Ladies and gentlemen, welcome to the Deutsche Post THL Group Conference Call regarding the Q1 results 2020. At this time, all participants have been placed on a listen only mode. Let me now hand the floor over to Mr. Martin Simberg.
Thank you, and good morning, and a warm welcome to everybody out there. It isn't that long ago that we have been together in this round. At this time around, it's on the official set of Q1 2020 data. And I take it you have the presentation we send out in front of you. As announced, we've got Frank Appel, the group CEO and Melanie Christ, the group CFO here with us, usual procedure.
We have got time for Q And A afterwards. And with that, over to you, Frank.
Yes, thank you, Martin. Good morning also from my side. Thanks for joining us this morning. So I can go straight away. I think in the presentation, page 2 is actually summarizing very well where we stand at the moment.
You know, the Q numbers are definitely a strong sign of our fundamental strength and our broad portfolio of businesses. We see at the moment very well from our colleagues around the world that they are really delivering our purpose nicely and we have very good procedures in place. Aligned along the world, but also in respective countries to protect our people that enables us to do it to deliver great service to our customers, Unfortunately, the visibility going forward is still, difficult despite that we see first signs. Of improvement. Importantly, so I think that we have pretty well, as you can see from our operational cash flow, Melanie, we're talking about later on and we have managed pretty well our liquidity.
On the next page, you'll see what we have received from our colleagues all over the world that they are really excited on one end to really help others to keep the world moving And on the same side, you know, are well equipped to prepare to safeguard their own health. So that's as you run a company for so long as I do, it's really rewarding to see the energy level and the commitment of our workforce around the world. And that is not in just one country. It is all over the world. I recently, handed over virtually the CEO awards from last year, which we usually do in a big event internally.
And I talked to people with starting from Ghana to India Canada, Latin America, Europe, Asia all over the place. And what I all said is, Frank, we are very committed and we are doing our utmost to help our people, but secondly, to help our customers to get things moving in And that is great to see. So if I look into how things are progressing on Page 4, you can see the volume development of our P and P and Express, we have highlighted a couple. So you can see here, as we already communicated when mail volume particular, the direct mailings are declining, as you see later, 1st class mail is that we're okay. Of course, not surprisingly, people, if their stores are closed, they don't advertise.
The opposite is visible on Parcel, the people can't buy on High Street, they buy online. It took a couple of weeks until the people reach 8. Not surprisingly, the 1st 2 or 3 weeks people were at home watching more of the media, what might happen. And after 3 weeks, they normalize somehow and said, okay, now I have to fulfill my needs. By buy now online instead of offline.
Express, you see actually what we have told you already before, China, after the lockdown was lifted, has recovered pretty well with strong volumes. In week 17, you'll see a dip, but that was intended by us because we too much volumes and we had to stop picking up. Otherwise, the outbound flying has been overwhelmed. In Europe, we see first signs of recovery, following a pattern, a little bit slower than China, last sharp, but what we can observe is that there is probably a similar pattern as we said already before. And Americas, we believe will follow next.
On next page, you see how we are doing so far in the quarter. I think we have, our strong footprint across the divisions. We are definitely benefiting from B2C, and of course, we have a very solid balance sheet with good liquidity. The measures are clear. Of course, we focus 1st and all the people than our service, but nevertheless, we have, of course, stopped spending discretionary spend, but we have so far never the storm quite well.
By just doing an hiring freeze. We believe that the offer of Her Loewing is also a good concert, which has Germany invented for some other European countries for quite some time to keep people on board prepares you well for after the crisis. In the divisions and TNP, continuing what we have started. So be as in this team are doing a great job in trigger and leveraging all triggers we heard. Being on the yield side or indirect.direct costs.
That has worked well. That's the reason why the profit improved, expressed has still a pretty good, operative margin despite, of course, the imbalance in the network, Hertzas in a network and of course, also the disappearance of, commercial lift has negative impact as well. ZGFF, of course, the volumes are down in air freight equally on an ocean, even more pronounced, of course, on air freight and Of course, that hurts us on the margin at the short end. But of course, we are now adapting to that by ordering more charters for our needs. Supply chain, mixed picture.
Some industries are trending up grocery and life science, others are down, fashion and automotive, and therefore, the picture is mix. Actually, that's interesting anyway. You know, what we learned this time, this is not a normal recession. It's a mixture of a recession and a disruption and a discontinuity and that you see visibly in supply chain, nobody has expected such a surge in or increase in volumes for some sectors. And of course, nobody anticipated a full stop of certain other sectors.
And that is unique. That's the reason why the prediction is also very difficult, not only for you, but also for us, because there are in the curve discontinuities different from a normal recession which makes the situation more difficult to predict eCommerce solutions. We had a complete shutdown of India, more of this severe even than any other And of course, that had impact on our business there on the other side, we are benefiting strongly in Europe from the B2C. Also in Southeast Asia. What happens next?
Or will it be our plan on short term as totally midterm I think we have to help to get the customers back into business somehow. And of course, we have to prepare ourselves for intentional second wave. Even if that's not clear, if that happens, maybe vaccines will be early enough or social distancing will work longer and more consistent than we might fear. But of course, the midterm focus will be to help our customers to get the business up and running and secondly to protect us against the second wave. Long term strategy, the clear news here is we don't need a new strategy, the only thing would happen is that the execution will be accelerated, particularly on the digital front.
So it brings me to, on Page 7, to the group revenue, as I already said, PMP Express are up, a DGF not surprisingly is down, if there's less volume supply chain is year over year, even if you make it organic up, but of course, see some impact and e commerce solution, of course, is a mixture of up trading and the impact we have seen in Spain and India. On the group EBIT level on page 8, if you just exclude the street scooter from both years and the China supply chain sale, we would be more or less flattish in the first quarter, which shows the strength of the portfolio, including all COVID impacts. So what you see on the 3rd right column or bar it is wrong. It's not excluding COVID, it includes actually COVID-nineteen, but excludes street scooter. So, and if you take that, we are more or less on the same level challenge a strength for you despite what we had to digest 210,000,000 negative impact, which is good, of course, 2.5 months, we're hardly impacted.
So therefore, that's not given forever, but it's a strong sign of Allscripts. If you exclude the COVID-nineteen as well, we would be even up year over year. On Page 9, I don't have to talk too much about that. That's an explanation. Visibility of what I've said already PMP is doing well, going up with excluding COVID more, Express will be up year over year excluding COVID DGF would own the same level.
Supply Chain was slightly up in e commerce is any way up already, including any profit impacts. So overall, I think a very healthy portfolio behind. And of course, it's visible that the broad portfolio in such a trusting health and that's the real value of the different divisions. On page 10, more detail on PNP, ACRA communication is stable, but there's also now increasing volumes e commerce because Valorem Pos, which is one product for lightweight is in that as well. Revenue is nicely up each of the yield managed, our Dialog Market team is down on both and on parcels.
We see a good development and a Of course, it increased significantly at the end, but a very strong year as well. So overall, we are probably at the upper end of what the predicted volume decline has been, because that's mainly driven by the last 2 weeks
of March.
Express still solid development on shipments per day, even better on revenue per day, that means with the yield management is working. So let's not see what will happen. The more and faster Europe will come back, the better it will be for the further development. As we already talked about, DGFF, not surprisingly, volumes are down on both, but GP is much better due to the extreme type market We were able to convert at least some of the price increases into profitability On the effort side, ocean is under stress, but let's see if things are now normalizing, somehow we should see better development on ocean freight because capacity is there. Supply Chain, a mixed picture, as I said, a very healthy business and we have challenging business, but overall, I think the flexibility has a stable the profitability in supply chain overall, ESE as well, some very good development in parts and some challenges in Spain and India in particular as your hotspots.
In the UK, we also see good development. And that's more or less the summary of all these development. So overall, I think we had a decent first quarter, and we have taken the right actions to stabilization Relations. So with that, I hand over now to Melanie for more financial detail. Thank you.
Yes, thank you, Frank, and hello also for my side. I'm looking at the group P and L on page 15. As Frank already mentioned, the most relevant points on revenue and EBIT. Again, from my side, I think on those two lines, the important message is, we still had growth on the top line in the first quarter despite the developing COVID impact. And on the EBIT, obviously at first glance, it looked like it's a significant decline, that is really due to the positive 1 off effect of 1,000,000 in the first quarter of 2019 and the negative non cash preputer impact of minus 30 in the first quarter of 2020.
If you take those one time x out. You're already on a level playing field. And then at French showed earlier, you had good underlying EBIT growth around 1,000,000. But then we had the negative COVID impact of 1000000 offsetting that. I think the rest of the page is relatively spectacular financial results are pretty stable.
On the tax side, in line with our expectations, we had tax rate of 20 percent. And given that we have less of profit before tax, the tax line in absolute terms came down. I would say no prices in the lower part of the page, which takes me to a very important, a slight page 16, the cash flow. So first of all, as background, due to seasonal patterns, we always have a negative free cash flow in the first quarter. That is what we see every year.
When you then look at the overall development, we are very pleased with our free cash flow development in the first quarter. Why is that? So when you look at the middle of the page at the operating cash flow, you can see that, we tripled it from 250 in the first quarter of 2019 to 750 this OCF line neither treat scooter nor the positive M and A effects from Q1 twenty nineteen play a role. So I think this is really a good approximation for the fact that the underlying business is in a very strong shape. And what is particularly pleasing is when you look at the changes in working capital line, it is noticeably better than what we saw in Q1 2019.
And one key element in here is the very good collections development, which is obviously in the current situation, a top priority for the finance organization. The other number, which is interesting is when you look at the net CapEx line, you can see that net CapEx is pretty much on last year's level. I think there are 2 important points to be mentioned here. The first one is that whilst we have naturally looked at all our CapEx projects and we have looked for opportunities delay and face stuff given the strength of our balance sheet and the way how the business is developing at the moment we are in a position to take a balanced approach now. So we are of course very focused on liquidity and a short term management, but we keep investing into the nature of the company.
I think we are in a good position to really take a sensible and balanced approach here. The second interesting thing to mention here is we didn't have 777 impact in the first quarter of 2019. The big cash out for the 777 started in April 2019. In the first quarter of 2020, we had a 1,000,000 impact from the 7 77, which is less than what we have originally assumed because we were offering for the financing of 3 of the 777s for the current year. And that led to past of the funding coming through a leasing accounting structure.
And that is directionally going to reduce the 1,000,000 for 7 77 CapEx, to round about 300 for the year 2020. So Putting it all together, when you look at the last line on the slide, you can see that we have taken out the 1,000,000 cash in from the China disposal in q11 2019. And if you then look at a comparison free cash flow Q1 2019 underlying to Q1 2020, you can see that free cash flow despite COVID is actually up 1,000,000,000, which I think is a very encouraging start into the year. That takes me to page 17 slides which we had shown to you in a similar shape and form before. There's nothing material new here, at the end of the first quarter.
Our cash and cash equivalents position stood at 1,000,000,000. We did not utilize our syndicated credit facilities on So we feel that we are in a comfortable position, but of course, that remains a top priority with the organization. Overall, We do a very detailed cash flow steering. So far, we are very happy with the development. But I guess like everybody else, we do expect that there may be an impact in the weeks to come to watching this very, very closely.
That takes me to a topic, which is, at this point in time, a bit more challenging than in normal years. Forecasting and guidance. So on page 18, I think you have a good understanding of what happened in the first quarter, a good start into the year, February, China COVID impact in Express and Global Forwarding. And then in March, 1000000 impact across all the divisions also in the other region. So where do we stand, today?
As Frank already mentioned, when you talked about the volume developments, for Mail and Parcel and Express, we still see mixed signals in the divisions. It's too early to talk about a clear pattern. Volumes in most segments remained below normal and last year, but there are first indications that the decline is bottoming out. For example, with regard to the decline in Dialogmail volumes here in Germany. Given our general high level of uncertainty, it's remains to be seen whether these developments are now really the beginning of the sustainable trend, whether they turn out to be the 1st phase of the recovery that we all hope to unfold.
Too early to tell. And that is why now turning to page 19, we don't feel this, in a position yet to you a new guidance. There's still too much uncertainty and volatility around us. We have the same open questions like everybody else and now have to see what patterns it was over the next week. But there are also some uncertainties, for us going forward.
Whatever shape or form, the recovery you will eventually take, a V, a U, a L, you name it, logistics will be an essential part of any recovery. And we as a group are extremely well positioned to serve our business customers, to save, to supply consumers around the world. And our strong liquidity and balance sheet here again will play an important role to really capture the opportunities which a recovery will bring. And that is also the foundation why we are upholding our guidance for 2020. 2022.
2020, a lot of uncertainty, but there will be a recovery eventually. We will get to a new normal And based on our strengths, we are quite confident that we are then going to get back on track. And on that basis, we are maintaining our guidance for the year. 2020. And that already sorry for the year 2022.
So, that already takes me to the last page, the wrap up. Obviously, the virus is still out there. So we remain extremely prudent. The key priority for us remains on protecting our people. And that's the basis for keeping our operations up and running as we have successfully done so far.
And that is then, of course, the basis keep our customers operating. At the same time, we are getting prepared preparing for a second wave and future deterioration, which will hopefully not occur, but nobody knows. So to sum it up with our strong balance sheet and excellent strategic position, we will get the current storm. We will try to find the right balance between taking the necessary short term adjustments, but we will do all that with a long term focus in mind. In line with our clear strategic framework.
So much for the overview, and I can put that over to you Martin for the Q And A.
Right. Thanks Frank and Melanie for the focused rundown. And, operator, if you initiate the Q and A round, please.
Yes. Thank
And first
up is Danielle Roeska from AllianceBernstein.
Good morning, everybody. Hope everybody as well. On the call and with your families. Maybe number 1, Frank, if I could ask you a more broad question, you mentioned that you kind of are distinguishing between the disruption and the recession, which is of course difficult for every business unit right now, but could you elaborate a little bit more how you would think about your different business unit in a recession? So as we move beyond the a disruption, hopefully, how what are the key priorities and how would you differentiate between the business units in terms of what's important for them in the upcoming recession that is taking hold?
And secondly, maybe a little bit more detailed on parcels and P and P in Germany. The charts you showed may indicate that there was a little bit of a spike in parcel deliveries in early April. Would that be fair to say there may be a catch up effect here? And would you expect kind of the high level of B2C deliveries to continue or kind of soften? And could you comment briefly on the profitability in the mix shifts kind of between B2B and B2C in the German parcel unit And lastly, I think you also touched on it concerning Express, in yield management.
I think on the last call we had, you said you wouldn't want to take a lot of price in Express, but how would you handicap the opportunities you have to actually select the shipments coming on to the Express network And how should we think about that yield management effect over the next couple of quarters?
Yes.
So, these are all difficult questions. So the first on the recession, if we go from a disruption, Justin, to a recession, I think in P and P, we have not seen a massive decline in past recessions, then we will see a decline, but people who do continue to advertise in the e commerce structural change. The only idea I have will be accelerating, but not to the previous past, but not declined. So in PNP, and we showed that all days that the post was on the bottom right corner when we shared impact from GDP And E Commerce. It is a pretty resilient post business, which is not very much impacted by the GDP growth.
And at the moment, it's a disruption because shutdown is shut down, and you convert, and then passes our talk very well. Express will definitely benefit as long as there's limited capacity, on the market on passenger airplanes. Because that we will see up trading from air freight to express and down trade to ocean, which we typically see also in a recession because could slow down their supply chain, but to refill them by express, that's not unusual either. On DGFF, It's very much for the rest of the year unpredictable because we should well assume that long distance traveling with passenger airplanes were kept from warmer the second half, maybe we will see first signs that some trouble is happening again, but that's probably longer term. And of course, this situation, you know, airfreight will, of course, an important part, you know, how you manage the charter, somehow ocean freight will probably normalize a faster.
And in supply chain, I think supply chain, and that's why maybe some of you said even in her water supply chain is more vulnerable, that comes from a disruption. If a disruption goes out, we have a normal recession supply chain business is pretty resilient against that because you either have more inventory and the stock in the warehouses, but We had really a quarterly chapter on all activities. E Commerce solutions will continue. If a lockdown is over, the structural trends of E Commerce will continue. So overall, most business have, has probably more upside than downside.
So B2C, if there's a structural change, It's too early to say. I think there will be an acceleration of what we have seen already before because even more people have now learn and have started to order, but it's too early to say how big that impact will be. With regard to the profitability, it's very difficult to say a network business as the half. We have always been more, more oriented to B2C than B2B. And the B2B business, I think we'll come back, but I don't expect neither a very much positive and negative impact.
So I wrote on Express. The last question, what was expressed?
You didn't express.
Yes. So You can call it selection of customers or yield management. At the end of the day, you have to be very cautious not to, you know, to damage the business of your customers. And because they are expecting from us a consistent, they know that we have a fixed network. And therefore, you should be very cautious to really now on a short end squeeze for orange, I think it's not a sustainable strategy and in Express.
We will not do that. We, of course, will recover certain costs. We have extra that we will not be small range. I think that's that would be not long term. And ETF, it's different because everybody knows that the markets are completely sorted.
And therefore, you have to charge a customer to pay yourself. And of course, that's very clear that this is very volatile. Thank you. Those were the three questions, right?
Absolutely. And a great job amid the uncertainty.
Good. Then over to the next one, please.
Yes. And the next one is Tobia Citi from MainFirst Bank.
Yes. Thanks for taking my questions. 2 for me actually. Could you provide a little more granularity on the Express volumes that you're seeing now? So is the e commerce share increasing?
Or is it a lot of ad hoc business that wouldn't normally be express business versus what's the sort of the classical B2B volumes are doing? And secondly, a bit hypothetical, but, basically without COVID and without street scooter, you would have been trading at above 1,000,000,000 EBIT in Q1 and you were aiming for 1,000,000,000 for the year and Q1 usually was one of the stronger quarters in the year. So that doesn't fully add up for the old 1,000,000,000 target. Can you provide a little bit more insight on what particular cost effects you'd expected for the remainder of
the quarter, yield
effect coming for the remainder of the year coming into force that would have lifted your results as the year goes. So what should we be looking at in terms of cost improvements as the year goes across the divisions? Thank you.
So maybe first, when I take the second, So it's a hypothetical question, as you said, but I can only tell you that, let me have outlined there, we were exactly on what we expected for the first quarter. So, and of course, we have looked into our plans before. So if we had delivered what without COVID, the number we had been exactly on the right path. And of course, we have expected that certain members are having more traction in the second half in the front quarter. So we were very much in alignment with our expectations.
So cost measures now to talk about what has been planned before the COVID crisis is, I think, a little bit too much, to look into the send and do something. I would refrain from that because I have not looked into, but the original plans were even in the sense two and a half months. So I would not even know, what we discussed at that time. So I think that is completely it doesn't mean, what I can say to me is, is the first quarter without point, it was exactly, excluding Switzerland StreetScout as well as exactly on the right, path to deliver the funding.
And maybe on the express sector shift I think as of a generally, let's go also a bit back to the disruption discussion. At the moment, we have a very special situation in the Express network. So I mean, overall volumes are down, but this pronounced imbalances. So we have a bit of a torturous network with missing volumes in some parts and too much volumes in other parts. And of course, the biggest portion is outbound China.
There we clearly see at the moment a unnatural mix of We naturally have a very high share of medical supplies, PPE staff. We also have quite a lot of tech business but there are other sectors, which are, of course, at the moment, severely impacted. So I would say overall at the moment, it is still quite out of whack. And that is why we have also seen in March, the negative impact in Express because the imbalance and lack of volume in certain parts has led to extra costs and as Frank already said, we are trying to recover parts of the cost, some surcharges, but in a sustainable way not to damage relationships with customers for the long term.
Good. Thank you. And next caller, please.
Hey, Matija.
Yes, hello, good morning. 3 questions for me. Firstly, I'll take the opportunity to ask you also about your thinking about the dividend. No, free cash flow has been better than last year in Q1. You said that was something that you will consider.
But what's the earliest thinking about the dividend proposal for this year? Second question will be about CapEx. I don't really sure I understand what you mean by CapEx phasing. No, do you mean that there could be some CapEx delays into, say, later years, 'twenty one, 'twenty two? Or or something else?
And then thirdly, just on air freight. So there was, like, an increase in the gross profit per ton quite nice of 11% in Q1. Is that because you had, like, in place already some capacity, basically, bookings, and therefore, you could exploit that? Or is it sustainable, the type of, say, improvement in gross profit per ton, particularly given the tight markets?
Okay. Yes. 3 good questions last year. So I mean, first of all, on the dividend, we had year 2019, which is why the corporate board and the supervisory board have endorsed a dividend proposal of EUR0.25 per share. The ultimate decision on the dividend is taken by the AGM which an enormous circumstances would have taken place tomorrow.
We are at the moment very closely following all that happening around AGMs here in Germany. We now have the 1st successful virtual AGMs. So, this seems to be a proven and testful model. And we now have to find the right point in time to decide on the new timing for our HDM. The dividend decision they'll ultimately be taking.
In terms of CapEx phasing, what I meant there was that whilst we have naturally also looked at opportunities to save CapEx, and we have plastered our projects like everybody else has, what what could we stop and so on so that we are prepared to act. At the moment, we have not put a general CapEx hold order into place. Because we really want to take a balanced approach. We want to continue with sensible future projects to prepare for the time after the crisis. So I think my message here is we are prepared to react, but at the moment, we are really trying to steer through this in a very sensible balanced way.
And the last question on the GP per ton in air freight. Yes, indeed that is a very pleasing development, what we now saw in the first quarter. And that is indeed due to the fact that we were able to cure capacity. First of all, that we were able to secure capacity, which is not a given where obviously our site and the good relations we have with carriers is helping us. But we were also able to secure some capacity with a bit of foresight early on at the reasonable rates, which are now helping us with good margins, which is something we expect to also continue at least for parts of Q2.
I think the interesting question is then really what will happen in the second half of the year. And that is linked to the overall question where we don't have the answer either.
But with, you know, a market which is in transparent is for good forward forward. It has always been nothing is worthwhile before what has been predictability. So, and the best is in a completely unpredictable environment, and that's what the organization is capable in managing.
And that is what you see in the marginal economic model.
And that is what we see
in these particular endless gross profits our development per tonne in the effort.
Okay. Can I just have a quick follow-up on the dividend? Let's say there are a lot of say unemployment schemes, government support unemployment schemes and government support in the situation. And some of those schemes basically prevent companies from paying dividends. Have you taken up any of these schemes in any country that will prevent you from basically paying that dividend?
So the situation is more complex, but conceptually, I would say the following. So furloughing and in Kutzabad in Germany and all this kind of stuff. What is the intention and who's paying for that somehow? Different, sometimes it's paid by insurance, sometimes it's paid by the government, but the intention is to pay the the salary of the people. So the money doesn't go to the company.
The money goes to the employees. And I think that shows that this is not stated. It's different if you have to ask government for liquidity. That's a different game. And definitely, we will not do the second at the moment because we have no needs And I think that is when the link to the dividend.
The link to the dividend is very clear. If we need the government to give us money to stay stable, then we had a very different situation to pay the dividend instead of we take money from the government or from insurance to give it to our employees to keep them employed for me, that is, you know, that's one stakeholder which benefits that's employees and not the company. So why should I then penalize the other stakeholder, which is a shareholder, but it's different for liquidity. If we are not able to collect enough money to run our business, invented, it's a very difficult situation. Fortunately, our cash flow is strong enough.
Our credit lines are strong enough that we don't run into that at least as far as we see it at the moment, as I said, but last time already, I don't know what this year brings. But at the moment, we have enough liquidity to operate our business and we don't need any money from the governments.
Okay. Very clear. Thank you very much.
That's the reason for the dividend in the wall. We say the same today as we said always. So nothing has changed but we don't know what will be in summer, because nobody expected what happened in the last 8 weeks, and it's still 2 or 3 months to go. So I think our focus should stay on collecting the cash and generating like in the first quarter a very good liquidity, then we are not have a problem number 2. Clear, clear enough?
Clear, yes, now clear. Thank you very much.
You're welcome.
Thank you. And on we go, The
next caller is Andy Chu from Deutsche Bank.
3 questions, please, if I may. Just on COVID, the COVID impact, how do you actually calculate that, million number for the quarter how much of that is sort of lost revenue or incremental cost? And then are you prepared secondly to give a number for April And based on that, do you think that actually the Q2 impact for COVID could actually be less than the Q1 at 1,000,000 number. And then just a point on clarification, please, in terms of your expressed volumes, Melanie, I think you mentioned that Express volumes, maybe TDI volumes are down. Could you just maybe just clarify which sort of time periods you're talking about?
Is it sort of May, April and maybe quantify sort of level of decline of Express or TDI volume decline? Thank you. Okay.
The first of all, on the technical calculation of COVID, we have agreed with each of the operating divisions and approach how to do it is of course varies from division to division. So for example, in supply chain, we have looked at the sites which are totally closed or where we have a very significant drop in volume activities and have quantified the delta to the normal operation. And expressed we have looked at the trends we had seen in terms revenue per day to quantify a revenue impact and the extra cost. So there is a very clear method behind it. I think the problem and that is why we also said going forward, we will do less of this is, when you kind of like use the baseline, the trend of the past.
As COVID becomes the new normal, this gets more and more difficult. And so I think what we have said now for Q1 is really solid because we have clear pre COVID normal states, but obviously with each month passing, the comparison line gets more blurred. That takes me to April and what was the impact in April and how did we do in April overall. So as expected and I don't think surprisingly for anybody, we had a negative COVID impact in the month of April, which was, however, fully in line with what we had taxes and I don't think it's a surprising order of magnitude. The reason why we don't want to continue quantifying things now on a monthly basis is that things are still very volatile.
For example, when you look at health evolved in the course of the month of April. The first half of April was totally different from the second half of April. So it's really super difficult to draw any conclusions and forward looking statements. From the number, which is why we don't want to quantify it, but it was negative in line with our expectations. And obviously, we also expect a negative COVID impact for the second quarter and directionally, the second quarter should be the bottom of the COVID effect, which takes me to your 3rd question, express volumes.
So what we had said seems like ages ago early March when we did our full year 2019 results announcement we said that at that point in time, China was coming back and, overall express volumes turned in a positive territory for the 1st days of March. They have been down year over year, for the rest of and for the month of April. And as we said before, we are now beginning to see early indication for a bottling out but I wouldn't declare the trend yet.
Are you asking, volumes in May then? Is that correct?
Yes. So I think May is really difficult, because, what we now just had in the 1st week of was Golden Week in China, which led to some distortions. You may have seen that before that, due to the huge capacity constraints out of China, we consciously took the volume down a bit. What we are now really keen to see is how are the next 3 weeks which should be relatively stable also in terms of year over year comparison? How are they really going to develop?
We may be at a better point in time to see a pattern then.
So maybe also all somehow, because that's important, somehow, how we we manage that and what is on my on my colleagues' agenda. So the key objective is of course the safety of the people in customer service. And then it comes liquidity. But behind all of that is we should gain market share if the things aren't getting back to normal somehow because that's the best phase to deliver what we have promised for 2022. To optimize the short term and say, you know, we can take the layoffs here or there and optimize that.
I think that's a very short sighted strategy. So, you know, I'm less worried about the covenant impact, which might have in the second quarter. I'm much more worried about can we sustain about our CapEx plans to expand our capacity to be ready when the markets are normalizing to fulfill the needs of our customers. And that's a focus. And therefore, even if we now would know more already about the 2nd quarter, I would say question at the end of the second quarter I would have is, do we have still enough liquidity to continue our investment plans, take opportunities, and continue to build the network stronger.
And that's not we have been maximized now or minimized recovery impact because that's not the priority of the priority is to weather that storm in the best shape possible. And I think this is exactly what we are doing at the moment. And I don't want to waste time how much was covered because I will not know that very soon anyway what is covered and what is not covered because the things are overlapping each other. So that's what is on the agenda of my colleagues and myself. How will you get as strong as possible to the crisis without losing the trust of all is not losing, our people because we are not treating their rights.
And then we will be we will see a significant improvement after the crisis in all operations because we are so well positioned for all operations to capture that potential if we are doing it right now.
Thanks very much.
Good. Thanks, Andy. And next caller then please.
The next caller is Mark McVicar from Barclays.
Two sort of linked questions really. First of all, could you just explain why you've gone back to the leasing market with the triple sevens, what what suddenly become so attractive versus the the ownership model that you talked about when you placed that order. And and a sort of linked question to that, you know, I I I guess you know, the world is fucking very hard to hold on to, fighter aircraft at the moment, but do you do you think there may still be some opportunities to pick up good quality, secondhand capacity somewhere in the course of the next 6 to 9 months.
Yes. So first of all, on the aircraft financing, we had planned on a normal circumstances to use Q1 for a little bit of a in-depth discussion of how we are financing the 777s. We have taken a very creative approach we have Dolco constructions. We have a straightforward deal. We now have identified for 3 of the 777s, very attractive but hugely complex financing constructions.
Which in essence leads to the prepayments, basically the first half of the payments be in CapEx and being paid out directly. And then the second half of the payments on delivery being done through a leasing construction which accounting wise are not impacting CapEx and free cash flow and up reserving liquidity. So I think I do hope that we can normal times and we can do a CapEx 2% in-depth tutorial. This is nothing which was surprisingly now done due to COVID. That was part of our general approach to look for the best and most attractive ways to finance those 14 777s.
In terms of general approach on aircraft, I mean, obviously at the moment, both in Express and in Global Forwarding, there's huge demands for our credit capacity, we have an opportunity here because as you know, the 777s are coming in to replace aged 747 where in certain cases we are now looking at opportunities to hold on to those aircraft for a bit longer to work through the current air capacity shortage. That's a nice opportunity for us. And we are obviously also looking for potential opportunities which may come up in the second half of the year be it from existing cargo carriers, but what we have also seen in previous crisis situations that there may be good opportunities to get cheap passenger aircraft for conversion. You're keeping an open eye for that. I think that is probably something more for the second half of the year.
Yes, one very quick follow-up. Could you just remind us? How many more of the 777s have you still got to be, delivered? And do you think you might choose that, you know, the very complicated leasing structures, for the balance of that fleet or
are you going to
revert to normal CapEx? What's the thinking on that?
Yes. So the original delivery schedule was 4 in 2019, 6 in 2020 and 4 in 2021. Of the 2020 batch, we now have 3 delivered according to plan, 3 are still to come this year. And then the 4 remaining ones in 2021. And we are now really very openly looking for the optimal way to finance each of those aircraft.
That also depends on where do we actually want to utilize it later on So which legal entity is going to be the owner of the aircraft? It's a very complex, really aircraft by aircraft decision. And what we just wanted to flag here today is that, when we still had a guidance out there for 2020, we had told you that there would be around 500 CapEx from the 777 and that has been split around about 200 due to the new construction.
Got
it. Thank you very much.
Great.
Thanks, Mark. And the next caller then please.
The next caller is Atayantee from Commerzbank.
Yes. Hi, everybody. Good morning. Good to hear that you are in good help. Actually 2 quick ones left from my side.
Well, first of all, on the volume search that we see in parcel and the recently, so it was just wondering whether there are also more Amazon volumes included in here. I mean, obviously, your plan is a little bit to churn that deliberately to some extent, but maybe they found out probably in the crisis that you are also quite reliable partner for them and as they change to any of the plans going forward with that regard. The second question is a really quick one. There were some press articles onshore time work. You've been using actually, I think it was a rather supply chain.
And I was wondering whether you expanded short time work either in that division or anywhere else in your operations until that in the last couple of weeks or so? Thank you.
Okay. So first of all, on where is the volume surge in parcel coming from. It is not coming from 1 or 2 particular customers. I think that is one of the nice things that we saw a very good growth also from smaller and midsized customers, which have also been beneficial on the yield side. So it's not due to an imbalance growth with just 1 or 2 of the big customers.
In terms of short term labor, I think that goes back to what Frank has already assessed on our general approach. So first of all, here in Germany, we are using a short term labor in a extremely restrictive way. We have 220,000 colleagues here in Germany. The number of short term labor impacted people is in a very low single digit percentage order of magnitude What we try to do 1st year in Germany is we deploy people in other parts of the organization. We struck a deal with a smooth work council early on so that people, for example, from a supply chain site where nothing is moving can be redeployed in the parcel area.
And that is one of the reasons why we have only made extremely minimal usage of short term labor here in Germany. In other countries, it does depend. We are analyzing in a controlled way what programs are available on a country a country level and take a balanced approach here.
Thanks, Adrianne, and the next caller please.
Next up is Sam Bland from JP Morgan.
Hi, good morning. 3 questions. Yes, three questions from me, please. The first one was, there's quite a large increase in the parcels price mix in Parcel Germany in Q1, which was maybe odd given, I guess, the strength in volumes is coming from B2C and B2B. So I just wondered what's driving that higher price mix?
2nd one was, was there a material benefit from lower fuel costs in either P and or express in Q1? Or would there be one in Q2 given the lag to the fuel surcharge mechanism in Express? And I guess the final one in Express, certainly in previous quarters, you've been probably able to win market share from some disruptive peers. With COVID-nineteen going on, is that how's that looking now during this period? Is maybe that sort of market share potential accelerated, if anything?
Thanks.
Okay. So 1st of all, on the past reviews, yes, that's indeed pleasing to see, I'm as you know, we have been working on pricing measures in parcel for the last quarter and we're increasingly seeing the benefits maybe towards the end of the quarter, we also saw this additional booster from good growth also from small and mid sized customers, what I mentioned before. But I would say the big chunk of the good a parcel average price development is really due to, the pricing measures we have now taken over a several quarters. In terms of express, yes, we do see a benefit on the fuel side in a press. At the moment, we see it in two ways.
The first one is that a year ago, we made adjustments to the fuel pricing matrix And then of course, we have seen the decline in fuel prices. That is for express always a temporary topic because with 2 months delay, those benefits are passed on to the customers. And in terms of market share gain, Yes, I think it's too early to quantify that. But I guess One very important aspect for us is that we have been able to keep the network up and running all through the crisis, which has, as you saw in the numbers led to some extra costs. So also for the Express network, we use some commercial capacity at passenger aircraft where we have very creatively now switched the network together so that we can still operate all locations, the dedicated flights I'm deeply convinced that ultimately this is going to pay off and customers will appreciate it.
Do we have a quantitative proof yet? No.
Okay. That's great. Thanks very much.
Next caller is David Kerstens from Jefferies.
Hi, good morning, everybody. 3 quick questions, please. Just trying to understand better the dynamics in the parcel business. The over 4000 new hires since the end of March, are they coming from elsewhere in P And P or are they actually new hires? And what does it do to your cost base?
And do you then expect that the search in, in B2C volume will be increasingly compensate for the decline in dialogue marketing or
as well, does that not happen because of the additional costs related to
the new hires? Then secondly, with regards to the P and P labor negotiations, are there still ongoing as planned? Or are they currently on hold in the current uncertain economic environment? Or is it still a new pay deal on the agenda at this this sprint. And then finally, quick financial question.
I saw that you took out the $90,000,000 loss for StreetScooter in Q1 2019 in the underlying EBIT growth calculation. What was the full year impact? Was that the majority of the 100,000,000 that you had earlier talked about? Or I think that also includes some other projects? Thank you very much.
So let me go through that briefly. So, these are new hires. Additional people are mainly in delivery, but also some of the sorting centers. Of course, that increases our cost base, but, you know, of course, we have significantly lower revenues as well. I think it's too early to finally judge just on a basis of 4 or 5 weeks to say what's the impact of B2C to the lower priced, we are losing at the moment the lower priced advertising.
And I think we definitely will go after the second quarter that's interesting then to ask a question, what has been floater term, is that a match or is not a match or even positive or negative, but I think it's too early to judge that, I have to say. And the unions have not canceled the contract yet. The negotiations delayed, but the unions have not usually they have to cancel that end of April or end of May, and they haven't done it. So in our cancel end of May, for end of June, we don't know yet.
Yes. So on Skuta, yeah, we tried to give you full comparison and transparency on what is the core logistics business excluding sweet scooter, which is why we also showed the 1,000,000 negative impact we had in Q1 2019. The full year effects on we didn't give a specific number. We said it's around 1,000,000 So we saw an increase in the cost base in the course of 2019 and we show that transparently through the quarter. The overall number should be around 115.
Okay, great. Thank you very much.
You're welcome. Great. Thanks, David. And 3 more calls or so.
Yes. And the next caller is Christian Nadellko from UBS.
Hi, thank you very much for taking my questions. 3, if I may, first of all, in parcel, Could you give us a bit of color what's happening with Amazon volumes in Q1 this year? Secondly, in terms dialogue marketing. You briefly touched on this earlier, but you have around $2,000,000,000 of revenues there, for the full year. What's what's the range that you expect for this year or the potential declines in revenues there?
And thirdly, looking at the free cash flow as we move to April and to the second quarter, What are the first signs in terms of working capital? You've mentioned you keep a close eye on that. Are you seeing any more extreme movements there? Should we expect the similar trend of positive improvement in Q1 to continue for Q2 free cash flow too?
Yes. So what we said with regard to Amazon in early March was that for the group overall, it's about 2% of revenue for P And P, it's around about 6% and that we expect that share to go down. As Amazon is building out its own logistics operations here in Germany, which is why we also gave a quite wide range for what we expect for parcel growth throughout the year, the 0% to 5% range. What we saw in the beginning of the year was that we were really fully in line with that. And so also through COVID, there's no fundamental structural change to what we expect with regard to Amazon.
On the Dialog, Amel side, yes, that's a complex question because even before COVID, we had a special effect here. We had court ruling in the fourth quarter of last year, which said that certain types of mail can no longer be sent a dialogue mail. Which is why we indicated that we will also see stronger volume decline in mail overall this year, the 5% to 6%. Because we expect volume to be dot. But on the revenue side, we said it's going to even out So that was already a negative push on dialogue marketing before
COVID came. We then
saw this very abrupt change in March where we had a significant double digit declines. As we said, it's beginning to bottom out now. But I think that is one of the categories where I'm not comfortable giving a number yet because it's really too early to tell. With regard to free cash flow, working capital, what have you seen in April second quarter so far? We are quite pleased with the cash development in the quarter so far.
And we have not seen any material changes on the collection side, but I would add a bit yet there. I think on that as well. It's too early to declare victory because obviously we have to assume that some customers probably also particularly on the small and mid size, 5 are going to get into difficulties. So we really have to keep monitoring it really closely, which is what we're doing.
2 more callers.
Yes. And the next caller is Andre Moller from Kepler.
Yes, good morning. 4 questions, still there. Firstly, on Mail communication, there's still unusual increase in volumes. Can you talk about that? And secondly, on air freights, with the belly space largely out what percentage of that does that represent in the total market?
On supply gain, your exposure to the automotive sector is around 15% of sales. What's your exposure to fashion? And the last question is on the cash flow. Looking at the statements, there is this Notorious item, Polar, which shows a swing of 5,000,000. Can you spend a few hours on
Okay. So first of all, on the mail volume increase, I think there are 2 effects the first one, the smaller one is a working day effect. We had 0.6 additional working days in Q1. The second effect is the positive side of what I mentioned earlier as a negative on Dialog Marketing because of that core tooling certain mailings can no longer be sent as dialogue marketing, but have to be sent as from a standard letter with the associated higher price has been giving us some support on the mail communication volume. In terms of air freight, a belly space, I guess the best number, which is generally quoted out there for the market is that half of, airfreight travels in belly space.
I think what the last month or last week have shown is that it's probably actually a little bit more And I think that is also true for us. In terms of what percentage of fashion do we have in supply chain? I don't know the number because we don't have cash in as a factor in our supply chain as soon as a little bit impacting consumer and retail. I think the general statement is that obviously fashion has been one of the areas which have been negatively impacted, but this is probably something which is in terms of impact not as material as, for example, automotive, of supply chain colleague.
And it's very volatile in the fashion sector.
And cash and taxes are numerous reasons even before COVID has been volatile. So, and then the 4th question healthy was on?
The cash flow?
Yes, but what on cash flow? Sorry, I didn't get that.
And with the 500,000,000,000 of what is where you're referring to?
That's the other item, which states, it was negative 4 77
Yes. So that is when you look at page 16, the minus 4 77 in other in Q1 twenty nineteen, that's what you're referring to, right?
Yes. That's right.
Yes. So that is, the impact of the supply chain, China disposal. We had a positive impact in the EBIT of net 426 that was reversed out because it doesn't count into operating cash flow And then the full benefit of the 1,000,000 of what's then coming in the M and A line, the 1,000,000. So the $4.70 other is a reversal of the EBIT benefit of the China supply chain disposal.
Okay. Thanks.
Yes, may want to add because, you know, these are important questions. And of course, we are asking these kind of questions. What will happen to the different It's too early to judge, but I think an obviously good starting point is to think, you know, will, will consumers change their mind about these subjects. So on fashion, a clear answer, no, why we should they definitely will not buy as much for the spring season summer season as they have done in the past. But after the crisis over, why should they not buy new fashion?
So therefore, that will not change because that is no danger to how more efficient. If you talk about the automotive industry, maybe people even counterintuitive, maybe people say, I can't travel this year anyway. I have more cash available, and I buy now a car because it's safer as well to travel by car been traveling in public transportation because public transportation might be in risky area. Tourism, of course, until people really get back to normal is quite way out because they think I can't judge. So that's the reason why I think the starting point looking to industry obviously, what kind of psychology effects this pandemic might have on the people behavior?
And that's not 100% clear, but professional, I'm pretty sure that after the summer is over, we will be very much back to mobile and then we will not have any significant impact on our fashion business. If the fashion retailer probably had an impact and if they survive, they continue to do their business somehow. So it's very difficult to really judge and, you know, in fact, you know, of course, airlines and And that's the reason why it's for its important airlines until they really get back to normal intercontinent travel is an issue, and that's linked to what Mark asked about should we buy additional cargo airplanes? That's actually a quite complex exercise but of course, we have to think about these kinds of things. How realistic is that, that we get back to normal and intercontinental travel or tourist travel.
And what does it mean for this respective industry if they are customers of us and how we can help them? In other industries, they will be normally pretty rapidly. And we have seen that. We saw no rise in e commerce in the 1st 2, 2 to 3 weeks. And then were overwhelmed by the volumes because people said, okay, now I have read enough about Corona and I want to shop something.
And that is because they have no personal fear. The fear is an important element of the whole crisis. And of course, that's different sitting in an urban transportation of driving your own car or sitting in an airplane or driving to a plane. So therefore, I think that's what the jury is still out, what it means, but in certain sectors like fashion, I can't expect. I don't expect that in autumn, people say if a coronavirus I don't buy any, any new clubs because I don't know if there is a next wave coming.
Some also, people have forgotten it by then, some they will think differently about purchasing a car or traveling somewhere. And that is an exercise, but Kiwi can monitor it even over time. What happens because our customers are a reflection of what's really going on with the consumers finally.
Thanks. So, Andre,
thank you very much for that question. And Machine sales, there's one more caller in the line.
Yes. We now have the last caller on the line. It is Neil Glenn from Credit Suisse.
Hello, everybody. Thanks for squeezing me on. If I could ask 2 quick ones, please. The first one, just interested at how do you assess the prospect of supply chain bottlenecks being eased to help the market once this crisis eases and any feedback that you're getting from customers, which what might actually help the second half of the year's volumes relative to the first despite a likely recession? And then second question, back to the subject of aircraft financing, usually in these sale and leaseback type transactions, you've paid for a lot of the value of the airplane for in pre delivery payments.
And then when the sale and leaseback transaction is actually executed, you actually see a cash inflow because of the the value being paid by the leasing company. Just interested will this supply in this structure and might we see cash inflow on the back of that transaction and, because of it? Or do you just avoid the cash outflow based on this structure?
Got you. The second question, that is really, taking away the second half of the payment. So the prepayment we have shown in CapEx that has been a cash out to our free cash flow. And we are now just awarding the second half. On delivery payments.
Pretty opportunistic. And on the other, maybe I didn't get the question right, but what I can say is Our colleagues around the world have never been more never received more positive feedback than now. They are telling us in our internal medias, they are telling us it's amazing to see how positive customers are. I don't know if every logistics company gets such a positive feedback because I don't know what others are hearing. But what we hear from customers from small, from private consumers up to the large corporate is amazing, it's really amazing.
What they are selling us in internal and the meals they are sending us or complements they are making. And that is, very rewarding for our people and very reassuring for us as a senior team.
And just actually, Frank, just to follow-up on that. The question was also trying to just touch on the prospect of pent up demand that isn't actually currently being satisfied do you feel that a lot of your customers are waiting for the crisis to pass to really then ramp up activity, which might help a recovery in trade flows in the second half at all?
Yes. I think so. They are all waiting and hoping and And it's too early to judge if we really see, in a V shaped recovery. In China, we saw a V shaped recovery when that happened in Europe, it's too early to judge. And it might be different by industry, but there's definitely one scenario is that we will be very much back to normal in the second half.
And then we are more looking and how can we get more capacity for fulfilling the needs of our customers. That's one scenario, then there might be a scenario that after the summer is over, like all these, the flus and all these kinds of viruses we have in secondary from the second that's the reason why I said already, we are preparing for such a situation because we are taking our learnings. And as I said in the last call, I think, are setting together on every morning together through ops people to discuss exactly these type of things, how we can be well prepared So these are different scenarios. And of course, what we are doing actually, we are looking into these things and at judge on that basis, what does it mean for our CapEx plan? What does it mean for our cost base?
That's a complex exercise because you can think about different scenarios. And you can also look into, the different industries. What is very interesting, if you run a company from home, which I have done on a regular basis, you have some time to read some of the advice from all the consultants. And what is very reassuring is if I read that, and get these reports from the McKinsey's and you name it. I always felt that you have at least one step ahead of these guys.
So they are writing down what we have done actually. We started that already mid February or in February to set out what we should need to protect the operation. And that is it's pretty good. I have not read any other Melanie's on the liquidity already before we talked about that. And that is what you can read in these reports.
They approach us what you have to do. You have to be visible. You have to communicate we are constantly communicating to our organization on all levels, and that is that's important for these folks. So and that makes it very confident that's, hopefully, the crisis is all good, but then the company will be a very strong shape. So Neil.
Well, thank you very much. I think that concludes the Q and A round.
And with that, I'd like to thank Frank and Melanie for their time and sharing their thoughts. We're now looking forward to talk to you and meet you on the virtual conference format, if possible. We, as I are, are looking forward to send out in the next couple of hours invitations for our virtual tutorials to keep you abreast in how the business continues to develop. And it's not all on COVID, but also on other things we are doing, continues to be an important theme. So looking forward to be in touch with you then end the debt, I'd like to say.
Thank you. And goodbye.
Thank you.