Deutsche Post AG

Thank you. And good afternoon or good morning, wherever you are, to the Investor Conference Call on the full-year 2014 results of Deutsche Post DHL Group.

I take it you have got the material that you could download or find on the app in front of you. And we have, as announced, the Group’s CEO, Frank Appel, with us as well as the Group’s CFO Larry Rosen.

I will hand over to them for the presentations. Afterwards, as usual, sufficient time for Q&A.

And with that I would like to hand over to Frank.

Hello from my side as well, and thank you for joining us today on our 2014 numbers. Let me go straight away into the summary, which is on page 3 of the document.

So I think that summarized quite well where we ended up in 2014. We – I think 2014 was a preparation year and a good step in the right direction.

Express actually has performed pretty well, with their EBIT, 10% EBIT margins, which we have for years achieved one year early than originally planned. I think that’s great.

We see also a strong growth in the PeP division for parcels and a very moderate decline, which is actually less than what we originally guided years ago with 2% to 3% decline. It was again a year which was better in mail.

We have our challenges with our cost position, particularly with the salary level. You might have followed that we have done something.

I come to that later on as well. But, that has, of course, had impact on our EBIT numbers here as well.

The transformation in DGF with the NFE program is a key priority and will remain a key priority. In summary here, it appears to be more challenging than we expected.

But, I believe we are taking the right actions to get it back on track. Supply chain, we are pretty pleased with the new strategy, where we guided you that we will make midterm 4% to 5% margins.

We improved it. John Gilbert and his team have taken first actions.

You can see that in the numbers. We had good growth and even more growth on the bottom line.

So, therefore, we believe that our story is still intact. We have a very strong portfolio of divisions.

We are well exposed to the major trends, emerging markets and e-commerce. We have, as I explain later, a very clear roadmap to improve the profitability with clear goals.

And I think we showed another year where we improved the cash flow. And you definitely have some questions with regard to 2013 and 2014 cash flow.

And Larry will comment on that later. So overall, we will give you today a guidance, a more concrete guidance for this year.

We said last summer, as you remember, significantly improvement. And I think our guidance confirms that today.

We reconfirmed our targets for 2016 and 2020. So, one thing what I would like to mention, it’s not important.

It doesn’t cost too much money because it’s a tiny change, but important. We want to now call the Company not any longer Deutsche Post DHL, but Deutsche Post DHL Group because it makes clear, particularly in countries where we still use different brands that they belong to the Group.

So that’s the purpose of that. So on the next page you see the high-level annual numbers for the Group.

We had good growth for the Group of 3% organically, actually 4%. So currency, we’re still to our disadvantage last year on the top line.

Overall, all divisions grew, Express the most, and the others followed. On the bottom line, on the EBIT, you can see as well we had a good year where we ended up in our range as guided.

We have slight improvement in PeP, but the trend is still the same. That’s the reason why we are now in challenging discussions with our unions.

We have a saying. The growth on the top line is bigger than on the bottom line.

Express has developed very well. We had another year with double-digit bottom line growth based on market share gains.

Forwarding has been challenged and that continue in the fourth quarter. We have learned a lot from the pilots.

But, it – as I said, the change of structure, processes, and system is quite a stretch for the organization and definitely has taken away management attention from the day to day. And therefore, you see as well here impact from the day-to-day business.

And that’s the reason why, despite that we had some growth on the top line, we have seen a significant decline on the bottom line. Of course, we are not satisfied with that.

But, it’s sometimes difficult. If you want to transform the business model, you have to bite the bullet once in a while.

And – but, we are confident that we can change the trend in the coming times. So, supply chain, nice growth on the top line.

If you forget the one-time things in the fourth quarter last year, we probably would be more around 10% EBIT development. I think that’s a good result of making the organization leaner, more focused, and more standardized.

So, overall, we are pleased to – that we delivered as promised again. And we had another nice uplift.

It’s a year – 2015 will be year of transition from the old strategy to the new strategy. But, as I said, I think that is necessary to really grow then for the more aspirational goals until 2020.

Page 5 summarizes, we believe that trend for volumes. We always said its 2% to 3% decline.

We ended up somewhere between 1% and 2% overall, which is slightly less than expected. It’s much better than many other postal operators performed.

We believe that’s a consequent of great quality for a decent price. Parcel volumes remain strong, fourth quarter was very strong actually, which is good news.

Of course, the trend is in good shape and we see really nice development. I will explain later on that we have started to expand our business beyond Germany with the first good results.

And also, the E-Post stream has delivered for the first time more than EUR300 million. We have a challenge with the wage situation we have in PeP.

We are tackling that at the moment by creating new subsidiaries with lower salaries, which are still fair and attractive, but significantly lower than what we have currently. That will definitely lead to some dispute with the union.

But, as always, we – I believe we will find a way sooner or later to get that sorted out, too. Page 6 is Express, very consistent, very nice development on both revenue per day and shipments per day.

And as I said, another very good year of margin improvement and one year ahead of the original plan. And I think that’s a great result.

We have no doubt 2014 was another year where we gained on a global scale market share. Global forwarding freight, we have seen growth again, which is good, so not only in air freight, but also in ocean freight.

But, I repeat myself to a certain extent. It is a challenge.

It takes management attention away. It’s probably also more complex than we originally planned.

But, we believe that what we have seen with pilots that the approach we are taking will work probably preparation, some challenges with complexity probably have to be adapted. And then we are ready to go for the next step.

But, it’s at the moment challenging and you see that in our numbers. So, as I said, we are not happy about that, but once in a while, you have to bite the bullet, you have to go through these.

And the measures we have taken over the last months, Roger and his team have taken, should help us to get back on track. Supply chain, good performance continued.

The EUR1.2 billion in new signings is almost half of the next total revenue – of the total revenue of the next competitor somehow. So, we have gained again a lot of business.

I think the focus on certain sectors, the focus on standardization, and making the organization leaner is paying off. And you can see that more even in the in the bottom line than the top line.

So, the strategic priorities, I’m switching to page 10, there’s nothing new. We launched our strategy focus, connect, grow for 2020 last April.

You can see here that we still believe and are confident that we will benefit from e-commerce and the emerging markets. We have a very good portfolio exposed to these trends in particular.

We have clear roadmaps, if I explain again and remind you, for all divisions to improve profitability, and our balance sheet becomes more and more flexible, having again another year where we generated more free cash flow than the dividend. So, on page 11, just an example from the e-commerce world, we have done already a lot in Europe.

We have started recently in Slovakia for domestic B2C parcels. We have – on the bottom left, you see that we have expanded our drop points already for consumers.

We believe that this is a key differentiator in markets how easy you have access to the network. We have done that already and tripled the volumes almost.

And we started as well a more comprehensive service in one of the countries, or two countries, like the Netherlands and Belgium. And on the other side, we introduced portal we operate in Germany for a while already to Poland and this is all up and running.

So, the team in Europe is doing great. And they are making great progress.

Of course, it’s all relatively small in comparison to the scale of the Company. But, the E-Post journey started slow as well.

And now, we have EUR300 million revenue. So, I think we will see similar things here in the e-commerce arena as well.

On Page 12, you can see and I’m quite happy about that that, for the first time since many years, all our divisions have grown faster, either volume or, in supply chain’s case, revenue faster than the underlying GDP growth for us, which is good sign because, obviously, we are in markets where you can grow. And our market positioning is as such that you can grow faster than the worldwide GDP, as that was our aspiration in our Strategy 2020.

On Page 13, you will see the summary of the different journeys we went through so far and want to continue. For PeP, the expansion in e-commerce and parcel is clear.

The optimization of our cost position in Germany is clear that also lead to a 3% EBIT CAGR until 2020 and we believe that this is achievable in Express. The focus on TDI will continue.

We will remain very much focused on service quality. That’s the reason why we’re investing into the hubs and gateways significantly, not our fleet, because we believe that this is a competitive advantage.

We put that all into our plan. And Larry will talk about our CapEx guidance later, but we are very confident that we can stay ahead of the game by really upgrading our service quality continuously.

DGFF, the new forwarding environment is important and is right and is challenging. Most of you who are following our competitors in the industry know that we are not the only one who have some challenges.

It is a difficult journey for such a trading business. But, we believe that we have found the right approach.

We still have to optimize the approach. But, still, we believe that the way going forward is right and we will continue to do so to really close the gap of EBIT performance to competitors.

Supply chain, the new standardization, overhead leverage, and portfolio management should give us in the better margins. John Gilbert in a tutorial recently gave you a commitment as well that we can make 4% to 5%.

After what I have seen the first year, I’m very confident that this is doable. There’s tremendous momentum in his organization.

And I’m very happy about the progress we have seen already in the first 12 months. Page 14 shows you as well, going back a little bit, what been our aspirations.

Yes, we wanted to stabilize the EBIT in PeP above EUR1 billion. And two years in a row, significantly ahead of that and even never even were close to these EUR1 billion.

So five years ago, probably everybody thought this is a nice aspiration, but how should that happen? And I remember some of the discussions we had some of you even where you said: This is a miracle.

How you want to make it happen? I think we have demonstrated that we are capable to turn the institution around from shrinking into a growth engine for the Company.

On the right side, you see the margins for the DHL divisions. We have progressed in two divisions pretty well.

DGF, which has been the strongest performing division, not by margin, but absolute terms for a long, long period, is challenged at the moment. As I said, I and we feel confident that we can return to levels which we had or even better in due course.

But, it is a challenge to do that. So, then finally, on – from my side, on the dividends, we are happy that we can propose the AGM another increase on our dividend by EUR0.05 now to EUR0.85.

It’s a good history now with having increase with dividends in the last five years continuously. We’re in the middle of our range, as promised.

We have the clear finance policy, which is unchanged. And we will continue, of course, to look into free cash flow and the usage of free cash flow the same way as we have done before.

So that’s from my side. So, overall, a solid year we have delivered as we have guided.

We believe that we have started the journey to create the right platform for 2020. 2015 another year of transformation and preparation.

I usually call that internally we are now moving from the first S curve to the next. And that is linked to some challenges in the numbers.

Short term, I mean that we have expenses we have to digest. But, we feel that this is necessary to really go then to the next S curve and deliver the – our aspiration until 2020.

So thank you very much for listening. With that I hand over to Larry.

Thank you and good afternoon to everybody. I am pleased to continue the presentation now and take a deeper look at our financial performance for the full-year 2014 and also Q4 that will include a review of each division.

And then I’ll finish up with a review of our guidance for 2015 and 2016. So, onto page 17, we see the group P&N for the full year 2014, revenue increased by over 3% on a reported basis.

And organically, Group revenues rose 4.2% in the year, supported by especially steady volume and revenue gains in the international Express and German parcel businesses. Operating profit grew by 3.5% or around the EUR100 to EUR2.965 billion and was in the targeted range of EUR2.9 billion to EUR3.1 billion.

The financial result declined mainly due to positive one-off benefits from the first half of 2013. The tax rate increased to 15.5%, consistent with our guidance of around 16%, but expenses were higher as the rate was a big higher than we have last year.

And due to those developments in financial and tax expenses, net profit declined very slightly to EUR2.07 billion. On Page 18, we see the Group P&L for Q4.

Revenues in the final quarter showed strong growth with 6.3% as we finally got some currency tail wind. Organic revenue growth was similar to the full year with 4.1%.

EBIT increased by around 2% to EUR905 million excluding the EUR30 million positive one off that we had last year in the supply chain business in Q4, EBIT growth would have been around 5.5%. The PeP division contributed with a strong gain of 13.6%, reflecting parcel volume growth following a very strong seasonal pattern around Christmas time in the e-commerce business.

The good PeP results were partially offset by a EBIT decline in the DHL divisions. And this was mainly due to the transformational program, NFE in our global forwarding business, and a large positive one-off that I already mentioned in the supply chain business in Q4 last year.

Express, again had strong TDI volume growth across all regions, with an increase of almost 12% in EBIT. Consolidated net profit declined by 17% to EUR640 million again as a result of higher interest expense and a higher tax rate.

In Q4 of 2013, we had a tax income reflecting the adjustment we made in that quarter to bring the full year rate down to 14%. Page 19, we see our cash flow performance for Q4.

Overall, operating cash flow was again very strong with over a billion of operating cash flow and even slightly exceeded what was last year already a very strong performance in Q4. And we had again a year end decline in working capital supporting altogether a very good operating cash flow performance of EUR1.66 billion.

And higher CapEx spend in Q4 brought the full year level of free cash flow generation than in line with the strong 2014 level. As last year, part of the CapEx will be cashed out in the current year though likely not as much as we had at the beginning of 2014 as a spillover from 2013.

Overall, free cash flow for the year was EUR1.3 billion comfortably exceeding our forecast of surpassing or exceeding the dividends we paid last May of around EUR1 billion. So on Page 20, keeping on the cash flow subject, we’re especially pleased about the progress of cash flow generation over the last several years.

After several years, many years of below average performance and very significant cash outflows for restructuring. We have in the last two years have been able to comfortably cover the substantial dividend that we pay in May of each year.

And this is due of course to our improved operating performance to a very good working capital management, and of course, the significant reduction in outflows for restructuring. And we’ve been able to do this even with higher CapEx investments, reflecting our investments into growth and our strategy, with the biggest investments coming in Express and in the parcel business.

Cash flow is really important to us. It’s embedded in all of our management incentive systems.

It has become a key part of our daily decision making and also strategic deliberation. On Page 21, you see our net debt evolution for the year 2014.

And we’re pleased that, with a very strong performance in Q4, we could bring the total debt level exactly in line with the end of 2013 despite having spent more on CapEx and having paid higher dividend this year than we did in the previous year. We expect to again follow our seasonal pattern in 2015, so that our net debt should increase during the first half of the year and then improve considerably during the second half.

On Page 22, a deep dive or a medium dive into the subject of pensions. And it’s an important subject because there has been such change in the liabilities and results associated with pensions but also because of the spill recent accounting change.

And under the new standard, IAS 19R, our pension liability or defined benefit obligation increases when interest rates or, more precisely, the discount rate for pensions declines. Over the year 2014, this led the pension liability, the gross pension liability, to grow by more than EUR3 billion.

But, thanks to very strong performance of our pension assets, the net provision went up by a little more than EUR2 billion to EUR7.1 billion by year end. In Q4, despite another decrease in the discount rate, our net pension provision was even slightly down, just considering the quarter.

Thinking about the future on the P&L, we would expect a slight increase in personnel costs in the low double-digit range and, of course, no change in cash flow generation. So, page 23, we’ll start to look at the individual division performance for Q4.

And we’ll start with PeP. So, revenues climbed by 4.1% to EUR4.35 billion in Q4.

It was our strongest growth quarter for the year and reflected especially the continued growth in parcel volumes along with small price increases that came at the beginning and some at the middle of the year and overall more than offset the letter volume decline that we saw in Q4. EBIT performance was very good, with a high contribution from e-commerce and parcel, including a very strong year-end seasonal impact and good cost control.

Operating cash flow increased by over 30%, driven by improved working capital development and also, of course, the increased EBIT. CapEx declined.

But, it purely reflects phasing effects in our overall higher investments in parcel infrastructure expansion. Page 24, I want to focus here on an interesting development in PeP reporting.

And over the last two years, we have reduced our provision for purchase, but not yet used stamps by EUR50 million each year. Last year, we categorized the provision release as a non-recurring or extraordinary event.

But, as we’ve observed consumer behavior again this year, we see the development more as a normal part of our business. Following 15 years of price stability in Germany, we now have increased the stamp price slightly in each of the last three years.

As a result, as soon as we announce the increase in the fall, when it’s approved by the regulator, we observed that consumers draw down their stock of stamps with the old price and buy fewer new stamps. We think that, with the current practice of regular price increases, overall inventory levels are reduced on average.

And this is then reflected in the provision movement. Overall, the change in provision is roughly in line with the lower stamp sales so that their combined effect on revenue and EBIT is about neutral.

So, page 25, Express, revenues and EBIT continue to reflect the strong trends from the previous quarters, where we continued to grow faster than the market and have seen a very positive development in EBIT growth and margins. The division’s revenue rose by around 10%, reflecting continued strong TDI volume growth across all regions.

Adjusted for exchange rate effects, revenue increased by about 6.6%. EBIT increased by almost 12%, reflecting higher volumes combined with continued good cost management and higher efficiency in the aviation and ground networks.

The 2014 EBIT margin climbed to - for the full year climbed to 10.1% and, with this, already exceeded the projected 10% margin that we originally targeted for 2015. CapEx increased year over year, as we spent more on upgrading and improving our global and regional hubs in Leipzig, Brussels, Cincinnati, Singapore, and Dubai.

And the investments also included expanding and renewing our air fleet, upgrading customer service, and investing in other quality measures. Page 26, we look at global forwarding and freight.

And it’s pretty much a continuation of the developments we’ve seen in previous quarters. In a still challenging industry environment, DGFF, global forwarding and freight, achieved a revenue increase of almost 5%.

And it’s been driven by volume recovery in air and ocean freight as well as some minor foreign exchange effects. But, division operating profit fell by 48.6%, as continued low gross profit margins were coupled with high direct and indirect costs associated with implementation of our transformation program NFE.

CapEx increased as a result of the investments for NFE transformation as well. Page 27, the supply chain division continued its solid performance, benefiting from the strong trend in new business generation and also good growth in many existing contracts.

Division revenues rose by almost 7%, driven in part by the new business, particularly in the consumer and life sciences sectors, as well as due to currency effects. The division’s operating profit declined in Q4 due principally to the last year’s EUR30 million one-off positive effect in Q4.

And excluding that effect, EBIT would’ve been up by around 9%. CapEx is higher than last year due to investments in the new business projects and also to fleet replacement.

Now, let me turn on page 29 to our guidance for the year. And today, we announce a concrete guidance for 2015 and also confirm our guidance for 2016.

The Group expects 2015 to be another year of increased operating earnings towards a range of EUR3.05 billion to EUR3.2 billion. We expect post, e-commerce, and parcel to contribute at least EUR1.3 billion, and the DHL divisions should continue to grow earnings towards an EBIT of EUR2.1 billion to EUR2.25 billion.

We project Corporate Center expenses will remain around EUR350 million. And in addition, the Company expects to again generate sufficient free cash flow to cover the dividend for the financial year 2014, which we anticipate to pay in the coming month of May.

Looking toward 2016, we confirm our forecast increased operating profit of between EUR3.4 billion and EUR3.7 billion. PeP is expected to generate earnings above EUR1.3 billion in 2016, while the DHL divisions should contribute between EUR2.45 billion, EUR2.75 billion.

And looking on page 30, we discuss here a bit the drivers for the guidance. And we expect that continued gains from parcel and e-commerce will slightly overbalance the effects from further letter volume declines and also factor cost increases.

The DHL EBIT gain will be mainly driven by growth in Express and time-definite international volume growth and also the continued marginal expansion of our operating profit margins for Express. At the same time, operating earnings at global forwarding freight and supply chain will incur temporary costs for their transformation and restructuring programs in 2015.

In Corporate Center other we will continue to maintain strict cost discipline and we think we’ll remain around the level of 2014 at EUR350 million. Overall, these actions will enables us to stand our growth path and make 2015 another year with solid EBIT growth.

And summing up then on page 31, we had a solid performance in 2014. And we delivered on all of our guidance targets.

And we expect solid progress in 2015. In line with strategy 2020, we expect EBIT to increase by an average of more than 8% per year between 2013 and 2020, whereby the DHL divisions are expected to contribute an average EBIT growth of around 10% and Pep, we expect to grow on average by around 3%.

Furthermore, we expect to reduce Corporate Center cost in relation to total group revenues to below 0.5% by 2020. We’re confident that we’re on the right course with our strategic priorities, which will result in higher top line growth, higher EBIT margins, and higher cash generation.

And we thank our investors for their trust and confidence in the Company. Thank you very much.

All right. Thank you, Frank.

Thank you, Larry. And, operator, we will be now ready for the Q&A.

Hi there. Yes, maybe not surprisingly, can I just go to the forwarding division?

Maybe you could just give more detail where you see the timeline there, maybe how it’s progressing by geography or by country in terms of putting in the systems and the processes. And I’m assuming that the guidance for 2016 does assume some positive output and implementation from that.

Thank you.

Yes, let me take that question. So, I think we are not ready yet to give you a more detailed outlook.

I think we have, starting in November, December, after we stopped the rollout to China, I think we have said we have to learn more in depth what is going on in the pilot countries. We are working intensively at the moment to really demonstrate that the pilot countries are back to normal.

And we are making good progress there. But, I think we have learned a lot.

And therefore, we have learned a lot. And therefore, we have changed the approach.

The approach we have three major work streams at the moment. One is that we want to understand how can we improve the system as such, what we have reflected in the system by adding certain things and by decomplexing in certain areas.

The second is we intensively are looking into the end-to-end processes to debottleneck because we figured out that there were some bottlenecks which are in the software. We have to solve that.

And finally, we have learned as well from the pilot countries that the preparation of the countries has to be different. And we are heavily looking into that.

We thought it is more prudent to now really come to all conclusions out of what we are - what I just outlined. Instead of talking about a new rollout plan, that it’s better to say let’s learn of what we have our looks that debrief what we have learned and then create.

So, it will take some time still until we really can give you a new plan. That’s the reason why it’s also a little bit more challenging, how much benefit we will see next year and we will come back to that later when we know more how the rollout will be.

But, we are confident on the other side that the Group guidance we have given is achievable despite that we are changing here somehow the timeline. And I think that’s the best we can say at the moment.

We are looking into that in depth, Roger and his team. And I think they found a good root causes analysis and the consequences of that.

But, as I said it’s too early to give you a more detailed plan at the current stage.

All right. That’s fair.

And just if I could just have one quick follow up, in terms of where the GP margins are in ocean and air freight, you think those declines are largely, let’s say, market related? Is it certain verticals, like the IT sector, or it’s, again, a function of the Company being internally focused to some extent, clearly, because of the importance of the project?

I believe that it’s several root causes. It is definitely market driven.

We are more exposed than others to big customers, to technology. But, at the same time, there is no doubt that, with the direction we have given the organization, we have distracted the organization from what they are good at.

So, to be honest, we have not been as good in trading the day to day and the cycle of the market as we have been. And that is because people are working more on the transformation, preparation, and data quality.

If you tell salespeople you have to put contracts into the system, they can’t be out to the customers and win new business or dealing with operational issues. And in hindsight, we probably underestimated at little bit how big the gap is where we are at the moment and where we have to be to use that SAP system.

And that had impact on the day to day as well, despite that we are disadvantaged. But, I think I would more say - and that’s probably different from what we have said before, the distraction of the management and the people is bigger than we thought in autumn last year.

Okay. Thanks, Frank.

Thanks, Larry. Thanks, Martin.

Yes, good afternoon, good morning. Two questions from me.

First of all, on the Express business, going back a couple years, I remember sort of the 2014, 2015 period was going to be one of convergence, particularly as you brought all the countries onto similar sort of IT platforms and systems. Could you talk just a little bit more about where you are in that process, whether it’s complete, and then given the investment in hubs, depots, airlifting capacity, whether you’re now moving back for more share-focused strategy and we go through that three-year process again?

And then secondly, more generally on the sort of the IT and the sort of standardization, industrialization of the business, as you go through this in the Express business, you still need to get there in forwarding, and are going through it in the supply chain business, at what point does it start to make sense to start looking at bolt-on acquisitions once you’ve got the sort of scalability of platform to do those?

Yes, so, let me answer with regard to the – where we are with Express. I think we made great progress, and the majority of all these things are done.

The story never ends, to be honest. And I’m on the IT Board for all three years.

I’m sharing that. And if you talk about IT that story never ends.

We – Ken and his team is looking already to upgrading our functionality with many dimensions, be it billing or functionalities for additional features, and so on and so forth. So, I think, what we originally outlined, that is almost completed.

And we are already – and they are working already to upgrade our capabilities further, which is, of course, related to – there is more international B2C. And we have to find new answers.

There are social media, who are interacting differently than just call centers. So, it will never stop.

What originally was planned I think is – as I said, is almost done. And we are already on the – in the progress of doing more and new things.

And that’s the reason why Ken has definitely the aspiration to close the gap to our biggest or strongest competitors even further. And that’s the journey we are on at the moment, after we delivered a good margin already one year early.

What is of extreme importance, and this is high on the priority list for Express, is service quality, service quality, service quality. We are – have been so successful because we have done terrifically on that.

So, on the IT sides, I look from the service angle. Do we need to be better, more responsive to customers?

And I think Ken has a very clear agenda in doing that. And he has demonstrated to do that.

So, I’m very optimistic with regard to that. All these standardizations, we’re probably very unlikely to M&A because, as I go through the different divisions, in Express, it’s probably impossible to acquire somebody anyway.

If I understand TNT’s strategy, they want to more focus on road anyway, so, which is not our core in Express. In supply chain, as I said, we have one – almost half the business of the next competitors.

Why going through that? I think it’s – our key target has to be we win on a standardized, scalable operation.

And we see that in some markets. We have had great progress in China, for instance, with our business there.

And that is based by rolling out good solutions of the very strong management. So, and in forwarding, if we are through that, I think we can gain significant share from particularly smaller and midsized forwarders.

And so, why acquiring them when we can grow organically? So, I believe what we are doing is that we really want to make our business model more attractive.

And that should bring us significant additional organic growth potential. And I can’t see at the moment why any major add major add-on acquisition would make sense.

So, that’s our perspective and has been for a while. We are well positioned.

And that makes me actually confident. The problems we face can be internally managed.

They are not dependent on strong growth or filling wide spots and whatever so that do not make everything right all days. That’s normal as well.

We are only human beings as well. But, they are controllable from us.

And that makes me confident that we’re on a very good journey to 2020, even if sometimes the short term is more challenging than we thought.

So, maybe let me take a shot at the question on the increased investments in hubs and airlift. I think it’s much less a matter of a three-year cycle than us investing in the success that we’ve had and that we anticipate in the Express business worldwide.

When we opened Leipzig several years ago, it was sized for 3% growth per year. And we’ve been growing consistently at more than double that rate.

So, it’s really investing in the great position and great success that we’ve had. And Asia’s another example.

So, despite having opened our second global hub in Asia, in Shanghai two years ago, which then provided some relief for our Hong Kong hub, which was our first hub in Asia and was already full, we see the need to invest further in yet a third hub in Singapore. And we announced last week that we’d invest over $100 million in Changi Airport in Singapore.

So, I don’t think it relates to a cycle of investing and then reaping benefits and then somehow repeating every three years. I think it is a continuous upgrade process.

And success is just feeding on itself. And as we’re more successful, we’ll invest as much as we need to maintain our – and grow our leadership position.

Okay. Thank you very much.

Thanks, Damian. And the next caller, please.

Thank you. Hi, can you hear me?

Yes. Hi, hi, Jochen.

Okay. I have two questions, one on the guidance regarding FX effects.

So, the guidance for 2015 is based on what kind of U.S. Dollar-Euro relation, on the backdrop of the currently very depressed Euro?

And second and in this respect, as a rule of thumb, what does the decline in Euro translate in EBIT improvement for you? And the second question is on the minimum wage in Germany.

Could you explain which effects this has on you and especially on your suppliers? And in addition, what effect is there for your competitive landscape?

Yes, maybe, Larry, you answer question one and two, and I talk about the minimum wage. So, I think it’s too early to judge.

It has relatively modest impact on us because we ourselves employ people above the minimum wage anyway. Of course, we are working with subcontractors, particularly in the trucking, and we will assure that they are paid minimum wage.

But, that is somehow funneling through because that’s a common theme for everybody. So, if we have a lift in cost across the board and, of course, our customers will look into that as well that we are following the guidelines, and our subcontractors were following.

So, it will probably lead to a slight price increase for the market. But, that will be funneled through.

In the mail business in particular, where we have competition, of course, we paid less than that. We have to wait how that is really implemented and how the government really can follow what the people do.

The challenge is not what they get paid per hour. The question is how many hours they work.

And if you have Korea’s on the roads, we can’t send individuals behind Korea’s and check how many hours they work. And therefore, we expect not a fundamental change.

But, it’s up to the government to check what they are doing. Many of our competitors are working with subcontractors and small companies.

They usually don’t have workers’ council. The workers’ councils all best check the time which is worked.

But, we will see. So, it’s too early to say, I believe, what the impact is.

We have not anticipated significant positive impact, that means negative impact or cost increases for our competitors yet in our guidance. We think that this has – will have marginal impact on the market competition.

So, we are – they’re probably on a conservative side. We might be pleased during the year that this is implemented more than before.

And then we shall have positive impact because it definitely will increase the cost base in particular in the mail business for our competitors if it’s applied correctly. But, as I said, it’s more the question how much that can be controlled.

And therefore, let’s wait and see. It’s not embedded a major shift in the market in our numbers for PeP.

So, we – it might be a positive surprise. But, it’s too early to say.

Yes, so, let me answer the questions on FX. The guidance that we’ve announced today is based on rates that are reasonably close to the current rates.

And the interesting question is, what does mean for us? And the first thing to note is that, in the dollar area, we have our exposure in income and expenses in U.S.

dollars themselves and then very significant exposures in other currencies that are closely related to the U.S. dollar, like the Chinese Yuan, the Hong Kong Dollar, the Singapore Dollar, and several others.

If we take all of our income and expenses together we’re pretty well balanced in – as the whole company in terms of U.S. dollars.

So, it doesn’t make a big difference if the Euro strengthens or weakens versus the U.S. dollar.

Remember that fuel costs are driven by U.S. dollar pricing.

So, even fuel costs that we have in other currencies are directly influenced by U.S. dollar cost for energy.

And so, we have fairly significant expenses in – for fuel in addition to very significant income on the U.S. Dollar side.

And in total, as I said, it’s pretty well balanced. So, then the question is, well, what about all the other currencies?

And the weaker Euro for sure has a significant positive impact for some currencies. Those are namely the British Pound and the Japanese Yen, where we have net long positions.

On the other hand, there’s a few currencies where we have exposure where we – where there’s very significant weakness, even against the Euro, like the Russian Ruble, like some of the Latin American currencies. So, with the current rate environment neither a big advantage or a big disadvantage that we have from movements in currencies to their current levels.

Okay. Thank you very much.

Next caller please.

Yes, good morning, gentlemen, or good afternoon.

Hello. Go ahead.

Question on the – yes, question on the Express division. Since you guys are strong player in the Asia export market, did you see in the fourth quarter or are you seeing I guess currently here in the first quarter any benefit from the West Coast port congestion that’s been going on in the U.S.

and in terms of additional Asia-U.S. air freight volumes?

So, there – you don’t mean the Express business. You mean our forwarding business.

So yes...

Actually – yes, actually, in both.

Both. Okay.

Yes, generally, we’ve seen good trends over the last couple of weeks and start of the year in air freight volumes. Whether – how much of that is directly related to the West Coast port issue is very hard to say.

Yes, maybe add, so in Express, it’s probably marginal because people who are putting something on vessels on oceans will not change to Express tomorrow. On air freight, it had some impact on some routes, yes.

And we have seen good volume growth not only there, but overall. So, yes, it had positive impact on air freight.

Unfortunately, not on our bottom line number, but on volume growth at least. So, but, in Express, it’s very marginal.

We had a very strong performance in Asia overall in Express. And it shows – our development shows how well we are exposed to the interest – most interesting markets in that industry anyway.

So, and that had continued through that. But, the impact on the port congestion was very limited on Express.

Okay. Question answered, Dave?

Yes. And then another question just on Express, the yield side.

Yields were down year-over-year in the quarter. Can you comment I guess, Larry, on how much of that was lower fuel surcharges versus any mix issues and then what kind of you’re seeing in terms of core pricing in the market?

Yes, virtually all of it had to do with the lower fuel costs and the lower fuel surcharges. There were other minor factors.

But, they netted pretty much to a break-even in terms of yield development.

And then long term, is the goal Express to have yields rise just to cover costs, and then the margin expansion is going to come from growth in volumes, or is there any effort to kind of push price to help with that margin expansion?

So, I think the strategy in the last year has been right and we will continue. We want to win the game on service quality.

And fortunately, we have gained significant market share on service quality. We will continue as the market leader to continuously increase prices, but not in a way to make compromises on the growth potential.

So, our priority to grow the business back on service quality, there is scale still to gain through further growth. And that’s a strategy.

And I think we have done that quite successfully in the past years. We will not now switch gears and say let’s maximize now the yield.

We believe we have to keep price increases and service quality and growth beyond the market in balance. And that is what that strategy has been in the last years.

And that has led to the success. So, we will not compromise neither on service quality, nor on growth just to maximize the short-term yield because I think we believe that’s a dangerous game.

We should not start that. The good news is the industry has behaved in the last years very rational.

None of the competitors really said let’s start a price war whatsoever. They all understand that this will damage the industry.

So, we are really competing on service quality. And we will not change that either.

So, that’s where we are. And we will continue to do so.

Excellent. Thank you very much.

Thank you, next caller please.

Yes, thank you. Two questions from me, one on parcels and one, again, on NFE.

On parcels, I wonder if you could say a little bit more about how buoyant the volumes were in Q4. You mentioned in the press release seasonal effects.

But, then listening to you now, sounded like e-commerce and possibly structural factors were also at work. I wonder if you’re really doing yourself justice there.

And the second question on the NFE, you’ve mentioned a couple of times impact both in terms of direct and indirect costs. I guess I think I know what the direct costs are.

Perhaps you could just say a little bit more about the indirect costs that you see arising from the NFE. That’s it.

Thank you.

Yes. So, Larry may take the first.

I take the second. So, in NFE, of course, we had also more indirect expenses because, if people are in training, we have expenses on training.

People are – because we have day-to-day business, we have added, of course, FTEs to that. And that has, of course, impact on the bottom line.

So, yes, it’s not only direct. That means we are not doing as good as we have done in trading, but also we had higher indirect costs as well.

Yes, on the parcel business, we had a very strong year-end season. If you go to Page 5 of the presentation, you see that growth in parcel volumes in.

Germany in Q4 was close to 8.5% compared to an average of 7% for the full year. So, Q4 was a very strong quarter.

We have seen that last year as well. And it’s really due to the surge in e-commerce business and volumes that are happening around the Christmas season.

Okay. That’s helpful.

Thank you.

Thank you.

Maybe one interesting observation, which we probably have not shared, but it’s worth to mention, while we have seen differently, despite a tremendous growth, we have seen lower difference about the peak days and the normal days in December. So, what happens actually, we – it’s too early to say that this is a trend.

But, apparently, people are behaving more normal now in the e-commerce world than just saying that’s a last-minute gift I buy. As you see that more in the retail, the last four weekends before Christmas in Germany at least are very strong sales days anyway.

It’s not just one Saturday. It’s four Saturdays.

And we see that pattern coming now as well, which is operationally easier to deal with. But, it’s too early to say that this will happen again.

We have seen that this year that the maximum day was not as – the strongest day was not so much different than other days in the month. And I think this is actually, for operational perspective, better.

And it shows that e-commerce is not the last-minute purchase. It becomes a normal habit.

People just by what they ever buy for gifts on online – in an online way. This is, on the other side, very promising because, obviously, the attitude of people is changing, even in that period of the year.

We have seen that already before. We never had a low season any longer.

Usually, summer is low season. But, we have seen tremendous growth even in this period.

And that’s another indication that e-commerce is now reality. And people are using that like they do shopping in the past.

And that is good for us and is very promising for the midterm

Yes, that’s interesting. Thank you.

Hi, guys. Thanks very much for taking the questions.

Two from me. The first one is on DHL guidance for 2016.

That clearly hasn’t moved since the third quarter. But, you’re having greater difficulties restructuring your freight forwarding business.

And we’ve also seen a small miss on consensus on the Express division in the fourth quarter. Can you explain what leads to the – how do we get to the improvement in 2016?

Is that just the restructuring from freight forwarding falling off, or are you expecting a pickup in Express as well? And then secondly, on provisions, they’re up again year-on-year.

Can you give us some idea what’s going to happen there in 2015 from a cash perspective? Thanks.

So, yes, the 2016 guidance, the primary drivers are, again, further improvement that we expect in the Express business. We do clearly expect that the supply chain business is going to be performing better than in 2015, also reflecting significant benefits from the restructuring that we’re investing in this year.

DGF, as Frank talked about before, it’s still too early to give a very definitive forecast about it. But, we’re confident that, altogether, we’ll be well in the guidance range of EUR2.45 billion to EUR2.754 billion for DHL in total.

So, provisions, do you mean pension provisions or others?

Others.

Okay, because we have the EUR2.1 billion increase in pension provisions, of course, related to the lower discount rate. Other provisions have not increased very substantially.

So, do you mean the impact of changes in provisions in cash flow for the year?

Yes, exactly.

Okay. There, we had a release of a very significant provision.

The biggest part of that change, more than half of it was the release of a provision that we originally built for cost of change in the Express restructuring that we did back in 2009. We determined by the middle of the year that we didn’t need that provision anymore and we could release it.

We did at the same time a write-down, so an increase on accelerated depreciation of part of our air fleet for Express. So, the net effect of that provision release and the write-off of remaining depreciation on some older parts of our air fleet basically offset each other exactly.

We discussed that as part of our Q2 reporting last year. And that was really the biggest driver of the provision impact on cash flow.

Remaining items were a number of smaller impacts.

Angus, any further questions?

Yes, sorry. Just on the guidance that you – so, you seem unwilling to say that we should expect global freight forwarding to necessarily pick up sharply.

But, then you’re looking for – I suppose what I’m saying, is supply chain going to be better than we’d expected, say, three months ago? And given Express is a little bit softer, are you expecting a particular acceleration there into 2016 to make up the shortfall that we’re now seeing?

Maybe on Express, before we get the wrong notion, so Express has done very well. We delivered a year earlier.

Don’t make a judgment on a quarterly basis because, of course, there’s phasing of AP&P. There’s sometimes some extra costs.

We are looking into that to improve performance. We are driven by long-term progress.

And therefore, Ken has taken some actions to help our two-year – this year’s and next year’s numbers. We are looking into the overall achievement that we delivered there, 10% margin one year earlier.

So, there is no reason to believe that we have a margin trends on a quarterly basis. Please take that not too seriously just by looking in the fourth quarter.

The overarching trend is very healthy. And as I said, we did some AP&P because we felt we had the headroom to do that.

And we invested into the long term of the success. Supply chain had a better start last year than we expected under the new leadership.

And we see nice progress there, too. We will have some investments this year as well in restructuring and optimization.

So, we looked into all of that before we reconfirmed the guidance, of course, knowing that we have not a final plan yet for this year and next year for the rollout of NFE. We feel very confident that we can make the margin next year.

So – and of course, we are looking at that constantly. We would not say that if we were not confident that we have enough opportunities in our portfolio to make the numbers.

So, we stick to a want-to-fight [ph] guidance for the DHL divisions in total. But, as you have seen, as a new element of our guidance policy, if you like, we’ve introduced a slide now also on what are the drivers on a divisional basis.

And I think that should be helpful in there.

Okay. No, no, that’s very clear.

Very helpful. Thank you.

Thank you, Angus. And the next caller, please?

Good afternoon, everybody. If I could ask two questions, please, the first one with respect to labor costs within PeP for 2015.

With upcoming – with an upcoming deal to negotiate, how should we think about the level of labor cost inflation you’re prepared for in 2015 and indeed beyond within PeP? And the second question, on cash flow, you’ve obviously – Larry, you’ve obviously touched again on the priorities for excess cash flow in the presentation.

But, it seems to remain somewhat elusive. It’s been on the agenda for a few years now.

So, given the comments with respect to 2015 and 2016, is it fair to think now that 2016 is the – or the end of 2016 is the earliest point at which we might see excess cash flow?

Yes, so, let me start on labor costs. Of course, we are not believing that we will get – walk away with zero increase in salaries this year.

So – but, too happy to share with all of you what we have put in the plan. But, we are realistic as well.

We have to find common ground. I think what is important is what we are doing at the moment by creating a new salary structure in the delivery subsidiaries is the long-term change of the game somehow.

We have to reduce our cost base for new members. A lot of people are leaving due to retirement every year.

And if we engage new people on a different level, we can really make a difference until 2020. Of course, we expect that there will be demands this year for salary increases.

And that’s not surprising. Of course, that is embedded in our plan as well.

And we will, of course, work as hard as possible to minimize that. But, we have not put in, in our guidance that we will have a zero increase in salaries this year.

So, but, beyond that, I’m hesitant to talk about that because the unions should not know what we have put into the numbers somehow. And therefore, we are confident that we will make at least the EUR1.3 billion this year.

Yes, let me take a crack at the cash flow question. Last year, we generated around EUR600 million plus more than we needed for the dividend last year, meaning 2013.

This year, meaning 2014, it was around EUR300 million plus. So, we clearly have come to a point where decisions about our financial policy in which direction we want to go are getting much closer, it’s much more of a current issue.

For us today than it was a couple of years ago. Nevertheless, it’s a bit too early to say anything more concrete about which direction it’s going to go or the exact timing other than to say it’s much more of a current issue than it has been in the past.

Okay, thank you.

Thank you, Neil. And the next caller please.

Good afternoon, everyone. Three questions from me, please.

First one is just on NFE. And wondered if you could just remind us in terms of the number of countries that you’ve got to get around in terms of implementing air and sea SAP systems.

I think the number’s over 100 countries. But, I wonder if you could confirm the exact number of countries, please.

Secondly, on your PeP guidance for at least EUR1.3 billion, which is what you’ve delivered in 2014, as Martin pointed out, slide 30 shows some of the drivers. And the parcels growth within PeP should only be partially offset by the traditional decline in mail volumes, which should drive PeP up.

But, given that you’ve got 2.3 more working days in 2015 versus 2014, which I guess working off a rough rule of thumb of EUR50 million per working day that should probably drive up 9%. I was wondering if you could just comment on how you’ve arrived at that PeP guidance, please, of at least EUR1.3 billion.

And then maybe one for Larry in terms of pension funding. I think, back in 2012, you were kind of at the sort of current net pension deficit levels, where you took the decision at the end of 2012 to raise EUR2 billion of bonds to put against pension plan assets.

I wondered, given that we’re back to where we are, given the sort of fall in discount rates, what your thinking is around pensions. These have obviously got no sort of mandatory requirement to do anything on pensions.

But, could it be a bond issue? Could that be some of the surplus cash that you talked about heading towards the pension pot, please?

Thank you.

Okay, Andy, let me answer the first question. So to be honest I don’t know exactly which – I think it’s 89, but I can be totally wrong as well.

So, this is the range of countries. Where we control the business and its sizable enough, we will rollout that.

As – and this is the same amount of countries where we have lodges, which is the incumbent system, rolled out. But to be honest, I think it’s 18.

It’s over 18.

But, I’m not 100% sure.

Over 1,800.

But, it’s – I think it’s not 100. But, I – we – but, Martin probably can figure that out.

There is a clear list of countries. So, just – this is not my priority.

Is it 89 or 92? The challenge is more to get the right approach done.

And then we will see. And the 19th country is relatively small anyway.

So, let me answer the last two questions. So, the PeP guidance for 2015, yes, it’s true, we have 2.3 more working days, though, those days come at the very end of the year.

And so, it’s hard to predict whether they will be – will have the character of a normal additional working day, which as you said, Andy, of a kind of a rule of thumb should add around EUR50 million of revenues and earnings, or whether they’ll be less important because of their timing. If they come between Christmas and New Year’s, it’s hard to estimate what the effect of those could be.

We’ve also been a bit cautious on PeP guidance, given the uncertainty on labor costs and where the negotiations are going to come out. Our current labor agreement is expiring at the end of May.

And so, of course, we’ve made a prediction and built the prediction into our plan and, therefore, into the guidance. But, it’s, at the same time, hard to predict.

So, yes, so, that’s the – why the guidance for PeP is where it is that we believe we’ll do at least as well as last year. So, on pension funding, I think one reason to think about more pension funding is because you’re nervous about the amount of unfunded liabilities that you have.

That is not the case with us. Nevertheless, we might think about doing additional pension funding for the same reasons that we did it in 2012.

And that is that there’s accretive effects on both EPS and on cash flow generation, depending on what your assumption is about the return on the invested assets. Given the extremely low costs of financing that are currently available, that is a tempting combination.

And so, we do have it on the table. We do think about it.

We put it in the context of our whole financial policy. And we’ll maybe have something more to say about that later in the year.

Can I just ask one just small follow up? On the – within PeP, what percentage of your PeP employees are in these newly created subsidiaries and also sort of running – and therefore running at sort of lower wages than the historical – the legacy agreements, please?

Yes, currently, we have 4,000. And it probably will end up with 6,000 until the end of the year.

So, that’s a progression over the years. It will not change the game immediately.

It is a journey, as I said already earlier, until 2020.

Sorry, Frank. Was that 4,000 at the end of last year going to 6,000?

Yes. So, 4,000 have already a new contract.

That shows that we offered an attractive package. Otherwise, people have not signed the contract.

And we believe that we can increase that until the end of the year to 6,000.

Okay. Thanks very much.

You’re welcome.

Thanks Andy. And we want to keep an eye on the time and ask for the next caller, please?

Yes, good afternoon. Maybe bit of harsh questions, but looking at forwarding, I’m really a bit concerned.

It feels like you’re cutting costs on a platform that is falling apart a little bit. When I look at air freight, you have the largest air freight forward in the world.

And you lost 20% of your gross profit over the past two years. So, I’d really like to have a little better understanding on why you’re losing share or losing quality share, why you have to make those price concessions, and when you think at least the decline in gross profit will be stopped.

Anything in terms of granularity there would really help. Yes, thank you.

Tobias, I think it is as I said already. If -- this is a trading business that needs permanent attention on what you are buying and what you are selling.

And if you have people in training and preparing organizations, they can’t do both at the same time. And as I said already, we probably have underestimated how much attention it takes to move from A to B and how much distraction it takes from the day-to-day business.

And that is what we see. The good news in all of that is this is a very fast-moving business.

This is not heavy assets. It is – you lose a customer, and you gain a customer, and that is all based on good service quality.

Service quality has in some places suffered as well because we are touching a lot of people and moving them around somehow, not all – not too much physically, but what their responsibilities are. And that has impact.

What I think – see about is, when I talk to the pilot countries, and we are live in five countries, and I have been in the pilot countries myself, the people are very excited about the visibility they get, the process they get, particularly the younger people. But, again, at the front-end, it’s tough because people lose attention.

And in a trading business, you know that as well. Go to the stock market.

It’s a lot of about attention. If you’re not listening to all the things which are going on, you lose visibility.

The good thing is you lose a customer, you can regain the customer as well because the industry is still not as professionalized as our Express business, where all the competitors are delivering quite good service quality. So, there, it’s a very tight race in – and forewarning, I think we have opportunities to recover from that.

And as I said, we have underestimated the distraction people might get from the transformation. And we see now the results.

So, I think it is challenging. But, it’s not messy I think.

It’s really – we have to learn more consistently. If I talk to the employees in the pilot countries, they think that this is better than what they had.

It’s tough to go from A to B, but they think they can make it happen. And that makes me confident that we can make it happen even on a bigger scale.

And where do you stand in terms of the timeline of that because we had the same discussion a year ago after Q1? And then you said you had some contract wins.

And it’s been looking encouraging on the market side. And now, it seems 12 years – 12 months later, you’re still sort of in the same distraction of the organization.

So, do you think that will continue throughout the year, or should we see some stabilization on the gross profit side in the course of the year? How do you think about the gross profit side?

So, to predict now exactly everything on that is, as long as we have not a clear master plan in place, which we are working, apparently, it’s a little bit difficult. 2015 will remain a challenging year without a doubt.

And of course, that is embedded into our – that is anticipated in our guidance we have given you today that this will be a rough year for DGF without a doubt. And you’re saying we said the same 12 months ago.

What probably we have not done carefully enough, we have not debriefed a pilot sufficiently. We were more optimistic that stabilization happens faster.

And it didn’t. And therefore, we said now, instead of going through additional pilots now in additional countries, we stop that until the pilot countries are really back to normal.

And that has changed. You can say why you have not done that six months earlier.

Good question. The answer is because we probably underestimated the challenge.

And that is better to admit that and change instead of keep going and say everything will be great tomorrow. I think the things are improving in the right direction.

But, it’s more difficult and more challenging. And there’s tremendous attention on that.

But, I think it’s better to say, listen, we don’t have a new plan yet because we are working on that. Whomever I talk to internally and other people who have seen that, everybody feels encouraged what we are doing is right.

But, the journey from A to B is more challenging.

Okay. That’s fair.

Thanks.

Yes, we’ve got time for probably one or two more questions, please.

Hi, good afternoon, everyone.

Hi, Penny.

Hi, Penny.

Hi. Two quick questions from my side just to clarify.

On the Q4 metrics that you gave with respect to the geographic Express performance, it seems Americas on the volume side in Q4 contracted quite significantly in terms of the rate of growth in TDI volumes. Could you explain if there was any specific issues around that, as the other regions did seem to perform either in line with the run rates we’d seen or, in Europe’s case, quite a bit better?

And my second question is just in relation to, when you spoke about the pension, Larry, you did mention there would be some kind of offset adjustments to the increase in service costs at the interest line. Can you just give a bit of color on then how to think about the kind of net interest position on full-year 2015 in terms of the absolute amount we should be thinking about?

So, yes, the Q4 volume performance in the Americas was driven by a couple factors. Important is our business with DOD and the overall reduction, the Department of Defense and the overall reduction in the level there as we continue to draw down in various engagements, as the U.S.

Department of Defense draws down its various engagements around the world. So, we had lower volumes with the DOD.

Another was Venezuela, where we saw lower volumes associated with the extreme weakness in the Venezuelan economy. Pensions, if I understood your question correctly, it’s how much can we expect the liability to increase?

Was that your question?

No, it’s with respect to the P&L charge for Group net interest. I think you mentioned in the pension slide that that – the interest related to pension offset some of the increased service costs that you’re guiding.

Does that mean the overall net interest bill for the Group that gets reported in 2015 has maybe a slight decrease to it, assuming prevailing rates for the normal cash rates and income?

So, on the EBIT side, there’s a slight increase in charges that we can expect from the changes in the level of the provisions and, on the interest side, a slight decrease. So, the net effect will be really very minor.

Okay. So, that – in terms of the Group net interest I think for this year was around EUR390 million on the P&L.

Right.

Can we assume, all else equal, that that can come down a little bit in report terms then in 2015?

I think that would be a pretty good estimate of what the likely direction is.

Great. Thank you very much.

Okay. Time for one more quick question.

Yes, thank you. Two from me, actually, one on the free cash flow guidance.

I can see that you’re guiding for free cash flow covering the dividend payout. That would be EUR1 billion.

That is I think EUR700 billion – million below consensus. I was just wondering what the gap is or what the explanation for the gap is.

I can see that EUR100 million – there’s EUR100 million more CapEx in 2015. Also, there will be some spillover from 2014 into 2015.

But, that still does not fully explain the gap. And then a second question, again on the pension gap and given that the pension discount rate is still at 2.6%, I guess that has to further decline going forward.

And therefore, also, the pension gap should increase further. How does that influence your thinking about any special returns to shareholders, given that this is also eating into your equity, please?

Yes, so, let me maybe take the second question first. I think the accounting standard whereby our pension liability increases and decreases based on changes in the interest rate environment will actually have very little impact on any decision to make distributions to shareholders.

We know that, once we are coming out of this every unusual low interest rate environment, that actually our equity is going to increase again and the liability quickly decrease, as we’ve seen happen in the opposite direction the last couple of years. So, I think we’ll – we won’t let that really influence the decision.

What will be important in terms of deciding whether or not to fund the pension further is the relationship that I talked about before and the potentially accretive nature of additional funding, where the cost of funding is far less than the returns that we would expect on investing the funds. That was the calculation at the end of 2012.

It worked out quite well in 2013 and 2014. So, we think the potential is there again.

But, no decision has been made yet. So, in terms of our free cash flow guidance, of course, we’ve said at least cover.

That means we could be somewhat higher. And the last couple of years, we’ve seen a really strong working capital performance.

It probably, given the increase in volumes and revenues that we also expect, would be unrealistic to think that we can repeat that performance each and every year. So, I think you mentioned that CapEx is up a bit, but so is our EBIT forecast.

So, on balance, we’re pretty confident about the free cash flow forecast. But, at this point, we don’t want to say more than we’re very confident we’ll cover the increased dividend payout that we anticipate for May.

Okay. And maybe just one follow-up.

Given that your earnings are still increasing this year and your free cash flow guidance is for a decline in free cash flow, that indicates that the EBIT cash conversion is deteriorating. And I think that cannot just be because of the slightly higher CapEx.

Well, we have not forecast declining free cash flow. We’ve only – so, neglected to make it more precise other than to say we think it’ll be more free cash flow generation than we need to cover the dividend.

So, we’ve had – we haven’t said that it will be less than last year.

Okay.

Okay. Well, thank you, Johannes.

And keeping in mind the busy schedule that we all have on a day like today, we have to come to an end with the Q&A session here. As always and with great pleasure, the IR team is looking forward to further talks and discussions with you out there.

And with that, I’ll hand over for a closing remark to Frank, please.

Yes, thank you for all your questions. We are convinced that we had a good year last year.

And we kept our promises another year and delivered good results, which are a good base for the transition from what we call the first S curve of our Strategy 2015 to the next S curve for 2020. 2015 will be a year where we change quite a lot I think in many parts.

We are confident that we can execute that and lay a good foundation for then accelerated growth on top line and bottom line next year and the years to come. So, therefore, I understand that there is some skepticism about what might happen.

We believe that we have a very good master plan. And as always, not everything works out as predicted.

Therefore, other things are working out better than expected. I said that already last year.

What has been better is that the Express delivered already the 2015. Supply chain did actually pretty well, too.

So, I believe we will continue to see this year that there will be some things which are not making it up to what you expect, and others might be better. And we are confident that the transformations we have in place are the right ones to make the Company more successful in the long term.

And this is what we have done in the last years. And we will continue to do so because we think that this is the right way to lead the organization into better profitability and more market share growth.

So, that’s what the major story has been. So, again, thank you very much for your questions, your trust.

And see you soon one way or the other. Thank you.

Thank you.