indicators are supportive of our business model. For instance, a weight per shipment is lower than on average, the revenue per kilo is higher; on the first mile we have higher density for pick up and in normal businesses.

The only challenge we have is on the last mile, of course if you go to private households then you have less passes per drop. We are now working on that with the system where intensive communication between the concerning and us can happen that has helped us already to manage the cost on the last mile in a better way to have successful first attempts for delivery for instance.

And if I look into our cost for pickup and delivery we see that this is slightly down even per piece that means this is well under control and that's the reason why we have seen a continuation of good margin in absolute EBIT development. On page 9, you see now the global forwarding and freight; we had an air freight the first quarter since a while, since early 2015 that we see grow in air freight in a quite difficult market at the moment.

The more encouraging is the growth we have seen on ocean freight and we’ll see in a second, also profitable. So, more or less I think it's good that we grow again in both products because that's a reflection of the service quality at the end of day.

On the bottom left you see that we have missed the market growth for a while. These lines are the long-term growth trends we expect.

We believe that ocean is not growing the 4% to 5% this year but it's less than 3% and therefore we believe that we have done pretty well in the ocean freight this year. Air freight as I said the first growth quarter since a while despite that the market is not very supportive.

On page 10, you see what I've just described on air freight that has impact on the gross profit despite that we were able to turn around from shrinking volume to an increasing volume again that has not materialized in the absolute gross profit, so we still have to do some work here. Ocean freight very encouraging even the growth in gross profit is faster than in the volumes, which shows that we have a good market position and that encouraged me as well that we should see pretty good development for the division as well, we are globally capable to provide great service for our customers.

On the bottom left on page 10 you see that the gross profit - the absolute gross profit if you take all quarters together we're not far away from where we have been. The conversion rate is still down and that is definitely what we all internal measures we should be able to improve the margin going forward, again, to a level which we have seen and then on top of that of course the change in our AT landscape should help us beyond the original conversion rate to improve it further until 2020.

Supply chain at last on page 11. We see growth, if you take the accounting change for NHS out and currencies and whatsoever, we are not on market growth level yet, but what we see is that we see good development of profitable growth here, so we have been much more selective and that is not achieved and therefore I’m optimistic that we can close the gap again going forward to the market.

Signings on a good track as well to deliver significantly more than a billion again this year. So overall supply chain is I think on right path and we are getting traction from the strategic actions we have taken.

On page 12, you see the split, we are pretty active in all industries, with very different solutions and I think that's a core strength that we have world-class operations in many sectors and therefore we can benefit from the growth in many sectors. So, before I hand over to Melanie, let me conclude on page 13.

Despite that we have not a very strong macro environment at the moment, we see support from the change to - the shift to e-commerce, our exposure to be emerging markets and I think our service quality capabilities and therefore we expect going forward good growth rates for business. And of course e-commerce is the most important one and we have across the border unique set of skills for all e-commerce aspects.

Going forward, we should a margin increase in all divisions but even more so absolute EBIT improvement as we have promised. Free cash flow remains a key focus for us, we have done pretty well in the last years and we will continue to do so, because that’s definitely something where we have spent more time in the last quarters and I think I'm very happy with the development we see also in the third quarter with regard to cash flow development.

Overall, we are well on our way to deliver Strategy 2020 and I think we will take further steps in the last quarter and then beyond 2016 and the coming years. So I'm very happy with the performance year-to-date, it was another record quarter, the fourth now in a row.

And I'm very confident that we will make our numbers for the remainder of this of year. And with that I hand over now to Melanie to give you a little bit more details on the actual numbers.

Thank you for listening.

Yeah, thank you Frank and good afternoon, good morning, all this from my side to all of you who have joined us on the call today. I'm very pleased to review our Q3 financial results in a bit more detail today.

As Frank already said, it was overall a very solid quarter with Group EBIT of EUR755 million, as well as the strongest third quarter ever in the current group structure and what is very positive is that we really had a solid contribution from all divisions, all divisions have moved forward compared to last year. I think the second very positive element is that the positive EBIT development has also translated into solid progress on the net profit and free cash flow side.

So let's start with a look at our group P&L for the third quarter which you can see on page 15. Starting with a couple of comments on the revenue line, I think after last quarter that's not really surprising, we still see negative currency effect, we still see the impact of lower fuel prices and we have the special case of the big supply chain customer NHS, which leads to a decline in revenue year-over-year.

When you adjust for those three effects, the Group revenue is actually up to 4% and this is predominantly driven by solid growth in Express which is up 5.3% organically and PeP with 4.3% organic growth. Taking a look at the EBIT, you see a very substantial increase from roughly EUR200 million in third quarter of 2015 to now EUR755 million.

But you all are aware of the significant one-off effect we had in third quarter of 2015, most notably the write-down effect on NSE, the overall impact in global forwarding freight of one-off was 384 million in the last year. But even when you strip out all the one-off from the first quarter of 2015, we see very, very solid year-over-year improvement and that is driven both from PeP and DHL and I'll talk about specific P&L for the divisions in a bit more detail in a second.

The next thing I want to point out on page 15 is our tax rate. We had a number of effect, we were able to activate more tax loss carry forward and that has now led to improved tax rate for the full year before we forecast is now at 11% and we have reflect of that in our tax line for the third quarter.

So putting all that together as you can see the consolidated net profit for the quarter stands at EUR618 million. And we take a look at the overall dynamic in the different divisions; you can see an overview on page 16.

Starting with PeP on the left side, some of you may still recall the time we had year-over-year decline in the EBIT of the PeP division. At the time we gave our guidance that we want to stabilize the PeP at around EUR1 billion.

Since 2013 thanks to the parcels, thanks to e-commerce, we have been able to really go back into growth mode also in the PeP division. The special event versus strike 2015 has been a temporary setback, but you can now really see that we are back on the growth trajectory in the PeP division.

And then we take a look at the DHL division, you can see that in all three DHL divisions we’re clearly building momentum towards our 2020 target. On the Express side, the margin was above 10% already one-year earlier than we had originally guided.

And now also in third quarter, we have seen a 1.3 percentage point margin expansion compared to the third quarter of last year. And looking at our more asset light divisions, global forwarding freight and supply chain.

On the global forwarding line, you can clearly see the impact of the year of transition 2015; we are now again moving in the right direction. Our first goal is now to get back to the profitability level we thought before and it's still getting back to a level of around 3%.

But then clearly with the new IP transformation delivering benefits over time our aspiration is to really get to industry leading margins. And on the supply chain side, you can also see that we're moving in the right direction.

For the third quarter, we have actually achieved a 4% margin in supply chain so that is kind of like the lower end of the range, we have also set for our 2020 where we’re targeting something like 4% to 5%. That takes me to page 17, where you can see our cash flow statement for the quarter.

I mean many of those negative one-off effect we had in the third quarter of 2015 were actually non-cash, so it was to be expected that we wouldn't be a one-to-one translation of the EBIT increase into cash flow but you can see that on operating cash flow before changes in working capital, we actually had a very, very positive improvement by EUR200 million compared to the third quarter of 2015. Taking a look at the working capital line, we had a positive contribution from working capital but it's a bit lower than last year, which is primarily due to the extremely strong performance in the third quarter of last quarter particularly from global forwarding freight.

On the CapEx side, we had from phasing effect in investment projects which led to a comparatively low net CapEx for the third quarter. But overall, we still expect CapEx to be around our guidance of EUR2.2 billion we shared with you at the beginning of the year.

The reason is that as we have already discussed for example in our capital markets tutorial in London a couple of weeks ago, we still have the peak of the investment phase in Express which will continue into next year. The new extension in Leipzig just opened but we are still working on Brussels and East Midlands, so there is still a bit of investment activity going on, on the Express side.

And in PeP, the majority of the invest is actually into the parcel Germany expansion. The international expansion is relatively CapEx light.

So when you put it all together, we ended up with a free cash flow of EUR543 million for the third quarter. And when you take a look at where we stand after nine months leaving aside the pension funding from the spring, we are significantly ahead in terms of free cash flow more than 200 million for the first nine months compared to 2015.

And of course you also expect like every year that the fourth quarter is going to be the big quarter on the free cash flow generation side and so we're very confident that we will also hit our target and aspiration for free cash flow for the full-year 2016. That’s take me to page 18.

Our net debt development, I don't want to go into all the details here, I think most buckets are familiar to you. The one thing I want to highlight here is that with the third quarter, we have actually included the full EUR1 billion for the share buyback in our net debt calculation.

At the end of the third quarter, we had executed roughly half of it but we have spent EUR500 million but we have now accounting wise recognized the full EUR1 billion in our net debt calculation. Status as of last night is that we have now spent more than EUR650 million on the share buyback and as you can see we are confident that we will actually also execute on the remaining portion.

For the fourth quarter, we clearly expect that the number net debt will move in the right direction driven by the strong free cash flow generation in the fourth quarter. And that takes me to a quick look at what is happening in the divisions, starting on page 19 with the PeP division.

So as already mentioned, we are back in growth mode in PeP, we had a revenue growth of 4% and that really nicely flows through to the EBIT line. When you look at the breakdown of our PeP EBIT and that’s also nothing really new.

We still generate EBIT predominant in Germany and here we have still grow progress thanks to the growth in parcels, clearly the stamp price increase has helped, but this obviously a very strong discipline on the cost side. With regard to the international path of business outside Germany, we know have a figure of 1, last quarter it was minus 1, I think that's in line with what we have set we are in an investment mode.

So it's not going to be a major contribution, but it's not also a burden for our profitability. Looking at the strong - looking at the operating cash flow.

We can see that improvement on the EBIT side, really also materialized in the OCS for the PeP division and on the CapEx side, we have EUR139 million, maybe interesting for you to note is that out of those EUR139 million CapEx, actually EUR121 million went into parcel Germany. So by far the biggest CapEx spend in PeP is in parcel Germany and the international expansion is predominantly an OpEx topic and that you can follow nicely in the line I’ve just mentioned earlier.

Taking a look the Express figures, as already mentioned, clearly currency and lower fuel price has had an impact on the topline. Adjusting for those effects, revenue growth was actually 5.3%.

Last year, we had positive one-off effect in our EBIT numbers for Express. We had 82 million asset write-up in the United States.

When we take that out, we see that Express EBIT has actually grown by 19% year over year. And on the margin side, we have seen an expansion by 1.3 percentage point.

And that's a strong EBIT performance is also translating into a solid operating cash flow. And with regard to CapEx that was a very strong CapEx quarter last year and we still expect that our CapEx to come in the fourth quarter for the Express division.

Turning to page 21, global forwarding freight, Frank already mentioned the fundamental dynamics on the ocean freight side, we have now seen for the fourth consecutive quarter solid volume growth and a good development on the gross profit side. In air freight, it's now a bit of growth but clear on the profitability side that’s challenging and so you can see that our gross profit overall is just slightly up compared to last year.

But again beginning to move into the right direction. When you look at the EBIT line, we have EUR384 million negative one-off in Q3 2015.

If you take those out, we had an underlying EBIT of EUR47 last year. And so there was also a healthy growth by 34% from EUR47 million to EUR63 million in the current quarter.

Cash flow is a little bit below last year that is really due to the very strong growth in capital performance we had in the third quarter of 2015. CapEx, I mean forwarding freight is our by far least CapEx intense division as you can see that again very clearly in the numbers for the third quarter.

Coming to the fourth division, supply chain. On the EBIT side, we have really made good progress but we have to bear in mind that last year we had sizeable restructuring one-off but even when we take out the restructuring effect, we are seeing really now good progress on the supply chain EBITD and as I already mentioned in terms of margin, we are now for the third quarter at 4%.

And cash flow is a bit down year over year but that is also primarily due to unfavorable working capital movement which of course we hope to catch up with again in the fourth quarter. That was an overview of what is happening in the different divisions and I'm already at the last slide of my presentation, page 23.

There is not a lot of news on this page; the one number we have changed is we have adjusted our tax rate to 11 %, no other changes either to our 2016 guidance nor to our 2020 targets. I will say in conclusion that with the third quarter results, I've just talked you through in a bit more detail.

We are well on track to deliver our full-year numbers for 2016 and that would of course then also be a very important next step towards executing our 2020 target. Thank you very much for your attention and I think we are now ready to take your questions.

If I can ask two quick questions. The first one with respect to the discount rate reductions for business customers within PeP.

I'm just interested in terms of how you justify that to customers in terms of your pitch, is it due to ongoing inflationary pressure around the mail network or is it due to increased cost of service given declining volume. And then a second question with a similar scene.

Obviously the DGF division has had now almost a year as a far more stable performance. And I guess that should resonate with customers, so as you renegotiate contracts with customers has that helped you commercially in your negotiations?

So Neil, I think the first one you answered pretty well already, because it's true, of course we have inflation and we are communicating that it’s less driven by less scale. I think that's more for the [indiscernible] price increase, but you're right, there is inflation and therefore we have to deal with that.

On DGF, have overall we get more positive response but this market is still very competitive anyway. There is a mixture of services as a must have and keeps you in the business.

I think we are not in the level that we really can expect a premium that should be goal to do that but all our customers are significantly under cost pressure themselves because there is not too much economic growth. Therefore I would say that this will be a competitive - fierce competitive situation will continue and you see were some companies who are doing well in that industry, we’re probably more advanced with harmonizing their processes and [indiscernible] and that's our strategy going forward too.

And just to follow-on, just to your avoidance of GP portfolio pressure due to [indiscernible] would you attribute that to your face as development within DGF or there are other factors that helped you there.

I think in ocean freight, you can see already that we are probably more on a basis that we have not only large customers but also a small and midsize customers and that helps I think to protect our margin pretty well. That helps as well to grow and therefore we have more advance I think on the ocean freight front then on the air freight.

I fee encouraged by that despite the headwinds in air freight because in principle the countries can deliver good growth and profitable growth and if we can do that in ocean freight we should be able over time as well in the air freight to demonstrate that. So, we had relatively little impact from Amgen’s insolvency [ph].

I think it's more the overall customer portfolio which is better in ocean freight already then in air freight.

Thanks Neil. The next caller please.

I just had two questions, first on PeP. You just reiterated your 2020 targets in terms of group EBIT growth for PeP, what contribution should we expect from international given that it's currently running at breakeven and looking out a couple of years.

And then second, with Express, you called out that B2C is now somewhere above 20% of TDI. How much higher would you expect this mix to go or could it go if that's possible to predict?

And is there any reason you'd expect the margin contribution to very significantly, it sounds like at present it's comparable to the B2B contribution. Thanks.

So, Melanie will take the first, I’ll take the second question, so I think it's very difficult to predict. As long as we see what we have seen in the last years that we can grow profitable in the B2C world.

We will continue to serve these customers and I think that's the right answer to that. We have no goal, how much there should be, I think we have to improve our service quality constantly, we have to optimize for cost and we're doing that.

Despite the increase in B2C volume we have not seen an increase in cost per move on the first and last mile that should help. So, we are looking again into that, we can improve our margin in the next years and at the same time grow the topline inveterately that we really can grow the bottom line significant over the next years.

And maybe just to add a bit of flavor, so I mean [indiscernible] at the time when we were still at 10% share of B2C shipments and we had intensity based at this point in time, how should we position ourselves with regard to B2C. Clearly the majority of the B2C market is not attractive for Express.

But there is a slice of the market that customers are willing to pay the prices we need in our Express network and what I find very encouraging in the slide Frank showed earlier and which we also used in London for the e-commerce tutorial is during the time when the share of B2C increased from 10% to 20% we have actually been able to significantly improve our margin and profitability in Express because we have a very strict business management on what kind of B2C business we want to have in the network. So, I think the Express team is relatively relaxed with regard to growth, when you take the numbers apart, you've also see that there is still very healthy growth on the non B2C from side, reverse engineering the numbers shows that there is still on the B2B side also very healthy growth and I think that is historically one of the strengths of the Express business that across the sectors and they see B2C as a vertical, we have great growth opportunities.

Coming to your question on PeP international, what can we expect? Like we said a couple of weeks ago, we don't expect a significant contribution now over the next quarters.

I mean we have been now around the breakeven line and that is not going to change materially but towards 2020 we expect to then see an increase in contribution from the PeP international line and we’re going to show that very transparently so that you can really follow the progress we have in that area quarter over quarter.

Let me add to it, it's a little bit difficult to predict that. So, we don't need significant contribution from that area for our goals we have in our mind.

But the more successful we are to grow these businesses and turn them profitable, the more we will invest in this area to accelerate the growth and that makes it a little bit tricky how much contribution you really can expect. It might be very little, but it doesn't mean that we have been quite successful with many countries already and therefore we have expanded our network server and of course we can’t walk on water and we will generate losses at the first place.

So, it's a little bit tricky question if we got to that. At the moment, we - I feel personally very encouraged what we’re doing there and that is a demand for the quality product in B2C even in low price markets and that encouraged me that we have found the right recipe for success.

As probably grow and faster we grow, the lesser we will have an impact in our P&L. And to the reason I’ve just mentioned.

Yes. Good afternoon.

Thanks for taking my questions. Three for me please.

On Express, can you help me understand the margin development a little better, so basically when I look back in history, usually at 100 basis point lower margins in Q3 versus Q2. This time around, it seems like 200 basis points, and also the prices in Europe have - seem to have come under pressure.

So is there really just a seasonal effect there or what is driving that and what makes you confident that margins will go back up again in the pattern that we've seen earlier this year? And then secondly on the mail side, 5% volume growth, you displayed some confident that it will go to 2% to 3%, but could you share what makes you so positive because from the latest trend we're seeing, I don't really get to the 2% to 3% midterm and also other markets seem to have rather higher decline such as Austria lately.

And lastly in your cash flow statement, there's again a relatively sizable move in provisions of 351 million. Can you please explain what has been driving that?

Thank you very much.

So, Melanie, may you take the first and the third. So, first of all, we see year-to-date only a decline of 3.5%.

The second is this is more anecdotal evidence from what we hear from our customers and of course we have a quite sizable sales force and we get a lot of information what they plan to do going forward and whatsoever. So that is not 100% guarantee, but the evidence we hear from our sales force is turning out that that would be not a major drop in volumes beyond the 2% to 3%.

As I said Tobias, I can't guarantee that, but this is the best evidence I can take. We haven't lost any major customers nor anybody is telling us we will shift away completely from physical mailings to online or whatsoever.

So that makes us confident that the decline will only be in the 2% to 3% area.

Yes. Let me take your first and third question.

So first of all in Express, I mean, for me, the more important number I look at is really the year-over-year development. If you take all the - as it dried up from the third quarter of 2014, we have really again expanded the margin by more than 1%, 1.3 percentage points to be precise.

So I think that is still in line with the strong trend we have seen over the past quarters. And yes, as you saw in one of the slides Frank presented, there have been some changes and all in where the growth is coming from.

But I think that shows really the resilience of our global extract network on that. Overall, from different regions, we are able to generate very healthy shipment growth and one number I always look at very closely is the base revenue per kilo development where we’ve seen a positive development already for the first two quarters and that has actually improved in the third quarter.

So I'm very confident on that Express is unchanged and that we will see a very solid fourth quarter on the Express side. And then coming to the provision question in our cash flow statement, so first of all, I think that’s due to some one-off effects we had last year, like the bonds thing, but there's also a reclassification from, we do this early retirement program for civil servants, which is now being reclassified from provisions into the payout phase and that is a significant driver in the provision line.

How much does that account for?

How much does that account for? I can't tell you the exact number, but it is a sizeable thing.

We can follow up on this later, but that is really from my recollection, the main drive in this year’s numbers, it should be something around 140-ish million. But I can’t give you the exact figure, but it's definitely a double digit number.

Thanks very much. Good afternoon, Frank, Melanie and Martin.

Two questions from me please. Firstly on Express, I wondered if you might be able to breakout the sort of differential in growth rates between B2C and B2B, in your tutorial, I think you mentioned that B2C was obviously growing faster, but would you be able to give us would give us a magnitude of difference in growth rates.

And following on from that, the 5% to 6% growth rate in the markets, again could you segment that between B2C and B2B? And then my second question is around looking into Q4, I think that I can identify looking to Q4 include things like wage increases from the 1st of October.

I catch up in terms of restructuring charges and that price provision, so I wondered if there is anything that was missing off that list when looking into Q4 and maybe is it possible to give a bit of quantification over the level of stand price provision reversal in Q4, which I think was at quite high level of 71 million in Q4 last year. Thank you very much.

So, Melanie, you can explain B2B and B2C. So I'm not sure if we really even have made that math to what the market growth should be.

So what you definitely can take away is that the B2B growth is just significantly slower than B2C growth. And when we suggested that growth rate, it was a combination of everything and so far, I think, we have been pretty right with that.

So we expected that the Express market overall will grow slightly more than the GDP growth on a gross number. And not a net number and, yeah, and I - of course B2C will grow faster than B2B.

That’s for sure. So, Melanie, you might answer the two other questions.

Yeah. So when you look at the numbers, we’ve shown how the B2C share has grown from 13 to 16.

You can calculate that the B2B growth correspondingly has been around 4%. And I think that's also a good expectation going forward that if they stay in the 4% to maybe 5% order of magnitude.

With regard to the fourth quarter impact, you are absolutely correct. We have the rate increase now coming in the 2% as of the 1st of October.

In terms of provisions, movement, I mean this is now automatically calculated from the consumption and sale off of them and I don't have a forecast for that. I mean last year, it was a bit of special situation, because we had the new methodology plus we have the increase to 70 cents.

So people had to stock up this new, first use up the old ones and then at the beginning of the year, stock up with the new ones. This year, because we don't have change in the underlying stem price, there should be less volatility.

But we don't have a forecast for that.

Could I just ask one follow-up question on TDI volume growth; this is still a very healthy 6.8% in volume terms. But just looking over the last couple of years, I think if I'm not wrong, that’s your slowest volume growth.

So it's Q4 2014. So is there anything in the mix already think that points to a sort of trend that growth is actually going to be sort of more towards the sort of current levels versus a range of sort of 8% to 9% that you’ve seen now by sticking around over the last 12 months?

Thank you.

Yes. So I would say that going forward, it will be probably more around the 7%.

I mean you can see that in this quarter, there was lower growth number from Asia as the trend we’ve now seen for some quarters. It's nothing we're overly concerned about, because you can see how the other regions are nicely catching it up, giving us the overall growth of 6.8%.

But I think to forecast 8% to 9% at this point in time given also the general macro situation would be overly optimistic. So I’m more thinking in the 7% range.

Good afternoon, everybody. I've got a couple of questions that haven’t been answered yet.

First of all, going back to pep on the international business, I appreciate the revenue there has grown considerably on a nine month basis from 1.4 billion to 1.6 billion. Just give us some idea of, if you like the sort of the proof of concept on that business and the OpEx you're putting into the expansion.

If you were to look at just the 1.4 billion based from the first nine months of last year, could you give us a feel for what the profitability of that business would have done, including the growth that occurred in it, stripping out the sort of additional territories you've gone into since then. And then the second question, on the tax rates reduced to 11%, could you give us a feel for how much of that will have a sort of carry-forward effect in to ‘17.

I have all the deferred tax assets you’ve activated been utilized in, let’s say, 11% projection or is there some carry-forward effect there? And if there is, I appreciate, it’s early.

But how do you think the board or boards will think about that in terms of setting the dividend for the full year basis.

On the first subject, maybe Melanie, you answer. But first, I understand the reason for your question, but I'm a little bit reluctant to disclose what the profitability without any new investments have been because this is something which we want to keep at the moment.

As we said, we don't expect a significant profitability contribution, but we don't want to tell at the moment the bits and pieces exactly and that also for competitive reasons. So please understand that we are not disclosing that at the current stage.

But what I can tell you is that we of course invested also in the existing businesses to change that into B2C. Some of them have been very much linked to B2B and we have investments in the legacy taken over from Express businesses as well.

So even if you would know, what the - it's not like that this profitability is not growing like and the rest is just investment. We're investing in all parts to convert them from a more focused B2B into a B2B and B2C world and that takes operational costs there too.

Okay. Then, let me continue with the tax rate.

So, yes, we have been able to activate more deferred tax assets, but there is still a substantial amount of unutilized tax loss carry forward and as we increase profitability and our forward projections in those countries, there, we still have significant tax loss carry forward in the United States. This is also giving us upside potential going forward.

I'm not going to give you a tax guidance for the next year. We’re just finalizing our budget for 2017 and we will then give you a number, guidance in March.

So I mean clearly 11% is quite a low number and it will probably not be quite that low, but as every year, we will look for opportunities to manage our tax rate very carefully. And with regard to dividend, yes, I can understand where you're coming from and there's some obvious math you can do on the basis of our numbers, but that’s of course also a topic that it will only take a decision once the books for the year are closed and so I think at the moment, we're focused as the organization is on really first delivering our fourth quarter numbers and the full year guidance for 2016.

Okay. Thank you.

Can I ask just one cheeky follow-on if possible, just on the international pep? Given the expectation of better returns later, what causes in sort of your budget the tipping point to the business from being sort of marginally profitable to becoming a more profitable contributor?

Is it simply volume down the same network or is there something else in there.

No. I think it is really scale and scale doesn't have to be always significant market share, because some of the markets are growing very rapidly and therefore we can reach enough scale and that should be then the turning point.

But if you have a network, you have not full utilization, not performing your warehouses nor your careers and therefore, it takes some time. And if you are successful because we are not providing in some startup countries straightaway full coverage of our zip code.

So we are doing that in some areas and if we see that it helps, then we extend the number of zip codes and therefore that takes some time until you get sufficiently scale all over the place, but the reason behind profitability is really scale. And in the emerging countries, that should be doable just by growing significantly with the market, because these markets are very immature yet.

What - the tests we do at the moment is that demand in these markets for high quality products as we provide and we see very positive response of the market and the customers for that. And that makes me confident that we can really grow significantly in many of these markets.

Yes. Good afternoon, everyone.

Couple of questions from my end. One, it was very evident from the Capital Markets Day in London and then also on the last several conference calls that Deutsche is very excited about e-commerce and positioning the business to benefit from the trends in e-commerce.

But what would you say is the part of your business that it was negatively impacted by the e-commerce trend, because e-commerce is not good for all modes of transportation and for all supply chain. And then second question, frank, it’s really about your view of the organizational structure at DHL or Deutsche Post DHL, about 450,000 employees across the world today as you grow up to your 2020 targets, where do you see that number going and do you think you have to change anything just from an organizational structure standpoint to get the best benefit out of the large organization?

So, or maybe let me start with the order structure. And I can’t see any reason why we need to change that.

I think we've really developed a pretty agile organization to cope with that by focusing on the respective elements and the transfer of these express domestic businesses to pep has been proven to be successful. I don't see any need to teams mess these structures anyway because our models are really focusing on their respective mode and the focus on that has given us traction.

To be honest, I can't see, at the moment, if I answer your first question, I can’t, at the moment, really see massive negative impact on any, even in the average business, we see an increasing amount of retailers who are demining for air freight shipments. In supply chain, there will be more warehousing activities.

It might be that the landscape of competitors is changing because there we have some newcomers entering the market; but overall, I think we will benefit in all areas and we see that already if I look into what kind of interest we get on road freight transportation, air freight, on supply chain. So I can’t really see, at the moment, any of the divisions would suffer from the e-commerce move.

Thanks very much. Good afternoon from me.

Just two questions. Firstly, so sorry, technical question looking at the tax side of things, just in terms of what that means on the cash tax perspective.

From what I understand, it doesn't particularly have a lot of flow through on the cash tax payments, could you just confirm that if that's okay. And secondly, kind of confirm that the lower tax rate came out of the 10 billion unrecognized tax loss carry forwards that you, I think, would disclosed at the last annual report and has that sort of moved very much during the course of the year, because occasionally we do seem to find the tax losses do seem to go up due to the tax buildings, et cetera.

And just on that also, can you just breakdown how much of the tax losses are actually German tax losses as opposed to non-German tax losses. And then the second question, the different one is just on the 2020 targets.

Obviously since you gave those targets, there's been a little bit of a rocky ride. Obviously, this year, you've seen quite a lot of recovery.

Can you just say, it sounds as though from what you were saying about some of the business developments in terms of freight forwarding, the non-German parcel business, et cetera, some of the paybacks are going to be a little bit more towards the tail-end of the forecast period? Is that the right way of thinking about in terms of how profit should develop from 2017 to 2020.

Thanks so much.

Yes. So I think the last year was overall more the exception than the rule that we announced that already early on that 2015 will be a year of transformation because we expected, if you really want to get to a different cost level of the employees for the parcel delivery, we have to go for quite interesting period with the unions and we were quite successful in achieving that.

On the DGF front, that’s a major hit because the way we went to with SAP didn't work out and therefore we changed course. We will see now and more step by step approach and more an evolution in development and therefore you're right.

The first target is to get to the same levels of margins like we had before and then the next step is to improve it further until 2020. So there will be probably more that there will be a continuous benefit from the improvement in DGF.

But the steps going forward would be smaller and then we'll see if we get the benefits from when you're allowed for bigger steps again, but it's different. The approach is now different from the past, but we said we will have a deep dip in the profitability and then it will go up again.

We will see now a progression in profitability, but not to the same pace as in the last 12 months due to the fact that we are now continuing in investing at the same time in our operations to improve it later on further, but you will not see a dip ever. So therefore, it's true that this will contribute significantly more to the later end and the same is true of course for our investments in Europe and in e-commerce as we already said.

The others should more develop on a more even development path.

Okay. Coming to your tax questions, you are of course absolutely right.

There's not a one to one connection between the tax rate and the cash taxes paid on the cash taxes paid side. We expect a slightly higher number more around 16% to 17% for this year.

So yeah, I think, there is a number of magnitude when you look at what we’ve paid in taxes last year in cash. We will probably be in the same order of magnitude also for the current year.

With regard to tax loss carry forward, you're right, at the end of last year, we talked about EUR10 million of not recognized tax loss carry forward. The big chunk of that is from the United States, more than half of it and that was also one area where these were able to now activate more deferred tax assets.

The second biggest country is Germany. Also in terms of non-recognized tax loss carry-forward, Germany is the second largest country in terms of overall tax loss carryforward, it’s the largest country and here as well, we have been able to activate more, but there are also a number of other countries where we still have potentially not recognized tax loss carry forward and that's of course an area we’re actively working on to improve that going forward.

Hi, there. Good afternoon, everyone.

Two questions from my side. The first is to come back on the forwarding point, just a bit more on the outlook.

If I'm understanding correctly, the new divisional CEO will begin in the New Year. I mean how do you view his priorities in terms of whether it’d be a gross profit and volume driven recovery or some more OpEx maximum optimization as the sort of key goals in terms of what it is that he will be directed to do within the division?

And my second question is perhaps for Melanie. I think you brought up at the CMD event in October that while you wouldn't be changing many of the financial goals or how the company's outlook is sort of presented, you did say that you wanted to focus more on free cash flow.

And I got the impression that was sort of more on conversions of free cash flow from the operating earnings. Is it fair to say that it might be possible that you could stop setting some targets in terms of free cash flow conversion or maybe some divisional goals in that sense going forward?

Thanks.

Yes. So on the first one, since Tim Scharwath is still on the payroll of one of our competitors, I haven't had a chance to talk with him about his strategy and his priorities yet, but what I can say from what way he comes from, I can guess that, first of all, he definitely will help us to regain the growth in the air freight area, particularly smaller and mid-sized customers, because that is what his is, the head of marketing and sales in air freight and we have a challenge there and my clear hope is that we learn some tricks how to do it better.

The second is, if I’m following [indiscernible] from the outside, they are very clear on conversion rate and our conversion rate is far behind our own conversion rate we had already achieved and far behind what some of our competitors are doing. And I think he will focus on that and that is of course optimizing your costs because that's below the gross profit and I hope that he has good answers where we can do better and he definitely has a significantly deeper understanding of that business than I and probably can find easily some areas where we can reduce costs further.

And the third is, having studied himself IT, he definitely will help us on the IT renewal roadmap. So these would be - from my perspective if I have the discussion in the future with him, I would see that these are the futures and my perception on him as a person is that he's very well equipped to do that.

So therefore, I'm very optimistic that he will help us to work on these priorities, even if I had not discussed that with him yet due to the fact that he's still on the payroll of our competitor.

And so maybe a couple of sentences on free cash flow overall and our aspirations here, I mean you know that last year, we had extremely strong fourth quarter with regard to free cash flow and that helped us to achieve good number for the full year. But then also that among other things to the decision to go for the share buyback.

Of course, these will end in first quarter a bit of a kick back. But what I find really very pleasing is that through a strong focus across the organization, now after the nine months, we’re actually 200 million better than what we were last year.

So we have really overcompensated the big effort from the fourth quarter of 2015. We have, in our guidance page, the statement that we want to at least earn our dividend for the year, but so for example we expect to close the UK mail transaction before the year is over.

And clearly, we expect that after that transaction, there will still be enough free cash flow to pay the dividend. So I think that gives you a feeling for our expectations towards the fourth quarter and I'm quite confident that we will make that.

We have intense discussions with our divisions now as part of the budgeting process, not only about their EBIT targets, but also about their cash flow targets. We are incentivizing all our top 2100 executives on cash flow, so that is really something in the company which is very high on everybody's priority list because also people’s bonus depends on it, but I'm not at a point yet where I would want to share external conversion goals of my division.

Good afternoon, everybody. Hi, two set of quick questions.

I totally get the gross CapEx guidance is still 2.2 billion. But your net CapEx after nine months is only 1.3 billion.

Can you give us an idea of where you think the net CapEx will end up for the year?

Yes, you're absolutely right that there's still a bit of a way to go in the fourth quarter, but that is the trend we’re somewhat seeing every year. We discussed that intensely, I would really prefer it can be spread out a bit more evenly over the year, but so at this point in time, we expect that on the growth CapEx side, we will move towards 2.2 in terms of cash out from CapEx.

There clearly 200 million to 300 million lower than that. That also really depends a little bit on our payables management in the fourth quarter closing.

Okay. That's great.

Thank you. The second question is that obviously within Europe and e-commerce, so all of the 2C stuff outside of Germany.

We’re seeing the reported, it’s the blended average of the result in a number of countries, some of which will be making money, some of which won’t be, because where they are. Just as a sort of the medium term guidance, if you look across all the countries in that group without naming it, what’s the country with the highest margin or what - sorry what is the highest margin in any single country?

So, Mark, I’m afraid we will not disclose it ever and I think - and it doesn't make too much sense because the dynamics of the markets are very different and therefore it is very difficult to judge. In particular, we are also in some of these markets, we started more as a complete B2B and are transforming that and we have not really a final understanding what the target margin in these countries will be and therefore I would be a little bit reluctant in saying something now, which I have to correct later on.

Okay. It was worth a try anyway.

Thank you very much.

Okay. Thank you, Mark.

And yeah, we’re almost 45 minutes into the Q&A now. Let's see whether there are any further callers out there.

Operator?

Well then, it’s time for us to conclude the call. Before I hand over to some concluding remarks by Frank, I’d like to thank you for your attention.

Looking forward to see you either at sales side, buy side over the next couple of weeks and with that over to you Frank, please.