Good morning ladies and gentlemen, and welcome to the Dothropos DHL Group Conference Call regarding the results of the 2019 financial year. At this time, Let me now turn the floor over to your host, Mr. Martin Wiegenberg.
Hello and good morning everyone out there. Thanks for joining us at this somewhat unusual early time for the Q4 full year reporting call. As you know, with the group CEO, Frank Apple and the group CFO, Melanie Christ with us. You know, the procedure we want to stick to the schedule and therefore, let's start right away. Over to you, Frank.
Yes, thank you, Martin. Good morning, everybody. Thank you for joining us that early today. I'm more than happy to talk first about the highlights of 2019. Then Melanie will talk about the financials and I will come back with the strategy and outlook.
So let's go to page 3 where I would love to summarize where we stand today. We are in very good shape as a company. I think we have tackled many challenges in past years. And that's the reason, that I'm saying quite often internally also today here that we are in better shape than ever before. I know the company now for 24 years, first as a consultant, and then as a member of the team and normal for 12 years as the CEO, and I think we really have built a great platform, which will help us to execute our strategy.
Of course, we are not independent from the environment that a reason why we gave a market 1.5 weeks ago, clear guidance that we are on the right path to deliver the SEK 5,000,000,000 before the coronavirus impact, and we will address that later on anyway. And the street scooter end also production operation. So we have shown you in autumn a very clear defined strategy. And we reconfirm today that we want to deliver out the EUR 5,300,000,000 in 2022. If I go to the next page, This is also well known.
And I think when you talk about your annual numbers, it's good to remind us. So we are talking about purpose for quite some time, we are calling that connecting people, improving lives. And actually at the moment, you see that. We are fundamentally important to connect the dots and to help the world to recover from the impact of the coronavirus. We are fundamentally important to get things moving.
And that's our focus. To do that, we need very engaged people, and we have improved that level because highly engaged Bill will provide great service and great service finally drops your top line and that leads to good returns for the shareholders. We also made progress in 2019 on our carbon footprint, which becomes now more important for people. But as you know, we are working on that already since 2008. I go to the next page, which I said already, we have improved along all dimensions, in both our employee engagement So that's the employee opinion survey results.
So we are heading out to pretty high numbers. Don't forget that this is a blue color organization. You tentatively get higher numbers for white collar people. But we have we are very happy with the high numbers many of them are already in the 80s, which is actually the bar to really have loyal employees. We get credits for that as well as externally, great place to work.
1 of our divisions guided forth in the ranking globally we are qualified as a top employer in many countries. This actually is long term, the most important indicator of all in Cadrius because if the morale of the organization goes up, you definitely see good improvements on service quality. And that leads me to the next page where you actually can see whether you measure them not promoter score, you might ask why we are not showing that for key and key because we only recently started to do that as well. I introduced that even to say, need to measure the NCS score That's the reason why you see here the number of complaints per 1,000,000 shipments. They have relatively reduced in post and even more impasses, which is a strong sign that customers are more happy.
On the other divisions, you can see here, we have improved year over year. Again, Express is on a very high level already for a long, long time, and that is the reason why we have gained market here for a long time. The other divisions are getting close to that level now as well, which is very encouraging. Again, it's based on the good motivation of all people. If you then go to Page 7, you see us well.
We have done pretty well for many years now to reduce our carbon footprint. We have improved by 2 percentage points last year. So we believe that we are on the right journey to deliver our 2025 target to become more efficient with regard to carbon 50% on the basis of 2007. But also other indicators, we have a huge fleet of electric delivery vans, 30% of the deliveries are already carbon free, We have increased further our green electricity and we have, in the meantime, built, even planted even 3,000,000 So all that is supporting overall our efficiency. Overall, if we come to now to the financials, that means what is in for our shareholders, that we have delivered, along all guidance indicators on the spot.
So the group is in the middle 4.1. P and P is slightly above the middle point of the guidance. DHL is also in the range The group functions are slightly above that. That's mainly related to the street scooter challenge. And what is really strong is for free cash flow, which is significantly above what we originally guided.
And that shows the quality of earnings, which we have definitely improved in the last year. Page 9 shows gives you 2 important things. 1 is the resilience of our portfolio. We said that earlier 2 weeks ago that, of course, we see 2 divisions are impacted, and you see them here on the right, the DGFF business and the Express business, but the others are pretty resilient against the short term volatility. What equally is encouraged and I think the reason why I say we have never been in better shape.
If you go through that, we have a very healthy trend to improving margins a year over year. Express is known for some time. P and P has recovered nicely in the last year after we had a drop in supply chain in DGFF moving upwards in the right direction. Supply Chain, we gave you, as well, quite some time ago, already the range of 4% to 5% as a margin aspiration, and we are very close to the upper end. So that shows the resilience.
And on the other side, the significant improvements we have done in the last years. And since we have done so well on Page 10, you see that we want to let our shareholders anticipate, that's the reason why we are increasing our dividend, but in EuroSense, we believe that's a fair participation and is following exactly our finance policy. And we believe that this is a strong sign of confidence from our size as well because we are very confident that we can deliver, before Corona, our 5,000,000,000 this year and then as a free 5.3 in 2022. And with that, I hand over now to Melanie for more in-depth financial notes.
Thank you.
Yes. Thank you, Frank. And good morning also my side. Thank you for joining us so early. Like in the previous quarters, you will have seen that we have included management comments and I will hence not talk about every number on the following slides, just focus on some important key messages.
Starting on page 12 with the group P and L, I think on that page, I can only echo what Frank already said. 2019 was a record year for us. Million revenue 4,100,000,000 in EBIT, 2,600,000,000 in consolidated net profit. So we were able to really deliver in 2019 according to plan. And on that basis, with the 26% increase consolidated net profit, we had a solid basis for the dividend improvement, Frank just talked about.
And we will naturally come back to Corona and what is happening around us in a couple of minutes. But I think like in normal life, if you get a flu, you want to be in prime shape beforehand. You want to have a good immune system. And I think our 2019 numbers show that we really started the year 2020 in excellent shape. Turning to Page 13 and the group revenue growth I think the important message here is that despite 2019 being a year with limited macro tailwind, we saw growth across all our divisions.
And I think what is particularly pleasing when you think back to the beginning of the year, looking at the express growth for the full year underlying organic growth of 4.2 percent. I think that also shows the strength of our largest DHL division. Turning to the next page, we obviously succeeded in translating the top line growth with strong leverage into even stronger EBIT growth. On page 14, we saw all the reported, a one off effect you take them out, we had an underlying growth excluding 1 off of 7.6%. And I think here, again, the important message also when you think about the 2020 step up is all divisions contributed.
So in terms of underlying EBIT growth, we really had a year where all members of the family did their share in contributing to the EBIT step which was very good to see. Turning to the 4th quarter. On Page 15, I think that is also the message of what I just said for the full year for the Q4 performance. There's some nuance this year. I think the first important message for the fourth quarter is, when I look at what we had internally aimed for in the fourth quarter, all divisions delivered in Q4 against our internal plan.
PNP And Express continued in line with positive Q3 trends as we had aimed for. Obviously, both air and ocean freight in terms of market development didn't get easier in the fourth quarter. Nevertheless, DTS kept delivering EBIT growth, due to the internal improvement programs being successfully executed on the supply chain side and that is something we had flagged also the Q3 numbers. We had some phasing in our real estate, a project which led to an anticipated year over year decline in the 4th quarter. And on the Consumer Solutions side, we had some final bookings for cost of change.
We're done with that now. And I will talk about the underlying performance of E Commerce Solutions in a segment. So overall, the fourth quarter was completely in line with what we had expected, and led us to the successful finish of the year and delivering on our guidance of all dimensions. With that, I will now go into some more detailed comments for the division starting with P and P on page 6 2. And I think the next two pages are going to be relevant for understanding what we also expect for 2020.
So when we look at the volume trends in our Post And Parcel business in Germany in 2019, you can see that for the full year, the mail volume decline was minus 3%. So that was exactly in line with our long term trend of 2% to 3% May volume decline every year. And on the parcel side, we saw for the full year a volume growth of 6%. With a very good youth development, revenue was actually up 9%. So the 6% for the full year, we're perfectly within the range 5% to 7% we had guided for.
Now when you look at the fourth quarter, you will note that on the parcel growth the number was 3.9% was lower than what we had seen for the full year trend. This was still extremely strong. And that is something I also want to flag for the year 2020 because what we have seen in Q4 and what we now expect also in the year 2020 is in sourcing of Amazon, they are taking some of their volumes into their own Amazon logistics network, something which doesn't come as a surprise for us. But which we have anticipated and have been also reflecting in the contractual arrangements with MR1. That takes me to page 17 where we have tried to be extremely clear on what to expect for the P and P volume development in 2020.
The first topic relates to the postal volume development something which we had already flagged after Q3 in November December. We have obviously put in the regular price increase on the first July. We have seen very limited elasticity. And we have now, in the beginning of this year, reduced the rebates given to larger customers' so called partial services. So that has been defacto a price increase for those customers.
We do expect some elasticity here, but from what we're seeing at the moment, that is totally in line with what we have seen in previous price increases. Nothing we are concerned about totally in line with expectations. The special structural effect, which we will see in 2020, goes back to a court ruling we had at the end of October where court ruling specified the certain types of shipments can no longer be sent as Dialogmail but have to be sent as regular mail. The benefit of that is every one of those pieces now carries a higher price, the price of regular mail, but there are some substitution effects, and we are losing some volume. And that is leading to a special effect in 2020 where we expect mail volume decline to be more in the 5% to 6% range than in the 2 3% range.
This is really a temporary 2020 effect. And I think the important element is that this is EBIT neutral because for the dialogue mail, which is moving over to regular mail, we get a significantly higher average price so that on the revenue and on the EBIT side, the impact will be neutral. That's the postal side of things. Now turning to the parcel side. We expect continued in sourcing from Amazon into their own Amazon logistics network.
We expect to continue growing healthily with other customers, but the overall balance will lead to a slower growth in 20 20s and what we had seen in the previous years. We have given you a relatively wide range 0% to 5% because that will depend how quickly Amazon will move forward with the in sourcing. So we expect continued growth, but more in the 60% to 5% range. That's the first important message here. The second important message is that, I mean, we are continuing with all our youth measures, but of course also for large customers, if there is a different development on the volume side, that will have adjustment mechanisms on the pricing side.
So the whole impact on the EBIT will be, something that we have fully included from our internal planning and also of course in our guidance, which we have given to you for the P And P division. That takes me to page 18, a familiar slides where I just want to reconfirm that we are committed to showing the step up in POC to more than 1,600,000,000 in 2020. And we of course expect all three focus areas to contribute with the amounts shown here on this page. To the step up. So that was P And P.
Now briefly turning to the DHL divisions. And starting with Express on page 19. You can see that after the first half of the year being impacted by the heavyweight campaign, in the second half of the year, as we had talked to you about a year ago, we were back on track and saw good year over year EBIT growth in the Express division. The whole revenue shipment growth mix in the 4 quarter was solid and strong. And that was also a trend which continued into January and the start of the year.
So we really had a very good start into 2020 in our Express division. I will talk about the corona implications in February early March in 2nd but I can really say the Express division is in fantastic conditions and we are deeply convinced that that will also help us hugely now dealing with the corona situation. That takes me to page 20 and the situation in air and ocean freight. Obviously, the market dynamic has weakened in the second half of the year. We also see that in our volume development and in the GP development.
The important message is however that due to our internal improvement measures in DGFF. Which we continue to execute and which are largely under our own control, we were able to show EBIT growth also in this challenging market environment in the 4th quarter. And when you turn to page 21, you can see that we were able to take the GP to EBIT conversion up to 16.6 percent for the year. So we are very pleased with the profitability development in the Global Forwarding Division in the fourth quarter and for the full year. Despite the challenges in the market.
And of course this relatively weak volume development in the market was also visible in the beginning of the year where you also had the effect of the timing of Chinese New Year. So it is a bit of a situation, I think for the air and ocean freight markets going into Corona than what we have seen on the express side. For supply chain, we have included a bridge on page 22 to show you the underlying EBIT growth rate in 2019. So we have taken out the well known one offs gain from the Chinese business. The restructuring charge against this gain.
And we have also taken out the loss in China contribution to really show you the underlying earning growth in supply chain. And you can see here that supply chain showed an operating improvement of 8% in the year 2019. And that is at least what we expect for 2020 from our supply chain division. Last but not least, our youngest family member, DHL E Commerce Solutions on page 23. Yes, we booked about 1,000,000 in restructuring charges, but when you take those out, and we saw that very clearly also in second half of the year, we are in positive territory, in terms of operating performance for e commerce solutions.
And after they have delivered 1,000,000 operating results in 2019 already, we felt that it was the right time to take the guidance for this division up to between 1,000,001,000,000 contribution in 2020. And again, we don't expect further restructuring on an E Commerce Solutions in 2020. So much for the operating performance in this division. Now over to Page 24, and the free cash flow picture. We have added a number of slides on cash flow.
I'm not going to talk about every single one. Obviously 2019 was a year where we had a number of 1 off effects, most notably the 1,000,000,000 the peak year for the 777 CapEx we have to cash in from the supply chain China transaction. If you take those big elements out, the operating free cash flow was around 1,000,000,000, and we're very pleased with this development and also quite happy that we were able to over deliver on our guidance for free cash flow in the fourth quarter. When you kind of like look at the different elements, of our cash flow statement. We have tried to give you some interpretation support on page 25 for what is happening in the operating cash flow, because it is not entirely straightforward.
I think the fundamental question about OCS is Why did it only increase by 1,000,000 when we had such a significant step up in reported EBIT? I think there are a number of technical things you have to bear in mind. So for example, you have the benefit from the supply chain China transaction in EBIT it's obviously taken out in the operating cash flow. We have movements between changes in provisions because we booked non cash during provisions in 2018, which now turned into cash in 2019. I think if you take all that out, the main reason why OCF grew less than operating EBIT was taxes.
Due to the higher earnings, as an increase in the tax rate, we actually paid more taxes. So you can see in the middle of the page, this step up by 1,000,000 in the taxes paid line. Very clearly there was also a phasing effect in here. So we don't expect anything like that type of step up for 2020. You will see in three pages that we expect a much more moderate development on the Texas paid line.
In terms of CapEx, yeah, as discussed on many occasions, 2019 was the peak year for the 7 77 program, billion that will now come down to around about 1,000,000,000 in 20 around 1,000,000 in 2021. The fundamental CapEx, the core CapEx in the express is to remain flat at around 1,000,000,000. So for 2020, both Express CapEx and group CapEx will go down. Because of the phasing of the 777s. I think one additional interesting comment from my perspective on the 777s is now have 6 of those 777s in operations.
Our aviation colleagues are super happy because the operational performance is outstanding. And from a financial perspective, we're also seeing the savings coming in. So, the whole refleting 777 exercise is going according to plan. Page 27, I think very good news from my perspective, despite the CapEx peak year of 2019, we saw a nice improvement in ROCE up to 11.4%. And this and that despite the definition challenge that we have included all the lease CapEx of course in the denominator of the rosy calculation even though the cash out is really happening over the following years and is not already spent.
So very pleasing development here. I will not talk about the next two pages. We have included them to give you some insight what we expect going forward. Happy to answer questions on that and also the IR team is of course ready to talk you through in detail. That takes me to pay 50 and our guidance, where nothing has changed in the wording compared to what we said at days ago on February 28.
We had a good start into the year across all divisions and saw a solid trajectory towards the 1,000,000,000. But obviously, we are seeing the impact of Corona in February and so far on our Express and forwarding division. What we now booked for February being closed saw was that we were more at the positive end of the 1000000 to 1000000 range we had given you. So there was obviously an impact but it was at the better end of the range we had given before. And what we're also very clearly now seeing in the early days of March is that China is on a path to normalization.
We see that clearly in our express volumes, but get also in increasingly encouraging messages from the forwarders. And in the 1st week of March for the Express business, we were actually back in positive growth territory. So obviously in February, there was a decline in shipment, but now in the early days of March, we were back in positive growth territory, and we are beginning to put planes back on into the network. So turning to kind of like the normal business, excluding Corona and of course also excluding StreetScooter on page 31, we are showing again our fundamental bridge of why we were so confident that we are on the right track with the operating business to get to the 1,000,000,000. I talked about the P and P situation where we see continued contribution from the overhead measures from activity improvements and from yield and pricing, giving us confidence in the step up for P and P.
I think for DHL, we saw in 2019 that all DHL divisions delivered operating EBIT growth, then you lease the restructuring charges aside. And I think on that basis, yes, adding 1,000,000 for DHL is not unambitious, but with all 5 with all 4 DHL family members contributing, we feel as a team that in terms of operating performance that is achievable. And naturally, we now have to see how the whole corona situation plays out. As mentioned, we are beginning to see some encouraging signs but we don't have a crystal ball either. So we will have to see how this whole situation unfolds.
Finally, on page 52, some other relevant guidance elements to bear in mind. After the good cash flow performance in 2019, underlying billion our guidance for 2020 for free cash flow is around 1,000,000,000 and that includes the million for the 777s, which we are planning for 2020. It also includes this restructuring. As mentioned before on the 28, the 300 to 400 restructuring charges are not going to have a significant impact on the cash flow. So the 1.4 has completely included.
But naturally, we have to see what impact Corona is going to have on the operating results and hence ultimately also on the free cash flow. In terms of CapEx, we are going to our fundamental CapEx excluding the 777s relatively stable at around 1,000,000,000, and that is a number we are planning to invest into the future growth of the business in our core logistics activities independent of and Corona. And last but not least, for the tax rate, we expect the tax rate to be between 22% to 24%. So much for the guidance for 2020. And with that, I'll hand back over to Frank
for the outlook. Yes, thank you, Melanie. Then I move further on to page 34. So on that page is exactly what we have told you in autumn. We are focusing on our core activities with our excellent simply delivered approach.
You can even say, if you read that, that we have taken a decision left or right the street tutor is a logical consequence of strategy execution because we said we want to focus on that. And that's the reason why we either wanted to find an investor which we couldn't find, and then it's logical to say we wind it down to help to operate our fleet. Digitalization plays in a very important role in that strategy, and we have brought today only one highlight which is a part of a digitization strategy of PNP on Page 35. Maybe I only highlight some elements. So for instance, From summer on, if you want, you can see the front page of all letters in a box, in an app, which will be delivered and will be in your mailbox at the evening.
So that gives you an early alert somehow. Or next to that, the tracking, we will introduce a two dimensional barcode to the stems and then you can retrack your letter are very nicely. We also, on the parcel side, we give you from a fall on this year a 50 minutes notification that the process is coming soon. And you will also see this year more and more where your parcel sits. So these are just examples of the digitalization agenda at Tobias Maier put in place for P and P.
We have equal strategies and roadmaps for the other divisions. And as you know, we committed, to invest $2,000,000,000 into that generate $1,500,000,000 benefits until 2025. If you then go to the next page, these are our 2022 targets I already set that we keep the minimum target for 2022 as more than $5,300,000,000 EBIT The cumulative CapEx is the same as we told you already. And we have increased the free cash flow by $500,000,000 on the lower upper end because we believe that we have the right trend at the moment. And that's the reason why we are confident that we can even generate more free cash flow.
Then we originally anticipated despite that we have not changed for CapEx guidance. So that leads me to the last page. Where I can summarize, we are in best shape ever. And we are, as Manny already said, our immune system is in great shape. This is the employee engagement.
This is the customer satisfaction. That's our carbon footprint. That's our focus on executing the strategy. And that's the reason why we think we made great progress in 2019. That's the reason why we also propose EUR 1.25 as a dividend.
And I think we have very clear priorities, what should we have to do now. And I think we are working already on Corona, maybe just some last elements to that. I'm sitting together with the offsets of all divisions on a daily call to align is what we are doing already enough. Can we do more? Is that fully aligned and that's very productive and our ops people are doing an outstanding job.
That's a moment of truth for are strong companies. I'm impressed by the agility and the mindset of our people who are doing our day to day operations, and that's maybe very confident that we on the right path not only to deliver as much as possible and on the right path to potentially even deliver the 1,000,000,000, depending on how impactful the coronavirus and overall volumes it will be and that we will lay in this year even more of the foundation to be successful midterm and deliver our strategy 2025 on our goals for 2022. And with that, Yeah. I hand the now floor back to Martin and we can start the Q And A. Thank you for listening.
Thanks, Frank, Melanie. Straight to the point.
You. You'll hear a Tim for today comes from Andy Chu, who's calling from Deutsche Bank. Please go ahead.
I have three questions if I could. Firstly, on Amazon, if I just look at 6% of your P and P, revenues. I think that's about 1,000,000,000 of revenues roughly from Amazon. And how much of that of revenues from Amazon do you expect to keep over the next couple of years? And secondly, in terms of Melanie, your comments on March, and been back into positive growth.
Is that in terms of TDI volumes? Is that a China comment? Is it a great comment? Is it an EBIT comment? Maybe small clarity there, please, on the March comment on and comment on Express.
And then lastly, in terms of geographic exposure, I know that you've given that by sort of Asia Pacific and various regions, but could you kindly give us the exposure that you think the group has to sort of China and also please, to the U S. Many thanks.
Yes, may take the first and Melanie the second and third, Andy. So on Amazon, of course, you know, that's very difficult to judge. I think our goal will be that we keep as much as possible, but of course, we want to grow in continue to grow and gain market share with the other vendors. And I think that has been our goal for quite some time. It doesn't surprise us that this is now happening.
I said that several times that it's right of every customer to do what they want is best for them. I think we are well positioned, particularly with the enhancements that we even keep the volumes. I think we have delivered great service quality in the last 6 months to all these customers. And I think that's the right recipe. And not to forget that there's a broad range of remote areas where it will be very costly for anybody to deliver on its own.
But we have to wait and see, and we will update that we can't make decisions for Amazon. What we have done right, I think we adapted the commercial terms of contracts and to that expectation we are now seeing happening. And I think that's the right approach. We should really look into the contracts we have of large customers if that is commercially right for us instead of hoping that they keep volumes effect. The dependency will reduce significantly this year, and that is also good news, I think, long term.
Andy, to your, as second question, so I was talking about the express TDI shipment growth where we saw a recovery into positive growth territory in the 1st week of March. And that was also supported by a strong recovery in China on the Express side. In terms of speed of the recovery, we don't see the similar speed in forwarding yet for obvious reasons. And that is also in line with what we had said before. I mean, obviously, looking also back at this crisis, we will foresee the recovery in Express.
I think in the current situation, with so much of the passenger aircraft being grounded, having our own aviation network is going to be a super valuable asset for us. And that is why we are really beginning to put flights back on I mean, obviously in February, we had also made some adjustments to the network, but given the strong volume trend now, we are really going to move to the other direction. 1 week in March doesn't make a complete end of the crisis. I think there's still, as you know, a lot of volatility out there. But we also wanted to share that encouraging use with you.
In terms of geographic exposure, so In terms of country ranking, I mean, Germany is obviously our largest country by revenue. The U. S. Is number 2. And China is number 4.
Yes, maybe on that one, if you look into our industry, I think by far, we have the most balance and that is another element of resilience globally. Our revenue is not exposed, particularly to one region or one country. And that's across the divisions. And we have seen that in former crisis. And we said that, we have said that last year and the year before, but our for you is a pretty resilient portfolio, and we actually see that at the moment.
The second element, the agility of our organization is just outstanding. It's impressive if you talk to the operators on a daily basis, how much they have answers to questions you have not even thought about. And that's great to see. And that's actually what I had experienced when we had the crisis in 2008 and more difficulties at that time. We have seen that then the Edge Cloud was over the Atlantic.
We have seen that then Fukushima was happening This is a DNA of our company, and I'm very proud if I see how reactive and agile our organization is.
Thank you, Andy, for your questions.
Thank you. The next question for today comes from Mark McVicar, who's calling from Barclays. Please go ahead.
Good morning, everybody. Two questions really. First of all, with the labor negotiation coming up in May, what sort of wage increase expectation, have you got or should we be thinking about as being embedded in your guidance? And the second question is how much flex is there on the core CapEx excluding the 777s, if things get a lot worse in Europe or States or whatever Corona is still growing over here, could you take that down by 100 of 1,000,000 or is a lot of it actually committed
So may, may, may, may, like, can talk about more, and I will just say a general statement on that. The labor negotiation, we have not received any request. At times of high uncertainty, we are talk people talk about session is, of course, important factor that we are a very reliable employer and people will appreciate that. Also, the regulator have put pressure on our parcel increases, and we have to pull it back puts pressure on the headroom. And I think that is well, where not received, but accepted by the union well, but we don't know yet what they will demand for.
And of course, we have a ticket in mind And I don't want to share that publicly. Otherwise, they know what we have put in all of those budgets, but of course, we have ideas about that, but let's wait and see now what they say. Before Melanie can say more about that, CapEx, I think what I tell the organization is these are the moments where you have to continue to invest. So it is the last resort to cut CapEx back. I think it's right.
To strengthen our footprint. We have a financial muscle despite that we are increasing the dividend quite a bit, and we should do that. These are the moments where you better not cut back on CapEx to improve on the short term. I think that's a moment where you have continue and execute this strategy. But of course, we have some flexibility.
Melanie can talk about that, but I think that would be the last resort which I can't see that this is necessary. If you're opposite, I think it's right. For the long term, it would be good if we continue to invest in the right way to improve our footprint we have globally anyway already.
Yes. So maybe just one addition, first on the union side. I mean, this time, this is the same vanilla wage negotiations. You don't have any of, structural complexes. That should also be a helpful process.
I think on the CapEx, we could reflect CapEx And that was, of course, the discussion we also had in the team now, given that we hadn't given you a number now for 2020. But as Frank said, we decided, given the underlying strength of the company to continue with our CapEx for now in line with spending. Should things change fundamentally? There is still legal room to reduce the numbers, but I mean, obviously now we're also very much focusing, on cash management, management, for its working capital side of things. So I think CapEx really kind of the last resort for us.
Call again.
Thank you. Next up, we have Christian Nadelco, who's calling from UBS London. Please go ahead.
Hi, thank you very much for taking my questions. 3 if I may. Firstly, you've mentioned what's happening in China with Express volumes. Could you give us a bit color what you're seeing in the 1st week of March in terms of pricing in your Express business in China? Secondly, looking at the Amazon on logistic network in Germany, how much further scale do you believe they need in order to start to compete more meaningful against you to on 3rd party volumes?
And last but not least on coming back to Express. In terms of the cost split there, could you help us by offering us a little bit more color in terms of fixed versus variable costs there. When you look at purchase goods and services, when you look at other operating expenses, and any color you can add there on fixed versus valuable nature of the cost base in Express? Thank you.
I take the first 2 and then Melanie can talk about the loss. So pricing, it's not really 100% clear, but of course, in a moment where you have tight capacity and you are in control of that there should be upside pressure on pricing, because customers need our capacity because many carriers particular passenger airlines have cut back on capacity. And as Melanie said, we are expanding capacity, and that has a price ticket. How much of that is I think it's too early to say because, of course, we have also contracts and all this kind of stuff. On Amazon, that's a complex matter, which we can't answer just because it's unclear, how much they really want to build their footprint.
And then it's also if they start selling products just as a logistics company has significantly consequences also in market positioning, because then they become a logistics company as they try to avoid so far. They are already logistics company, but they claim that they are not a logistics company because then, of course, with dynamics, we're regulatory and they are antitrust things are changing. So it's a complex question, which is there's no easy answer to that. You better ask that question Amazon what their plans are because they probably have to think about all these dimensions. So we can't say that at the moment.
If that's doable at all, because, you know, the regulation is, you know, to give you an example, you know, the impact of this new regulation that you have check for security payments of your subcontractors is valid for logistics companies and not for non logistics companies. And Amazon is not following that route because they say, and we are not a logistics company. If they sell through 3rd party, they become a logistics company.
So maybe if I just add, is this your talked about that before. I think the situation in Germany is not one to one comparable. This is the situation, for example, in the U. And in the U. K.
When you look at the German parcel market, there has been competition out there for many years. And we are the premium market leader. As we have had for many years now competitors with lower service quality and lower pricing. And I think that puts us in a very solid, a position also vis a vis potential new competitors. In terms of fixed versus variable in Express, it is difficult to give a precise number here.
I think what we have now shown again in February when we did adjustments in the aviation network there's more flexibility than would you think. So it's not a static network, particularly on the flying side. There are constant adjustments, and that allowed us to offset some of the revenue shortfalls in the press or 3 months of February. By taking out costs. And that gives me a lot of confidence in independent of how things are going to develop the Express team will react also very swiftly on the cost side.
Thank you very much.
Thanks, Christian. And on to the next caller then.
The next question comes from Matija Gagile calling from Goldman Sachs. Please go ahead.
3 questions for me. The first one is on the free cash flow guidance. Can you elaborate a little bit why are you increasing your 2022 free cash flow guidance by approximately 500,000,000 I'm not sure I I caught that. Secondly, on the taxes. So if I understand correctly, the tax rate should be increasing in 2020 versus 2019.
But the cash tax payment should be going down compared to last year. Can you just confirm on why is that the case? Maybe What can we say cash tax rate should we be assuming for the year? And thirdly, sorry, the inevitable question on coronavirus, as you mentioned on the 1st week of March, can you give us a bit of color of what are you actually seeing in the Europe if you're seeing any material slowdown at this stage already? Thank you very much.
Ma'am, let me start with coronavirus. The volumes were up year over year globally. So we have not seen a slowdown in Europe yet. If that happens, it's unclear maybe it will be slightly different because we have not shut down yet anywhere in Europe like we had in China. And Wuhan was, as you know, a quite important manufacturing side.
So no, in the 1st week of March, we have seen a global improvement including Europe.
Okay. Okay. Then coming to your cash request I mean, 1st of all, in terms of why have we increased our cumulative free cash flow guidance for 2020 to 2022? I mean, got the feedback after the Capital Markets Day that you saw that as conservative in the first place, but given the performance and the over delivery on the 2019 cash flow, in light of our free cash flow guidance for 2020 of the 1.4 still including 500 for the 777s, which is then going to fade out in the subsequent years. We really feel very with increasing the free cash flow guidance by 1,000,000 for the period 2020 to 2022.
In terms of cash taxes paid and tax rate, so maybe I haven't been clear enough on that one. We saw this sizeable increase in 2019 compared to 2018, which was which was due to 2 factors. 1st of all, our abnormally low situation in 2018 with all the restructuring expenses and so on. And then also some phasing, which hits 2019. So on that basis, the guidance for taxes paid in 2020 which you can also see on page 28 of the presentation is that we expect income taxes paid to go up to round about 1,000,000 So there will be an increase from the 843, but that will be a much more moderate increase than the big step up we saw from 2018 to 2019.
And because of all the deferred tax assets, deferred tax liabilities, there is no one to one linkage to what is happening in taxes paid to what is happening in the tax rate where indeed we see an increase to 22% to 24% for 2020.
Okay. Okay, clear. Thank you very much.
Thank you. Welcome.
Thank you. Thank you.
And the next question comes from Alex Irving, who's calling from Bernstein. Please go ahead.
Hi, good morning. Two questions from me, please. First of all, on CapEx, I'd like to take a little bit of a long perspective and think about how you see this developing over the medium term. Are being excluding the express re fleeting that you've already talked about, how we should think about that ongoing spend and where you're planning to focus this? And then second, on DGFF please, we saw a sharp increase in conversion ratios this quarter.
And I'm just interested in what's driving that, how much is mix how much is the actual efficiency gains? And how you're thinking about balancing conversion improvements and volume growth going forward?
Okay. So let me start with the CapEx question. So, I mean, our underlying CapEx guidance for this year is 2.6. That's a small increase from the 2.5 underlying we had in 2019. And we expect that to be relatively stable growing moderately, so no peaks and spikes.
You realize the 1,000,000 distortion of the 7 77,000,000 this year, 1,000,000 next year, but then we expect a relatively stable, slightly increasing, but at a very moderate pace development in the fundamental CapEx. As you know, we have 2 CapEx Heavy divisions, the largest one is express, where we have explicitly said that for the next year's we expect around 1,000,000,000 in CapEx for Express. So, for the rest, the 2nd largest is PNP, where we will continue building out our parcel network. But here again, also a more healthier volume mix coming back to the analyst question is also going to help us on the CapEx build outside. In terms of DGFF conversion, I think what we are really seeing here is that all those measures, which we have been working on under Tim Sharvard's leadership for many quarters now are coming together.
So there is, as you know, a huge IT components. You may have seen in the presentation that in terms of rolling out cargo wise for ocean freight, We're pretty much completed. We're now in the middle of the airfreight rollout. So obviously, this is going to help us drive fundamental conversion up. In terms of volume growth aspirations, I mean, our anticipation is with the market hopefully eventually normalizing that we will get back to a growth in line with market.
But what we are focused on at the moment is the stuff we can control and that is moving out our internal improvement agenda.
Thank you.
Thanks, Alex. Fantastic questions. And over to the next caller then.
The next caller is Tobias Zitesh calling from MainFirst. Please go ahead.
Yes, good
morning Heather. No one of my questions will be as fantastic, but I'd like to focus a little on volume. Can you give a little bit more granularity on the 0% to 5%. I mean, you guided for a 5% to 7% trajectory through to 2025. Do you think the Amazon sort of phasing out will be largely completed within 1 to 2 years or is that a longer term dent to volume growth?
Is there a component of B2B volumes not growing this year? Is the price sensitivities as something that will phase out and you will regain some market share. So any granularity here would be Much appreciated. Airfreight or forwarding altogether is still growing below market. You've been sort of thinking that you could catch up with market second half twenty twenty.
You did not yet. I mean, what's your scope for 20 20 in terms of relative market share performance there. And on mail, what's your visibility on sort of the shift that you expect basically from direct mail to mail communication on the back of that regulatory change, which is driving the volumes there. Do you have the largest contracts already so you'd have reasonable confidence that that will actually happen or is there a risk that you may not get much of the volumes that you're losing on the direct mail side back in full price Thank you.
Okay. So on the first question, parcel volume growth also in the medium term. So I mean, in terms of the fundamental market growth, we still think that, over the next years, 5% to 7% growth for the market is a realistic number. And we also expect continued growth costs with other customers, but there's going to be the Amazon ops back now in 2020, where it will depend on the speed of the in sourcing, which is why we're giving you a relatively wide range of 0% to 5% for the current year. And we will then have see where we stand at the end of the year to give you an indication for 2021.
In terms of air freight, yes, I think that is really difficult as a market to forecast. I mean, our aspiration is to get in a stable steady state into a position where we don't lose market share anymore. But obviously at the moment, the market was not in a normal situation prior to Corona and is now in very volatile state. I think we first have to see how things stabilize, but then our aspiration remains to get back to growing, at least in line with market. In terms of the shift from dialogue mail to mail communication, that is really going according to plan, which is why, what we have mentioned in November for the first time, we can now really we confirm with a lot of confidence, there will be the impact on the volume.
But we don't see the impact on the revenue as anticipated. So I think in November, it was an announcement now after the first 2 months in the new world, we believe that it's happening according to plan.
Can I just follow-up on the parcel side? I mean, you now said that the market growth has seen a 5% to 7% and I hear between the lines that you think you grow lower because of losing the Amazon volume might take from your Capital Markets Day was that you also wanted to be in that 5% to 7% bracket? And that you would compensate basically with market share gains elsewhere. Is that not the message you're conveying anymore?
No, I think you're talking about a different time horizons, yes? And so I mean, the 5% to 7% I've got callbacks across kind of like the time period until 2025. What we are now talking about in 2020 it's kind of like a special year with the Amazon in sourcing, but obviously our aspiration is also to kind of like get back to growth in line with market. And what we're seeing from the rest of our customers is also continued healthy growth.
Okay. Sorry to follow-up once again, but I mean, do you say now 2020 is one time effect that does it mean that you expect most of the transition and the build out to happen of Amazon in 2020? And then afterwards, to have a more steady state?
I would say that obviously, we already saw that now at the end of Q4, we will see insourcing happening. So the relative weight of Amazon at the end of this year will be quite different to the end of 2019. And so our ability to offset a further reduction in Amazon volumes, just by shrunk relative size of Amazon will be different in 2021.
Thank you very much.
Thanks. Thank you, Sylvia.
And Carl is still in the queue, so let's continue.
And next up, we have Sam Bland calling from J. P. Morgan. Please go ahead.
Good morning. Two questions for me, please. First one is on the impact from coronavirus. Just can you give a little bit of an insight how in practice you quantify the impact on your EBIT from this? Obviously, the impact is quite sprawling be quite broad across the division.
Just wonder how rigorous that process is of working out, okay, what's some coronavirus versus other more general weakness. And the second impact, same question, sorry, is on the impact of Amazon parcel volumes. I think you've given the 0% to 5% range of you said it's quite a wide range. And I think of PMP as being a fairly operational gear business. I just wonder why that doesn't result in a little bit more uncertainty at the EBIT level?
Thank you.
I think first on the Corona impact quantification. I mean, this is also a bit territory for us. I think the helpful thing was that we have a relatively solid planning what normally happens after Chinese New Year. Now, so for example, on the Express side and the biggest chunk of the impact in February was from Express. We have a clear pattern on how volumes normally normalize after Chinese New Year.
And so we were able to now say, Hey, in this week, we should be at that level, but actually we are kind of like x% below, and that is how we were able to quantify the volume revenue impact. And then of course, we were able to also quantify what offsetting measures as we took cost side with regard to the network adjustments and cost reduction measures. But obviously that is now something we are also kind of like discussing in with the controlling team, how they're going to to do that now going forward. And for forwarding, we were able to say, okay, how many of the stations were open? How much volume did we have?
I think for February, there was a relatively solid quantification and that was really helpful that we always have some very detailed modeling around the whole Chinese New Year effect. In terms of Amazon, parcel volume, and so As I mentioned, naturally, we have a volume dependency in our pricing And so we also will see if a customer gives us less volume that will have an impact on the average price I think that's the first element. And the second element is that we had already in our planning for 2020 anticipated that there would be this in sourcing and hence have planned accordingly on the OpEx side. So that the whole Amazon effect is covered in our internal budget and also in the guidance we have given you for 2020.
Sounds good.
Perfect.
I think we got time for 3 more callers
or something. So let's continue.
Okay. The next caller is Adrian Piel, who's calling from the Commerzbank. Over to you.
Yes. Hi, everybody. Good morning. Two three questions from my side. Well, first of all, just quickly on Corona again, obviously, since at least some time elapsed since the recent call.
Nevertheless, the question is, if you see some anticipation in some markets of, you commerced purchases that this help you actually on the volume side. So people simply ordering more, which might help you, for this year. And secondly, on Amazon again, I'm just curious to hear your thoughts about how you think about market share, given that in Germany, see you have 44% on the parcel side in Amazon, obviously losing some volume on that end. Would you allow actually drop market share below 40% basically? Or is that measure how you see or how you control your business actually.
And a bit linked to that, the effects in other segment with your partner, Amazon, are there any, from this, deliberate reduction of volumes. And thirdly, on DGFF, actually, we saw that in Q4, Gross profit per ton export was down 3.5% in the quarter, while it has been up before that. Is it actually a little bit that the times of the more interesting volumes in the market profit wise? Are now over for some time or how should we think of it, probably net of Corona?
All right.
Okay. So, on the first question, Corona and e comm, yeah, I think there are different types processes out there at the moment. One is obviously if people are scared of Corona, they tend to shop more online. And there are some elements pointing to that. There's also the question, are the e commerce warehouses the first ones to run out of stock?
Because many of them are supplied by SHIP. I think at the moment, it's too early to tell. So I don't think you have a consistent data picture on that one. I think in terms of Amazon as market share, we don't steer the business by market share. So we don't have a market share target we have a growth target.
And yes, there is a volume element in there, but after 2018, we are very much focused really on yield and the bottom line contribution from our borrowing parcel business And that is what we're focused on and we're not stuck to one market share number. In terms of implications of what we have now flagged for parts of Germany, is that having any implications on our other business relationships with Amazon clearly know this is really kind of like a domestic German business. And I think that is why it's also really important for us. I mean, we have very long standing, very good partnership with Amazon. They are a much appreciated customer of our I think they also appreciate the outside of the supplier.
So for example, when you think about the business, we do with Amazon in the Express business across border TDI that is not related at all to the domestic German parcels. So that is really kind of like a separate topic. In terms of airfreight GP per tonne development, yes, indeed, in the fourth quarter, that's a trend was negative. I think that has partially to do with the increase in the fourth quarter of 2018. So in terms of year over year comparability, it was a tougher benchmark than before.
It would have been a very interesting negotiation season for airfreight this year, even without corona. I think at the moment, it's a completely different game because the question is who has capacity and obviously in express, we have the benefit of having our own network. On the forwarding side, we also see the shortage in capacity. We are putting also in So I think the weak asset pricing is, in a very special state at the moment, and we will have to see how that develops once the debt settles on Corona.
Brian. Okay. Thank you.
Next up, we have David Casons, who's calling from Jefferies. Over to you.
Thank you. Good morning, everybody. I've got 3 questions, please. First of all, can you give an indication on your total fuel bill and to what extent you think you can benefit from the recent collapse in the crude oil price? Then secondly, on the on DHL forwarding freight, the 20 percent conversion target for 2020, is that still a realistic target in the current environment a bit softer market or will it be postponed until 2021?
And then you were talking about DHL supply chain, guidance for EBIT growth of at least 8%. What is driving that, that continued strong momentum in 2020 when you are already at the upper end of your EBIT margin targets? Thank you very much.
So may, take the second and Melanie can talk about the other 2. So So, it applies the same as what the overall target. We believe that we can deliver the 20% conversion rate, of course, not knowing what coronavirus impact might be. So nothing is changing if any of our underlying guidance, but as I said, the coronavirus might have also an impact on that one. But we should not say this is different from the others.
It is what it is. And it depends very much how fast we see the recovery. If what we have seen last week globally is continuing, then there might be a chance to get there. If it gets worse in Europe before it gets better or in the U. S, then of course, it's a different game.
It's but we are still the goal to deliver a 20% conversion rate.
Yes. So on the other two questions first on the fuel bill, I mean, our biggest single oil price linked position is the fuel, for our Express aviation fleet, we were talking about the order of magnitude of around about 1,000,000,000 But I think that also shows very nicely that it doesn't really matter that much for us because in express, we have a fuel surcharge. So the fuel cost is ultimately passed on to the customers for better or worse. There's a 2 months time lag in the adjustment mechanism. But fundamentally, a few prices are passed on to our customers.
There are temporary benefits and disadvantaged phases, but ultimately, it's a pass through. In terms of supply chain, why are we confident that supply chain will continue to deliver nice growth even given that we are already at the upper end of the profitability range. I think in the supply chain business, it is our slowest moving business. But we are now really seeing a fantastic dynamic. The team has driven best practices.
From the warehouse management system to labor management. So we are as standardized and as optimized as we have never seen before. And what we are now beginning to feel is digitalization really kicking in. There are so many opportunities in our supply chain business, harvesting digitalization opportunities. And that we are convinced that that will really give us a kick going forward on the supply chain side.
Great. Thank you very much. Can I ask a quick follow-up on the fuel exposure in P and P, please, do you have a number for P and P as well? Because there I think it would be more of a margin benefit, right?
Yes, but it is significantly smaller. The number for kind of all fuel, other than jet fuel is well below $1,000,000,000 across all the divisions.
So, for P and P, we are making good progress in reducing the fuel anyway by replacing with electric drive, right?
All right.
Thank you very much.
Great. Thanks, David. And for the last call, if I'm not Ms. Taeger.
And the last caller for today is Neil Glynn, who's calling from Credit Suisse. Please go ahead.
Thanks for squeezing me on. If I could just ask 2 quick ones with respect to Express, the first one, 777s are obviously continuing to come. Just interested in terms of, for example, the fourth quarter or the second half, how was cost per kilo or cost per ton trending, just to understand the benefits are coming through? Then the second question on the competitive landscape and express in Asia Pacific. Interested in your thoughts.
A, does Corona change anything here? I'm also conscious that, for example, FedEx has had major challenges in Asia. Well as the TNT challenges in Europe and interested in terms of how the 777s may advance your quest or high quality market share in Asia? Thank you.
Yes. May, may I start with the second question. So, we, we always said And we believe that we are by far the strongest player in Asia. And we will, as I said, we will fit from our global footprint in Express. How much we will see in due course, but this organization is really focused on bringing volume back at the right price level, and filling our fleet.
Melanie already said, we are putting back some rotations into the business in Asia already because that's the right answer to the demand we see. And we obviously, we know Asia better than anybody else, and we will benefit from that in the current moment, for sure, because our trade line is not just Asia, U. S, it's all around the world. And that will help, I think, in these, kind of situations. So they're we believe that we will continue to gain market share in the Express business in the coming months.
Yes. On your aviation CPK question and the 777 impact. I mean, in 2019 towards the end of the year, we had 4 in, and it is a large fleet if you didn't have a bigger expectations, but we were quite happy with our CPGA development in the fourth quarter. But I would really contribute that more to the general management of the network in, to the December particularly and not so much to the 777. I think what we can confirm is that the full benefits from the 777s once they're all in place, we had said before that we expect a margin expansion by around 50 basis points, and that's the order of magnitude we are aiming for.
And which we're still directionally confirmed with the first 6 now.
Thank you.
Thank you. And operator, I think that's stealing then with all the questions that we have. So thank you very much for participating and keeping us in our time schedule at the same time. Looking forward to see you sometime soon, hopefully face to face again. And Frank, for your wrap up, please.
Yes. Thank you for listening this morning. We believe that we are in very good shape as a company. And despite all the headwinds we currently see from the markets, we will go through that. With the same consistency as we have done that in previous situation, the difference is we have never been better prepared for such a challenge as a company.
The street scooter is outside of all these business units. They can focus on their business day to day operations. Which is helpful. And yes, we will deal with that very well. Our immune system is in good shape.
As a company. And that's the reason why we are very confident in reconfirming that we will deliver the $5,000,000,000 this year before Corona impact, and we will see what that means, but we are very sure about 2022 goals. And that's the reason why we also increase the data free cash flow. So thank you for listening and see you soon somewhere and keep in good shape and healthy. Thank you.