Excerpts from Deutsche Post AG's 2013 Group Annual Report.
A variety of external factors offer us numerous opportunities, indeed we believe that the global market will grow. Advancing globalisation means that the logistics industry will continue to grow at least as fast or faster than the world economy as a whole. This is especially true for Asia, where trade flows to other regions and in particular within the continent will continue to increase. As the market leader, our DHL divisions can generate above-average benefits from this. This also applies to regions such as South America and the Middle East, which continue to see robust growth. We are similarly well positioned in the emerging economies of Brazil, Russia, India, China and Mexico (BRIC+M) and will take advantage of opportunities arising in these markets.
Whether and to what extent the logistics market will grow is dependent on a number of factors. The trend towards outsourcing business processes continues. As a result, supply chains are becoming more complex and more international but are also more prone to disruption. For this reason, customers want stable, integrated logistics solutions, which is what we provide with our broad-based service portfolio. We continue to see growth opportunities in this area, in particular in the SUPPLY CHAIN division and as a result of closer co-operation between all our divisions.
The booming online marketplace represents another opportunity for us in that it is creating demand for transporting documents and goods. The B2C market is experiencing double-digit growth, particularly due to the rapid rise in digital retail trade. This has created high growth potential for the national and international parcel business, which we intend to tap into by expanding our parcel network.
Our customers want to improve their carbon efficiency and be supplied with information on their CO2 emissions. Such an increase in environmental awareness presents new business potential: with our own mail, parcel and express products as well as air and ocean freight transport, we not only lead our industry in the areas of energy-efficient transport, transparent emissions reports and climate-neutral products, but we also offer customer-specific solutions to reduce carbon emissions.
Volumes and costs have a critical impact on our result. Should we succeed in aligning our internal processes to meet customer needs whilst simultaneously lowering costs, this could lead to positive deviations from current projections. We are steadily improving internal processes with the help of our First Choice initiatives. This improves customer satisfaction and reduces our costs at the same time. Our earnings projection already incorporates expected cost savings.
On 25 January 2012, the European Commission issued a ruling on the formal investigation regarding state aid that it had initiated on 12 September 2007. It concluded that Deutsche Post AG had received illegal state aid, which it is to repay to the Federal Republic of Germany; in addition, it must also be ensured that no benefits are received in the future which could be considered illegal state aid. Deutsche Post AG is of the opinion that the state aid decision cannot withstand legal review and has filed an appeal with the European Court of Justice. The Federal Republic of Germany has likewise appealed the decision. To implement the state aid ruling, the federal government called upon Deutsche Post AG on 29 May 2012 to make a payment of €298 million, including interest. Deutsche Post AG paid this amount to a trustee on 1 June 2012 and appealed the recovery order to the Administrative Court. The appeal, however, has been suspended pending a ruling from the European Court. The company made additional payments of €19.4 million and €15.6 million to the trustee on 2 January 2013 and 2 January 2014, respectively. The payments made were reported in the balance sheet under non-current assets; the earnings position remained unaffected. More information about the state aid investigation and the risks resulting from it as well as other legal proceedings is provided in the section Risks from pending legal proceedings as well as in the Notes.
On the other hand, the opportunity exists that the payment of €298 million and the payments of €19.4 million and €15.6 million made in addition – as well as the additional annual payments of around €19 million to be made in the future – will be returned if the appeals issued by Deutsche Post AG or the federal government against the state aid ruling are successful. A repayment would only affect the liquidity of Deutsche Post AG; the earnings position would remain unaffected.
Being a global operator also opens up opportunities for Deutsche Post DHL. For the specified period under review, these are mainly opportunities arising from fluctuating exchange rates from scheduled or planned future foreign currency transactions.
Significant currency risks from planned transactions are quantified as a net position over a rolling 24-month period. Highly correlated currencies are consolidated in blocks. The identified risks are hedged up to an average of 50% using derivatives over a 24-month period. The most important planned net surpluses at the Group level are in pound sterling, Japanese yen and Korean won, whilst the Czech crown is the only currency with a considerable net deficit. By offsetting the net deficit in US dollars with surpluses in other highly correlated currencies, the net risk in the “US dollar block” at the Group level is nearly offset and thus not actively managed. The average hedging level for the year 2014 was approximately 48% as at the reporting date. A potential devaluation of the euro presents an opportunity for the Group’s earnings position. Based on current macroeconomic estimates, we consider this opportunity to be of low relevance. Further information on the financial position and finance strategy of the Group as well as on the management of financial risks is found in the report on the economic position and in the Notes.