Rating Type Rating Outlook Last Rating Action Long-Term IDR BBB+ Stable Affirmed 30 August 2017 Senior Unsecured Rating BBB+ Affirmed 30 August 2017 Click here for full list of ratings Financial Summary (EURm) Dec 2015 Dec 2016 Dec 2017F Dec 2018F Gross Revenue 59,230 57,334 59,051 60,876 Operating EBITDAR Margin (%) 9.8 11.7 12.1 12.3 FFO Margin (%) 4.3 5.8 6.0 6.2 FFO Fixed Charge Coverage (x) 2.2 2.4 2.5 2.5 FFO Adjusted Leverage (x) 3.6 3.2 3.1 3.0 Source: Fitch s (DP) BBB+ rating reflects DP's balanced business profile, internet-driven volume growth in its parcels business, continued growth and margin improvement in its Express division, and fairly stable credit metrics. This is offset by structural and margin pressures on traditional mail volumes and lagging financial performance in its Global Forwarding, Freight (GFF) division. Key Rating Drivers Balanced Risk Profile: DP's ratings reflect a balanced business risk profile, supported by a stable contribution from core mail products despite structural volume declines, a strong position in global time-definite express services (DHL) and growth in internet-led parcel volumes. This is offset by the more cyclical and competitive nature of GFF and Supply Chain operations, as well as restructuring-related delays in GFF. DP remains one of the largest logistics services businesses in the world through its Express, GFF and Supply Chain businesses. Strong Parcels, Declining Mail: Traditional mail volumes and revenues at the mail division (PeP) are declining due to higher email usage. The decline is more than offset by a rising contribution from domestic parcels, albeit with lower profit margins. Parcel volumes in Germany grew 6.3% yoy in 2Q17, driven by the growth in online shopping. PeP has been expanding its footprint for its parcel business in Europe and other, select non-european countries by taking over legacy DHL assets in neighbouring countries, as well as making Greenfield entries into new markets. Fitch expects PeP's EBITDA margin to remain stable over 2017-2020. Express Growth Remains Strong: DP s Express division continues to benefit from the growth trend in global B2B business. Compound annual growth of Time-Definite-International (TDI) volumes over the past five years was over 8%. Combined with DP s extensive global network and further investments in improving its capabilities, this has led to a steady improvement in margins. Fitch expects Express to be the key growth driver for the company for the next few years. TDI volumes in 2Q17 increased 12.7% yoy and the EBIT margin increased to a high of 12.5% from 12.1%. We forecast the division's EBITDA margin to gradually improve over 2017-2020. GFF Recovery on Track: The GFF division is the most cyclical of DP's businesses, with a direct correlation with global trade volumes. Overcapacity issues in air freight and ocean freight markets seem to have moderated in 2017 YTD, leading to some improvement in freight rates. Legacy issues at DP's GFF division have meant that GFF is less profitable than its global peers. GFF has recovered profitability well in 2016 and is now focussed on improving gross profit conversion to EBIT through focus on profitable volumes, leading to positive cash contribution. Supply Chain Restructuring: DP s Supply Chain remains a steady growth business, with about EUR1 billion in new order intakes per year; volumes are underpinned by a broad range of contracts with major industrial, retail and government clients. The EBIT margin improved in 2016 due to the restructuring of underperforming businesses and operational standardisation. Fitch expects margin growth in 2017 and beyond at a more muted level. 28 September 2017 1
Stable Financial Profile: Fitch expects DP's financial profile to remain stable over 2017-2020, reflecting expected margin improvement, with capex and dividend maintained broadly at current levels. Fitch forecasts free cash flow (FCF) to be moderately negative after assumed average capex of EUR2.4 billion per year until 2019 and a circa 50% dividend payout. Fitch estimates funds from operations (FFO) lease adjusted net leverage for 2017 to be about 2.8x, in line with the 2016 level, and to remain at around this level over 2018-2020. We expect FFO fixed charge coverage, including non-cancellable operating leases averaging EUR2.2 billion per year, to stay close to 2.5x over 2017-2020. Rating Derivation Relative to Peers Rating Derivation versus Peers Peer Comparison DP benefits from a balanced business risk profile as the world s leading express and logistics services provider balanced by its position as the universal service provider for postal services in Germany. DP's business profile compares well with that of its peers, such as government-related operators La Poste (A+/Stable) and Poste Italiane SpA (BBB/Stable), and shareholder-owned United Parcel Service and FedEx. DP's margins are comparable to those of La Poste, but are slightly lower than Poste Italiane's. DP's credit metrics are comparable to those of La Poste and Poste Italiane. DP is rated on standalone basis, whereas both Poste Italiane and La Poste are rated using a top-down approach driven by assessment of the state linkage. Parent/Subsidiary Linkage Country Ceiling Operating Environment Other Factors No parent/subsidiary linkage is applicable. No Country Ceiling constraint was in effect for these ratings. No operating environment influence was in effect for these ratings. Not applicable. Source: Fitch Rating Sensitivities Future Developments That May, Individually or Collectively, Lead to Positive Rating Action FFO lease adjusted net leverage below 2.5x and FFO fixed charge coverage above 3.5x on a sustained basis; an improving macro-economic outlook supporting performances of DHL's divisions; and continued increase in cash flow contribution from the domestic parcel business to compensate declining traditional mail profits supporting free cash-flow generation. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action FFO lease adjusted net leverage above 3.5x on a sustained basis and further weakening of FFO fixed charge coverage; significant deterioration in business fundamentals due to a protracted economic downturn or structural changes leading to significant volume and margin reduction in the DHL divisions and consistently negative free cash flows. Liquidity and Debt Structure Sufficient Liquidity: DP's liquidity was adequate at end-june 2017 through the combination of a strong cash balance and undrawn credit facility. On-balance-sheet cash at end-june 2017 was EUR1,653 million (of which EUR1,167 million was restricted), down from EUR2,175 million (excluding restricted cash) at end-2016. Short-term debt at end-1h17 was EUR1,181 million. This decline in cash position at end-1h17 was primarily due to seasonal working-capital outflow, a EUR750 million bond maturity and dividend payments in the first half of the year. DP has a committed undrawn EUR2 billion credit facility maturing in 2020. We forecast DP to be moderately FCF negative in 2017. 28 September 2017 2
Debt Maturities and Liquidity at FYE16 Debt Maturities as of end-2016 (EURm) 2017 1,464 2018 776 2019 424 2020 316 2021 763 After 2021 2,293 Total debt 6,035 Liquidity Analysis as of end-2016 (EURm) Unrestricted cash 2,175 Committed banking facilities 2,000 Available undrawn portion 2,000 Total Liquidity 4,175 Fitch Forecasted 2017 FCF (post dividend) -80 Short-term debt 1,464 Liquidity score [x] 2.7 Source: Fitch 28 September 2017 3
Trends and Forecasts Developed BBB+ Median Transportation Median Note: Including Fitch expectations Source: Fitch Definitions FFO Adjusted Leverage: Total Adjusted Debt with Equity Credit divided by Funds From Operations [FFO] + Gross Interest (Paid) - Interest Received + Preferred Dividends (Paid) + Operating Lease Expense for Capitalised Leased Assets. FFO Interest Cover: FFO + Gross Interest paid minus interest received + Preferred Dividends paid divided by Gross Interest Paid + Preferred Dividends Paid. Revenue Growth: Percentage growth in revenues since previous reporting period. FFO Margin: FFO divided by Revenues. 28 September 2017 4
Key Assumptions Fitch's key assumptions within our rating case for the issuer include: Corporates continued decline in mail volumes offset by growth in the parcels business; gradually improving profitability driven by growth in the Express division; dividend payments in line with the company's policy of a 40%-60% payout ratio; capex to remain in the EUR2.3 billion to EUR2.5 billion range over the next three years; we do not capitalise operating lease payments relating to offices, IT, vehicles and buildings, which co-terminate with contracts, and we capitalise operating lease expenses related to aircraft, other buildings and machinery using 8x multiple. Financial Data Historical Forecast (EURm) Dec 2014 Dec 2015 Dec 2016 Dec 2017F Dec 2018F Dec 2019F SUMMARY INCOME STATEMENT Gross Revenue 56,630 59,230 57,334 59,051 60,876 62,254 Revenue Growth (%) 2.8 4.6-3.2 3.0 3.1 2.3 Operating EBITDA (Before Income From Associates) 4,153 3,729 4,591 4,965 5,223 5,395 Operating EBITDA Margin (%) 7.3 6.3 8.0 8.4 8.6 8.7 Operating EBITDAR 5,998 5,825 6,734 7,172 7,499 7,721 Operating EBITDAR Margin (%) 10.6 9.8 11.7 12.1 12.3 12.4 Operating EBIT 2,772 2,064 3,214 3,557 3,756 3,893 Operating EBIT Margin (%) 4.9 3.5 5.6 6.0 6.2 6.3 Gross Interest Expense -137-146 -384-157 -159-167 Pretax Income (Including Associate Income/Loss) 2,294 2,057 3,132 3,467 3,645 3,775 SUMMARY BALANCE SHEET Readily Available Cash and Equivalents 2,085 2,526 2,175 1,829 1,855 2,273 Total Debt With Equity Credit 5,169 5,178 6,035 6,071 6,296 6,872 Total Adjusted Debt with Equity Credit 15,317 16,706 17,822 18,211 18,810 19,670 Net Debt 3,084 2,652 3,860 4,242 4,440 4,599 SUMMARY CASH FLOW STATEMENT Operating EBITDA 4,153 3,729 4,591 4,965 5,223 5,395 Cash Interest Paid -188-76 -138-157 -159-167 Cash Tax -548-585 -528-700 -870-930 Dividends Received Less Dividends Paid to Minorities (Inflow/(Out)flow) -89-123 -122-124 -124-124 Other Items Before FFO -471-424 -555-458 -336-345 Funds Flow From Operations 2,902 2,568 3,298 3,566 3,775 3,868 Change in Working Capital -21 788-75 -123-120 -91 Cash Flow From Operations (Fitch Defined) 2,881 3,356 3,223 3,443 3,655 3,777 Total Non-Operating/Non-Recurring -59-65 0 28 September 2017 5
Cash Flow Capital Expenditure -1,750-2,128-1,543 Capital Intensity (Capex/Revenue) 3.1 3.6 2.7 Common Dividends -968-1,030-1,027 Net Acquisitions and Divestitures 9 0-304 Other Investing and Financing Cash Flow Items 427 597-1,124-168 -100-100 Net Debt Proceeds -894-69 1,110 36 225 577 Net Equity Proceeds 62-31 -836-134 0 0 Total Change in Cash -292 630-501 -346 26 418 DETAIL CASH FLOW STATEMENT FFO Margin (%) 5.1 4.3 5.8 6.0 6.2 6.2 Calculations for Forecast Publication Capex, Dividends, Acquisitions and Other Items Before FCF Free Cash Flow After Acquisitions and Divestitures Free Cash Flow Margin (After Net Acquisitions) (%) -2,768-3,223-2,874-3,523-3,753-3,836 113 133 349-80 -98-59 0.2 0.2 0.6-0.1-0.2-0.1 COVERAGE RATIOS FFO Interest Coverage (x) 16.2 34.2 24.5 23.5 24.5 23.9 FFO Fixed Charge Coverage (x) 2.4 2.2 2.4 2.5 2.5 2.5 Operating EBITDAR/Interest Paid + Rents (x) 2.9 2.6 2.9 3.0 3.0 3.0 Operating EBITDA/Interest Paid (x) 21.6 47.4 32.4 30.9 32.1 31.6 LEVERAGES RATIOS Total Adjusted Debt/Operating EBITDAR (x) Total Adjusted Net Debt/Operating EBITDAR (x) Total Debt with Equity Credit/Operating EBITDA (x) 2.6 2.9 2.7 2.6 2.6 2.6 2.2 2.5 2.4 2.3 2.3 2.3 1.3 1.4 1.4 1.3 1.2 1.3 FFO Adjusted Leverage (x) 3.1 3.6 3.2 3.1 3.0 3.1 FFO Adjusted Net Leverage (x) 2.7 3.0 2.8 2.8 2.7 2.8 How to Interpret the Forecast Presented The forecast presented is based on the agency s internally produced, conservative rating case forecast. It does not represent the forecast of the rated issuer. The forecast set out above is only one component used by Fitch to assign a rating or determine a rating outlook, and the information in the forecast reflects material but not exhaustive elements of Fitch s rating assumptions for the issuer s financial performance. As such, it cannot be used to establish a rating, and it should not be relied on for that purpose. Fitch s forecasts are constructed using a proprietary internal forecasting tool, which employs Fitch s own assumptions on operating and financial performance that may not reflect the assumptions that you would make. Fitch s own definitions of financial terms such as EBITDA, debt or free cash flow may differ from your own such definitions. Fitch may be granted access, from time to time, to confidential information on certain elements of the issuer s forward planning. Certain elements of such information may be omitted from this forecast, even where they are included in Fitch s own internal deliberations, where Fitch, at its sole discretion, considers the data may be potentially sensitive in a commercial, legal or regulatory context. The forecast (as with the entirety of this report) is produced strictly subject to the disclaimers set out at the end of this report. Fitch may update the forecast in future reports but assumes no responsibility to do so. 28 September 2017 6
Rating Navigator Factor Levels Sector Risk Profile Operating Environment Management and Corporate Governance Sector Competitive Intensity Business Profile Sector Trend Company's Market Position Diversification Profitability Financial Profile Financial Structure Financial Flexibility Issuer Default Rating aaa AAA Stable aa+ AA+ Stable aa AA Stable aa- AA- Stable a+ A+ Stable a A Stable a- A- Stable + BBB+ Stable BBB Stable - BBB- Stable bb+ BB+ Stable bb BB Stable bb- BB- Stable b+ B+ Stable b B Stable b- B- Stable ccc CCC Stable cc CC Stable c C Stable d or rd D or RD Stable 28 September 2017 7
Operating Environment Management and Corporate Governance aa+ Economic Environment aa Very strong combination of countries where economic value is created and where assets are located. a+ Management Strategy a Coherent strategy and good track record in implementation. aa Financial Access a Strong combination of issuer specific funding characteristics and of the Experienced board exercising effective check and balances. Ownership can a Governance Structure a strength of the relevant local financial market. be concentrated among several shareholders. Systemic Governance aa Systemic governance (eg rule of law, corruption; government effectiveness) Some group complexity leading to somewhat less transparent accounting a- Group Structure of the issuer s country of incorporation consistent with 'aa' statements. No significant related-party transactions. b- + Financial Transparency a ccc Financial Sponsor Attitude (LBO only) High quality and timely financial reporting. Sector Competitive Intensity Sector Trend a Industry Structure Larger number of competitors with some track record of price discipline in Long-Term Growth a- downturns. Potential a- Barriers to Entry/Exit a Time and significant financial commitment required to enter the industry meaningfully. + Volatility of Demand + Relative Power in Value Chain a Stronger bargaining power than suppliers and customers. Threat of Substitutes Mature industry. Traditional markets may be under some pressure but opportunities arise in new markets. Demand volatility in line with economic cycles. Facing substitutes of comparable quality but switching costs are significant. - bb+ Company's Market Position Diversification a+ Market Share aa Market leader in most of its segments. aa- Geographic Diversification a a Competitive Advantage Some competitive advantages with reasonably good sustainability. a+ Product/End-Market a Strong diversification but balance between emerging and growth markets could be better. Well balanced exposure to at least three business lines or markets with different sensitivity to the economic cycle. a- Operating Efficiency Return on invested capital in line with industry average. a + a- + Profitability Financial Structure - FFO Margin b 7% a- Lease Adjusted FFO Gross Leverage bb+ EBIT Margin b 7% + Lease Adjusted FFO Net Leverage bb FCF Margin b Neutral to negative FCF margin. Net Debt/(CFO - Capex) bb bb- Volatility of Profitability a Lower volatility of profits than industry average. - Lease Adjusted Gross Debt/EBITDAR b+ EBITDAR Margin b 15% bb+ Funding Structure (LBO only) 3.5x 3.0x 3.5x 3.0x Financial Flexibility a Financial Discipline a a- Liquidity aa Clear commitment to maintain a conservative policy with only modest deviations allowed. Very comfortable liquidity; no need to use external funding in the next 24 months. Well-spread debt maturity. Diversified sources of funding. How to Read This Page: The left column shows the three-notch band assessment for the overall Factor, illustrated by a bar. The right column breaks down the Factor into Sub-Factors, with a description appropriate for each Sub-Factor and its corresponding category. + FFO Fixed Charge Cover bb 3x - FX Exposure EBITDAR/(Gross Interest + Rents) bb Some exposure of profitability to FX movements and/or debt/cash-flow match. Effective hedging in place. 3.5x Navigator Version: RN 1.39.48.0 28 September 2017 8
Simplified Group Structure Diagram BBB+/Stable 2016 EBITDA EUR4,591m Amount drawn (EURm) EUR2bn RCF 0 EUR unsecured bonds 2018 500 EUR unsecured convertible 2019 419 EUR unsecured bonds 2020 300 EUR unsecured bonds 2021 750 EUR unsecured bonds 2023 500 EUR unsecured bonds 2024 700 EUR unsecured bonds 2026 500 Deutsche Post Finance BV Amount drawn (EURm) EUR unsecured bonds 2022 500 Guarantee Note: The arrows highlight the guarantees within the group Source: Fitch, company fillings. As of June 2017 28 September 2017 9
Peer Financial Summary Company Date Rating Gross Revenue (EURm) Operating EBITDA Margin (%) Operating EBITDA / Interest Paid (x) Debt / EBITDA (x) 2016 BBB+ 57,334 11.7 32.4 1.4 2015 BBB+ 59,230 9.8 47.4 1.4 2014 BBB+ 56,630 10.6 21.6 1.3 La Poste 2016 A+ 23,274 6.5 10.4 4.5 2015 A+ 22,939 6.3 10.2 5.0 2014 A+ 21,948 5.7 8.5 5.5 Poste Italiane S.p.A 2016 BBB+ a 6,872 17.3 20.2 1.0 a Downgraded to BBB /Stable in May 2017 Source: Fitch 2015 BBB+ 6,880 14.7 14.4 1.6 2014 BBB+ 7,028 12.8 9.3 2.7 28 September 2017 10
Reconciliation of Key Financial Metrics (EUR Millions, As reported) 31 Dec 2016 Income Statement Summary Operating EBITDA 4,591 + Recurring Dividends Paid to Non-controlling Interest -128 + Recurring Dividends Received from Associates 6 + Additional Analyst Adjustment for Recurring I/S Minorities and Associates 0 = Operating EBITDA After Associates and Minorities (k) 4,469 + Operating Lease Expense Treated as Capitalised (h) 2,143 = Operating EBITDAR after Associates and Minorities (j) 6,612 Debt & Cash Summary Total Debt with Equity Credit (l) 6,035 + Lease-Equivalent Debt 11,787 + Other Off-Balance-Sheet Debt 0 = Total Adjusted Debt with Equity Credit (a) 17,822 Readily Available Cash [Fitch-Defined] 2,175 + Readily Available Marketable Securities [Fitch-Defined] 0 = Readily Available Cash & Equivalents (o) 2,175 Total Adjusted Net Debt (b) 15,647 Cash-Flow Summary Preferred Dividends (Paid) (f) 0 Interest Received 50 + Interest (Paid) (d) -138 = Net Finance Charge (e) -88 Funds From Operations [FFO] ( c) 3,298 + Change in Working Capital [Fitch-Defined] -75 = Cash Flow from Operations [CFO] (n) 3,223 Capital Expenditures (m) -1,543 Multiple applied to Capitalised Leases 5.5 Gross Leverage Total Adjusted Debt / Op. EBITDAR* [x] (a/j) 2.7 FFO Adjusted Gross Leverage [x] (a/(c-e+h-f)) 3.2 Total Adjusted Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid) Total Debt With Equity Credit / Op. EBITDA* [x] (l/k) 1.4 Net Leverage Total Adjusted Net Debt / Op. EBITDAR* [x] (b/j) 2.4 FFO Adjusted Net Leverage [x] (b/(c-e+h-f)) 2.8 Total Adjusted Net Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid) Total Net Debt / (CFO - Capex) [x] ((l-o)/(n+m)) 2.3 Coverage Op. EBITDAR / (Interest Paid + Lease Expense)* [x] (j/-d+h) 2.9 Op. EBITDA / Interest Paid* [x] (k/(-d)) 32.4 FFO Fixed Charge Cover [x] ((c-e+h-f)/(-d+h-f)) 2.4 (FFO - Net Finance Charge + Capit. Leases - Pref. Div Paid) / (Gross Int. Paid + Capit. Leases - Pref. Div. Paid) FFO Gross Interest Coverage [x] ((c-e-f)/(-d-f)) 24.5 (FFO - Net Finance Charge - Pref. Div Paid) / (Gross Int. Paid - Pref. Div. Paid) * EBITDA/R after Dividends to Associates and Minorities Source: Fitch based on company reports 28 September 2017 11
Fitch Adjustment Reconciliation Income Statement Summary Reported Values 31 Dec 16 Sum of Fitch Adjustments Preferred Dividends, Associates and Minorities Cash Adjustments.Intcorp -.Intcorp - Other Exceptional items adjustments Adjusted Values Revenue 59,490-2,156-2,156 57,334 Operating EBITDAR 7,007-273 -273 6,734 Operating EBITDAR after Associates and Minorities 7,007-395 -122-273 6,612 Operating Lease Expense 2,143 0 2,143 Operating EBITDA 4,864-273 -273 4,591 Operating EBITDA after Associates and Minorities 4,864-395 -122-273 4,469 Operating EBIT 3,487-273 -273 3,214 Debt & Cash Summary Total Debt With Equity Credit 6,035 0 6,035 Total Adjusted Debt With Equity Credit 17,822 0 17,822 Lease-Equivalent Debt 11,787 0 11,787 Other Off-Balance Sheet Debt 0 0 0 Readily Available Cash & Equivalents 2,175 0 2,175 Not Readily Available Cash & Equivalents 932 0 932 Cash-Flow Summary Preferred Dividends (Paid) 0 0 0 Interest Received 50 0 50 Interest (Paid) -138 0-138 Funds From Operations [FFO] 2,420 878-122 1,000 3,298 Change in Working Capital [Fitch-Defined] -75 0-75 Cash Flow from Operations [CFO] 2,345 878-122 1,000 3,223 Non-Operating/Non-Recurring Cash Flow 0 0 0 Capital (Expenditures) -1,999 456 456-1,543 Common Dividends (Paid) -1,027 0-1,027 Free Cash Flow [FCF] -681 1,334-122 1,456 653 Gross Leverage Total Adjusted Debt / Op. EBITDAR* [x] 2.5 2.7 FFO Adjusted Leverage [x] 3.8 3.2 Total Debt With Equity Credit / Op. EBITDA* [x] 1.2 1.4 Net Leverage Total Adjusted Net Debt / Op. EBITDAR* [x] 2.2 2.4 FFO Adjusted Net Leverage [x] 3.4 2.8 Total Net Debt / (CFO - Capex) [x] 11.2 2.3 Coverage Op. EBITDAR / (Interest Paid + Lease Expense)* [x] 3.1 2.9 Op. EBITDA / Interest Paid* [x] 35.2 32.4 FFO Fixed Charge Coverage [x] 2.0 2.4 FFO Interest Coverage [x] 18.2 24.5 *EBITDA/R after Dividends to Associates and Minorities 28 September 2017 12
Full List of Ratings Rating Outlook Last Rating Action Long-Term IDR BBB+ Stable Affirmed 30 August 2017 Short-Term IDR F2 Affirmed 30 August 2017 Senior Unsecured Rating BBB+ Affirmed 30 August 2017 Deutsche Post Finance B.V. Senior Unsecured Rating BBB+ Affirmed 30 August 2017 Related Research & Criteria - Ratings Navigator (September 2017) Fitch Affirms Deutsche Post at BBB+ ; Outlook Stable (August 2017) Corporate Rating Criteria (August 2017) Analysts Paul Lund +44 203 530 1244 paul.lund@fitchratings.com Raman Singla +44 203 530 1728 raman.singla@fitchratings.com 28 September 2017 13
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