Financial position

Financial management is a centralized function in the Group

The Group’s financial management activities include managing liquidity along with hedging against fluctuations in interest rates, currencies and commodity prices, arranging Group financing, issuing guarantees and letters of comfort and liaising with rating agencies. Responsibility for these activities rests with Corporate Finance at Group headquarters in Bonn, which is supported by three Regional Treasury Centers in Bonn (Germany), Weston (Florida, USA) and Singapore. The regional centers act as interfaces between Group headquarters and the operating companies, advise the companies on financial management issues and ensure compliance with Group-wide requirements. Corporate Finance’s main task is to minimize financial risk and the cost of capital in addition to preserving the Group’s financial stability and flexibility over the long term.

Creating value through transparent and effective capital allocation

Building on the principles and objectives of financial management, and in light of the Group’s strong financial position, the Corporate Board most recently updated the finance strategy in January 2022. It takes into account the shareholders’ interests and the lenders’ requirements, focusing on value creation through a transparent and effective allocation of capital. It also aims to maintain financial flexibility and a low cost of capital for the Group with a high degree of continuity and predictability for investors, and to support the Group’s ESG Roadmap. One key component of the strategy is a stand-alone target rating between “Baa1” and “A3” and “BBB+” and “A–,” respectively. The strategy also sets clear priorities on how available liquidity is allocated. It will first be used to fund business operations, finance organic investments and make regular dividend payments. Thereafter, additional dividend payments or share buybacks as well as inorganic growth will be considered.

FINANCE STRATEGY

Cash and liquidity managed centrally

The cash and liquidity of our globally operating subsidiaries is managed centrally by Corporate Treasury. Approximately 80% of the Group’s external revenue is consolidated in cash pools and used to balance internal liquidity needs. In countries where this practice is ruled out for legal reasons, internal and external borrowing and investment are managed centrally by Corporate Treasury. In this context, we observe a balanced banking policy in order to remain independent of individual banks. Our subsidiaries’ intra-Group revenue is also pooled and managed by our in-house bank (intercompany clearing) in order to avoid paying external bank charges and margins. Payment transactions are executed in accordance with uniform guidelines using standardized processes and IT systems. Many Group companies pool their external payment transactions in the intra-Group Payment Factory, which executes payments on behalf of the respective companies via Deutsche Post AG’s central bank accounts.

Limiting market risks

To limit market risks, the Group makes use of primary and derivative financial instruments. Interest rate swaps are used to hedge against interest rate risks, and forward transactions are used for currency risks. We pass on most of the risk arising from commodity price fluctuations to our customers and, to some extent, use commodity swaps to manage the remaining risk. The parameters, responsibilities and controls governing the use of derivatives are laid down in internal guidelines.

Flexible and stable financing

The Group covers its long-term financing requirements by means of equity and debt. This ensures our financial stability and also provides adequate flexibility. Our most important source of funds is net cash from operating activities.

We also have a syndicated credit facility in a total volume of €2 billion that creates a secure, long-term liquidity reserve. The term of the syndicated credit facility is through 2025, it does not contain any further covenants concerning the Group’s financial indicators and, thanks to our solid liquidity situation, it was not drawn down during the year under review.

As part of our banking policy, we spread our business volume widely and maintain long-term relationships with the financial institutions we entrust with our business. We meet our borrowing requirements primarily through independent sources of financing, such as bonds and leases. Most debt is taken out centrally in order to leverage economies of scale and specialization benefits and hence minimize borrowing costs.

In June 2023, we placed a sustainability-linked bond with an issue volume of €500 million and a term through 2033. Moreover, a promissory note loan in the amount of €100 million was repaid in September 2023 and one bond in the amount of €500 million was repaid in October 2023. Information on bonds is contained in note 39 to the consolidated financial statements.

Group’s credit rating unchanged

As of the reporting date, our credit rating was still at “BBB+” with a positive outlook according to Fitch Ratings and was classified as “A2” with a stable outlook by Moody’s Investor Service. The solid investment-grade ratings ensure unfettered access to the capital market. The following table shows the ratings as of the reporting date and the underlying factors. The complete and current analyses by the rating agencies and the rating categories can be found under creditor relations.

AGENCY RATINGS AS OF DECEMBER 31, 2023

Liquidity and sources of funds

As of the reporting date, the Group reported centrally available liquidity in the amount of €1.3 billion (previous year: €2.0 billion), which is comprised of cash and cash equivalents as well as current financial assets. Due to our solid liquidity situation, the syndicated credit line in the amount of €2 billion was not drawn. In addition, unused bilateral credit lines totaling €1.6 billion were available to the Group as of the reporting date. The following table gives a breakdown of the financial liabilities reported in the balance sheet. Further information on available liquidity and financial liabilities can be found in note 43.1 and 39 to the consolidated financial statements.

Capital expenditure for assets acquired below prior-year level

Investments in property, plant and equipment and intangible assets acquired (excluding goodwill) amounted to €3,370 million in the year under review (previous year: €4,123 million). Please refer to note 10, 22 and 23 to the consolidated financial statements for a breakdown of capex into asset classes and regions.

As before, investments in the Express division related to buildings and technical equipment. Continuous maintenance and renewal of our intercontinental air fleet represented an additional focus of investment spending. Some of these investments were attributable to rights of use. In the Global Forwarding, Freight division, we invested in warehouses, office buildings and IT. In the Supply Chain division, the majority of funds were invested to support customer implementations in all regions, above all in the Americas, EMEA and Asia Pacific regions. In the eCommerce division, most of the investments were attributable to network expansion in the Netherlands, the United States, Poland and the United Kingdom. In the Post & Parcel Germany division, the largest capex portion was attributable to the expansion of our infrastructure. The acquisition and development of property were continued in the year under review. An additional key focus was expanding Pack- and Poststations. At Group Functions, investments in the reporting year were mainly in the vehicle fleet and IT solutions.

Decline in net cash from operating activities

Net cash from operating activities fell from €10,965 million to €9,258 million. All noncash income and expenses, including the income from the increase in the shareholding in DHL Logistics, were eliminated based upon EBIT, which at €6,345 million was down substantially on the prior-year figure. The lower EBIT was partially compensated for by the higher cash inflow from the change in the working capital. The cash inflow was €536 million in the year under review, compared with an inflow of €215 million in the previous year. Income taxes paid declined by €157 million to €1,625 million.

Net cash used in investing activities decreased from €3,179 million to €2,181 million. In the previous year, this was primarily shaped by the purchase price payment for the acquisition of the Hillebrand Group in the net amount of €1,379 million. Cash paid to acquire property, plant and equipment and intangible assets fell from €3,912 million to €3,381 million and related primarily to the expansion and renewal of our air fleet as well as network infrastructure. The cash inflow from the change in current financial assets decreased from €1,664 million to €963 million. In the previous year, we sold money market funds to enable the purchase of subsidiaries and other business units in the amount of €1,613 million, in addition to the payment of the dividend.

Free cash flow fell from €3,067 million to €2,942 million. In the previous year, this figure was significantly characterized by the purchase price payment for Hillebrand. Excluding the payments for acquisitions and divestitures, it decreased by €1,284 million.

Net cash used in financing activities decreased from €7,411 million to €6,898 million. The placement of the sustainability-linked bond is reflected in the assumption of noncurrent financial liabilities in the amount of €501 million. Despite an increased dividend per share, the dividend distribution of €2,205 million remained unchanged year over year due to the share buyback program. Payments for the acquisition of treasury shares in the amount of €986 million (previous year: €1,099 million) were incurred in particular from the current share buyback program. Cash and cash equivalents fell from €3,790 million as of December 31, 2022, to €3,649 million.