Deutsche Post AG

Thank you, good afternoon and good morning everybody out there to Deutsche Post DHL Group’s full year ‘16 conference call. And as announced we will have with us CEO, Frank Appel; CFO, Melanie Kreis, and with a pretty clear set of numbers in front of all us and take you also have the slides for the webcast in front of you.

We’re going to follow the usual procedure, we’re going to have Frank and Melanie presenting followed by what I hope for to be a crisp Q&A section. And without further ado, may I hand over to you Frank, please.

Thank you, Martin. Welcome as well good afternoon or good morning wherever you are.

I'm very pleased to share with you the highlights for the year and the final quarter. Then talking about how we are investing to continue to grow profitable and then Melanie will talk more about the details of our results and give guidance for 2017.

So let's move on to page three, which summarize very well how we did overall. Of course we are very pleased with the results.

We are well in our guided range of 3.4 to 3.7. We’ve improved year-over-year significantly our EBIT including Q4.

Our earnings per share are significantly up by 72%, having good cash flow development. And I’m happy to suggest or would propose to the AGM a significant increase in the dividend to EUR1.05.

So overall that's a consequence of the strategy put in place and we are executing successfully being e-commerce or significant investments in our capabilities or even the focus on cash flow generation, which leads nicely to the next page where you can see how our free cash flow and our dividend has developed. We have seen very strong free cash flow over the last years, but the dividend we paid in 2016 you’ll remember that to be acquired UK Mail.

So if you exclude that, because that has been our largest acquisition for a while we would on the same level as 2015. So very strong cash flow developments and of course we are pleased that we now have a good proposal for the dividend as well.

On the share buyback as well, it’s now finished we spend EUR911 million, you see the average price here and how many shares we acquired. On page five, again the reconfirmation of our finance policy nothing new about that either you see as well that we are again just in the middle of our guided range of 40% to 60% and I am happy that we are giving significant money back to our shareholders.

So then move on to page seven. You know that we talked since 2009 always our three bottom lines, which are shown here that we believe in a service company the mood of the employees is the best indicator for great service and great service is a key driver for top-line growth and that we can convert into shareholder return.

The certified program which we are running now for two years for the whole company, and Express for many years is in full swing. We are deploying at more and more, we have seen a good response in our improved employee satisfaction, you see here how many people are already certified and we will continue and intensify our training for the people, because we believe that will give us a great chance to improve our service mood.

Some highlights on PeP on page eight. Nothing new there the trends we have seen for long time now decline in mail volumes, last year compensated by the postage increase, in parcel strong growth even above our long-term expectations of 5% to 7% has allowed to a significant increase of the share of revenue from parcels.

So we are well on our journey to make us less dependent on mail and more dependent on the growing part, which is parcel. The letter volume per working day was back in the fourth quarter in the range of 2% to 3% as we have said for a while now.

Also outside of Germany on page nine, we have continued to grow the business quite nicely, if you see the revenue and if the final quarter was in Europe as much as an e-commerce the strongest quarter for the year. We have now enlarged our footprint in Europe significantly to now 21 countries.

UK Mail is closed, we have engaged with other partners to extend our activities to the Nordics and Baltics and some other countries. We will now transfer Iberia as well, where we started that by January 1st to Parcel Europe and that should give us a very good base for further growth.

E-commerce, our launch of last mile delivery in Thailand is very successful, we are well ahead of our expected volume growth. China has grown rapidly cross border and also we see good successes in fulfillment and in U.S.

Two, accelerate the growth even further, we now creates and that is in full swing on page 10, standardize product for cross border in Europe, their features you can see here there for delivery options and also with additional services. That will be fully rolled out during this year, but that gives of course a very nice customer experience for the consumers.

In Express continuation of our tremendous success, we have seen now for many years. Revenue is up per day, shipment is up per day, it’s again the fourth quarter, it was again Europe which was the strongest, a result as well that e-commerce in a premium segment is really in logic in Europe other regions are catching up now, but they have seen slower growth last year even in Europe.

But we told you already before very often that is changing every year somehow, of course we are happy that we have seen such a strong growth in our home region in Europe. We also continue to invest on page 12.

Many of the stuff is already done, but we will continue to invest even more due to the strong growth we have seen. And that is all over the place from the Americas to Europe and Asia and some activities already in place, but some others will come in 2017.

Global forwarding, freight we have improved the performance as you can see on that page we are not yet at the level where we have been, but I think we have made a good step and the solid step in the right direction. Ocean freight actually did very well, as you can see here by TEU and also by gross profit increase.

The market is getting tighter as well in ocean freight, air freight has been a challenge for us in the next - in the last two years we have declining volumes, that has not started to some change in the last quarter that we see volume growth, but the buying range are pretty tough you have heart that from our forward as well. So there is still a challenge with regard to out freight segment, ocean freight is in pretty good shape, which encourage me because of course globally we are working with same organization and we are quite successful in ocean freight and I am optimistic that we will see good progress in 2017.

We still have a challenge in the U.S. the changes we did on the NFE had significant impact on our performance and we are still continuing to recover from that since the U.S.

is important it has impact as well on our numbers. And therefore there is a challenge, but we are now even focusing more on the U.S.

and we can do because other parts of the business have done pretty in the last 12 months. Also our progress on our IT renewal is getting traction on page 14, you see here under one the systems, which we have upgraded and enabled and now rollout globally.

So systems which we used already in parts of all operations, but never scaled and globalized this is not happening. We are very often in pilot stage already and that is very encouraging because we get better visibility we will avoid work because we have an electronic document management system.

We can manage the service better because we have visibility about irregularities, we have a better quoting tool for internal use so that response rate to spontaneous demand is better. And we will even launch very soon an online quotation too, which should give us excess to small customers in a much better way.

At the same time, we are in the final steps of proof of concept of our transportation management system and will launch a pilot in the second quarter. Overall, IT renewal costs will stay on the level as last year and these systems should help us close the gap to our previous margin conversion and then even beyond.

Finally, supply chain had a very strong year overall record results margin is in the range of what we guided originally for 2020 with 4% to 5% margin. We used the gain from Kings Cross I think very smartly we gained the largest amount of new contracts and new signings ever in that division.

So supply chain is I think on a constant track to improve. We always will have sometimes one-off because if you lose a customer it's unavoidable then you have restructuring expenses so that will be always a theme of certain restructuring costs, but that's given by the business model.

Because if you have dedicated facilities you will have one-off, if you have losing customers or they go bankrupt and whatsoever and that will happen and continue. You should always look at supply chain for the full year numbers because that's much better than on a quarterly base.

And I think the full year number show that we have not only increased margin very nicely, but also in absolute terms improved our significantly. So overall, I think as we promised 2016 has a very good year for us.

I think we have outgrown the market environment and overcome all the uncertainties very nicely. We continue and leverage our position in e-commerce and we benefit from that.

And of course we continue to invest into growth and to return to our shareholders at the same time. Therefore the long-term strategic goals with our focus connect growth strategy is right and we are very confident that we will see more benefits coming from that going forward.

So therefore and of course I'm very happy that we made all our numbers and we have now five quarters in a row with record results. And with that I will hand over now to Melanie for more financial details.

Thank you for listening.

Yes thank you very much Frank and good morning and good afternoon also from my side to all of you. Frank already covered most of the relevant topics in his strategic overview.

I now go into a bit more detail with the numbers. And I’ll start with our full year profit and loss statement on page 18.

So as Frank said we finished the year on a strong note, which is maybe not immediately visible on the top-line, I think you all aware of those adverse effects, which has impact on our top-line development. Currency effects as well as lower fuel surcharges and the change in the revenue recognition for our National Health Service contract in the supply chain division.

And you take out those effects revenue growth was actually around 2.8%, which we feel is a good result in the current economic environment. And you take a look at our EBIT development, you see that year-over-year we have actually managed to add more than $1 billion in EBIT to this line.

You all know that we had negative one-off impact in 2015, but when you exclude those effects we achieved 13% operating improvement in EBIT compared to previous year. What is very positive in this development is that it has actually been driven by all divisions.

So when you look at the PeP development you can see that e-commerce driven profit growth is offsetting the structural decline in letter mail and that allowed PeP as well as our DHL divisions to contribute strongly to our EBIT growth. When you look at the tax line as guided we came in with a tax rate around 11% for the full year and that led to an even stronger net income growth consolidated net profit is up 71.4%.

And when you look at the final line on the page, you see that in terms of earnings per share that increased even a tick more than the net profit because you can see the accretive effect of our share buyback program throughout the course of the year. So that's the overview of our Group P&L.

On the next page, page 19, we've put together again the overview of the operating dynamic in our four divisions and you can see on the left side in PeP that we have really switched from stabilization mode to EBIT growth mode achieving the EUR1.44 billion EBIT in 2016. We have already included a sneak preview on the guidance for 2017 for PeP on this page.

So you can see that we expect this positive growth momentum to continue, but of course we have to take into account that some of the tailwinds we got in 2016 from the same price increase. The absence of the wage increase in Germany for the first nine months, will not have them again in 2017.

Hence the growth rate is a bit more normal than what we had seen for PeP from ‘15 to ‘16. Turning to the middle of the page on the Express side, we have now achieved a full year EBIT margin 11% and also in absolute terms we had a very strong performance from the Express division.

And finally last, but not least on the right side of the page you see the margin development in supply chain and global forwarding freight. Frank already mentioned that in supply chain, we have now achieved a margin, which is above 4% for the full year we’re at 4.1% and hence in our target range where we were aiming to go.

And on the global forwarding freight side, we have improved as you can see here, we're now at 2.1% in terms of EBIT margin for the full year that is clearly better than in 2015, but obviously not where we want to be. So there is of course continued focus on further improvement in this area in 2017.

On the next page, page 20, I would like to highlight just a couple of noteworthy points with regard to our fourth quarter P&L. When you look at the revenue line, you can see that now reported revenue is back in positive territory.

Nevertheless we continue to see adverse currency effects; you will see that for example, very strongly in our supply chain P&L. So, excluding those currency effects and fuel price effects growth was around 3.2% on the top-line for the fourth quarter.

On the EBIT we had a 16% growth in the fourth quarter, driven very strongly by the year-over-year improvement in the DHL divisions. On the PeP side you can see that yes we have the wage increase coming in on the 1st of October.

We also had less benefits from the stamp price, stamp provision utilization in the fourth quarter. But thanks to the strong parcel growth in cost management we were able to offset those effects.

That takes me to slide 21, where you can see our fourth quarter cash flow statement and our usual strong fourth quarter cash generation. This year it is worth noting that after having at had a very strong cash inflow from exceptionally good working capital management in 2015, we have managed to stay at these good levels in 2016.

While we took more balanced approach to our year-end cash management, you will also see that as I proceed through the divisional results. The second effect I want to point out on this page is on the M&A line you can see the closing of the UK Mail acquisition in the last days of December, which led to an outflow of EUR278 million in the M&A line.

When you look at overall cash flow statement for the year, we feel that there are a couple of points which are worth couple of extra sentences. So on page 22, we have included some explanations for our full year free cash flow developments.

Maybe just taking first to look at the bottom at the page, so you can see that the reported free cash flow for the full year is EUR444 million that's of course impacted by the EUR1 billion pension funding. So when you add back the $1 million in pension funding, for us relevant free cash flow is EUR1.44 billion.

And when you then add back the UK Mail acquisition you can see that it's actually pretty much on last year's level. But there are some important differences in the different lines and I just want to highlight some important elements.

The first thing I want to point out is on the depreciation line you see in the 2015 number the effect from the NFE write-off so the 2016 number is the more normal number. The second line, which looks a little bit confusing at first glance is the change in provisions lines.

So first of all we had the EUR1 billion pension funding effect go through this line so that as the first thing you have to take out here. We then also applied some changes in the pension scheme structure here in Germany and that give us headroom to provide for an early retirement of civil servants.

These effects caused some movement in the change in provision line, but they were as such EBIT neutral. Excluding the EUR1 billion pension funding when you look at the operating cash flow it is pretty much spot-on on last year's level.

But what is important to notice is that this year it has been driven by sustainable operating performance in OCS before changes in working capital. Whereas last year changes in working capital played a much more important role.

So taking all together as I said adjusting for UK Mail and the pensions, free cash flow is on last year's level. The difference you see is due to the U.S.

Mail acquisition and then we had those shift between working capital and OCS before changes in working capital. On the next slide, slide 23 we show you how the net debt has developed in the course of 2015, and there were a number of elements impacting our net debt in the course of 2016.

The positive news is that despite the effect from the pension funding the EUR1 billion from the share buyback where for the year end we had to book the full amount of EUR1 billion. And from the M&A activities the net debt position only increased by EUR1.2 billion to a very manageable EUR2.3 billion overall at the position we feel very comfortable with.

The second thing I want to point out on this page is kind of like the statement at the bottom of the page. You can see that our net pension provision at the end of the year stood at EUR5.4 billion, in the full year you see of course the positive benefit from the EUR1 billion pension funding.

But it's also worth pointing out that compared to where we were at the end of the third quarter; we saw a significant improvement because of an increase in the discounts rate. Overall, in terms of pension funding we are close to a 70% funding ratio at 69% to be precise and this is a level that we feel very comfortable with.

I now quickly talk about what happened in the fourth quarter in the different divisions and I’ll start with PeP on slide 24. So you can see in the revenue line that we had solid growth in the fourth quarter in the PeP division and that came from a strong growth on the e-commerce and parcel side up 10.5% and that offset the 2.6% decline in postal revenues.

On the EBIT side I already talked about the wage increase and the offsetting effective, which kept the overall EBIT stable. You can also see very clearly on this page that the PeP EBIT and that's not a surprise is coming from Germany, while the international e-commerce and parcel business where we are in an expansion phase is round about the breakeven line.

And I'll talk about that in a second in a bit more detail. Just one final comment on the CapEx line that is predominantly going into investment into German parcel infrastructure because the international expansion is still comparatively asset light.

On the next page, we wanted to give you a bit more of a feeling of what to expect from this international e-commerce and parcel expansion in the PeP division. Because I have known that, there are lot of questions out there on how and when will these operations contribute to our bottom-line.

So, we have clearly defined strategic rationale for the international expansion, which I think is relatively obvious it is driven by the increasing customer demand for domestic and cross-border e-commerce services. When we took the decision on how we want to expand internationally one prime directive for us was to really stay flexible and asset light and to really find the right approach market-by-market that is what we talk about in more detail in our e-com tutorial in October of last year.

Ultimately though B2C delivery remains a network business even in an asset light setup and that means that you first have to build up a network then gradually fill it and with increasing volumes you will achieve operating leverage. How fast and how much we achieve over the next years will also depend on how rapidly we expand our portfolio, which will again be a function of our perception of the risk and the potential returns of each market.

And which we will just according to what we see and what we have built up so far. By 2020, we of course expect a significant increase in revenue levels, driven by our expansion as well as the overall e-commerce market growth.

In terms of EBIT, we expect the positive, but not yet significant EBIT contribution by 2020. With a more significant expansion of course to come thereafter if all those according to plan.

That takes me to page 26, and the Express division where I don’t think you will see as many as surprises. We continued to grow help really on the TDI volume side with an increase of 7.4% that was the basis for the revenue growth and that was also the basis for really achieving very good EBIT number for the fourth quarter.

Thanks to strict focus on yield and efficiency, the Express team has been able to offset as well as currency effect and has really managed to get to an 11.4% margin in the fourth quarter. The lower CapEx amount in the fourth quarter is more a traction of phasing if you look at it from a full year perspective, we spend more than 5% in Express in 2016.

We expect to also spend a lot in 2017 as guided before this is just kind of like the peak phase in the Express CapEx scheme. Frank showed you some examples where we’re actually using the CapEx for.

On slide 27, the global forwarding freight results reflect the market trends mentioned earlier by Frank. Volumes have seen a good peak season, but at the expense of gross margin driven by increasing buying rates.

So while we are very happy to see that all business is picking up and performing more in line with the overall market from a volume and GP perspective. The main driver of our increasing profitability remains our internal sell side agenda and the related turnaround measures.

Looking into 2017, we think the market conditions seen in Q4 will probably persist at least through the first quarter of 2017 that's the indication we have on the trend from the first week in the quarter. Finally on this page on the cash flow line you see the effect from last year is very strong and partially onetime cash management as well as last year’s phasing.

That takes me last but not least to supply chain on slide 28. On the revenue side that was now the first quarter there is NHS effect was out, but you still see that year-over-year we have a decline in reported revenue numbers.

We have very significant negative currency effects most notably from the British pound where we have a resizable business on the supply chain side. But the positive thing is that when you look at EBIT, we had significant progress year-over-year.

Frank already showed you how we invested on King’s Cross proceeds from the first quarter into some final restructuring spending. So, overall we do see the benefits of the costs savings in the supply chain performance and as mentioned before the increase in margin to 4.1% for the full year.

That takes me already to the last slide of the presentation and that is our guidance and outlook for the full year 2017. So generally we believe that those positive growth trends from e-commerce will continue to support our growth trajectory both in PeP and the DHL divisions.

In the PeP divisions as already mentioned, we assume to see growth also in 2015 and our goal is to achieve an EBIT of around EUR1.5 billion for the PeP division. In the DHL divisions, our goal is to get to an EBIT level of around EUR 2.6 billion.

Those assumptions are based on relatively moderate global GDP growth of around 3%. So like in 2016, we don’t count on very hefty tailwind from the global economy, but we continue our focus on those things which we can control internally.

And that is most noticeably really our focus on customer simplicity on yields, on efficiency measures and internal improvements to drive earnings growth. We also give guidance as in the previous years on three other elements and the first one is on the free cash flow, there you have seen the solid development over the last years and also in 2016.

So in the past years we have always guided that we want to at least get to our dividend from the free cash flow with a EUR1.05 that would mean we would aim for around EUR1.3 billion. But given the good free cash flow performance we have had now over the last years, we really want to take a changed approach towards the free cash flow guidance and we want to achieve at least EUR1.4 billion on the free cash flow side.

Tax rate, we had 11% in 2016, which was clearly driven by one-time effect, which will not come back. There are some uncertainties around the tax regimes in relevant countries.

So we took more conservative approach here like in the past years and at this point in time our assumption for the tax rate is around 19%. But I think there is some potential that there may be changes in the course of the year.

So finally with regard to gross CapEx, we expect to maintain our investment program for growth. So we have a small increase in our CapEx spend in 2017 to approximately EUR2.3 billion.

And finally for the longer term, our goals out to 2020 remain unchanged. As Frank already said it is the beginning, we are in fully execution mode for strategy 2020 and we are confident in our ability to deliver profitable growth and attractive shareholder returns into the future.

And that concludes my part of the presentation. Thank you very much for your attention and I think we will now open the floor for questions.

Right, operator please.

Yes, good afternoon. Thanks for taking my questions.

Three from me please. Firstly on the logistics division on the cost development there, in the fourth quarter there has been pretty substantial changes in what you call net other operating in your segmental disclosure that’s EUR90 million better in supply chain and EUR43 million better in forwarding even there is a net operating income in forwarding.

Can you explain a little bit what’s been driving these development and now that impacted EBIT? The second one is on your cash flow guidance, how do you think about CapEx versus disposals.

In the past couple of years you had quite substantial disposal income and should we basically thinking of really EUR2.3 billion CapEx or do you plan for like EUR200 million, EUR300 million, $400 million of disposal income to get to your free cash flow guidance in your mind at this point in time? And thirdly when you look at 2016 basically what you’ve been communicating was that you’re pretty happy with everything that happened in terms of operational development and volumes and forth.

Yet you are ending the year rather at the low end of the guidance. So maybe can you elaborate a little bit on what went wrong in your mind and where those headwinds came why didn’t you reach the higher end of your guidance range then?

Thank you.

So may I start with the third Tobias and then Melanie can answer the two other questions. So I think we ended up in a very nice spot actually and not on the low end we always guided for the pretty broad range.

I think we had a record class quarter, we never were better than in this quarter overall. And I think this is very good result.

So I can’t give you any indication that we’re dissatisfied with any of the operational results. And the economy was okay, but not very strong and I think we had a very good result and I'm not disappointed with the fourth quarter.

Yes then let me take the other two questions, so first of all you asked about net operating income development most noticeably on the supply chain and forwarding freight side. So on supply chain I talked about the currency effects we see on the revenue line.

We also see those of course in the expense positions and that is the one driver in supply chain. The second one are the restructuring costs, which were substantially lower now in the fourth quarter of 2016 than in the fourth quarter of 2015.

On the global forwarding freight side I think the one effect to point out here is that we had in freight both at the end of 2015 and in the end of 2016 some benefit from real estate proceeds which - including some other factors were pretty much on the same level, but they played a little bit into different lines. But when you look at the freight EBIT overall it’s pretty much on the same level in the fourth quarter.

But the benefit from the fourth quarter real estate sale is impacting the number in that other operating income. Then on the free cash flow question and the CapEx you’re of course absolutely right, CapEx and the cash flow statement is not the balance sheet CapEx.

So I mean like this year in 2016 we had EUR1.7 billion in cash out on a gross CapEx number of EUR2.1 billion. We naturally also expect some proceeds, so CapEx guidance I gave you around EUR2.3 billion is the gross CapEx guidance and that should not be one for one like-for-like what we see in the cash flow statement.

Okay Tobias.

Thank you. Very clear.

Very good. Next caller please.

Good afternoon, everybody. Three questions from me as well, thank you.

First of all I'm just wondering Frank given it’s such important part of the business if you could talk a little bit more about how the employee and customer satisfactions scores trended in Q4 ‘16 versus Q4 ‘15. I mean particularly at what level they are now and how they’ve changed?

The second question I was wondering given Blue Dart in your EUR0.46 of the air market there and the B2C growth would you elaborate a little bit more on what’s happening with you Indian strategy? Not just across B2C in Parcel but Express and the other components of the business in this ever larger and GDP focused economy.

And then very finally in terms of capital allocation I'm wondering if you could tell us little bit more about as 2017 develops how you’ll think about triggering any decision between maybe special dividends or more share buybacks? And how that changes in as a sort of maybe an addendum to that given the very unusual IFRS accounting where you have to sort of take into debt share buybacks you haven't done and you’ve under spend that what the accounting adjustment will be that we see in Q1 to if you like reflect the accounting catching up with reality?

Yes, so let me take the first Damian, the first two questions, so on EOS, we do once a year in September our Employee Opinion Survey and that usually is the analysis done in October and November. So we do that always in autumn very pleased with our progress we had record numbers, on the global scale, all divisions made progress.

We are now; I don't have them at hand at the moment because I didn't expect that question to be honest. But we had very good numbers three indicators already at our target level 80 or above the other made very good progress.

We have now more or less Melanie has that at hand, so I can tell you more precisely.

Also ahead of…

So we are now - we made progress between 1 percentage point on a scale from 0 to 100 up to 3 percentage points in some indicators, 3 percentages points for instance for future and strategy. We are now at or above the external norm most of the company as we comparing with that's done by IBM our white color and blue color driven companies.

So we are now above all as the same on most indicators except one, so that's I think fantastic progress and that gives me very much confidence that we will improve our service quality this year again. And that's an very early indicator and of course that was the biggest step in progress we have seen I think in the last five years.

And that is a consequence I think of a certified program, which I mentioned already. India is a very important market for us we have very good footprints from all divisions, not only in Blue Dart.

And we have for instance in - for Blue Dart we have enlarged our footprint, how many zip codes we deliver, we do now B2C on a significant scale as well. Supply chain is providing fulfillment services for our e-commerce customers.

Global forwarding freight has nicely grown, our Express business is in good shape too. So India I think we are really a power house and that of course the development India is taking and the encouraging signs from some reforms they have taken will give us confidence that India will be a very good contributor to us for the next years.

It's obviously a little bit slower than you expect in India, but I think the GST reform, the tax reform will now happen I am pretty confident so there were some push back from these - pull back from some money from some notes and I think that is now overcome as well. So overall India will be a very interesting market for us and we’ll continue to invest into our capabilities there.

So that leads to the final question about the capital allocation, what we do with free cash flow.

So, I mean in line with our unchanged finance policy, we've always said that when we have excess liquidity, accumulating on the balance sheet, we will think about appropriate means to return those to shareholders and we will take the decision at the right point in time. I think for now we have just concluded on Monday evening our first share buyback ever, where we have as promised spend closed to EUR1.911 billion to be precise.

You asked about accounting treatment and I have to agree personally that it is a bit unusual, but according to our auditors that was what we had to do on the IFRS to really book the full EUR1 billion even though we haven’t spent it at this point in time. What will happen now is the delta between the EUR911 million and the EUR1 billion will be taken out again.

So the liability side will come down and the equity will increase again and that will be now booked in the first quarter.

Okay.

And in addition let me say, because I know that this is an important factor, I think we have proven in the last 24 months that we always find a right balance between all stakeholders. Because as you know we have some different structures in Germany with supervisory board, our levels and I think we did pretty well in balancing all these needs, took the right decision with our share buyback and the share prices pretty low, we give a significant - we given our significant increase in dividend.

And I think we will remain committed to return to our shareholders, but we always have to keep everything in balance, otherwise it might be very difficult in counterproductive. So we keep that mind that if we continue to generate we have no intension for large acquisitions as we said several times.

But I think the momentum at the moment having just concluded on the share buyback and increased the dividend more than at least I can remember in one step I think that’s a good balance of keeping everything in balance and return a lot to shareholders.

Okay, thank you very much.

Okay thank you, Damian. And further on our way to a crisp Q&A session.

Hey, good afternoon everybody. If I could ask also three quick questions, the first with respect to PeP parcel your revenue growth is obviously very strong, but just interested in terms of how attractive do you need to be on pricing to fill those new parts of the network?

Are we seeing pricing significantly lower than other parts of that in Germany really. Second question with respect to Express, cost per kilo has been mentioned in the past, I'm specifically interested in how cost per kilo excluding fuel performed in 2016?

So how successfully are you balancing online inflation and the benefits of utilization improvements in the Express network? And then finally supply chain, with a 2020 target of a 4% to 5% EBIT margin you're now at the bottom end of that range three years early.

So just wondering if the bottom end of that range still applicable and if there is scope for that target to be changed in due course? Thank you.

So I can talk about the last one easily, I think we have no intension to change it now already. I think John Gilbert and his team has a very comprehensive and I think very comprehensive strategy and it's well executed and I'm very happy with the progress we have seen.

We are now world-class with regard to margins for a global player. If - it’s a mix image of different regions and different margins and there is a lot of single company who is even close to our footprint I'm very pleased with that margin.

And I have no tendency at the moment to change the guidance already now, but let's see what will happen in the future. Also pricing I think is very difficult to compare because the markets are very different from dynamics and from overall level.

Labor costs are very different as well. So to compare the pricing in Germany and some other markets on euro basis is almost impossible.

What I can tell you is that I think we have our home turf in Germany is probably one of the most competitive we can get in Europe, UK is quite competitive too. But some other markets are significantly less competitive than what we face in Germany.

So we are used to that and that of course we took that in consideration always when we went into these markets. So what is very difficult of course the price level is very different, but costs are very different as well?

Yes so maybe first one small addition from my side to the supply chain margin question. I think what you have bear in mind is that supply chain is the slowest moving of our businesses right.

So we have multiyear customer contracts where it really takes some time for improvements to materialize. I think the very positive thing is that we now see those improvements materializing and we're very focused on making sure that also in terms of new customer contract we get the right business in.

But of course it really takes time to take the operating margin up in the supply chain. And hence we have now only arrived at the lower end of the range.

I think the clear focus is now to make progress within the range and then at the right point in time we have to think about is it no longer sufficiently aspirational. Then on the Express question, so when you look at the important operating cost categories in the Express network.

The first big bucket our ground operations cost. And on the ground operations cost I think Frank mentioned that already in our third quarter very pleasing thing is that really what we call ops cost move has come down for the year.

And that is especially pleasing in light of the now 20% share of B2C shipment in our Express network, which really means that those operational measures we have worked on over the last years. For example on the delivery pre-notification side are really paying off.

So we see good operational leverage on the ground ops side. On the aviation side, we have invested a little bit into the built out of our air network capacity, but overall we are on a relatively stable level in this area.

The one area where we have seen I think that is now temporary and will wash out overtime, temporary increase in 2016 that’s not surprising is in the smallest third bucket and that’s our hub cost throughput piece. Where given the amount of investments we did into building out our big hub in [indiscernible] and so on we have seen an increase year-over-year.

But so clearly overall in terms of direct costs, we had a very pleasing moderate increase in 2016.

That’s great, very comprehensive. Thank you.

Thanks, Neil. And the next caller please.

Hi, good afternoon everybody. Two questions please.

First of all the relationship between the dividend and tax payment, I mean, clearly it would have paid from looking at the numbers that the lower tax charge was helpful perhaps in increasing the Board’s decision to increase the dividend. Likewise with a higher tax charge in prospect for 2017, can you perhaps explain how that influence and may influence the Board’s decision?

Secondly it looks from your freight forwarding slide that you are on the threshold of rolling out IT improvements across the Group, clearly this has been brought with difficulty base within the Group and in competitors. How confident are you that; A, this will proceed smoothly; and B, it will to deliver competitive results once you have achieved it?

Thank you.

Yes, so let me start with the IT question and then Melanie will talk about the dividend and tax ratio. So I feel very confident and of course I have a closer look than the last time because I am in charge of the division and I am reviewing what we are doing there on a regular basis.

I think these approach by evolution and revolution I think is much more likely for to be successful. We have very good feedback from our fall waters about the different systems.

We are working diligently through all the challenges we face in these systems. So the existing systems are already in rollout and that means that they work and they are used and we see a good take-up.

We will get benefits from these systems in many dimensions, it’s too early to quantify them. And I said this is not the priority at the moment anyway the priority is great service for the customer and no disruption if we change the system.

And there is a seamless rollout and not to get a full fledge number how much productivity gains we will get. But if you think about rotation systems, which supports you that will definitely improve productivity.

If you think about electronic document management system, instead of printing them again and again, you have them in the system will lead to significant improvements. Of course the transportation management system will help us as well.

There are productivity gains, but there are also tremendous quality gains. As you know one of our core competitors in global forwarding is using the same transportation management system and they are doing very well with that system and they have said several times.

So I am very confident that we are on the right path here. Other things, operationally regularities, we believe we are even ahead of the curve with that system.

So I think we are very - I am very confident that this will help us, as I said already a while ago, of course the margin increase year-over-year will be in 2017 lower because we will spend time and money on these people and that will distract them to a certain extent. But I am very confident that we will see benefits then in due course.

So I am very optimistic about this system change and I think we have learned our lesson that evolution is much more digestible than revolution.

Yes, coming to your first question, correlation between dividends and tax payments. I mean first of all, I and we fully understand the concern behind the question.

I think one answer at this point in time would be as already said the 19% on the tax side is a very cautious approach, which is predominantly driven by some uncertainties around the tax regime in the major economy. And we potentially see upside that this guidance will change in the course of the year, which hopefully would then alleviate some of your concern.

So we will see how it develops in the course of the year. And I think then the second element is of course consciously we have a range from 40% to 60% for the dividend to net profit ratio.

But I think we at this point in time we have to see how the whole taxing develops in the course of 2017.

And we intentionally said on page five of our presentation continuity in cash flow performance are considered for the dividend payout and as Melanie said we have a range. So you should not be too concerned about that the tax rate might increase.

We have shown that last year we didn’t increase the dividend because we said we had lower profits from operations actually. We are catching more and catching up due to the great performance as predicted.

So therefore I think the combination of these should give you confidence that we will continue to give shareholder back if we really generate what we have promised.

Thanks very much.

Okay thanks Ed for brining that up. And the next caller please.

Yes hello. Three questions from myself as well.

Apologies to get back to the tax points again to maybe looking at it different way from what I can see from the annual report is about $700 million of unrecognized preferred taxes this year. But then your unrecognized tax asset actually increased by $100 million from the notes to the accounts.

Could you just talk a little bit about what’s going on with the tax in particular what the unrecognized tax goes? Never seem sort of full particularly even though obviously you’re utilizing quite a bit of those assets.

Secondly just in the press conference earlier I know sort of Ken was talking a bit about the emerging markets and sounded quite a bit more positive particularly on the commodity focused regions. I was wondering if maybe you could make some comments about your view on the outlook just generally.

And then thirdly just given your slight caution about sort of global GDP and then thirdly can you just is Williams lease still in your long term plans? Thanks very much.

So Melanie you will start with the tax issue and then I talk about or should I start with...

No I can start with, let me start with the tax rate. So first of all why was our tax rate in 2016 so low?

I think there are two important factors I want to point out here, one is, leading into 2017, so we still have a significant amount of unrecognized tax losses. In different countries in the course of 2016 we were able to activate a bigger chunk of that and that came mainly from the United States.

The second and that is really a one-time effect second one-time effect that in 2016 both the way in which we were able to take into consideration our pension liabilities in Germany for the tax books. So that takes me to one of the uncertainties around our tax rate for 2017.

We have tax losses carried forward in the United States and of course if there would be a significant change in the tax rate that would have in our case negative impact. Because the reduction in the tax rate would reduce the value of our tax loss carry forward.

So that is one of the major uncertainties around our tax rate.

Yes so maybe on the outlook, so global GDP we expect the global GDP should grow slightly more than last year. So probably up to 3.5% I think what Ken meant is if oil price goes up certain areas of the world would get more income and then they restart to pump this money into infrastructure development and whatsoever.

So it’s so unpredictable wherever growth would come from next time because it’s true that might slowdown the growth in some other parts there you have to pay a higher bill for the oil and in other parts it might lead to more investments. Overall we are slightly more positive about the world economy than we have been last year, but it will not be a very strong growth as we have experienced a couple of years it’s I think it’s in line what we said already in 2014.

The growth should be around 3% to 3.5% for the years to come because there is no trigger for significant growth. It has to come from more productive gains and that will come through digitalization.

But that is happening probably more beyond 2020 on a massive scale that it drives productivity and then we will see probably a higher growth rates again which is encouraging. Williams Lea has been a part and is a business, and will be a part of a business we have with that business some challenges as we mentioned several times.

But overall we have no decision that we should have a different perspective on that business.

Okay, thank you very much.

Thanks, Dominic. And the next caller please.

Hi, good afternoon Melanie and Frank, hi guys. Three questions if I may.

First on PeP and more specifically your European expansion, during the press conference today you and Gerdes talked about your plans to expand to the EU35 by ‘18 or 2020 as you called it. And I was wondering if you could provide us some color and say what attributes or characteristics do you look for in the new markets you are expanding to?

And could you give us your lines and thinking around which are the remaining countries kind of are the most attractive for postal operator from your point of view? Secondly, in Germany, one of the cornerstone of your development has been the investment into [indiscernible] and I was just wondering could you share your views at what point a higher automation will become a critical success factor also for the other EU markets?

Or other way around how long can you sustain lower automation in those countries without it becoming a comparative disadvantage? And third question, on DGF, IATA and several other reported global air freight up by globally almost 11% and Europe up 7% for financial year ‘16 yet DGF kind of decreased in volumes.

So, could you give us your thinking around that and what the management team is putting into place to stop the loss of market share in air freight? Thanks.

Yes, so maybe in the right - in the same order. So, we’ve Europe enlarging our footprint.

We are looking market-by-market and have found different solutions, like in France we are participating in an outlet system because we think that’s the right way to enter that market in the UK acquire something in some other miles like the Baltics and some of the Nordic markets. We are partnering with local partners.

So, we will look into these markets case-by-case and make a conclusion what is the best strategy to enter that market. And I can’t even tell you what the next market will be because that's more Jürgen’s job and he comes in with a clear proposal then we look into that.

So, the answer will be different I think that's a beauty about the strategy that we have not one fits all strategy. We are looking really into the respective market dynamics to come to the right conclusion what we should do where.

And I think just to add one small thing here which I also said in the press conference I think the important thing I think that’s really one thing which makes us unique as a company. It’s not so that we are not present in those countries where we are not yet offering our standard product for PeP light.

So, for each of the countries we have an Express presence, which is of course more costly network, but so we already have a delivery network in all of the European countries, plus from our postal operator side, we have access to the postal network. So, it’s not that we are completely wide in those countries.

The important thing for those 21 countries is that we really offer very standardize product with completely harmonized features.

So, on this automation I think that's a long way to go. We are the only one who is highly automated in Germany.

And the others do something as well, but significant step behind us. We are by far the largest player as well, we do EUR1.2 billion parcel a year.

So we can leave with relatively low automation for a long period. That's the reason why we are also said that in Europe and in the emerging markets we don’t have to invest a lot of CapEx.

It generates losses because we have operational losses through expenses for people and facilities. But we don’t expect huge CapEx in these markets for relatively foreseeable future because there is no need, the volumes are not on that level that we really need higher automation.

And I think just one thing to add here I mean I think what makes Germany special is not only the very significant volume we have, but of course also the labor cost side, right. So, in Germany in terms of label costs we are at a disadvantage compared to other players in the market, which makes incentive to go for automation higher in other European market that's a completely different theme.

So on DGF I think on ocean freight we have done pretty well already and had I believe we have even slightly growth than the market. In air freight I think we had a very healthy trend in the last year, which materialized in the Q4 with a couple of bumps already are up trading and I believe we will see continuation of that in 2017.

The reason for that is because in the first place we said we have to stabilize operation. Service quality is of utmost important first, we have to become liner that was the internal measures we took now let's focus on external better selling to customers.

And I think we made good progress and I expect that we will see growth again in 2017 in air freight as we have seen already in ocean freight last year. So I think the time that we lose market share I think comes to an end and I'm optimistic that we will say in 2017 we'll at least grow with the market or even beyond.

So that's my outlook at the moment.

Okay, great. Thanks very much.

Thanks, Daniel. And operator let's see whether there are more callers on forward-looking issues or backward looking issues.

Hi, good afternoon everybody. I've got three questions please, first one regarding Parcel Europe, you've realized 15% growth in 2016, but you also highlighted the entry into new markets what would be the underlying growth excluding these new markets?

And would have that implied that you would have gained market share. Then regarding Parcel Germany you always highlighted the positive price mix in your Parcel Germany business.

I think mix turn - price mix turned negative was it mainly mix in the fourth quarter or were there also some negative price effects? And then finally regarding DHL forwarding and freight.

I was wondering if you have become more cautious on the timing for a profitability recovery to former levels of over 3% if you will say still challenging performance in the U.S. as well as increasing yield pressure falling higher freight rates.

And perhaps increased risks around the rollout of the global transport management system. Those are my questions, thank you.

So I think on the first one I think we would not now start disclosing which markets are doing what at the moment. Because and then you will ask us every quarter how is that market doing.

Overall I think we are pretty successful across the board therefore I would abstain from telling you what has happened in the existing markets and on the new markets. But I can tell you that we have been pretty successful as well in the existing markets and the growth comes only from the startups.

I'm not sure if we are more cautious we always said that we will see a significant lift up early on in the DGFF and then it's a mixture of investment and the change. And that don't get just across it's also the attention it needs from the organization.

And so we have made great progress on the numbers. We see that we have grown nicely on ocean freight we are now tackling the challenge in air freight.

We have still challenged in the U.S. and that is of course an important country and that will take time because we closed too many stations in the U.S.

actually. So I think that as what we shared already a while ago.

In 2017 I said already before as well the lift in profitability will be not the same scale as we have seen that in 2016 because we are busy with a lot of stuff that doesn't compromise on the mid-term and long-term goals and I'm very confident that this will happen. And I need more confident because we will have soon and I will have a new colleague who will take over that responsibility from myself anyway.

And then we have somebody who has 100% time to focus on that, which should helped us well.

I think that left the second question, the middle question on what is happening with Parcel Germany. There you rightly point out that in the fourth quarter volume growth was slightly higher than revenue growth.

And I think you gave the plans already that is really due to a mix effect there was one special element in here there was quite a bit of revenue and low volume from not sufficiently profitable two man handling customer, which we took out. So it is really a mixed effect and I wouldn't read too much into it.

Okay, great. Thank you very much.

[Indiscernible] any idea where we stand in our underlying growth in European Parcel markets?

I said that at the beginning that we don't disclose the detail for the countries.

Good. Okay.

Then the next caller please.

Thank you. Try to keep it short…

Chris, we can't hear very well, could you speak up somewhat.

Is that better?

Yes.

Great. Following on the freight forwarding questions I think you alluded to the fact that you're growing ahead of market especially in fee freight in the fourth quarter.

To extend that you continue to close the gap with fears, how aggressive are you on price. And how much of the yield pressure that we see is in fact a strategic versus margin pressure?

And does that also require some working capital pressure as you close the gap with the market?

So, that's a difficult question to answer. Of course we don't want to compete on price.

But we had in the fourth quarter the situation that everybody try to read the market and then buying rates went up quite more than expected due to different aspects. So I'm convinced that we should win on service quality, but I believe in the last quarter, we were successful with service and we were successful with gaining customers, but the buying rates were higher than expected.

So that should level out and that's a constant discussion for what us we’ll have to manage that somehow I think, I mean I see that is always the same sequence. First you have to be lean enough to be successful, second then you have to focus on service quality, then you have to start to win business and then you have to optimize what you want.

But without growth, you can't ring forever, I think we are now at that point where we really continue to grow. And then you have to balance and have rightly find the right footprint and I guess, we sometimes you are perfect at the spot at the right price and sometimes you probably make some mistakes, but that’s something which we have to work out after all the changes we have done and that’s get up in some markets we are well on top of everything and some others we have still some challenges.

And may be on the working…

Yes. Sorry, go ahead.

And may be on the working capital side, so I think you saw a positive benefit from the shrinkage in the business in the fourth quarter of 2015, which we then didn't have again in 2016. So that's one of the reasons why the operating cash flow in global forwarding freight for 2016 was below the level of 2015.

But now looking forward, I would just expect a more normalized behavior and what you would expect in a normal growing business.

Okay. And just one last one, if we look at Amazon over the past year, could you give us some color as to how the relationship has progressed?

And while the focus a year ago was in the domestic parcel market what are your thoughts around some of their activities in other parts of supply chain whether it's an air freight or forwarding?

Our relationship with Amazon has been very good, is very good and will be very good. I think we are - they need us for their growth and of course we benefit from their growth as well.

And they want to understand more about other aspects, the answer from myself has been consistently I think in the last 12 months or 18 months, we have to be the best in the industry in what we do and then we have the right to exist. And if we don't do that then we should not complain and I think we have done that very well and that’s the reason why they look at us as a role model for responsiveness and new ideas and if we continue to do that I think we have all the rights.

And to be honest their pace to growth is so high that they can't build all the infrastructure themselves anyway because otherwise they will be busy with finding land and facilities and whatsoever. So I think it's a mutual benefit from both sides and therefore I'm very confident that we will see good progress in 2017 again.

Very, good. And I'll sneak in one last one on Express, we see a lot of volatility in the underlying revenue per shipments the past few years, stripping out FX and fuel.

Correct to assume that this should stabilize in 2017 or are there some additional meaningful mix effects that you anticipate?

No, I think on the Express side, of course there is an ongoing mix element on the Express side, which we have seen as a trend for the past years and I don't expect a significant change there on the new side. I think what you have seen in 2016 and which has really help drive good Express results has been the very strong focus on yields management and that is something which of course we continue with in 2017.

Thank you.

Okay, well. Thank you Chris and I think we have got time for one or two more questions.

Good afternoon everyone and congratulations on the results. Apologies I always cut off a few minutes, so you may have already heard these questions before.

But if I might ask three, firstly on GFF you talk about the poverty getting back to former level of profitability. When do you think that is going to be?

Secondly I think you said for GFNF that you are going to be targeting smaller customers more. Can you talk about how you are going to target them with their additional costs to service them and if that can be recovered in higher average unit revenues?

And thirdly, your e-commerce strategy is very clear, is mail an integral part of that in the UK?

Okay so, on - so I didn’t take a note of the first one.

Global forwarding freight, when will we get to the…

So I refused in the last quarter to give you a precise date and feel even more uncomfortable now knowing that my new colleague will join us soon. I think we should give it then a couple of month at least to give a clear understanding I think he has the same aspiration as I, that we close the gap until 2020 significantly.

But I would feel very uncomfortable to put now the mark to certain point he should have a perspective. I didn’t see anything in the last 12 months when that moment will be because there are lot of moving targets to the change we do, I am very confident that this is the right strategy and will be successful that I feel as I said quite uncomfortable.

On the smaller…

I think the question was when do we get back to the pre-NFE the former levels and I think that’s now…

Yes but this is all being because point is we are doing a lot of change at the same time, therefore it’s difficult to say that because our focus is not just improving the margin focus is equally on deploying the systems successfully. And I think that’s for me more important that we get that done without any service failure.

And therefore I am saying sometimes you need a little bit more cost temporary and that has impact on the P&L. On the smaller customers, I think we had that on the agenda for a while we now really see traction because we are working on service quality and systems and these tools, online quotation tools and we see now really benefits.

If I see in the detail which I can’t disclose because we never disclosed it, but the gross profit growth we have seen on smaller customers is pretty nice. So we get traction and I am confident that of course on the smaller scale because we always wear more balanced to the large customers, but I am very optimistic that we will see benefits from that in the coming quarters.

The role of UK Mail and e-commerce strategy?

Yes, I think UK Mail is an important part. I think it is when I think about all footprint now is and we are in all countries where the large yield holders and the emerging important e-tailers have their footprint.

So we don’t have to be present with own operations everywhere, where they are just shipping outside, because then we have a strong partner with their control. UK is an important outbound e-commerce market as well and therefore we found our good platform with UK Mail.

UK Mail has a very good reputation, some of you are living in the UK know much better that they belong to the stronger performers as we have from customers as well. So I think UK Mail is a very good part of our strategy here, really to grow with the e-tailers and focusing on B2C.

And do you need to continue with the letter side of…

The letter. So why shouldn’t we throw it out as long as it creates benefits for us.

So it’s - we acquired the company for the parcel purpose. It’s not such a big business, I think we can see what will happen.

So we keep at as long as customers are happy with the service and we can make money out of that, but of course the strategy is to grow with parcel.

Thank you.

You’re welcome.

Okay, thanks Alex. Operator are there any further callers in the line.

Alright, that’s fits to our timing. And well with that I think we conclude the Q&A session and the call overall.

Thank you very much we are looking forward to seeing you over the next couple of weeks on road shows and conferences and I hand over to Frank for his closing remarks.

Yes so I'm very pleased that we had a record year last year that we had four record quarters and finally delivered what we had promised all indicators are very strong. I'm particularly pleased with the engagement of our people because that's an early indicator.

I'm also very pleased with the feedback we get from customers in different service we do. We made very good progress particularly on our most struggling businesses like freight and DGF where we had the biggest jump actually and customer satisfaction.

That has allowed the improvement of our numbers. And not to forget that we have reached our goal of carbon efficiency by 30% already last year instead of by 2020.

And that's the reason why we today announced our mission zero emissions by 2050. And I think that will give us an edge as well on the marketplace and I'm very happy that we can do that because we made so much progress.

So the early indicators, the forward-looking indicators are looking all very green and therefore I'm optimistic that we can deliver what we have guided you to to-date. So and that's a great basis then for the next few years to come to deliver our 2020 goal.

So I'm overall very happy, thank you for your attention and yes we will see you in due course in the next weeks. Thank you.

Thank you.

Bye-bye.