Earnings Call: Q4 2011

Mar 8, 2012

Good day, and welcome to the Deutsche Post DHL full year 2011 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Martin Seidenberg. Please go ahead, sir. Thank you, and a warm welcome here from Bonn to all of you out there on Deutsche Post DHL full year 2011, and particularly Q4 2011 conference call. As announced in our invitation, I have got here with me our CEO, Frank Appel, and our CFO, Larry Rosen, who in the usual format will take you through the presentation I take it you have in front of you. Talking about material in front of you, I also want to remind everyone of the IR stat book that we have sent out, and that is available. Without further ado, I would like to hand over to Frank, please. Okay. Good afternoon to everybody or good morning, wherever you are. I am very pleased to report that we had a very good year in 2011. Let me jump straight away into the presentation on page 2, that summarizes that we had a strong performance in Q4, not different from the previous quarters. We have a strong increase of the main DHL divisions EBIT. On that basis, we are capable to propose to the AGM an increase in our dividend from EUR 0.65 to EUR 0.70. We want to give an outlook for the year that we will increase our EBIT to EUR 2.5 billion to EUR 2.6 billion in growth. If I go to page 4, you definitely remember that we several times said in three years that we want to improve our performance along three bottom lines to become the provider of choice, the employer of choice, and the investment of choice. I would like to give you now some highlights along these three dimensions. First of all, on page 5, you can see that all the guidances we gave you, with regard to EBIT we have met. Starting with the group, we outperformed the guidance by EUR 40 million. The mail increased guidance, we outperformed by EUR 10 million. We DHL divisions had a very nice growth rate and ending up with EUR 1.72 billion. Finally, the corporate center remained flat year-over-year, and we achieved here the guidance as well. All the financial targets have been met. That allows us in alliance with our finance policy to increase the dividend by EUR 0.05. That is now the second year in a row. We think that we should let our shareholders participate as well in the nice development of the company. If I go to page seven to come to the second bottom line, provider of choice, what makes me very confident for the future as well, that in all parts of the company, we made very good progress with regard to customer satisfaction. In the Deutsche Post part, we had record satisfaction, and that is externally measured, but also in the DHL divisions, we made very good progress, and we have very high satisfaction ahead of the competition around the world. We have improved for very critical touchpoints mentioned here quite a bit, and also in the other divisions, Global Forwarding, Freight and supply chain, we increased the customer satisfaction in most countries, too. Why is that important? If a customer gets more satisfied with our service, we definitely will show a higher interest in buying our services. One example where we made very good progress is with regard to the announced sector management, and here you see examples of four sectors. I do not want to go in too much detail here. What I want to share is that the life science and healthcare sector has grown double digits, and that is definitely more than the underlying growth of that industry. That comes from the investment in new competence centers and good solutions like the SmartSensor technology, and other things. We are very happy that we succeeded in a very challenging and ambitious, and expectation high industry. Also, in technology, we have expanded our footprint. The direct distribution for a product out of Asia to European customers is doing very well. We have this very strong gateway to Africa and Dubai established, and with a lot of technology customers. If I talk about energy, we are seeing good progress as well. We also see huge opportunities in Latin America and Africa, and we will definitely focus on them. Finally, automotive, very strong growth as well. We have invested here as well, not only in conferences, in sharing best knowledge like we did that already for years in technology and life science. We have also established new distribution centers for some dealers. We see in these industries that we are gaining momentum, and that is based on a very much more structured approach to these sectors. The third bottom line is our HR piece, and that is important as well for you as investors and analysts. We are deeply convinced if you have higher satisfied customers and more enabled and engaged employees, you will succeed as well with your financial numbers. 2011 was the third year in a row that we have improved the satisfaction, and we improved it along all KPIs, and you see here some of them. The organization is much more convinced about the strategy. They perceive their local and senior management much more active in leading the organization. We have improved massively on learning and development. The other KPIs are not different from the increase we have seen. These are huge increases. We won, for our HR activity, several awards, which is also showing that external reputation about our activities is going up. Finally, we have invested, and this is all included in the P&L, a lot of things in training and development of our people. That's important because the more we train our people, the better the service will be they deliver. If we now go to page 11 and look into some of the highlights, starting with the mail. You can see here that on page 11, that we have made good progress along four quick key items. Firstly, the parcel concept, which is now in full swing with deployment. We have seen already the impact of that in the last Christmas period. Great service quality, despite huge increase in volumes. We have a new price cap formula, which gives us opportunity to potentially increase prices next year. We have a long-term union agreement, with regards to how we deal with our people and delivery men. We have a solid agreement on the wage side, which is definitely a higher increase, than we have seen in the last years where we had zero, but it created a lot of positive momentum in the company for sure. We are confident that this is not against the targets we have in the mail division. If you go to page 12, you see the nice development of the volumes. On one hand, the mail communication volumes are stable, which is good. So we had no further deterioration. For 2012, we expect again a deterioration to 2% or 3%, but last year it was stable. On the parcel side, we see very nice growth by almost double digits, and that definitely will help us going forward because as you might know, we deliver parcels and letter in 80% of the country in a joint way. Whatever we lose in this year on the mail volume side, we can replace it to a certain extent by increasing volumes on the parcel side. That is a very healthy trend, too. One comment on the ruling of the commission, about the state aid on page 13. We think that this decision is completely unjustified. It's not in line with decisions the EU has taken in the past. We think that state aid can't come from the prices and the revenue from customers, and that was the case here, what the EU said. They linked regulation with state aid, which I think is different from many other cases we have done. Therefore, we will appeal against that decision. Since we are very confident and also our auditors are confident, we don't have to put that into our P&L because the likelihood that you win or get the money back is very high, and therefore, we had no impact on the P&L of 2011, and the payment will only be recorded in the balance sheet in 2012. Coming then to the liberalization, that's important for you as well because there has been some discussion as well to change the German postal law. We think that is not needed, because there is already significant competition. Here we reflect on the mail communication market because this is the market where we still have huge market share, as you can see here, but it is not as big as sometimes said. The other markets are much more competitive already. That is the direct dialogue marketing, where we compete with the internet advertising, with newspapers, with people who distribute flyers or TV. We do not have any dominant position there, nor we have it for press services. We think there is no argument to do something about that, particular because the German postal law enabled as well, the country to achieve a very high service quality for us. We have the most favorable prices achieved in Europe as well, without any price increase for 15 years. And we have a definitely state-of-the-art infrastructure. What will happen to the mail division going forward? These are levers you have seen already in the past. We of course have some pressure through the e-substitution of the letters. We have some rise in transportation and labor costs to anticipate for this year. And we have some investment into our extension of the profitability. On the other side, there is a lot of possibility through the parcel growth, through the digital services, the new price regime, the productivity improvements, and more efficient management of overheads. Coming to the other three divisions. You see first on page 16, Express did very well the last year with regard to volume growth per day. We definitely have outperformed all larger competitors by volume growth, and the revenue development per day was very nice, too. That is definitely a result of all the work we have done with the significant investment into the network, the training of the people, the advertising campaigns. Of course, we are very pleased that for the first time since a long, long time, we have outperformed the market by volume, and we have not seen a slowdown in the fourth quarter here. On page 17, you see our very good exposure to the Asian market too. We are by far leading in Asia, as you can see here, with regard to market share. Half of our shipments are touching, in one way or the other, Asia. And on the bottom of that page, you can see how long we have been there and how much these countries are growing. We are linked to the growth engine of the world very much, and we have a leading market position. That makes us very confident that we can grow our top line and our bottom line in Express further. Forwarding on the next page 18, you see that the volumes have been relatively stable, slightly shrinking. It was more shrinking in the second half than in the first half. We think that we behaved, or our revenue, our volumes were stable in comparison to the market. We did not lose market share, but we did not gain either. That is the result of a very clear yield-focused approach. We have, different from some competitors, not gained so much volume, but we have improved our gross profit. And I think that is right. We have intentionally not bidded or we lost customers which were not profitable anyway, and that is visible here. We did not lose market share, but we improved our gross profitability quite a bit. Finally, supply chain on page 19. You see here not only our well-balanced portfolio around with the industries, but also around the regions. The footprint in Americas and Asia is growing rapidly. We have one significant business with EUR 1.3 billion annualized revenue in 2011, which is a record. In comparison, 2010 is also a significant increase. Where does that come from? It comes from really much better approach to how we sell. We made great progress in our training skills and in the approaches. We didn't compromise on the margin. As you can see, overall, the margin has improved, and we see that as well as the new wins. We are not looking for cheap offers here. We are looking really for high-quality solutions. Despite we did that, we have increased our new wins quite a bit, and that's very exciting and makes us confident that supply chain will not only grow on the top line, but also on the bottom line, very healthy. Overall, page 20, we had a great year. We stabilized the mail, and you see that for the first time that the bottom line is really stable. In particular, if you take into consideration that the first half of 2011 still was impacted by the introduction of the VAT, which was a significant hit for the P&L. Nevertheless, we made it possible to stabilize the EBIT on the same level. The EBIT growth of the DHL divisions was ahead of our long-term aspiration of 13%-15%, more than 3.5% better, which is great as well. We have seen also a good improvement of all the margins in all divisions. CapEx, we have invested significant more than in 2010, but that's driven by organic growth. We see a lot of opportunities, and the parcel investment is a reflection of the nice volume growth. The aviation network expansion is a reflection of the nice volume growth there, too. We do upgrade in IT and freight and forwarding, and we definitely see significant market expansion in the emerging market. Overall, we achieved all our goals, and we made progress along all three bottom lines, and that makes us confident that we can continue in 2012 on that basis. With that, I would like to hand over now to Larry to give you a little bit more detail on group financials and the quarter. Thank you. Thank you, and good afternoon to everybody. I'm very pleased to further report on our very good financial performance for 2011. I will then, at the end, outline our guidance for 2012. Over to page 22. Here you see our profit and loss statement for the full year 2011. We had revenue growth of almost 3%, which was actually 5.3% organic growth, i.e., adjusting for currency and structure changes, and DHL organic growth was over 7%. EBIT growth was 10.5% compared to underlying performance in 2010 and 33% on a reported basis. I hope that this is going to be the very last time that we'll refer to underlying EBIT, as we need to do it now because we had it in 2010. As promised and forecast, we have not had two different EBIT metrics in 2011, but for comparison, the 2010, we still talk about it. But as of Q1 this year, when we report that in early May, we no longer will talk about underlying EBIT at all. The Mail business was almost flat as forecasted. DHL grew by about 55%, or almost 19% adjusted for 2010 non-recurring charges. We see that as a great start on our way towards 13%-15% average growth through 2015. The financial result was again heavily influenced by valuation effects from the Postbank transaction, and I'll come back to that point, also affecting net income in a couple of minutes. Finally, our effective tax rate for the year was 23.7%, basically in line with our 25% guidance and consistent with the increase in earnings in higher taxed countries. Page 23, you see our P&L for the fourth quarter. Revenue growth slowed as we saw, in particular, weak demand in forwarding, together with our selective strategy that Frank talked about. But overall, we still had organic growth of 3.5% for the group. EBIT grew by over 14%, with Mail at 10% and DHL at 13%. Most of the valuation effects we've seen from the Postbank transaction, in fact, came in Q4 this year. They were just the opposite of the positive effects we had in Q4 of 2010. Again, I'll come back to these points regarding the Postbank accounting in just a minute. The tax rate was lower than previous quarters as we again were able to activate a small amount of additional tax loss carry-forwards due to our improved performance. Finally, I'll show net income before and after the Postbank effect on the next slide. You see that on page 24. You see how distorting those accounting and valuation effects have been. In fact, without those effects, our reported net income would have increased 51% for the full year 2011 and 46% in Q4 alone. Well, even though the structure of the transaction has made our financial reporting a bit complex for a long time, the last three years, I hope to convince you on the next slide that both strategically and financially, the decision originally taken in 2008 to divest our remaining stake has indeed been a very good decision. Now over to page 25. We've now completed the last steps of the transaction virtually 10 days ago, February 27th and 28th. It's worth taking a look back to summarize the overall result. First, we continue to believe that it was the right decision to exit the banking business, not least due to the financial crisis of 2008 and 2009, but also because it allowed us to intensively focus on our core Mail and DHL businesses. Secondly, we generated a profit of around EUR 2.5 billion that came mostly in 2009 and 2010, though we do expect one final effect in the first quarter of this year from the full deconsolidation, and that will be a positive EUR 186 million. Finally, we generated almost EUR 5 billion of liquidity that gave us a very comfortable position during the financial crisis, during the time of significant restructuring, especially in the Express business, and it's led to the positive net liquidity position that we still have today. On to page seven. Sorry, over to page 26. You see the cash flow statement for the full year 2011. Our cash flow performance improved as our operating earnings increased, as we had lower expenditures for restructuring, and we had quite a good working capital management, in particular in Q4, as you will see in a minute. On the other hand, as forecasted, we significantly increased capital investment for future growth. Key investments were Packet 2012, the Express aviation network in Global Forwarding, comprehensive upgrade of our IT systems, and new warehouses and transportation equipment for the supply chain business. Overall, free cash flow was up more than 50% to around EUR 750 million. On page 27, looking for a moment on the Q4 cash flow performance, as usual, or let us say seasonally, we had our strongest cash flow quarter with very strong contribution from working capital reduction. The much higher capital expenditures led to a slight overall decrease in free cash flow compared to Q4 of last year. On to page 28. You can see the evolution of our net liquidity position during 2011. Our significant investments for the future, together with the relatively high expenditure for the dividend, were the primary factors leading to the reduction in net cash for the year. You do see the very strong performance also to be seasonally expected in Q4 on the right-hand side of the graph, where we generated more than EUR 340 million of net liquidity increase. With EUR 938 million of net liquidity, we feel very confident about our ability to invest in and finance the further and full execution of Strategy 2015. Over to page 29, I will now take a look at the financial performance for each division. Frank talked about the top-line performance, so I will focus more on EBIT. Here is the mail division on page 29. In 2011, we took the first important step towards stabilizing the mail contribution above EUR 1 billion per year. In Q4, we saw a continuation of the trends from previous quarters of very strong growth in parcel volumes. We did see a small decline in letter volumes. EBIT performance was good with a 10% increase over last year, which included charges related to the new tariff agreement and some smaller restructuring costs, for example, for the global mail business in the U.K. Cash flow was again very strong seasonally, as in previous years, and the CapEx increase reflected timing effects and especially the increased investment in parcel facilities. Page 30, the Express business continued to perform very well despite increased investments in future growth. These investments include an expansion and modernization of the aviation network, increased investment in advertising and sponsoring, as well as further investment in a broad training program for the Express employees. We think these investments are paying off now and also in the future in terms of increased market share and higher levels of operating income. We are clearly growing faster than the market overall in our core TDI business. The jump in operating cash flow reflected higher operating income and also very good working capital management in Q4. Page 31. The Global Forwarding, Freight division saw a revenue increase of only 1% in Q4 due to the soft ocean and air freight markets, due to currency effects, and also to our selective strategy to decline participation in loss-making or very low-margin business. This tactical strategy has paid off in an increasing gross margin trend and increased EBIT for the full year. Q4 EBIT was slightly down due to charges taken for some smaller restructuring initiatives. CapEx has increased as we invest in a comprehensive upgrade of our global IT systems. On page 32, the supply chain business revenues increased by 4.3% organically, reflecting strong performance in gaining new business, a solid renewal rate, and expansion in emerging markets. EBIT improvement reflects a more favorable contract mix, very good cost management, and lower one-off costs to exit unattractive contracts. Frank Appel already mentioned that we had new business gains worth EUR 480 million for the quarter, the highest that I can remember in the last three years, and that ended a quite strong year overall for new business gains. Now let's take a look at the guidance for 2012 on page 34. We continue to have a base case forecast of a little bit below trend, but still reasonable global GDP growth in the 3%-3.5% range. With this key assumption, we forecast another increase in group EBIT performance to EUR 2.5 billion-EUR 2.6 billion, including mail at EUR 1 billion-EUR 1.1 billion, DHL in aggregate around EUR 1.9 billion. The growth driver, again, for the overall group earnings growth and corporate center costs are again around EUR 400 million. CapEx will tick up to around EUR 1.8 billion, as 2012 will be a critical year for the large projects that we mentioned. We also expect the effective tax rate to increase slightly to 27% as, again, the proportion of earnings in higher tax jurisdictions is expected to increase. Finally, we expect net profit to increase in line with the increase in operating income. Finally, to wrap up on page 35. Q4 was for us, a very strong end to a successful 2011. We saw that several mail EBIT stabilization levers have materialized in the course of 2011 and early 2012. The DHL footprint, in particular, our position in high growth developing markets, is delivering profitable growth. We continue to maintain, and in fact have increased our level of cost flexibility in the now more volatile macro environment. Overall, we're well on track towards Strategy 2015 goals. Thanks for listening, and we will be happy to answer your questions. Thank you. Operator, please initiate. If you would like to ask a question at this time, please press the star or asterisk key followed by the digit 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, please press star 1 to ask a question. We will pause for a moment to allow everyone to signal. We will take our first question today from Stephen Furlong from JB Research. Please go ahead. Yeah. Good morning. I just have a question on the inventory to sales ratio. Do you think that maybe with the U.S. getting a little bit better, there could be a potential for some restocking in 2012? Would that be something you might factor in? Then I was just wondering as well in terms of the relationship between air freight and GDP. Air freight seems to be very soft, and I am just wondering maybe on the Express side, do you think something more episodical is happening whereby, like iPads and things like this are driving the growth in the Express business much more than the heavier freight market? Thank you. Yeah. Steven, let me link these 2 questions. We have not observed so far any major restocking. If you look into the development of air freight and Express, that is to a certain extent disconnected. I think there are 2 things that we see a strong growth in Express or have seen a strong growth in Express in the last quarter. One is that we definitely have outperformed the market. But secondly, due to the relatively low stock we see around the world, more customers are using Express than just air freight. Where the air freight has been declined in the last quarter globally, the Express I think hold up pretty well. These things are probably connected. The good thing about that overall is that we have not very high inventory levels in warehouses seen in the last quarter. That makes me more confident that we will have a reduction in growth rates maybe this year, but not a recession, because there's still ongoing traffic needed to fill the pipeline. At the moment, we even benefiting from that through a very healthy Express development. That would be my answer to both questions somehow and how they are connected to each other. Great. Thank you. You're welcome. We will now take the next question from Damian Brewer from RBC. Please go ahead. Yes, thank you. Good afternoon. Thanks for taking the question. Two questions. First of all, DHL, on the Express side, the incremental margin both in Q3 and Q4 has fallen to somewhere in the 12%-14% range. Could you tell us a little bit more about how much of that reduction from the normal level we've seen historically has been driven by upfront OpEx investments in programs, and at what point or what the inflection point is at which that begins to return to a more normal level? Second question, and let's give them all in one go. Larry, could you give us some idea of within the EBIT for each division, the nature and size of any of the not necessarily one-off, but certainly non-repeating items you've seen in full year 2011? I'm thinking things like the freight forwarding efficiency restructuring, the tag integration costs, and the new tariff agreement in mail, for example. Sure. Let me start with the first one. I think you've put your finger on at least part of the issue in Express. We have been increasing investment on the OpEx side, in particular, in advertising and sponsoring and training. That clearly has led to a leveling off a bit on margins. Also a contributor is our expansion on the aviation network, and the initial startup costs. If you just start up a route, you have some initial costs associated with that. But we think they're absolutely the right investments to make for the future. We see already the good benefits from that in terms of increased market share. We're clearly growing the In the industry, there are things that we skimped on a little bit through the difficult time a few years ago. And they absolutely are the right things to do. That being said, we clearly have a close eye on operating margins, and we do believe that despite those investments, that margins generally are heading in the increasing direction in Express. So the EBIT for each division. In Q4, for example, in DGF, we had around EUR 16 million of, let's call them restructuring charges. We had the tag integration costs or dilutive effects of around EUR 20 million. And Express, there was not too much that I would think of as a one-off nature. We talked already about the higher OpEx investments. And in the mail business, we had around EUR 20 million of restructuring expense in the U.K. for part of, or one of the global mail businesses. And some costs associated with the new tariff agreement we booked in Q4 as well. Does that answer your question? Yes, it does. Thank you. Can I ask one cheeky follow-on? The tax rates increased. If DHL part of the business continues to be more profitable at a sort of mid-cycle profitability level, for example, where DHL was ex the U.S., what would be the sort of tax rate you'd envisage the business incurring at that point? I think probably we would expect to see a kind of gradual increase on the order of 1% a year. Okay. Thank you. Thank you. We will now take our next question from Andy Chu from Deutsche Bank. Please go ahead. Thank you very much. Good afternoon, gentlemen. A few questions if I may. Just following on from the one-off comments that have been made. I just wondered if I could just double-check what you were saying, just to clarify. It sounds as though the numbers that you gave, Larry, sort of add up to somewhere in the order of around about EUR 60 million. I just wanted to confirm that was, well, EUR 60 million, a lot of those were in Q4, but for the full year, 2011. Is that the level of sort of one-offs that one would hope would not be carrying into 2012? If that's the case, I guess at the top end of your guidance of EUR 2.6 billion, that would basically assume a delta of EUR 160 million, of which EUR 60 million would just come from the falling out of these one-off charges. I just wondered if you could just clarify that sort of position, please. Thank you very much. Generally, you're right, and it depends whether you classify the ver.di or, let's say, the new wage agreement in the mail division as one-off or not. We had a one-time payment that was part of the agreement that we booked in Q4 that was around EUR 50 million. It's worth remembering, too, that we'll have the impact of the wage increase in the mail division in 2012, and are not expecting any price increase until early as 2013. So you have some offsetting effects. Yeah, maybe to add to that, Andy. I think this is the first year that we only report a reported EBIT and no underlying EBIT. We will, of course, take all this a conservative view. If we see that we have to book something, we will book it somehow. Therefore, that you said this is a one-off anyway, but we will continue to do the right thing to improve the overall performance of the business further. If we see opportunities and they are digestible due to the strong performance we have, we will continue to do so. I think you can make your calculation, but I think it would be very aggressive, and I would not promise now that we will not have in the next year some one-time items, which we do as an investment into our operations to improve, long-term, the sustainability of our profits. Okay. That makes a lot of sense. Just in terms of the aviation network, could you just remind us what's being done on that front, please, in terms of the investment going in and maybe by aircraft or hub sites, just to refresh me, please. Thank you. Yeah, I can't tell you by heart. We have expanded our intercontinental, and we have invested, I think, 20 new airplanes for the renewal in Europe, which is not only more efficient airplanes, but also capacity-wise. But also in the long range, we added additional 747, additional 777. I can't tell you by heart, but it's quite insignificant. But we can provide that after the call, how many airplanes we added, because that's public knowledge anyway. Yeah. Also, we're in the final stages of investing in our North Asia hub in Shanghai, which is going to open this spring, and that's part of the higher investment overall in aviation that we're doing in Express. What we actually can share, what we haven't shared so far is that we have an increase in co-loading from the DGF division on the Express airplane. That is working very well. That gives us new opportunities to increase our service qualities further. That has increased. The DGF division has went up quite a bit in volumes on the Express airplanes, which makes me confident that we can intensify our network even further on the back of core products from Express, in addition to getting volumes from DGF. Thank you. Maybe just one last one. Just to make sure I'm absolutely clear. Just in terms of your guidance for mail, I just wanted to check that there's nothing unveiled in that mail guidance of EUR 1 billion to EUR 1.1 billion. I guess over the years you said it's around EUR 1 billion. You're now over EUR 1.1 billion for full year 2011, but obviously the range is at or slightly below for 2012. I was just checking there was nothing behind that guidance, please, that we should read into from a sort of a negative stance in terms of being a little bit more worried about mail profitability. Thank you. Well, again, it's in line with our long-term goal to have mail stay above EUR 1 billion of EBIT contribution. The top end of the guidance would see virtually the same contribution as in 2011. So, there's nothing else hidden to be read into that guidance. No, but we should expect 2011 was a different year from the previous years that the volume decline came to a standstill. We are not assuming that this will continue in 2012. We think that we will have a further deterioration of the volumes, and that, of course, has impact, and therefore, we think that we are well advised to give you the guidance that the numbers will end up between EUR 1 billion and EUR 1.1 billion. Which translates into the stabilization materializing. Perfect. That is very helpful. Thank you very much. Cool. Thank you. Next question, please. We will take our next question from Dominic Edridge from Reuters. Please go ahead. Hi there. Just a couple of questions from myself. Firstly, probably just following on from Damian's question on the Express. Could you just say what the pricing dynamics are at the moment there? Obviously, your TDI revenue has grown about 2 percentage points more than shipments in 2011. Is that sort of trend going to continue? Is it going to be better or worse, do you feel, than this in 2012? The second thing is on freight forwarding. Obviously, there have been a number of press articles about some changes within the management team there and some departures. Obviously, now we have seen there is some restructuring going on. Could you just clarify what is happening and what sort of changes you are looking to make there? Last one, which is sort of purely financial. Just in the absence of the sort of full annual report I know until next week or so, could you just talk about the provision movements in the cash flow statement and what sort of quantum we should expect for this year as well? Thank you very much. On pricing dynamics in Express, you have to consider also weight. We saw an increase in average weight per shipment. Right now, the outlook for 2012, all of the industry participants have introduced GPIs, general price increases, earlier this year. The extent to which those will stick in a disciplined way is still being determined. We are optimistic about it. I would not want to make a precise prediction about pricing. Maybe on the provision movements, I would direct you to take a look, given the absence of the full annual report, take a look at our website at the IR stat pack. There you see all of the provision movements and related cash flow effect for each division. I think that will give you everything you need. Great. Any comments for 2012 at all? No, I wouldn't expect very huge differences. I generally would say that we've had the restructuring charges, especially for Express in the past, and we tend to use those provisions over time. The usage might be slightly less in 2012 compared to 2011. If you talk about the management changes we have seen in the last 12 months. This is a consequence of changing the head. Of course, the person usually tries to build the right team for his agenda, and Roger has done so. Therefore, we haven't lost a significant amount of people unwanted somehow. It's all a consequence. Some people retired, even so they were pretty old already. If you reflect on some what was in the news, this is an interesting story to read, and I laughed pretty loud when I read it. Sometimes you have your fun as well reading about your company. But overall, this is a logical consequence of some management changes we wanted to do anyway. That is very clear focus that we have the right team on board now to deliver our promises also in that division. Okay. Thank you very much. Welcome. Next question, please. Thank you. We will take our next question from Robert Joynson from Macquarie. Please go ahead. Good afternoon, Frank, Larry. I have got one question on Mail and then a couple of questions on Express. Maybe let us take them one by one. First of all, just starting off with Mail, just regarding the E-Postbrief. The previous guidance there has been for a spend of around 500 million EUR over five years. Could you just confirm whether 500 million EUR is still the target number? And also whether that is expected to be expensed evenly over that five period, or whether it is now expected to be more front-end loaded or indeed possibly back-end loaded. We still intend to spend that over the period and we never commented exactly how that is distributed, but it is not a big volatility over the years in that number. So how that spread is. Being two years in a row, we have already expended quite a bit of that. Okay, fair enough. Then just on Express, just looking at the development of the TDI volumes during the last few quarters, that has really been fantastic, especially given that global air freight volumes have been so weak over that period. Could you maybe just provide some detail on the composition of that growth, in terms of variables such as market share gains in existing areas or new products or targeting new geographies, et cetera? Yes, we can. I think we see a nice growth and outperformance of the market around the world, including the U.S., where we have seen strong double-digit growth, which we think is above the market. We have not introduced so many products. What the key driver behind that is we have a much more trained and skilled workforce. We have a much more focused sales approach than we had. Finally, and most importantly, probably, we had a record year in service quality. You can see that as well in our satisfaction surveys of customers, that they compliment us very high on the service quality. This is what we always said when we retrenched. We said there are two legs which are needed. We have not only now a superb quality outside the U.S., but also in the U.S. I said that already in earlier calls. Our service quality is probably second to none in the U.S. because we have the shortest sorting window in the night, and that gives us a lot of opportunities to show a lot of resilience in the service quality. So these are the key drivers behind that. We are not extremely aggressive on the market with pricing, so we do not see a deterioration of our yield as some of you said already. It is really the combination of very skilled labor and excellent global footprint, and it is across all regions that we see very good development of our volumes. Okay. Thank you for that. Then just final question, actually, just touching on U.S. Express, actually. I appreciate that you are not splitting out the profitability of that business anymore. But could you maybe just provide some color on how the EBIT loss produced by that business has actually developed since it was last disclosed a couple of years ago? It has also contributed very nicely to our overall profitability improvement, for sure. As you said, Robert, we don't disclose these numbers intentionally, and therefore, I can't say more, but we are significantly better than the $400 million U.S. loss we shared, I think, one and a half years ago. So we have improved very much, and they contributed also very nicely to the overall development of our numbers. Okay. That's very helpful. Thank you. You're welcome, Robert. Next question, please. Our next question today comes from Neil Glynn from Credit Suisse. Please go ahead. Good afternoon, everybody. If I could lead with a question on parcels within Germany. Clearly, the market is developing quite strongly, which one would think would attract increasing competition, and I've certainly seen some comments from Hermes over the past few months. I'm interested in your views as to how you expect the competitive landscape to develop and can the positive revenue trend be protected, i.e., is there enough growth for everybody? Then second of all, if I could delve back into one of the previous Express questions. Would it be possible to outline how your intra-Asia revenues are developing relative to your inbound and outbound Asia revenues to give us some color as to how insulated you are from perhaps the European situation? May I ask the first question and the second I have not in my mind yet. Maybe, Larry, you can answer if you have it. Let me start with the parcel growth in Germany. Yes, we are confident that there is sufficient space for growth for everybody. Beyond that, we just recently released an external study done on our demand, which shows that one out of 4 customers, consumers, is demanding DHL as their sole provider for shipments. The other 3 quarters, we are definitely a partner as well. What drives at the moment our growth, I think, and that's above the market growth, is the great service quality, the product offerings we have. That makes me confident that we can continue to grow the business despite the fact that the business as such will grow pretty rapidly. The market share of online e-commerce is still relatively low. We see still huge opportunities to expand that further. We have launched our own activities like MeinPaket, which is a website with more than 3 million items already, which is very nicely growing. We have other ideas as well, too early to share, but to invest as well in facilitating e-commerce even further. We expect until 2020, a further development, and we think there will be healthy growth, about 5% until 2020 in this industry. On the second question, intra-Asia versus inbound and outbound. In Asia Pacific, we had overall growth of around between 10.5% and 11%, closer to 10.5% on imports into Asia and 11% on exports from Asia. The intra-Asia growth was not too much different from that in 2011. That being said, we certainly expect our position in Asia to be a competitive advantage for the foreseeable future. Our footprint in Asia, as we're in every country, as DHL has a high share of the Express business in very many countries in Asia, we expect that we naturally will be able to benefit from the high growth in intra-Asia trade. Even though that was not the case in 2011, it was around the same as export and import, we would expect it to be the case in the future. Thank you. Okay. Thanks, Neil. We've got time for a few more questions. Operator, please. We'll now take our next question from Penelope Butcher from Morgan Stanley. Please go ahead. Great. Thank you. Good afternoon, everybody. I have three questions. The first is in relation to your cash flow chart on page 28. I'm just trying to understand a little bit better what was included in the other effects decline in cash balance for the full year 2011 and most especially in Q4. Because if we take your free cash flow generation for Q4, it would have assumed, I would have thought, a much bigger base of underlying cash at the end of the year. So if you could just explain perhaps what's included in those other effects that we need to take account of. My second question is in relation to the CapEx guidance of EUR 1.8 billion. This has been quite a step up at least versus 2011. Could you give some guidance as to whether this is a reflection purely for 2012 and the CapEx level should moderate thereafter? Or should we expect maybe this higher level of base of CapEx to generate the EBIT growth in the future? My third question is in relation to the forwarding business. I think you alluded into the comment in the presentation that you're happy to continue to grow this business, but focusing primarily on quality customers. Should we infer from that that this is more about perhaps the revenue growth side and less about expansion of the margin in forwarding going forward? Thank you. Let me start on the first question. What's in the EUR 524 million of all other effects? The two biggest items are cash dividends paid to minority shareholders, and also our cash net interest costs. There are a few smaller items, but those are the two biggest ones. The CapEx guidance, we're kind of in a heavy, I wouldn't necessarily call it peak period, but I also would not expect that CapEx would go up anywhere near substantially from the 1.8. In fact, I think probably a reasonable run rate for our company in its current version is more like EUR 1.6 billion. So we're spending a bit more because we've got all those strategic projects going now. We'll see those especially in 2012. A couple of them will continue in 2013. Then we might come to a more normalized period. DGF, of course, we want to grow the business further, but we thought that 2011 is a good year to consolidate a little bit the customer front. The team is now focusing very much to look for new business, and the hit rate is pretty high, we have seen in the last month. We usually don't report that, so I'm pretty confident that we will see a change in the growth rate of the forwarding business again, but on a much more robust gross profit base than we had before. That I think it was the right decision to go for. Okay, great. Thank you very much. You are welcome. Thanks, Penny. The next question, please. Thank you. We will now move to our next question from Johannes Braun from Commerzbank. Please go ahead. Yes. Hi, it's Johannes Braun from Commerzbank. I just have one question left, actually, and it's basically a clarification. I understand that you are currently in talks with the tax authorities on a potential tax reclaim by the authorities. I think it's regarding VAT. The question would be, is it already possible to give us an update on that and the potential, at least rough indication of what magnitude of tax reclaim we are talking about here and what that might potentially mean regarding distributable cash in 2012, if there's any impact at all? We do confirm that we are in discussion with the tax authorities. To be realistic, we're always in discussion with the tax authorities in Germany and in other countries on different subjects that are coming up in audits. The article published in the press referred to VAT matters, and indeed, that is the case that we're discussing those matters. But because we are not finalized on those discussions, neither we nor the tax authorities can really give details about it. That being said, obviously it's something that we've considered in setting the guidance for this year. Sure. And so some of the amounts mentioned in the press articles seem to us to be exaggerated. Yeah, sure. Is there any timeline for a clarification or in a definite agreement with the tax authorities? I wouldn't want to necessarily give a timeline. Okay. Thank you. Okay, thank you. I think there will be time for one final question if there is one out there. Moderator, would you ask around, please? Ladies and gentlemen, if you would like to ask a question, please press star one at this time. I have no question at this time. Okay. Well, then let me summarize again. I think we had a very good 2011, and we have achieved all our goals. We have laid the foundation for further growth by continuing investing in our capabilities and offerings to our customers. I am pretty confident that we can increase our profitability as just shared with you the new guidance in 2012. Thank you for participating and listening, and talk to you soon, I guess, again. Thank you, and bye for now. Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen.