Good morning, everyone here in the room and out there on the web to our event today. Our Capital Markets Day to reduce our new strategy 2025, as I take it, you have seen it from the press release and the material that we send out this morning. We've got a pretty packed date for you today. We're starting off this morning with the highlight presentations by group CEO, Frank Apple and CFO, Melanie Christ. We will, after that, take you who are here in Frankfurt through a rotation of the divisional breakout sessions for all 5 operating divisions in our group.
Q and A on top of the Q and A that I hope you're going to enjoy in the divisional breakouts. So a fantastic opportunity, not only to learn about our new midterm horizon, but also to meet all management team and a couple of new faces. Obviously, So I think that should be a worthwhile day for all of us. And, without further ado, I would like to start and hand over to Frank.
Good morning, and welcome, here in Frankfurt in the web. So I'm very pleased to, introduce today the next step of our company. I want to do that in a couple of steps before we come to the real strategy, our strategy 2025, I wanna give you some updates or insights from what we think we have learned in the last couple of years. Then what are the major trends we have to reflect and answer in our strategy and finally, what is our plan now going forward. So let me start with what have we learned, in the last years.
We definitely have learned that the execution of focus, the execution excellence is, very important to make us more successful. We see that wherever we have done that. We have improved top line and bottom line in the in a very good way. But we also have improved customer satisfaction based on great employee engagement. That is what I said already.
Somehow in the second, we'll pointing, you know, the free bottom lines are fundamentally important for our success. Whenever we focus on them, we see tremendous opportunity The profitable core we have learned, the more we focus on the profitable core, the better we are as a company. And you can see that by division, If we got some distractions once in a while, it had significant impact. E commerce is playing a very important role in our all our active is not only across the divisions, but also inside of the divisions. And my colleagues will later on talk about what is going on with to e commerce in the respective market.
And finally, technology is now really changing our industry, and we have taken our advantage from that. We take that together with where we stand at the moment and here, you see a page where you see, you know, how have we grown faster than the market. And is our margin better and how we have developed since we launched throughout 2020. I think I can, say we have never been better positioned than now. So we have 2 divisions who are really delivering already better than, best in class margins or in the league of best in class that expressed in supply chain.
DGFF and PNP had some challenges. But the outlook for this year is pretty promising so that we are recovering quite nicely. So we believe that we are very well and we are in better shape than ever before. I know the company in for almost 25 years, almost 20 years with a company as an employee. Manager and before that, I was with McKinsey advised them since 1996.
So, I really think that the company is in better shape than ever before. And that creates a base for the next horizon of our company. So what are the key trends? The key trends have not changed in the last 5 years, they are the same. It's globalization, It's e commerce is digitalization and sustainability.
These are the things which create you already the base for our Focus Connect grow, strategy, our strategy 2020, and they are exactly the same. The what came out somewhat slightly different when our expectation So some observations here. So logistics is still the enabler of global trade, of course, but the growth we have seen is in the emerging market has been slower than expected. The underlying growth, but also currencies that is reflected of course, then in our numbers that the driver for growth is still coming very much from the U S, from Europe and China. Long haul trade has slowed down, slowed down.
You know, when in 2013, 2014, we definitely expect to select faster growth in GDP, and it's now more in line with GDP. And the gravity centers, even going forward, will remain after Europe and China. So that is somehow the outlook of our company, going forward on globalization. The nice thing is we are well positioned. We have a portfolio which has higher and lower exposure to the volatility of growth.
And we have some elements like e Commerce, which are driving even structurally growth, independent from, the economic environment. And you can see that. And you have seen that already in the 1st 6 months, our portfolio is very robust against short term volatility. Some businesses like Global Forwarding, of course, is more volatile against the economic environment. Some of them like supply chain is very robust.
And that makes us very robust, going forward because we are less dependent on underlying economic growth in some of our competitors. So we have leading positions in all these industries and all the business we are doing, which is important well. Scale is, you know, an important factor in our business. So we feel very comfortable with our for you. Also the brands, our brand is sector non people who are joining our company and several people joined us over last years from the outside.
They always say, you know, when you work for DHL, it's just a different leak. Nobody can avoid you. Everybody has to invite you don't have to ask why you want to have an appointment because people say, of course, we need to meet because you're a leader in the industry. E Commerce is also very interesting. It will remain a very dynamic environment.
There is a request for inter end solutions. But there is even more requests for certain elements of the supply chain. That is something we have learned very clearly. People ask for multi multi user fulfillment centers or they ask for ocean freight solutions or airfreight solutions or return solution So, and therefore, we will continue to see dynamic growth across the whole supply chain, but even more supply chain step, by step. Cross border is growing faster than domestic.
That's also something we see, and we believe that this will continue. Omnichannel fulfillment is becoming more I've just recently visited our activity in Italy where we do for the customer online e Commerce, you know, delivery to hotels as customers and their own retail stores they provide. And that all fulfilled from one center. So there are everything you can do with these products you see delivered then out of that workplace. The giant marketplace will take bigger share, but we believe in the next 5, 10 years.
There will be a significant chunk which will not be dominated by the giant market places because brands and other players will play an important role. So our best guess is that it will be divided fifty-fifty. The good news for us is we can grow with the giant marketplaces and we can grow with others. Here you see our position in ecommerce You see here in green what we are already doing and in yellow what our intention is. And we have already certain activities, but we will enlarge that.
You see We are present in all elements of the supply chain. And we have seen that in the last years, that our business is growing very rapidly in these different steps of the supply chain, even if that's not an integrated solution. Actually, the learning is very similar to the learning we had when we started the journey in acquired companies. You might remember in 2000, at the IPO, we talked about One Stop shop. It never materialized because customers doesn't want to have that.
You see the same experience on ecommerce. They wanna buy specific services and we are extremely well equipped to serve these services from our different divisions. Even if customers don't wanna buy everything from us because they don't want to become dependent on an end to end solution. They want to have choices. And that's exactly the same.
It's a data view like we had early at 15 years ago when we said we can do everything for you and the responder was, yes, you can, but we don't want to buy that from 1. So we are well positioned and we are looking at other elements as you can see here to expand our portfolio. Now my colleagues will talk more in-depth about that. Digitalization will change our industry massively. Technology has not been affordable for a long time, and that is drastically changing now.
That's a fantastic news because we really can use now technology to make us more efficient, scale our business more and grow faster. The customer experience, the employee experience, all that will be enabled by technology, and that will make a significant difference for our industry. We believe that most of the technology will help us to make our processes better. So what call technology exploitation. There might be some areas where we make some exploration close to the core, but majority of technology will just improve our own activities.
Last is sustainability, more on your mindset as investors as well. It has been around already for quite some time. Investors society employees, customers are demanding more. We have, a very good starting point in that area, because we have done already a lot, and we will definitely enhance that. So there is more expectations now.
So that's the base. Here, you see our, base. We have done a lot. We are, have a largest installed base of electric delivery vans. Us are talking about how many way we want to buy.
We have already more than 10,000 operating. We have very comprehensive programs with regard to grow green. We have clear commitments. We do a lot for societies, and we just saw some of our colleagues who have coming in joining us from SOS Villages where we have worked with them together. Our DIT team has judged we have just extended the with the UN because they have we are their preferred private partner to help their natural disasters are happening.
Our people were underground 28 hours after the hurricane has left Bahamas recently. So this is what we are doing. We are in a leading position. I think we have a fantastic So the environment has slightly changed, but the fundamental drivers for growth in the world are still the same. Globalization E Commerce Digitalization And Sustainability.
So what is our strategy? So let me introduce first You know, as always, like we did that in the last two times, we have one picture. That explains every detail of what we want to do, and explains also what we don't want to do. Because what is not on the page and can't be linked to the elements will not be done. So we have the same, and I will go now through details, we have the roof is very much stable since 2009 with our purpose, our vision, our values, You can then find how we want to improve the performance through delivering excellence.
Then we have, the core of our and that should be supported by digitalization. So let me go through the details. EOC, we have a purpose. I know that many people now talk about purpose. We have a already since 2009 and has given us tremendous momentum in the organization.
People in our organization understanding the purpose and makes them proud. And that's the key driver. And we have done that now for more than 10 years, and it works very well. And you can see that when my colleagues and I are talking about that, it's we are talking about that because we have your belief into that instead of just saying, okay, there's no demand for a purpose. Let's talk about the purpose.
We really believe that our company makes a significant difference on a daily basis for many people. And that is our purpose by connecting people, improving lives. Our vision is we want to be the logistics company for the world, I think we are on the right track to get there, but it's still a way to go. And our values have been now for since 2009, respect and results. And that has been embedded in trainings now.
People understand that, that you always have to do both. And a company Of course, we'll not be around tomorrow, if we are not financially successful because we have to continue to invest and therefore, we need profits. But the company is not around the day after tomorrow. If you don't respect your customers, your employees, your shareholders, and the society are working in. And that have we explained now for more than 10 years to organization, and we will keep that because it has worked extremely well.
So that's the roof, and that is somehow the compass, which is embedded in our DNA now. Now that leads me to our DNA. We had in the last and focused journey, we talked about family of divisions. We have learned that family of divisions is is good and it creates a feeling of belonging, but it was not leery clear what we meant. That's the reason why we are replacing our 1 family by 1 DNA.
And the one DNA is excellent simply to deliver, which has been our customer claim already for some time, But what we mean is that we will deliver wrongly free bottom lines. You can see here on the employee side, we have leadership attributes, which we measure all our executives, including ourselves as a board. We have our Go Help and GoTeach activities on providing great service, and you can only provide service have highly engaged people in the service industry. We have our first choice activity. Also, that is not brand new, but it's now again into rated what we call 1 DHL, 1 D And A.
We have NPA, which we use for many years, that gives direct instant feedback for our people about customers. And what we have added now somehow is higher priorities for compliance and safety first. We believe that we have to do that as well. We not only provide great numbers to you as investor, but we will do that. And we have done that, but we want to put you more focus on that on what you see here compliance, safety, but also cash.
That's the reason why we see here, cash is king Melanie will talk about that a little bit more. So this is a booklet, which we give every executive in the organization, every manager, and there's a checklist in the back. Where what is we expected from them to deliver and to execute in an excellent way. So that leads to, sustainability. I think we have a fantastic base, but we have to do more.
And we will do more in the next couple of months and years. I think we can enhance that. We are already leading in our industry, but we can do more and we will do more. We will not talk about that today so much because we said on that area, it's very important that you have an open discussion with the organization because we organization will only buy into that if you develop that together with the organization instead of saying, okay, that's the next initiative now. Actually, we have done the same when we came up with Grow Green Or Articco Health.
So we want to do more, and we have some ideas, which we don't want to disclose today, but we will prioritize that significantly more. Strong divisional strategies, and that's a profitable call. My colleagues will talk about Later in the breakouts about what they want to do with their profitable call, they will tell you what the profitable course and what their exact plan is. They always have answers to how we deal with digitalization, how we do answer the opportunity of e Commerce how we execute in respect to this and what are the priorities you will learn more about that. Here, I think we have a very clear You know, focus what are we good at, what can we deliver in the best way and how we want to enhance that.
Digitalization, I think it's important for our organization to understand at first place what is digitalization about. And that is the description how we explain that to our organization going forward. So if it doesn't enhance customer experience. If it doesn't enhance employee experience and it doesn't improve operational efficiency, we better just shouldn't do that. So in digitalization, it will make a significant difference in many dimensions.
Our digital interface to customers can definitely significantly improve Thomas will give you his team in HR is working on make it easier for an employee by being recruited living through his career and our life, and we need more digital interfaces to those. And that will enhance the employee experience quite a bit. And of course, obviously, technology will improve our efficiency quite a bit. And we have a lot of opportunities So that will be the right way to really And there are certain elements, which will be done on a group level. So that's the reason why we need a group infrastructure, and I will explain in a minute what that means.
And then we have to leverage that with an agile enterprise in the divisions to really use these centers of excellence, as we call them, to make our company more digital. Here, I'm talking about the group infrastructure. So these are CUE Centers of Excellence. We have established in the last 2 years or so, and they are getting now really momentum. We believe that in data analytics, using blockchain, internet of things, a data lake, cloud solutions.
These are all things which we are bringing together. They are typically steered by the IT board, but they are paid from a group perspective. So you will find the costs of those in the center, in the reconciliation line, but they are enabling a lot of applications in the divisions. And that is the right way to do that instead of having a debate who pays for them because they are not creating value as such. They only create value in the in the businesses.
And we have, you know, build them up. We have great people in these teams and they are making tremendous progress. So what the divisions have to do is they have to reinvent as well or digitalize more of their backgrounds. All companies of our scale have a certain legacy that's unavoidable, but you can create a more agile enterprise architecture. And we are working on that and you see you have the names, you know, every division has its own plan to make their own enterprise architecture more assessable agile, and that will help us to really leverage technology.
Here's one example from express volume forecasting. Utilization of our airplanes is, of course, a significant cost driver for the background in Express. So our essential team in data analytics together with Express has developed a better forecasting tool. And we have improved the forecasting by 3 percentage points, which is a significant cost saving for the network. And that is just one small element of many where you really much can do much better if you really use our data.
Which we will make available for the data lake. And then we have specialists centrally in the group, but also in the divisions we're using the data to help our operational people to improve operations. And there's an endless list of activities you can do just on data analytics. Not talking about automation, all this kind of stuff. So we see plenty of opportunity there.
That's the reason why we want to accelerate our course year. We have now done the groundwork. The foundation is in place. We have all the right people. We have the right CUEs, the centers of Excellence, We have the right roadmaps, and now we can accelerate our course, but it takes money.
And we believe that about SEK 2,000,000,000 the next years are sufficient to review that to generate at least EUR 1,500,000,000 benefits that might be cost savings, that might be more revenue, because customers have a better interface. It makes our people more efficient. You name it. And of course, the 1,500,000,000 are not immediately in every EBIT because you always have give something back to your customers, you have inflation, you reach, you compensate for that and all this kind of stuff. But that is what we will measure ourselves and how we spend these money, the company will be very different in 5 years.
We will really have a significantly If you ask me, how exactly that will look like? I don't know. What I see at the moment, whenever we deploy technology, the pickup is much faster when we originally anticipated. So that's the minimum investment. I think that's probably sufficient.
And that's a minimum expectation for the benefit going forward. And that will be a major part. That's the reason why we are calling our strategy, delivering excellent in the digital world. For me, as a scientist, it's extremely exciting because, you know, I was, when I was a PhD student, I was lived in this time and D and E sequencing was done by the students or by the PhD students. And that was all invented now.
It's done by machines. It feels very similar in the industry and the service in What is happening here is a completely changed like in the late 80s, early 90s, what happened in molecular biology. So that is happening now, and that is, I can tell you, extremely exciting. I'm sitting together with the people who are doing the CUEs. It's not that I go to my colleagues and ask them, I'm sitting together and you see sparkling eyes, my sparkling eyes, if I listen to what these guys are doing.
And that will make a massive change for our company. So we have clear objectives, along the free bottom lines as always. Because we believe that highly engaged people will provide excellent service. Excellent service will generate loyal customers and loyal customers will drive our growth in our bottom line finally as well. So that's a concept we have established already sometime.
It has proven to be an excellent concept to drive the performance of our company, and that's the reason why we set, we are in better shape than ever. In detail, we have put underneath some elements. We want to attract and retain people. That's the reason why we want to become a great place to work. Everywhere for everybody.
And you will my colleagues will reflect on that. We want to invest more in the 1st line management. So the people who are leading people who don't lead any people. So that's the 1st line, what we call supervisors team leaders, These are the most important and the service industry. We will disproportional invest into this group of people because we believe that will make a significant difference in our execution.
And finally, we want to strengthen our safety first activities. We have world class parts in our company, We see that really we are gold plated standard, but it does not equally distributed, and I think we can do significantly more along these lines. In fact, should lead that our employee engagement would continue to increase as we have seen the last years, and we should become great place to work all around the world. Provider of choice, of course, you know, if you have hardly engaged people, yes, we should leverage technology to make us more agile, more customer centric, easier to use, and you will hear some of these ideas from my board colleagues later on because it's very much specific for the business units. First Choice has been our 2 since almost 15 years.
And it worked still very well. Every day, on a daily basis, through Performance Dialogues for Genmaworks for Technology, we call First Choice, We really improve our operational performance, and we want to do that in a more sustainable way. We see that the demand and that's good news for us because we are leading the demand for sustainable solutions is increasing. We will be able very soon to offer even comparability between Air, ocean and route what your carbon footprint is. And if you want, you can even buy that to offset it.
So that's great. And that will help us. So we will measure here as well with KPIs. Slightly different by division because the business are model, but we will measure and we have measured that already, but we will do that in a more consistent way. That brings me to the investment of choice before I hand over to Melanie.
Of course, you have to know your numbers. I think we have opportunity to grow in our business very profitable. We have to increase our margins and 2 divisions, we have benchmarking margins already. And Melanie will talk a little bit more how we want to continue to improve them. In others, we still have to close the gap and we have clear plans to close gap.
The goal is definitely to get to benchmarking margins. And of course, we have to improve cash generation at the same time. Also Melanie will talk a little bit more about that. So we have very clear goals along with free bottom lines, and that makes us very confident that we deliver with our delivering excellence in the digital world, really significant growth on the top and on the bottom. And with that, I would like to hand over to Melanie who gives you a little bit more about the last part because your investors are probably particularly keen to hear more about what plan to do with our numbers.
Thank you very much.
Yes, thank you very much, Frank, and good morning to all of you. Thank you for joining us here in Frankfurt or remotely over the net? Yes. As Frank already mentioned, I will talk about the investment of choice agenda And I think the first thing to note about our investment of choice agenda is it's very simple. So I think those messages something we should all be able to replicate at 3 o'clock, at night after a couple of drinks.
It's about profitable growth in our core logistics business, It's about best in class margins. It's about making sure that this is really translated into cash flow and then on this basis, we create attractive shareholder returns. Very, very simple. And I think that's good because if you want to motivate this large organization on those investment of choice priorities, you have to have clear messages. But there's actually a little bit of thinking behind that, and I now want to go into the different elements of our investment of choice priorities.
Starting with profitable growth in core logistics. So Frank already mentioned that the times when global trade was growing with 2 times GDP, that was kind of like the general formula when I joined the company 15 years ago, those days are probably gone. But we are convinced that there is still very healthy growth in our core businesses. And the divisional workshops will give you a bit more flavor for what we see in the different divisions. What we have summarized on this page here our medium term base case assumptions, a 4th period 2018 to 25.
So this is what we assume as a market growth trends in the different, logistics sectors we are operating in. And you can see here that apart from mail, where we obviously expect a continued decline, we do see growth in all areas through this base case cycle to 25. I will come back to our medium term guidance for 22 in a second. That is based on a more cautious outlook. But this, what you see on this page here is basically our midterm growth expectation for the market.
We are also giving you an indication of how we want to perform compared to the market. And you can see that we have the aspiration to grow at least in line with market in all of our businesses. And obviously, in Tim's area in Global Forwarding Freight, the expectation is to really outgrow the market. So we are convinced that there will be an opportunity to grow going forward in our core logistics activities. What is extremely important for us also in the internal communication is that we need equal emphasis on growth and profitability.
So it's profitable growth with equal emphasis on both words. And that is why when we look at the divisions, and again, that will show up in the divisional presentations. When we look across the divisions, also in our internal communication, there has never been so much focus across the board on yield. So in our more standard product businesses like parcel Germany, like press, we now have very disciplined processes for general price increases. In forwarding and supply chain, we have a very clear understanding what type of customer contracts are we targeting?
And how do we have to act on the pricing side to make sure that we grow in a profitable way? So I really think also combined with this focus on the core business, we are in a very good position to achieve our first objective. Profitable growth in our core business. That takes me to the 2nd priority, benchmark margins And obviously, when you take a look at the last 10 years, it has been a bit of a mixed picture, and we fully acknowledge that. And we also know that There have been some times when we really disappointed you with some of the events in some of our divisions.
We obviously had a really, very continuous improvement in press throughout the time, but there were some bumps along the way. I think it's now pleasing to see that particularly over the last quarter, also in supply chain in global forwarding, we have been consistently moving in the right direction. For supply chain, we are now really in the corridor of 4 5%, which we had set out before. Forwarding is catching up with very good improvements quarter after quarter, but we do acknowledge that we still have some way to go to really get to best in class margins across the board, which is why we have now defined really for each of the divisions a very clear aspiration, which, again, my colleagues will talk about in more detail in the division of workshops, but I just want to give you a quick flavor division by division what are we aiming for? So for P and P, we've had guidance out there for quite some time.
Next year, we want to deliver an EBIT of more than 6,000,000,000. That is still the target, and that would be the margin of roundabout 10%. We have to be realistic, even though we see that, the declining revenue in mail is compensated or slightly overcompensated by the growth in parcel. In terms of profitability, we really have to manage this transformation, over the next years. And that is why we are saying that for P and P, after the 1.6, we do see a slow top line growth But in terms of margins, the aspirations will be to kind of like hold it, on the level which we will achieve with around 10% next year.
That takes me to express. And I know VRS get that question, okay, in terms of EBIT margin for express, And I have been saying for years now, for me, the more important thing on Express is the absolute year over year EBIT increase. I mean, an express margin is influenced by fuel surcharges and currencies and so on. So it is an important metric, but for me, the more important thing is how much absolute year over year EBIT increase do we see from Express? And you all know that this has been a really beautiful journey to watch over the last years We had a slightly slower start into the year also due to our heavyweight campaign.
But in the second half of the year, I'm very convinced that you will see express picking up again. So our target here now is really continued absolute EBIT growth. That should lead to, continued margin expansion but at a more incremental level than the fast expansion we saw over the last 10 years. That takes me to global forwarding freight. The division there in terms of profitability, we have the largest need for catching up.
The good thing is when you look at the last quarters, we are really seeing that things are moving in the right direction. We have a clear aspiration for 2020 to get the key to EBIT conversion for global forwarding up to 20%. And we then aim for continued improvement in the GP to EBIT conversion between 102 hundred basis points year over year. And that over time should take us to a DGFF, including growth rate margin level of around 5% to 6%. Which will then be based on a roughly about 30% GP to EBIT conversion in global forwarding.
In Supply Chain, as mentioned, we are now really in the 4% to 5% corridor, that we had aimed for, in the past. We're now really moving towards the 5%. Our aspiration here is to hold the EBIT margin at this best in class 5% margin And we are convinced that on that basis, there will be enough growth opportunities to have this 5% EBIT margin with a good top line growth rate for our supply chain division, which as of today is being led by Oscar. It's his 1st day. So thank you for doing your 1st day on the job with on a Capital Markets Day.
And that takes me to E Commerce Solutions, our youngest division with our most experience divisional CEO Ken. This year, we will still show a negative EBIT for DHL E Commerce Solutions in line with our plan because we are still doing some restructuring next year. Clear aspiration is, and you know, Ken, he does deliver on his numbers. The clear aspiration is it will be a positive EBIT number in 2020, yet originally giving you the guidance between 0 and 100,000,000 So we will be in that corridor in E Commerce Solutions as of 2020 will continue or will contribute in a positive way. To the group numbers.
So that's the overview more in the division of workshops. So profitable growth, expanding margins, I think the next important element, is obviously cash. I want to take a little bit of a look back, on how we have some insight on what do we really have to focus on going forward. So when you look at our cash conversion, over the time horizon of Strategy 2020. We actually had a relatively stable, conversion of EBIT into operating cash flow.
So the good news here is whenever we have been able to grow EBITS, we have actually been able to translate that into operating cash flow. But when you then look at how much free cash flow have you generated out of the EBIT, the trend has clearly we've been showing in, the direction of a declining free cash flow to EBIT conversion. And the reason for that, you all know We have upped our investments over the last, years during the time horizon of Strategy 2020. We are convinced that, that was the right thing to do. And you can also see that in terms of rosy, we have actually increased rosy over that time period.
300 basis points. So we believe that this investment has gone into accretive good stuff. And there was also a very simple reason why we had to invest that money. So when you look at the breakdown of our investment, the light gray bar is P and P and express. So as you all know, those are our 2 asset heavy businesses, and that is where the CapEx went.
And why did the CapEx have to go into those 2 divisions? Because we saw that extremely strong volume growth. So in Parcel Germany, in the period from 2013 to 2018, we saw 9% growth per annum. And in express, in the same time period, we saw 8% growth per annum. And that means that in this time period, we had roughly 50% more parcels and more TDI shipments.
So that was driving the investment, over the last years. And again, Rosie increased over that period of time. A slightly different way to look at that is, as I said before, when we expanded the EBIT margin, we because the OCF to EBIT conversion was stable, we were also able to improve our OCF margin. But then due to the spend, we actually had a, development on the free cash flow margin side, which is not what we want to see going forward. Just to put things into perspective, that is a comparison for the cumulative years 'sixteen to 'eighteen for our, divisions P and P Germany press and DTFF with competition.
And I think what you can see here is that in terms of what do we lose between EBIT margin and free cash flow margin is not that out of sync with the rest of the industry? And that I think is, again, showing us the important way going forward, the biggest driver for us to improve our cash flow is actually getting the EBIT up. That takes me now from the backward perspective to, okay, what are we going to focus on? Going forward. The first important thing is that in order to get cash flow up as a company in a consistent and sustainable way, we really have to get that message into the organization.
And we as finance have been preaching cash flow for a long time. I think we're now at a tipping point where the rest of the organization has also understood that EBIT is accounting and cash flow is what pays to bill. So on the, left side of this page, you see our finance priorities. Our first finance priority is cash is king. And there are lots of supporting initiatives to really bring that across in the organization.
We have dedicated certified trainings. Dealing with cash flow because 5 years ago, we still had country managers who couldn't read a cash flow statement. Now, so think there is a big element of educating people. I think they have really changed that. Now everybody understands how cash is working.
And the senior management is not only incentivized on EBIT anymore, but also on cash flow, which is also quite helpful. So I think we have this awareness in the organization. The second important element is, of course, on the CapEx side. Yes, we are going through this re fleeting exercise on the Express intercon side, which is significantly impacting our cash flow particularly now in 2019, but it will also have an impact in the years 2021. I think the important message here is, and that is really based on solid planning and discussion with the divisions, and you will get a divisional CapEx guidance in the divisional workshops.
Taking the 777s aside, we expect a stable, or slightly increasing CapEx over the next years. And that is, and I will explain that in a second, that is also linked to the new CapEx and free cash flow guidance we're giving you for the midterm horizon. So we're now going through the 7 77 peak. That is distorting the numbers. The underlying CapEx is stable or just slightly increasing over the next years.
To sum it up, in terms of cash flow going forward, I think the first important element is to deliver on our EBIT targets to then make sure that this EBIT is really flowing through to OCF, including making sure that we don't lose a lot on working capital. Where when you look at the OCF to EBIT conversion over the last years, I'm quite confident that we can do that and then really make sure that CapEx going forward is kept at a relatively stable level. And on that basis, we predict that really the free cash flow performance going forward is going to be a different story to what we have seen now particularly in the last 2 years. That takes me to the last part, attractive shareholder returns. And the first page here is unchanged.
So we did have a discussion about it, but we then decided that we do not want to adjust our finance policy, which we have also had in place now for almost 10 years. So our regular dividend continues to be linked to net profit. And we stick to the 40% to 60% payout corridor, where in the past, we have really made use of that corridor to ensure dividend continuity for example, also after a challenging year like 2018, I'm saying there's a very strong commitment from the management board, but also from the supervisory board that, yes, this dividend policy should be continued going forward. The second important message on this page, and that also unchanged is in the lower right corner that, when we generate a significant or reasonable amount of excess liquidity, we will think about the right way to really distribute that to our shareholders. And when you look at what we have done now over the last years, this Strategy Horizon 2013 to 2018.
We generated roundabout 1,000,000,000 in operating cash flow from our operations. We invested roundabout 1,000,000,000 into CapEx and future growth, and we returned 1,000,000,000 to our shareholders predominantly through the regular dividend. So I think we have lived up to our finance policy over the last decade, the intention is to really also continue with that focus going forward. And that takes me to our guidance. And that page is not changed.
So we haven't made any modifications to our guidance for 2019 2020. I think the more interesting, topic is the next page. First of all, how are we going to guide going forward? We now want to give you going forward a 3 year outlook. So doing this on 1st October is a bit of unusual because we happen to have our Capital Markets Day today.
In the regular steady state, each March, when we publish our full year numbers, We will give you the detailed guidance for the current year in the amount of detail like before, but we will also give you a 3 year outlook. So in March 2020, we will give you the details for the year 2020, and then we will give you an indication for the group EBIT for 22. For the cumulative CapEx spend over the years 20212022 and over the free cash flow, we aspire to generate over this 3 year phase. Again, given that we have this Capital Markets Day, this new strategy, we're already doing it prematurely. Normally, it would have happened in March.
So, couple of comments on the numbers having now talked about the structure first. Group EBIT, for 'twenty 2, at least 1,000,000,000. And as I said before, that is based on a cautious macro scenario. That is not because we are seeing any material changes to the trends we discussed in August when we talk about our Q2 numbers. But in the current uncertain environment, we decided to go for a cautious approach here, hence a minimum of 5.3 in terms of EBIT for 22.
In terms of CapEx, so for the 3 year period 20 to 22. The CapEx guidance is 1,000,000,000 to 1,000,000,000. And that includes the remaining spend for the 777s. Of almost 1,000,000. So if you take the 1,000,000 out and you divide it through the 3 years you will see that actually the underlying CapEx is pretty much in line with the underlying CapEx we have in 2019.
So this is in sync is what I said before that we want to keep, CapEx relatively stable with just moderate increases. And in terms of free cash flow, I think for us, it's a big step for the first time we are giving a free cash flow, guidance. I think that acknowledges, that not only finance, but the general management team overall has understood how important that number is for all of you. And that is why we are now, for the first time, introducing, a free cash flow guidance, And obviously, when you kind of look at those numbers, 1,000,000,000 to 1,000,000,000 on that basis, we will be able to really solidly cover our dividend out of free cash flow going forward. That takes me to the quick summary, I think, you heard it from Frank.
You will hear it from, the divisional colleagues. We are fully focused on executing in a flawless way. To ensure profitable growth in our core logistics activities. Cash flow is more important for us than ever before, and that is no longer, a topic for a small group in the organization, but really something the whole organization has understood We have clear priorities on cash utilization in line with our finance policy. And so on that basis, we really want to, yes, deliver a successful story for our shareholders for the current year, but also for the next years.
All right. Thank you, Frank. Thank you, Melanie. And, as announced earlier onwards, bad news for you guys out there on the web is that we are now leaving the room and will be taking the group through series of divisional breakout. We don't leave you completely empty handed.
So in the further course of the webcast, we will have a divisional webcast of each, a breakout session in sequence. Here in the room, we will have 4 groups rotating through the full 5 divisional breakouts. Technically speaking, if you look at your batch, you will find a little not you guys. There's a little there's a little number 1, 2, 3 or 4. That determines the group number.
So my colleagues from the IR team will guide you through your first session and then rotate you interrupted, of course, by the coffee break here and there and the decent lunch break. After that, we will reconvene here in this room, and then we will have sufficient time for Q And A. And with that, so far, many thanks to Frank and Melanie. Thank you for watching out there. And we just continue now with the breakouts.
Thank you.
Good morning, everyone. Also Good morning, here in Frankfurt. I'm happy that you are here. You are the 1st group, so you will be the ones with the most hiccups on my side as I go through the presentations. Unfortunate that we are filming the first one in the internet, not the last one when the flow is better, but I'm very happy to present to you the 2025 strategy for DGFS for the freight forwarding part of Deutsche Postier Journey.
And, I'd also like to talk a bit in the beginning about the foundation and a bit about what has happened so far. So what is the profitable growth of what we do within DGFF? It's all about international transportation of air freight, ocean freight, and growth rate, including customs clearance and related value at services, like warehousing, cargo insurance, and specialties within that, be it the industrial project part and so on. As you can see, we are in the market position very well placed. This is the history of the organization coming back to the acquisitions of Danzas, of AII, of XL, MSAS, Netloyd.
So we're number 1 in airfreight. Number 2 in ocean freight and in the European road freight, we're also number 2 in a European scale. And you can see here how the revenue mixes that Air is the largest followed by road, ocean and the others on the revenue side. So Where have what have we done in the last 2 years since I joined since I joined Deutsche Post DHL, where we've focused a lot on simplifying the way we do our business because we felt We were a bit running around in circles and to make sure that if we work easier internally or simpler internally, it's also easier for customers and suppliers to work together with us. That's the theme of the simplified strategy.
And if you follow the Focus Connect growth approach, it's all about the EBIT budget and conversion rate, a must do for that we must achieve the budgets that we give ourselves, so the growth of the of the conversion rate. We connect our people to the certified pillar and what we call the service excellence and IT renewal road map. That is cargo, the implementation of cargo wise in general on the global forwarding side and a program called E4U, what we are doing right now on the freight side. So both sister divisions have a transformational IT project running at this time. And I'll talk a bit more about those and how do we grow the business?
Talk a lot well, one thing is the so called hunting approach. We have today a customer portfolio, which is too heavy on large customers. We need to enhance more smaller customer SME customers. And this will be due to the hunting approach. We've worked on so called customer centric solutions beet in the wines and spirits area, be it in the life science area, be it in the aviation area.
So we're trying to get growth and also higher margin growth for this and those are turnaround and also better leverage the network and collaboration. So what has happened is we've started to focus much more on margin heavy margin, revenue, not just revenue. That's one of the reasons also why our volumes declined, especially in air freight. We had too much business in our portfolio in the past, which didn't generate any gross profit, only generated revenue. And if you have no gross profit and the cost to manage it, you lose money on those businesses.
So we've shifted a bit into more of a margin heavy approach with these things. And that is also based on the profit share system that we have that stations participate on the profits made on an end to end basis with the shipment speed in air and ocean freight. We are trying to constantly look at our cost base because space is a bit too heavy still compared to what competition has. So we're working on the direct space, which that means your volumes go down, if your shipments go down, we start working on reducing the direct costs of managing those shipments. But also, we looked a lot especially last year, into structural costs.
So we moved out of expensive offices, top port offices together, looked at our management layers that we had and try to reduce the organization, the cost of the organization here, but still keep the organization running without killing the organization while doing it. And this lets also also using the GP EBIT conversion as the major KPI with which we measure ourselves internally This led to a very good, double digit EBIT growth in the last six quarters running the business. So if we now look going forward in the 2025 strategy, we have 3 key initiatives that are based on the 3 bottom lines and how to focus on profitable core. And one is that we, on the employer of choices that we aspire to improve along the our internal EOS, that's our employer survey KPIs to maintain a high ratio and make sure that all employees are certified through our training methodologies We try to attract more and more talent. This is becoming also more and more easy for us.
We are getting also through the consolidation, of course, in the market right now. It's very easy to attract talents. We will roll out more of the certified programs, and we will make sure that our future workforce is more women empowered than it is in the past. This industry is very much It doesn't have too many women leadership positions right now, and we are working very hard to bring this to a different space because we believe strongly this can differentiate us also to other competitors in the market and we will use more and more people related technology and data. When it comes to the provider of choice, we the rollout of the IRR systems will give us the possibility to have a better service and a better quality And because it's a centrally managed system, the initiatives around the service and quality is second to none what we have today with the legacy systems, which are as you might know, very old.
We are working strongly on optimizing our customer interaction, our digital customer interaction. I'll come to that later in the presentation. And we'll work more on customer centric solutions. And the aim here is that our NPA score grows year by year. And last but not least, on investment of choice, we commit further to achieve clear defined financial targets.
So we want to grow profitably. We have profitable growth, continue on the GP optimization, continue working on structural costs and direct costs and use the IT benefits from the IRR for the E4U and the cargo wise rollouts so we can do more shipments with the same amount of people or if we do less shift over or even better more shipments with the same amount of people. And looking at the major market trends that Frank talked about also in his presentation, So we are doing heavily investments into the IT technology, cargo wise, again, on the forwarding side, if for you on the on the freight side. And this would be the baseline or the basis for the customer facing applications that we have. On the e commerce side, we have a vertical for e commerce where we can't e commerce customers and offer them very very reliable and reasonable solutions for the transportation needs for the bulk of the transportation needs.
So we do more or less the domain leg of those transportations. On the sustainability side, we already, since years, do evaluations on our key air fade and ocean fade and also on our trucking partners to see what they are doing on a sustainability side. And we also choose in line with customer needs to get the right product on the right carriers based on the customer requirements and on the globalization We have a very global network. It's very diversified and regional sectors that we are capable to be very good in this volatile international work, which we see ourselves begin right now. Where we believe this will continue going forward.
The times 5, 6 years ago after the financial crisis where things were going in one direction, we don't believe that these times will come back shortly. We believe it will be a very strong volatility and you need a fit execution oriented network to work in such a volatile scenario. That leads me to the market growth, expectations that we have for the for 2018 to 2025. And on air freight, we see a growth here 1% to 3%, but we probably have to look at this year and year again based, especially on this year because this year, the verdict is still out, how much decline we will have in the air freight market. Ocean freight a bit more optimistic with 2% to 4% and road freight actually more optimistic with 3% to 4% on revenue.
And again, these changes will bring opportunities and risks. It's the question how quick network can adapt to these changes, how quick decisions can be made in the network to make sure that the right things are done. And this growth that we want to see will be driven by GP focus, gaining market shares and also improving efficiency through the IT investments that we are doing. Now one question which always comes and I'd like to also put it here is the question, how do we see ourselves next to the new upcoming companies to digital forwarders like Flexport and others. And we think it's a race that we are in right now, and the race is a bit the incumbents, be it ourselves or our peer group have to close the gap to have more modern fully into IT infrastructure because we come from the network from the luggage with legacy systems, and we need to develop intellectual digital custom interaction tools, which make it simpler for our customers to work with us.
The digital forwarders need to build up the back end IT infrastructure, set up the network, they need more operational expertise, global sales force and longer lasting carrier relations because even the digital time that we are today relationships to your carriers are still very important based on the people who you trust to work together. And the question is who will be quicker? Will these be quicker in managing these parts? Will those be quicker in managing those So that race is on, and we will see how this race will end. The way we're working on it on the IT side is that Our infrastructure, cargo wise, 1, is the foundation of everything.
We need a strong TMS system, and this team system will then give us the opportunity to work also with automation, will give us better data accuracy and end to end shipment process, ownership, regard to actually harmonize our processes. And this is very important because we, as a company, based on the legacy systems, have different processes in different countries still. And through the Cargo as rollover, we are now bringing them into one direction, not in such a way like an express network runs where you have only one earlier process by making these making the bandwidth in which you can move in the process more shallow and shallow. So the days like this in the future will be much more shallow so the countries know they can work on this bandwidth. And based on that, those will be the basis for benefit realizations.
Again, you are then able to do more shipments with the same amount of people in easy works. And by the end of this year, we'll have 95% of our volume on CargoWise 1, And that will mean that we've been able to implement cargo wise run within 2 years, 95% for the shipments. And now we're continuing. We start already with airfreight. Will continue the next 2 years to roll off the air freight product.
This is a glimpse at what we will roll out in Q1 end of this year, Q1 next year. This is our new customer interface. The DC although the new My DHLI This is a system which entered which will be a one stop customer portal and will be a new benchmark in the way of working in the freight forwarding world. It will have something which we call the follow and share functionality, which gives you the opportunity to pick out and follow certain shipments to which are important for you and share them with other people, be it In this system, be it per email, be it on a mobile device. This is something no one else has in the market at this stage right now and ask the functionality of using the map using the dashboards analytics is second to none and will be a new groundbreaking tool.
And the good thing is based on the CargoWise Roller, we can use the system now also, and we have data quality than we had in the past. So this is going to be one step also in the digital race against the against the digital forward is to make sure that we have a part in this race and have a good part in this race. And now a bit the financial outlook until 'twenty five. So I talked already about the market growth assumptions with AirFADE 1 to 3 percent ocean 2 to 4 and Worldpay 3 to 4. As Melanie said, we want to grow above those market ranges.
Because we believe as the largest forwarder, we need to do this. And secondly, also, we have to catch up a bit and make sure that we get the right revenue with the right GP into the system. The CapEx outlook is slightly increasing from 2018 levels, but we will still be an asset light business. We will make selected investments more on our freight side into stations to supplement the network and make the quality better network, especially in those countries on the freight side where we have the process of stations from 1980, which don't have the right ties anymore. We have to do some upgrades.
That's where we have most of our CapEx next to part of the IT system. And the EBIT outlook would be that we will grow our conversion rate between 1% 2% year by year by year by year. We want to achieve 20% next year it's a big jump for next year, but I think we can still do it because we still have costs, which we can lift. But the and the long term target is come around at 30% DGF conversion rate, which will then, in total, drive the DGFF EBIT margin between 5% 6%. And this would bring us on the 30 percent of these more in line with what our peers are doing when it comes to conversion rate.
And from a timing perspective, We have 15 minutes more time for questions. So those are all the slides that I had.
At costs there?
Yes. 3 for me, if I may. It's a new dashboard. One will that be available? Q1 next year.
So we'll start beta testing at the end of this year, but it'll roll out next year, Q1 next year.
Some air freight market growth. I mean, it's been going a little bit in way. So the design of FedEx was itinerary strongly air freight steady, please, between Russian and was present, but then we had 2 years of tremendous growth where everybody was saying e commerce is coming into the air freight. What instantion on that kind of market growth in line with GDP?
I think the when it comes So when it comes to airfare and ocean failure, I think what we see now with the market right now is probably minus 4% to minus 6% obviously. And a lot of customers are moving their their air with their planned air to ocean if it's possible from a timeline perspective. But for ocean, it's not a big spike because one container is too one containers, 2 freighters. But for air, of course, it's a lot. So I don't I think this will once the economy push gets better a bit, I think this will this will this will where it's way out to them.
On the express side, I heard also not that this would be a squeeze, but never in my view, it never really happened. Because, I mean, our colleagues next door, the average size of what they have is shipments of things between 8 and 15 kilos. And there's still something else on the reading. So that was always there. The question would that happen?
Would express go into the higher weights? But I didn't I never really felt that that would happen. It's more the ocean air going into ocean, but I see.
And then lastly, in order to get to your targets, sorry, in order to get Okay. In order to get to your targets, I mean, you need gross profit growth, volume growth above market, but then the second variable in there is the gross profit per unit and the pricing in the market, which is probably under pressure. What are your thoughts on how much pressure you get because everybody busy as investing into automation and processing the volumes more efficiently, yes, the GP per unit trajectory for Ocean And Air in the next couple of years.
I would say it's at least it would least stay stable. I would say it would least stay stable because I do see on the FX side, we still have possibility to work better in Germany with better consolidation and don't forget our IT systems are from 1980. So the consolidation from is not what you would expect company like ours to have today. That's a big leverage in there. We have a very high back to back quote compared to others.
So I think that's still that's why I still think even though the pressure will be there and pricing will become more different. You can't you won't have this big advantage that you have this year. Easily from the market drop, but I do believe we have a possibility to leverage on that strongly stronger than others with the work from benefits. So if your consolidation rate today is alright, 85% is difficult to get to 87%. If your consolidation weighs around 60%, it's easier to get to 80%.
That's what I'm coming from.
So that's on an
ocean ocean is more the buying and selling is there still easier to manage than an air right now. So I think this is just the question of are we able to bring our sales and product together to go for more profitable trade lanes than we did in the past? And we only ran at the revenue. So and that's a big, easy word to say, of course, but it's difficult to do. And next to that, how can we get more smaller customers into our portfolio?
Damienborough, obviously,
can you just
elaborate and clarify a little bit more on the technological changes in the business, in particular, cargo wise and the freight platform? You mentioned there, can you also say where we are in terms of ocean when you're fully there and also what that does to the freight network? In Europe and the Middle Eastern in particular, how much of that is about the back end or how much, particularly on the freight side is about consolidation, optimization and doing what you do better.
Okay.
And then finally, rolling all that into sort of one feel like elevator line. What does that mean? What can you grow at in terms of volume without head adding any headcount as a simple number.
That's a big question. That's a big question. I think I could spend 2 hours on that question. I'll try to I'll try to separate first on the freight side, and then I'll later talk about the Air And Ocean side. So you have to one has to know that we operate today with 24 different or 20 5 different TMS systems on the European freight countries.
This is a legacy based on the companies that we bought over the years. This is now for the first time that we're going through a process of replacing them with one system. So we've worked in France as the 1st country, why France? Because fans is a bit of a it's a large country where you have hubs and gateways like you would have in other countries, but it's also from the legacy assistant, which we had to replace because it was so old. And I have to say what we what we learn in France today is very encouraging what this would mean for us going forward.
If we envisage this system to be everywhere one system which you can centrally manage. That means that you have visibility on your shipment. So all the time we spend today Mintech to explain to a customer where shipment is from riga to Barcelona will be much easier to handle. And you can do these things halfway automatic can build chatbots around here where the customer calls, the voice gets recognized and the answer comes immediately or via emails. So these things are technically doable.
So it enables us to work in a much more in a much better environment than we would than we work today. So maybe bring us from the middle age to what today you would expect a foreigner who has a system like that, or did the leading forward as we have a system like that to do. So what that means financially is difficult to say right now, from my perspective, it can only mean that we get better when it comes to the results. So that would be the E for you. The E for you of the vote freight part would take also a bit longer to implement because there, the diversity of the countries and how we work in the country is more scarce than it is even in air erosion.
So the timeline there is not 100% clearly, but as soon as we're clear on that, we'll also openly talk about it. On air and ocean freight, we've rolled out cargo wise on 95 percent of our volumes. We are missing only for next year 1 large 1 large country, and then we have minor smaller countries 2 or 3, which like the size, I think, I think we're still missing. At Salvador, we're still missing in Guatemala. So those smaller ones, we are still missing, but There's one last large European country, which we'll do last year, and then it's more or less a tick in the box.
And that was done in 2 years' time. So what we see, of course, this means that the organization has change in the way it's working. So this year, we're also in a situation where we are seeing certain countries that works very well with the implementation, other countries where it doesn't work so to move. So I believe once we've went and it's but nothing there is dangerous and endangering. So we have to go through this learning phase, train the organization better And then I think we are able to really, if you want to say, bring up the productivity, which would then bring up the conversion rate on the origin bit side, because then you have one file.
So you have a single again, a shipment visibility from end to end. You can use a workflow engine and take parts of the process and bring them into lower labor countries, you can define if your process has to be a very, very complicated process or a more easy process depending on what kind of customer margin you can get from the customer. So it enables you to think more like an engineer, how do you produce your service compared to today when we can only do buying and selling and hope it goes through the system somewhat. And I think that that's also, for us, the big thing going forward, we need to change the mentality of forwarder from a great buyer and seller and from a cowboy to say who fixes problems to someone who, as an engineer, thinks more from the beginning, how do I make sure this shipment goes through the right process in the 2 or 3 different processes that I have to choose from? And that's going to be the big and that's anyway, I think for all for the entire industry, the big the big changer, but everyone has to go through because the margin will be squeezed more.
And that's where you have to make your money is going to be on the way you convert the GP in the end. Thank you for your question here.
Matija Gergolet from Goldman Sachs. 3 for me. Firstly, on the market, So you're talking about 1% to 3% growth in air freights, page 90, I think. 2% to 4% to ocean freight and the unrolled freight 3 to 4. Why is airfre growing say the least?
Why would you expect another handset or road freight actually having the strongest, maybe growth rates?
What we see right now are very declined air freight market. We took that one into consideration. We're looking at it. And if you would ask me, what do you think is going to happen next year? At best.
We discussed that yesterday at really best, the market will be flat. So we believe also the next year will be negative actually for you. If you put that into the right equation. So based on that going forward, the market will coming out of the press will be very difficult to get it up against. It has to do a lot with the uncertainty out there.
So you have your trade wars, you have your Brexit, your people, I'm not buying the high value stuff, which normally go on an air freight. And you see it on the automotive you see in other sectors, the IT sector, the tech sector that the volumes are down in those sectors considerably. And in such a way that we haven't seen before, mean, 2008 was a piece of cake compared to what we have this year, not to the speed in which you went. That makes us a bit cautious on the air freight development. Vogue Freight is much more stable because I think we also believe that based on climate sustainability questions, there will be there will be a slight shift into more regional sourcing than international sourcing.
You still need to source it's in a transportation. That's why we believe that road will will grow stronger than air. And ocean in the middle of it was more or less staying in that bandwidth, it always has been without going up going severely up because we don't see right now also based on what we've known today, any upside potential for it.
So just on airfreight, it's more basically the 1st 2 years are really depressed of that, okay.
Then we have to see the
tax should be growing
Yes, but everything becomes smaller. I mean, becomes more ocean freight.
The second question is basically, say, on Synagis with say the rest of the group? Yes. Where do you see basically that you are able to deliver now the best synergies? Where do you think there are, to say, room to improve
So part of the strategy, which is in the common DNA is that we are working on so called lighthouse projects for every board member has 1 or 2 lighthouse projects to work together with other divisions. And these are very prominent projects, which will also show in a way that we can differentiate also towards the market. So one lighthouse project that we have is mostly with express from our side right now. One is that we use more the capacity even more the capacity of the own network. If they're more support in it, but also use that as a U.
S. P. Towards customers to really say we grant you for for special markets they have more or less a monopoly than we grant them special access on those planes. The other thing is we have a better we have a we have a project called Speedgate, where we were rolling out right now. We tested this in Amsterdam that we use the DHL Express Facilities who are on the Tarmac to move our freight between 8 to 12 hours if you go via the normal handling agents of the airports.
And we've the test that we did in Amsterdam was that we shortened the time to 1 to 6 hours. So this gives a significant time of it's significantly better for the time of shipments to be moved, and then we have a better control because a DHL employee controls the entire flow. And we can guarantee our customers a better quality, which is one big thing for them, especially with high value goods. And secondly, we can also add more money for that because there's something only we can offer.
On that point, so how much of your say air capacity is typically that that you'll say sell is
It depends. It's difficult to say. It depends on the market. It depends on how the overall capacity is in the market. It's difficult to give a number because that can change in 2 weeks
And just lastly say, when you talk about 30 percent conversion rates medium term, should we interpret 2025 as medium term or
No, I think it's long term because that's sort of wording now. I think this is long term. But if you take the 1% to 2% of In the perfect world, it's a long term target. In the perfect world, if we manage 2% per year, you have if we match 20 next year and 2% per year, you have your 30% in 2025. A perfect world.
Are we if that works fine, we have to see more for me, it's more important that we do a sustainable growth every year that the organization gets better and stronger doing is more stable at its depth. Any more questions? Back here. 3 more minutes.
Thank you, Christian Kors, Babcock Research. You mentioned the competitive landscape also with the digital platforms. Do you want to stay alone or what could it make sense to team up with the digital platform to an order to, yes, to fuel your own D and A with more digital expertise. Going forward. And then maybe just an opposite question.
We also see old traditional carriers entering the forwarding market. What is your view and Could that be an option also for DHL mid to longer term to team up with a C or a cargo carrier?
Okay. And on the digital, forward, I do believe that we are able to do the technical part ourselves and the brand, and the company itself attracts a lot of talent. Problem that we sometimes in the company have is that we have very good ideas that we don't not very good in bringing them on to the market and bringing them really close to a customer's need. But we are getting I think we've covered much better on this. And what I've what I've showed you, we have, as a click dummy version already, which we did in 3 months, we also have the expertise, the resources and the people looking really deliver something like this new my DHLI to the market.
That's why we believe we'd only get team up because the interfaces in the back would be difficult again, but we can really sell this. And we have a very large sales force, so we can easily sell this to the market. It will be the question number 1. The question number 2 is a really difficult one, because a lot of things happen now, and especially on the airfreight side, we had 2 airplanes flying around the world until August this year. And I'm very, very glad we don't have the name.
Because the rates have collapsed more or less, And the prices if you have your own assets stayed more or less stable. So we are I'm glad that those are off our P and L right now and then we can just buy commercially the capacity that we need. And depending on how markets are, I would be very careful on the airfreight side to go together with anyone who has assets and it's easier to buy capacity from commercial carriers or our sister, sister division. On the ocean freight side, there's much more movement there right now. We have the movement that one carrier bought a freight forwarding company.
So CMA bought CEVA, and you can read how that how that is working right now. And if that is something which work or not. I mean, the bullet is not. I have a personal opinion, but you can probably guess my personal opinion. On the other hand side, there's Maersk who's trying very hard to go into the into the freight forwarding and to the customer there.
I also have I also have an understanding how good will we see how good or not good that works? And it's difficult I mean, it's we have to watch it and keep an eye on it. If this in any way becomes very successful, then I think we have to we think our strategy on this at this stage. At this stage right now, I'm very I'm very happy as we are because there are also ocean fit carriers out there who clearly say we will only work with forwarders. And those are the ones who get more volume.
One doesn't talk much about it and the other one had a great second quarter result. And I think it shows a bit how the dynamics are. So we have 5 more seconds. Are there any more questions? Okay.
And thank you very much for your first interest for the first one. For the first round, and I wish you lots of fun with my colleagues.
I'll just start my timer so I can't go over. Okay. Welcome, everybody. I'll just tell you a little bit about myself quickly. So, my name is Canala.
I am from a finance background. Sorry about that, but that's how it all started, right? And it was very interesting listening to Malorie this morning because the first thing that they told me in finance was that revenue is vanity, EBIT is sanity and cash flow is reality, right? And I think that message has finally got through. Also, you can't have your cake and EBIT So if you kind of keep cutting ribbons, you've got to keep cutting costs, right?
So I think we're all pretty much aligned now on where we're coming from. And also, when I started with the old wide DHL back in 1985 and one of the founders of the international division Portugal. He always talked to me about the 3 Cs, even though I was a finance guy. So the 3 Cs to him were customers, purpose of a business is create and keep a customer. And those of you who've been entrepreneurs in your life, you know, how important that is customer colleagues because at that time, we didn't have any transfer pricing we relied on everybody around the world and cash.
So he was a big, a big cash guy, right? So it's been sort of built into our DNA for a long time. So I started in 1985 Old White DHL in Middle East. I was there till 1997 left as regional manager. Went down to Asia during the financial crisis where I went back into a finance role.
That's also where I met Frank Happel for the first time he was during the STAR integration. 2005, I went to Canada, where we're having problems with the domestic acquisition, a story that was to repeat itself, And then 2007, I went to Belgium, which is where I currently live to run India, Eastern Europe, Middle East and Africa, one of the fastest growing and most profitable regions. And then in 2008, I moved to the United States where we had a massive problem, as you know, with airborne, sorted that out. And in 2009, became Global CEO of Express where I stayed until the end of last year 2018. So, I'll hand it over to my great colleague, John Pison.
So DHL E Commerce Solutions, it is the newest division. It's the smallest. It's called V Eight. We call it V Eight be great. There's an old drink.
And it was really at its beginning, back in 2014, it was really the international male products of Deutsche Post. So Deutsche Post resold male products around the world, mainly centering on shipments into Germany, but with the ETOE, we could do global distribution, some of it going to the U. S. So and then the rest of it was bits of the Express business that were domestic in nature that weren't part of an Express network. So blue data in India, for example, and the business in Netherlands.
So it was a bit of a mixture. And I think this is one of the big things to know about this new division. So it was carved out because of the profitability problems that the domestic PeP division was having that time at the time of the profit warning it was decided to take all the non German business away from there. So it's a mixture of, domestic businesses really and a certain amount of cross border. So in the early days back in 2014, mainly focused on cross border mail and relatively profitable domestics at that time.
So Over time, the idea was to try and build up a e commerce capability. So we opened a number of business in Southeast Asia, just see how quickly we could scale up using our technology stacks and our standard operating procedures. And there's a lot of experimentation, as you can see during that period, there was pretty strong, revenue growth up to 2019 now. What about 75% in these domestic businesses and about 25% cross border. We tried a lot of experimentation Well, there's 2 things really.
1 is trying to make B2B Networks into B2C Networks, E Commerce Network Networks, which is in some cases, relatively straightforward in other cases, relatively difficult. So for example, in Netherlands, where we have a very strong domestic position, and we had a company there called select that was already doing to see deliveries. That business has continued to grow. It's exceptionally strong and exceptionally profitable. In like Iberia, Spain, which used to be a quite heavy parcel market, our average parcel rate was about 40 kilos to 50 kilos to turn that into an e commerce BDC network has proved a bit more difficult And also what we're seeing as well is in a lot of markets, there's a lot of investment in that last mile delivery, e commerce space, by private equity companies.
I would say the best example in our portfolios like in India. Well, we've got a profitable, what was purely B2B business, blue dot, it's gone into B2C, pretty rapid expansion, which depleted the profitability a bit, but it's still a profitable company. But all the players that were up against in that market, Flipkart, Amazon, delivery, ecomm express, all heavily funded and all at the moment, loss making. So I think we've got to find that right balance between getting into these markets, growing at a quick rate, but also looking at the profitability aspect of it as well. So with the profit warning that came last year in PePEC, a lot more attention has been put into that.
2019, as you can see, there is a bit of a cleanup year. Cash flow actually has been pretty good because some of that cleanup has just been about writing off IT and sort of noncash pieces. And we expect a good bounce back in 2020 So we expect of the whole group's increase in, in EBIT next year into 2020 over 1,000,000, not of absolute EBIT, but of EBIT improvement will come from, from ecom express. And that's coming from a mixture of yield improvement, portfolio realignment and definitely a bit of overhead reduction. So one of the things that decided to do pretty quickly was to look at more of a partnership arrangement.
So I think what you've seen we've done a deal with Belgium Post, with Austria Post, with Swiss Post, in my opinion, the logical last mile deliverer of lower value lighter weight e commerce shipments should be the local post offices, right? And I think the post offices do a great service. And I don't think we should necessarily be competing in each of those markets, right? So where we can especially in the smaller locations, we should look for partnerships there. And then as we look to grow our cross border businesses, especially out of Asia, again, we should look for partnerships with the big marketplaces with the big e tailers because we need to get scale pretty quickly.
Also in 'nineteen, the strict cost management's been done. Now we're looking at sort of automation in some of the U. S. And other warehouses. Trying to get those robotics and the whole digitization ideas that Frank's talking about.
A lot of investment in route planning. But I think a lot of those entities that we deal with are warehouse type of operations that we're collecting to the night. And as much as we can automate and robotize those, that's where we're going to see some improvements. And also quality of data. I don't think we're going to be heavy on CapEx spend.
I think 150,000,000 sort of average. So I see as being cash contributive. And as I say, even in 2019, with a negative EBIT, we're still cash positive. So when you look at About 75% of it now is domestic last mile delivery, in those countries outside of Germany. And as you can see there, it's mainly in Europe.
A big piece actually as well. The U. S. Is all just about 90% domestic. And then the non TDI cross border service I think if you think about what, Frank was talking about today about the 3 waves, they're actually self fulfilling in this in a way.
So DHL Express being the most global company in the world. Deutsche Post has got a presence everywhere in every single country. That globalization really drove a lot of growth. Then with the advent of e commerce, a lot of that growth in the beginning was business to business, right? So Siemens were set up a factory in China, all Australia or anywhere, Phillips, all our big customers all over the world.
So lot of it was built on a B2B scale. With the advent of e commerce, and it really has been a revolution in e commerce. And the international e commerce market is growing at percent versus the domestics, which are growing at less than half of that. So e commerce drove to a further extent globalization in that everybody all over the world can be an entrepreneur. Somebody can set up a business in Alice Springs, Australia or in Nigeria, get online and start selling globally, right?
So that built up our globalization that to go deeper and deeper into the society. And now with what Frank caused digitalization, which to me is more bio5G better and better connectivity, everybody now is more and more connected. So everybody in the world is totally connected, and that can drive a lot of business there. There's an interesting thing on BBC see a couple of weeks ago where some fourteen year old girl got online, looked at YouTube videos, designed their own web platform, bought jewelry and drop your general, just put it on models selling it to the U. S.
On a dropship basis, so she didn't even keep any stock. And her point is, is that you can do everything on your mobile phone today. And I think a lot of our customers are starting up like that. And they grow very rapidly because it just opens up to the whole world. So, ah, the sort of TDI non TDI cross border element is where we really think the growth a lot of the growth is going to come from as well as, a big opportunity for us in Europe because Europe is still, our biggest base.
58% of our business is there. Germany is obviously the beating heart of it all. But this, if you look out of Asia, for example, everybody's looking for a long time from that difference between the postal operators, which are a bit slower, not very good track controls and the express, which is very fast, but relatively expensive. So that middle ground there where people are prepared to wait 5 or 6 days for a slower service, but we some of the bells and whistles. That is the part that we see growing.
And especially now with some of the UPU decisions recently, the postal prices are probably going to go up. Quite significantly, which means that the sort of direct inject type of players, are going to grow more. So just the name ecom solutions might be a little bit confusing, right? So just I've just put it there a little bit there. We are not driving the group wide e commerce logistics strategy.
Each division now looks at e commerce as a sector just like we look at Automotive, high-tech energy, and any others. So everybody's got an opportunity there, and I'm sure as you go around to all the all the presentations, you'll see that e commerce is a fast growing vertical, for everybody. We do have a group, which is called customer solutions and innovation, which is our top 100 customers. It turns over about 1,000,000,000 in overall sectors, and that's where we get a more connected view of everything that's going on. I think at the beginning, there was a lot of, thinking about getting into BDC as quickly as possible but actually B2B is still growing very steadily.
It's not growing as fast as B2C, but it's a steady growth. And we need to leverage that as we're going to B2C and expand where we can give a differential and we can make sure that the service quality is maintained. So there are 2 value streams. Most of it, 75% in domestic last mile 25% in non TDDI. On the domestic, when we look at what we're trying to do, especially say in Southeast Asia, we're trying to build a platform for growth so that we can try and offer that last mile delivery in those markets, which are going to be healthy growth markets for the future.
We're currently in Thailand. Malaysia, Vietnam, there's plenty of expansion. The next ones would be Philippines, Indonesia. What we need to make sure of is that we've got a cost effective, standard operating procedure and a enterprise architecture backbone that gives us a lot of advantage. Non TDDI cross border, as I say, out of the United States, out of out of Asia.
And then the cross border, what we call connect product, in Europe. So we have a division called customer solutions, which sells mainly full solutions, Pan European which has grown from a relatively small base I admit, but it has grown like 5 times in the last 4 years, right? So it's 500% bigger than what it was 4 years ago. And we see a lot of opportunity, in that area. Trying to get everything back to a profit based mentality.
So as I said before, our business is in Netherlands and that's my time. I'm sorry. Our business is in Netherlands and Poland's very, very profitable, U. S. Profitable.
That's mainly a downstream access business, where we use the USPS interesting thing there is that both FedEx and UPS have started to take that volume into their own networks, which might create a lot of opportunity for us Then in India, we've still got it blue dot is still a profitable business, but, we need to carefully expanding to the BDC arena. We went from like 6000 equivalent of zip codes to 16,000 causes a couple of quality and profitability issues. We've got those back under control now. And then we have a couple of areas that I still need to fix. The UK is a bit of a problem for us, Iberia, bit of a problem, but we've got solid plans in place, and I'm sure we're going to see improvements over the next couple of years.
And Southeast Asia, yes, look two things, look for partnerships. We've already talked to a lot of the big players down there and also, make sure that the backbone of what we've got is good. DHL Parcel Connect, this is the strong Europe and European delivery based on older coal markets. I think that's pretty well established, growing well and profitable. And then the mainly Southeast And Far East Asia, bringing in that direct inject product into the United States and into Europe.
Quick summary. I think again, this whole partnership idea, look at the post office partners, not competitors, farm partnerships, especially at Van Asia, expand European coverage with 90% of the way there. And then it's all about service quality to really get the injection network properly improve the transit times leverage of size and benefits of the DHL. Yes. So when I say partnerships using the group companies as well, like out of Asia, getting better access to, to, to, airline buying rates.
I think just as Frank said, it's all about the 3 bottom lines. I think for me, on the employer of choice, more what do you call it? Certified programs specifically designed for our non network business, on the provider choice, it's all about getting the quality levels, but I think the quality levels are where they should be now maintaining those and then not bring the customers along. And then what I see, as I say, we see 100,000,000 swing from 'nineteen to 'twenty minimum and then pushing that up towards a 5% minimum margin across all those businesses and some are already over that level. Difficult to say what the absolute growth rate will be because we're talking about a selection of cross border and domestics, but In all those markets, we would look to grow faster than market.
So it's going to be a sort of balanced approach the EBIT outlook, as I say, I think 2020 will be back up at a reasonable profit level, and I see that just going on. Out to 2022. And then the focus really will be then to make sure that we get the high sales growth so that we can improve the actual EBIT going forward. Okay. So that's my 20 minute 15 minutes, just slightly more.
But yes.
Damien Burrow, RBC. First of all, just you identified some UK and Iberia, how much of a drag on margin are those two areas of Illinois? If you fix those, how much does that get before it's the sort of the 5% and then secondly, is it the sort of is something that's sort of because the heterogeneity of the business is there. Could you talk a little bit more about what your customer base is it? How much of it is SME versus large multinationals?
And how do you see that shifting?
Yes. So the U. K. And Iberia are slightly negative at the moment, right? And the slightly loss match gain, not big loss making, but slightly.
So their big revenues, right? So if we get that those 2 sorted out, that's a big step on the way. I think that's a 2 to 3 year journey. It started already. We've already seen improvements.
If I look at the customer solutions say, let's say, Europe to start with that, all the big ones. We don't have a strong, SME base because of the way that it's structured currently. So we've got a lot of volume out of Netherlands. We've got a lot of volume Poland. We've also got a lot of volume that we deliver for Deutsche Post out of Germany.
But the customer solutions is all about tying together solutions for the big customers, so that ASOS is in, detects H and M. So we're coming up with more of a solutions provider rather than a regular, SME focus. So once we've got the the, networks all fully in place, then we can start to think about that. But at the moment, there's a lot of opportunity with the big marketplaces and the big e tailers to So like I was telling you about the customer solutions division that's grown five times in the last 4 years, all their businesses with is mainly with big customers. In the United States, yes, again, it's big it's big, big customers.
They all have heavy, like dollar shave that will have big drops of a lot of, material. We do about 400,000,000 downstream access pieces into the USPS. So it's those big nailing domestic pieces in the United States. And then because we've got that relatively good coverage in the United States and we can start to do more cross border. So about 10% of that business is cross border at the moment.
90% of it stays within the United States. And in Asia, most of our business is with big customers. So I would say we don't play that much in the SME business. Out of Asia, we're looking at the E base, all the big market places. So it's a conglomeration of businesses rather than a complete network.
I think our opportunity really is in that solutions piece.
Matija Gergois from Goldman Sachs. Can you elaborate on the U. S? You mentioned, say that, say, FedEx and UPS are considering also, basically giving you some business?
No, no, no, no, no. So we we have a business where we do downstream access. We give all our stuff to the USPS, which is very low weight, usually under a pound. So I think the average rate's about 300 grams. And FedEx and UPS have got a similar product called SmartPost and, I can't remember what the other ones call.
They're thinking about taking that business away from the USPS and putting it into their own networks of in FedEx in particular. So I think that gives us an opportunity to develop closer and closer relationship with USPS. Because we'd be one of the biggest players in that particular sector going forward.
And then in terms of
the revenue split Page 112. So 50 8 percent of your revenues are from Europe. How much of that would be say parcels going out of Germany approximately? Will that be? So basically
No, I wouldn't be will it
be here or will it be
No, it wouldn't be that much. Because a big part of that is the domestic market in Netherlands, United Kingdom, Poland, check, that we've got their big domestic businesses. There's a bit of cross border business out of Germany but it wouldn't be a small percentage of the total.
But all the parcels exported from Germany will be, say, reported in this division. Or?
Well, it depends now. So for example, the parcels that go to Austria are delivered by Austria Post The ones that are delivered, most of the parcels will be delivered by other postal networks.
And in that case, there are no revenues for this division?
There are some revenues in some countries, right? So I think like Netherlands, some in the UK. All I'm saying is it's not a big proportion of the total. The vast majority of that revenue comes from domestic generated business. So for example, in Netherlands, yes, 90% is a domestic within the Benelux Countries.
It's a very domestic oriented problem.
So, the first question, I'm building a little bit on Damien's is basically I would have thought it's quite easy to get that $100,000,000 turnaround because you discontinued some of the loss makers already and you've profitable entities in U. S, in India, in Netherlands, so it's basically No, I mean, is it that simple to get to the 100,000,000 swing? Basically, you've done the work already and everything that comes is incremental or is it is it much more difficult because some of the other stuff deteriorated and the global main deteriorated or whatever?
No, I think the swing is relatively certain, right? So we've done all the cleanup this year. We've cut back on a lot of overhead. We've modified the portfolio yes, and we've got some yes, we've got some good profitable businesses in there, right? So I'm very, very confident that we're going to see that swing.
I think the reason why we've worked so quickly and so determinedly, right, is, A, we want to contribute and B, pretty quickly So my first thing was to clean the portfolio and clean some of the overhead, get the service quality back up to where it should be. So that from 2020, 2021 onwards, it's all about profitable growth again, right? I'm probably the revenue reported next year will be pretty flat because of the businesses we've taken out. The underlying growth, I'm expecting to be at least 10% and maybe more. As we go into 'twenty one, 'twenty two, I'm expecting that growth rate to be up there 10%, 15% because it's a strong, it's a strong independent portfolio.
So yeah, to the point, I'm very confident on the swing for 2020.
And your value proposition always will be the parcel or shipment. And so basically you start after the warehouse of your client. You don't offer full service equalization rate?
Yes, for 75% of the business, yes. So a lot of what we're going to have to do is it's going to be in its purest terms, the very entrepreneurial part of Deutsche Post, right? Because we don't have a common IT architecture, for example. So the systems that we run-in Netherlands are different to the UK are different to blue dart, but they're all, I think, for market for the markets that they're in, they're up there amongst best in class. So it's making sure that we get best in class in each of those individual domestic markets.
Maybe at some time in the future 5 years from now thinking about how we try and harmonize them so that we can get rapid benefit. But that's going to be a long job. Then on the cross border, I think we've got big opportunity, right? I mean, we've got solid European platform we can sell out of the United States, we're probably subscale in well, I wouldn't say subscale. We're a smaller player out of Asia, right?
You know, you've got all the big, 4px, Changya, all the players there, but we've got a position there. So what we're going to do, I think when our quality levels are right, we see that the volume comes in. So again, our value proposition out of Asia, particularly into Europe. And then out of Asia into, United States, if it's low value, low volume, would a good proposition as well. So I see good growth prospects that overall.
And just lastly, that UPU changes with a permanent use much of a game changer is that for cross border pricing and volumes? Is it can you
Well, I think inevitably it's going to push up the the cost of the postal offering. And I think over to what we've seen, especially over the last 3 or 4 years, is that people I've set it to move on, right? The postal products generally have been slower, not so much good track and trace. So everybody's been putting together hybrid solutions, right? China, one of the coal orders picks everything up, then it goes to a consolidation point.
It's flown by another third party into Europe, period in Europe, and then it's injected into a myriad of domestic networks right been Germany. It's the it's Deutsche Post maybe in Holland. It's parcel. So everybody's looking for the lowest cost best high relative to quality, but those networks are definitely building fast. And, I think we've got a good opportunity there.
Partnerships can
just ask how far does that extend to? I know I'm not sure it was your part of DHL or someone's partnering, well, I think it was a bus company in a Gatwick Airport in London and trying to maximize depot space? I mean, how far can you stretch that concept?
No, no, I'm talking about big partnerships. I'm talking about we don't want to compete with Austrian Post. We want to partner with them, right? Out of Asia, we'd love to get a more close relationship with some of the big marketplaces, not just being a pure, third party supplier. Except that's how I think we'll build scale rapidly.
And we've got something to offer, right? We've got a global network, everybody, all the players want to be global as quick as So we've got something to bring to the party as well. But those marketplaces,
as you know, it's
not like the Amazon's and Alibaba's, they've got their own mindsets, right? But Amazon's a good example. We've done a lot of partnership with Amazon. They in Express, they use our hub. In Cincinnati, they use the same airline partners as we did.
And in Express, we built a lot of the network based on partnerships, especially the aviation network. It's a virtual aviation network basically, but we also did a lot of other stuff that we need to do to grow at the rates that that take us above market.
To the post and parcel breakout, part of our Capital Markets Day. Also welcome to those watching on the web. Let me start giving introduction to our business, what's our profitable core, what's our market position. Our core is the transportation sorting and delivery of documents and goods carrying shipments, that's the essence of the post and parcel business in Germany. We focus on national products, national transport as well as export.
Our revenue mix a 38% parcel products. That has been increasing, and we expect that to continue to increase by about 2 percentage points per year. 62% is our postal products. Some is traditional mail documents but there's also an increasing share here of goods carrying shipments. Percent market share and also by quite a distance, the number 1 in the mail market.
If you look at our USP, what differentiates us from petition. Quality is very important. We come with structurally higher labor costs, and we need to offset that. And quality is definitely one thing that, is essential to that, but also delivery density. The combined delivery of a male and a parcel is one ingredient of that component, and we, are very keen to sustain that superior delivery density also going forward.
If you look at our objectives going forward, it goes along the 3 bottom lines, which most of you will be closely familiar with. So in terms of best team in the industry, we have additional opportunity that by bringing more of the management closer to the actual business, to our operations in the field. We aim to do that, by having managers more do the training, also part of our certified program, strength and customer interactions as well as practical involvement in our day to day operations. We want to deliver best quality. We believe and are working on to strengthen further the reliability of our service We think that reliability is key, both, to have the trust of our customers in the mail market, but also in the parcel market.
We are very much focused to reduce the reasons for any complaints and thereby enhance customer satisfaction. And as it relates to best results, we are working on a cost program that we have announced last year, and I will give a bit of an update on that. But obviously, our business portfolio, will give us and has given us a stable and sustainable growth as we rebalance from classical mails or documents to more goods carrying shipment, and we aim to remain a strong contributor to the group's cash flow. If you look at the context in which we operate, what are, success factors and what are also challenges for us, definitely, the continued growth in the parcel market is very important to our story. We see that continuing to grow it 5% to 7%.
Price increases are essential, and the market has been receptive to those, particularly on the parcel side. So that is very important to achieve our objectives for this year, but also next year. We have and will continue to decrease our indirect cost base, by particularly reducing efforts in administrative processes and functions, and we want to limit the increase of direct costs through productivity measures to offset factor costs inflation as well as, the impact of larger volumes. Digitalization is definitely a very important component of that. So it's instrumental, and you will see that when we come to the measures.
If you look at the
challenges, obviously exposure to the Mail segment is something that comes with a decline of such volumes. So we see this moderately continuing at 2% to 3% decline. The structural shift from post to parcel imposes quite some challenges in our operations. We want and will maintain a high degree of automation, but goods carrying shipments need to be sorted differently then conventional letters. And also on the parcel side, we want to be more CapEx focused, ensure CapEx efficiency going forward.
Cost inflation is something that is not only a challenge to us, but for the entire industry, So both in terms of wage cost plus also other factor cost, particularly transportation, we see quite some pressure in the German market. So that is a challenge we need to deal with. Overall, we want to recover and then sustain the earnings momentum of our division. The plan that we We are currently very much in execution mode as it relates to the measures that we have initiated last year. Price increases, quality improvements, but also the measures on the cost side are part of that.
So that needs to remain the focus for the coming months. And then we'll face over to some initiatives that are more orientated to some structural changes in our Sotation processes in particular, but also new features for our customers to enhance our competitiveness and attractiveness to consumers in the German market. So coming to the first bucket and also giving a bit of an update on some of the things that we have initiated. We can definitely say that 2019 marks a change in trend as it relates to productivity and the change in trend for the better. The continuous improvement measures are having an effect.
We have deployed performance dialogues across the business, but also have targeted some area where we saw specific opportunity. For instance, the loading of vehicles in the parcel area, we have several percentage points higher utilization by now, and that obviously helps us in compensating some of the transportation costs increase automation, we have always been leading in that area, and we are doubling down on it. So in the a mail area, we have invested in additional sequence sorting capacity and are pushing now even to the difficult parts of this. So, the letter boxes of high rise buildings, for instance, is something which can be quite humbling, particularly if you're new to the district, I regularly go also on delivery tours myself. And I have to say if you see 100 letterboxes and try to find somebody's names, it's a bit of a tedious task.
And we are now starting in Q4 to do the sequence sorting according to a chessboard pattern to ease, the process of that. So that is fully underway and also most nearly all of the additional sorting machines are by now deployed. Digitalization also goes across the business in delivery. We have optimized, the route scheduling that is such not new for the industry. It's also not the most important part for us as you will see what else we have, in the plan, we'll present that a bit later.
So there's more to come. What is also very important to us to enable site managers to manage more of the business locally, because that gives us that opportunity to then reduce the cost and administrative functions. And we need to bring a better data and decision power to the sites to be able to do that, and we have started with that process. Integration of post and parcel, both on the product side as well as on the network and operation sites, is very important. It gives us opportunities in multiple ways.
If you look at the peak that we have in the parcel business, this year, we will, for the first time, be able to shift the delivery of smaller parcels in the urban areas from the parcel network to the mail network So that helps us to deal with the peak, provide the capacity that our customers asked for, but obviously, do so in a less CapEx intensive fashion. And that's a path that we want to continue to follow that we fully leverage more longer term horizon. So many of these initiatives will phase in over the course of 2020. We have a significant effort underway as it relates to sorting technology. Recognizing that some of the sorting technology we have in mail is not suitable to sort a goods carrying shipments.
And on the other side, We don't want So we have multiple, ways that we are currently piloting to address this issue, which will then enable us to continue growing parcel, without overspending on CapEx. We obviously also want to bring in new features as to our services and boost the network of pack stations, that we have and use digital features across our operations and have a couple of examples on that as well. So getting into it, What are some of the aspects that we are driving to further enhance our profitable growth On the delivery side, we'll continue to leverage joint delivery of mail and parcel, which we have traditionally done in rural areas. That is currently about 54% of our operations. And we expect to increase that by about 1 to 2 percentage points per year.
So we are growing a bit from the outside into the cities as it relates to joint delivery operations. On the sortation, I already elaborated a bit on that the challenge is. On the letter side, we need to be able to also deal with goods carrying shipments there. And have adequate flotation technology for that. We want to get to a situation where we kind of dynamically steer between the networks decide on a day by day and district by district basis, how many puts carrying shipments we root into the mail network, so that is something that requires changes along the process chain.
If you look at parcels, we still have some improvement opportunities with our conventional hubs, where we have 37 off by now with Bullhorn added in these weeks. So we we'll further optimize those to get additional capacity out of those existing hubs. And then we are currently piloting different technology to enable more efficient sorting of small format shipments. Bagging is 1, for instance, that we do sort smaller parcels into a back down to depot level and thereby can use that to save, sorting capacity on the inbound hubs, which is our, currently capacity limiting factor because the inbound sort has a shorter time window, available than the outbound sort. So we aim to maximize the synergies between our postal and our parcel operations, both for OpEx Efficiency, but also for CapEx.
Pack stations is, so our parcel lockers is something that we have operated for quite some time now. We started this 16 years ago. Initially, consumers were lukewarm on the feature. It took quite some years until people figured out to do with these yellow boxes. By now, we see very good momentum and definitely want to strengthen this.
We are also now at a cost position that makes this, viable or even more attractive than the door delivery. This has to do with more efficient buying of these machines, but also with reduced rent, because we find more partners that want to actually have a parcel locker to attract foot traffic. So there's quite a change of economics with that. And this is why we want to push this feature to get to 7000 pack stations early 2021 and then expand from there further. Digitalization, in the delivery operations is also very crucial.
We are creating the base for that. By replacing all hand scanners, both of parcel joint and mail delivery operations. We so far had 2 different devices in future. We'll have 1, that also eases deployment, reduces complexity on the IT side and then deploy, a set of features that we group under the name of OnTrak It basically provides guidance to the, delivery driver. It enables the driver to interact with the device to optimize the route to his preferences.
For us, this is much more important than having an algorithm that simply does the routing by because our districts are relatively small. In urban deliveries, we have 70 to 80 meters only in their stop distance, So it's much, much denser than the networks of competitors. And it is very critical for us that the delivery driver who typically knows the district well can influence the sequence. So this is why it has taken us quite some time to experiment with that, and we are now at a stage We are very confident that, we can scale this. The main advantage of this for us on the efficiency side however, is the time at the door.
And we have now validated this in pilots. If we give consumers a very accurate pre advice and the countdown, when their shipment will be delivered. The opening time, is reduced. So our courier has less time to wait at the door. And the time at the door is the biggest time component in parcel delivery.
It's not the time driving. It is the time at the door. And, this is our area of focus as it relates to optimization. Also, for instance, the number of clicks and so forth, we have now optimized to further save on delivery time. Another area of digitalization is the site management already elaborated a bit on this.
So this is a long journey to bring more transparency to the local depots. We do deliveries from over three thousand sites in Germany. So having the site manager empowered and being knowledgeable about the volume he can expect for the day, Having transparency around the timeliness of transports is critical so that, that manager in the site can take the right decisions. And that's a process that cuts across many different aspects, and that's what we are now working on to, deliver those 1 by 1. So we are piloting currently, for instance, the pre advice for the transportation that the site manager has transparency when a vehicle is delayed.
Germany arguably does not have, the best road infrastructure in all places. So delay of transport is an issue that we need to deal with on a day to day basis and providing better see on that will help both quality as well as efficiency. Increased visibility of unit cost is also an important component of that, that we break that further down and made people on a granular level more accountable for that. So that's also an essential part of that change philosophy to site management. On the staff deployment side, we have, ample opportunity to replace a paper based processes with application processes online, but also then the development of staff through online functions, we have much less turnover than our competition, but still with the workforce of nearly 200,000 You obviously have a considerable number of people to hire and replace every year, and that's an area where we also focus on and see opportunity for improvement.
We do these enhancements of features in context of a broader IT program, which also takes care of the backend stuff. So we are very conscious that we want to also leave our successors in IT infrastructure that is future proof and not create issues by just adding functionality. So renewal of IT infrastructure is something that is fully ongoing. That includes components like the upgrade of the data network. The scanners already spoke about but also the exchange of all PCs that we have done this year, we are working on the revision of some legacy systems This is nothing spectacular or out of the ordinary.
But like many other big companies, we have several systems that have come to a certain age and need replacing, but we also use this as an opportunity to move redundancies particularly between the post side and the parcel side, we have quite a number of applications that duplicate certain functionality. And through this roadmap, we aim to bring this together and also realize efficiencies through that. Simplification of the customer contact points is also very important, also has to do with acting more as one business across post and parcel, reducing the number of products, for instance, is part of that and making us easier to reach for the customer in general. So, that translates as well into further improvements of the customer experience. I mentioned already on track which has this very important component to give a better preadvice to the customer so that he knows when our courier is there, It also is interlinked, that we want to pick up more return shipments.
We have recently deployed the mobile return solution which basically allows an online shop to send a QR code, to the consumer in our courier scans that QR code to directly print the label. This is very convenient for the consumer, but it's also good for us because the label quality is to our standards. The Adhesive ensures that it doesn't separate from the parcel because nothing produces more work than a parcel without a label. So That is an example how we aim to bring a better customer experience together with operational efficiencies and have less parcels where we need to do rework. Automation of our operations will continue.
We aim and need to be leading in that area. And we have opportunities, particularly in having, much greater synergies between post and parcel and, ultimately, great flexibility to use either one of the networks to sort or deliver a given product. Bringing this together and mirroring against the for macro trends that also Frank spoke about this morning. If you look at globalization, obviously, International E Commerce is also a very attractive segment. Germany is both a strong exporter as well as a strong importer.
We see our membership in the postal union and IPC. As a competitive advantage. We have strengthened ties with some of our peers in that area and intend to continue that. To have an attractive offer, also on the international side. Digitalization is obviously core to our agenda.
To both drive a customer experience, but also efficiency levers. E Commerce is an essential part of our story. Powerful growth to a great extent is driven by that, and we expect that to continue. And we want to be the leading quality provider in that space. Lastly, sustainability has been on our agenda for a long time on the environmental side, we feel well positioned, with our fleet of street scooters.
We have more than 10,000 by now, which helps us also in those cities in Germany where we have, diesel issues with diesel. Emissions. What is also relevant is that we clearly offer the best working conditions in our industry which obviously has some disadvantages in terms of labor cost, which we had for a long time, but in the current labor market also has advantages, also on the political side, you will be aware of the discussions ongoing. So we feel well positioned in that regard as well. That leaves me, with the financial outlook, Melanie has touched upon most of that.
Our sense of the market is that Mail volume in Germany will continue to decline moderately with 2% to 3%. That has to do with certain stickiness of also document business, but also an increasing share of good scaring shipments in our letter products. We expect us to perform at least in line with the market. We are obviously a great share of that market. On the parcel side, we see continued growth with 5% to 7% and us to grow at least in line with that market.
For us, it's important to grow profitably. So that is definitely very important, but even with the yield measures that we have initiated and that we expect to initiate, we see that, we can grow at least in line with market. In terms of CapEx, we expect a gross CapEx of 1000000 to 1000000, to particularly transition the network from documents to goods carrying and maintaining or enhancing our level of automation. So that is obviously critical for us to maintain a competitive position. Our EBIT guidance for 2020 is sustained, we expect to earn at least 1,000,000,000, which then translates into a margin of roughly 10%.
Which we then expect to keep for the years thereafter with a slight top line growth. With that,
Damian Brewer, RBC. Two questions. First of all, on the mail volume, what gives you confidence in that 2% to 3% decline if like a couple of years ago is a lot less than that? What does that do to your cost and efficiency assumptions? Are if you end up handling more mail than your plan envisages?
And then secondly, just on the margin, why is 10% the right margin?
On the mail question, I mean, 2% to 3% is in line, with recent experience that we had. And if we look at our portfolio of customers, if we go through, the sub groupings, we have the business communication part, we have the dialogue marketing part, We have good scaring shipments. We do not see that we don't have any indication that that trend would significantly change one or the other way. We know that Germany is a bit different than experience in other markets, but If you look more granularly, there are good reasons for that, which both lie in our business mix as well as some specifics of the German market. So again, we do not have any indication that that change would change.
Obviously, a change in volumes assumption has a financial impact, but it very much depends also which particular shipment type you talk about. If we would standard mail that would obviously have a very high contribution because, the network has a high degree of fixed costs But that is not a scenario that we foresee. We rather, as I laid out, see on the volume side the continuation of the trend that we have seen in the recent years. Sorry. I didn't want to skip that.
Look, the If you look at our changeover in the business portfolio, we obviously have every year with a change in mix a certain adverse impact on our earnings, which we do see that we can compensate that with the efficiency measures that we have. And we have also mapped that out to 2025. So we see our ability to sustain that, that the adverse impact we have for the change in business mix can be offset with the measures. This is the sense we have. We obviously will stick out in terms of profitability relative to our competitors in the parcel market here in Germany, but if you look at our business portfolio and particularly our ability to drive down unit cost through combined delivery, I think that provides also a good reason why we can have that higher earnings.
Matija Garekoda from Goldman Sachs. Two questions. One is on Page 65, when you talk about say goods carrying mail, can you give us some sense of what percentage of your total letters today carry some goods and also what growth rates are you seeing in that segment? And then secondly linked to that would be, do you already have the small format sorting machines that you're sorting centers, or this is something that you are currently implementing?
So regarding the first question, we have some specific products So for instance, the product, we call WAVEN Post in German that, is dedicated to basically carrying goods. It also has a proof of delivery. So that we is a relatively small share, but it's growing very fast. What we do not have exact figures on is how much is the share of goods carrying letters? That has increased, and we can see that because we can practically touch those shipments.
But we don't know exactly what's in each shipment. So for instance, we do not have not traditionally you somebody ships a credit card, we would not consider that a good securing shipment. We can also sort that through conventional sorting technology. But if you have something like this, which travels in our compact letter quite frequently, that would be a good carrying shipment which we do not recognize as such. It's not a specific product.
It's our standard, male product So, we just recognize, basically, by doing sampling that we have an increasing amount of that.
So any ballpark figure? How big it is?
Look, it depends on how you do the exact cutoff. But it would be, a significant part of our mail in terms of the revenue side, it would be low double digits percentage. You can expect to be, goods carrying by now. To your, second question, we have different sorting machines in the mail centers. They mainly differentiate by format.
The larger, sorting machine is able to handle shipments roughly up to 3.54 centimeters, but with stable packaging. So that is creating an issue if you have polyvacs or similar types of packaging, which, particularly on international inbound mail, is a quite favored type of packaging, which we can also hardly influence. The domestic market, we obviously have a closer relationship to customers and can influence packaging. So these are particularly the type of shipments where we need new sorting technology for. We are currently testing different types, and we'll select and then scale the technology we prefer.
Tobias Citi from MainFirst. Two questions for me, please. Firstly, I mean, looking at your 2025 targets, some parameters outside of your control, which you have to take into account somehow or other, it's a new postal law currently being discussed, which could result in a lower number of delivery days. There's a little bit weird formula on how your mail margin is calculated by the regulator, which could fluctuate wildly? How is that taken into account?
In your assessment of a 10% margin going forward for the Mail business? And secondly, Amazon as a competitor customer, for you, how do you look at that on the parcel network they're building in terms of how competitive that is on a unit cost basis on the one hand? And secondly, if you can comment at all how much Amazon volume will still be in your network in 5 or 10 years time, how's your current thinking on that? And if the marketplace volumes of Amazon are also reflected in that thinking there?
So in terms of the margin, and the impact on the post law, we have basically assumed the current regulation. The process has just recently been started. The Ministry of Economics has published a couple of cornerstones. Which, for instance, opened the debate that you alluded to, should we have continue to have in the law 6 days of delivery for mail or should be more related to the European requirement. So that is something that we are obviously watching and also participating in that discussion, it not only has that aspect of the delivery days but it also has other aspects, the number of branches we need to operate and so forth.
Not a single one of those, that I just mentioned has such a fundamental impact. I mean, even if we would skip Monday as a normal delivery day, we would still have to serve large customers because they would expect for their operations to get mail delivered So this is not such a simplistic black and white discussion as it's often portrayed. We would gradually evolve that. Obviously would think that over a 10 to 20 year period, it is beneficial to have more flexibility now because, the mail market will evolve and having such a rigid element in the law might not give the necessary flexibility to react whenever the regulator thinks than this is necessary. So But this is a discussion, as you will be aware, the postal law will be reformed,
maybe we have
a draft of the law, end of this year, early next year. So it's something that, has time for discussion and we believe will develop in a sensible fashion. As it relates to Amazon, Amazon, Is a large customer, Amazon has started at the same time to deliver their own volumes that has been going on since 2015, practically. So yes, there is a certain effect on our business, obviously, but it's not something that necessarily comes on top. They broaden their footprint, continue to broaden their footprint, as they have, where this ends, I think, is hard for us to predict.
We believe we have a position that is defendable in definitely in the rural areas, but also through the quality that we are able to deliver, specifically in a labor market that is very tight. So if you look back in the past, there's actually, we had this situation with Otto already once. And Otto decided years ago to do its own delivery with Hammes. So that is a similar journey to some extent. We continue to have relationship business relationship with auto over all these years.
Otter was a very large customer with ours, also on the postal side. So we see that similar developing with Amazon, at least from our side, it is a customer, and we will obviously try to serve that customer quality is very important for them, and we think we have a real asset there.
Further questions?
And thank you very much.
Through.
So maybe I'll, I'll first start by introducing myself. It was mentioned a few times that this formally my first day in the job now. Obviously, I've been in the company for a while, and being part obviously on developing the strategy 2025 we've been presenting today since June. But indeed, today is formally my first day as CEO for Digital Supply Chain. I used to run our European business our Mainland, Europe and Middle East Africa business for the past 3 years, in response that business.
And before that, I worked in Asia for 8 years, of which the last 3 years as CEO of Asia Pacific, of the initial supply chain. And before going to Asia, I run our Italian business as my engineering director there, and then I've done various roles in the Nordics and in other parts of the region. But originally, I'm from the Netherlands and after 20 years, actually, he now lived there as well, but although we based in bulk, obviously, So that's quickly about me and my background. So we're going to talk about supply chain, the together unstoppable Hashtag I'll talk to you in a second about that, but that's the naming of our strategy, and I'll explain to you, the execution of the strategy within supply chain. The picture you see here, is in, is in, inbound manufacturing operation, So that is, the reason I mentioned that is when you talk at the first part, so the profitable core of detailed supply chain is we manage parts of the supply chains customers that have been outsourced.
So the picture you saw there is where we, pick up parts, bring into a consolidation point close to close to the factory, put them in the right sequence of the production line and actually bring them to the production line to actually then be, be put put into the specific car on the line. So that is an example of things that we do. We do warehousing, transportation, about 35 of businesses transportation. I'll give you some examples of some of the businesses we do. I mentioned their service logistics, So logistics is a business where within 3 hours, anywhere around the world, we can deliver a part.
Now the reason the way we do that is that we create, forward stocking locations spread over the globe, near all main cities, for those customers where parts are essential. If you take for it as a telecom business where if a transmitter would not be working anymore, it's direct revenue. So it's really important that that's immediately replaced So we make sure that it gets there, the engineer gets there, and it gets done in a shorter period of time. That's, for instance, that's 3 hour. There's lots of other examples So let's say global or global products.
MLP, that's more where we manage, a supply chain of a customer, including the transport, We agree on a baseline, both on a quality and cost level, and we try to then manage the cost down of our customer in that overall supply chain. Packaging, if you buy a new mobile phone and you open this carton, there is this nice it's just the right adapter of the right country in there. You got all kinds of pieces of paper that you don't need to picture in there and all kinds of few other things. We put all that in there and we expect that. That's what we do for many, in the technology sector, for instance, many of the packaging operations we do.
But also if you, buy 3 for the price of 2, then it might well be that we've done the packaging activity of that in the stock point of that specific customer. That's the packaging activity. And then there's e commerce. 12% of our people by now work in e fulfillment operations. 33% of our new business in retail consumer is actually, within, e fulfillment.
So that's a quite substantial part of our business today is actually in e commerce and specifically in e fulfillment. Within innovation, I'll show you that later on, And when we talk about collaborative robotics, data analytics and how we use that to optimize our customers' operations and therefore our operations. And that actually creates free benefits. It makes us a better employer because it makes us more interesting for people to work for us when you have a collaborative robotics environment, there's even more interesting steps to make. It makes it more efficient, which helps our efficiency, but also our customer's efficiency which therefore gives us a possibility to grow as well.
So we'll come back to that point later on. These are the sectors that we're in. You see, as was mentioned this morning, a big percentage there in retail consumer, that gives us the possibility to, to be less dependent of fluctuations in the market because we're more at the end of the supply chain. Life science is, for instance, where we're more in the high end of, of supply chain solutions. So key facts, 2000 sites globally, you have to calculate every site is about 30,000, 35,000 square meters at average.
35% as I mentioned already, more than 160,000 employees. That's a big number, we for instance, next year, we'll have to hire about 40,000 people. So that's a very big factor. I'll come back to that in a second, but we're only in 55 countries only, because compared other DHL divisions that's less countries because we focus specifically on those countries that have a big enough economy that we can actually provide sufficient value to have a to get the mix out of the brainpower that we put in such a country. So, and then we have about 180 annual startups.
That means a new facility that's being opened or a new large operation of a customer in a multi customer facility. So every 2 weeks, we start up a new operation. So far this year, we have about 100% close to 100% of startup performance. So let's give you a bit of a picture of, who we are. What I want you to remember when you walk out of this room, is effectively that we will have growth, with continuous market leading EBIT.
So we have a market leading EBIT today of close to 5% which is about 1.8% better than the next competitor. And we want to maintain that, but actually grow in line or slightly better than market. We want to use accelerated digitalization, which we kicked off 7 is it 14 months ago, as a key driver of that and our overall standardization, which we started 4 years ago. Those two together, are the differentiators in the market that the, that we will, that we have and that we will have, and which will also help us to have a consistent operational and, therefore, also financial performance, going forward. So those are the things I want you to remember, would like you to remember.
This is the market that I was talking about. So, market share in contract logistics is always a bit of a difficult topic with how big is the now, really, how much is if of in sourced, activities should be part of market share. So take it with the number that there is. But I think the more important part is we are, how we compare to our competitors, but mostly important what I mentioned about EBIT margins compared to our competitors. That's the market growth.
We have been in the past slightly behind that market growth, and that's the big difference. So where we have been over the last period, improving our EBIT percentage by stepping out of businesses and markets, that we could not provide the value and therefore get the right profitability out of there, or those contracts that were articles making or had too much too high of risk, exposure going forward. So we've done all that we've obviously we all know about what we've done with China, where we converted it into a franchise setting. So all of that we've done, so now we can actually focus on top line growth while maintaining the same market leading EBIT percentage that we have. So this is our overall strategy, this is an internal slide that I used a few days back.
So together unstoppable, why is it so important? Because supply chain contrary to the other divisions is not a network. We are 2000 sites of 2000 customer contracts. And what is very important is that you actually create through standardized ways operating. Standardized ways we had the way we train our people, standardized procedures, to actually make sure that it operates as 1.
And therefore, our customers have the perception that we, are consistent, whether we now work in Vietnam or in Chicago, but also that people can easier move between operations, which gives that flexibility to, that we can provide to customers, but also gives the possibility people to grow. This slide you have to read from left to right because if I'm talking about growth, the first thing that is required is that we have the people to be able to facilitate that. So that means, that's why you have here the hashtag connected people. That means about the way we train our people, That's the way we through our certified program, we make sure that people can grow so that we have sufficient people to actually facilitate growth and have the best people to operate, which then gives us the possibility to have the execution edge. So to differentiate ourselves through our standardized ways of operating in the quality and the consistency on how we operate.
By differentiating ourselves, we didn't get towards delighted customers. Now the point on that one that I want to spend a second longer on is on the light of customers is it's not sufficient to just have great KPI And we have, as an engineering organization, we always assumed that our KPIs are great, our customers are happy, not really the case, So we started 1 and a half year ago by, by really driving the NPS score, not by just asking the customers, but also by following up on it. And the example that I always use internally is when you're in a restaurant, and the waiter passes by your table, and he would ask whether the super is fine and your super is actually cold. And you would say, well, the super is actually cold. And he would say, thank you, and he would move on.
You will never go to the restaurant again. Right? If you would then actually call the chef, the chef, and they will give you a free dessert, I have a chat with you. You probably create a connection with that restaurant, and you're probably going to go back there. Bob actually started with a bad experience.
That's why the follow-up and the connection with customers for a specific organization and supply chain is so important. So hence, that point, the other reason why it's so important is a point which I call net growth. That means that I could be standing here and telling you that we won a lot of new business, but it doesn't say a lot if the numbers of customers we would lose will be a similar number. And specifically in our business, winning customers is costly. Losing customers is just as costly.
So if you neutral if you basically win the same as you lose, you're busy full, right? So it is very important that we grow with our existing customers and we create that net growth, based on effectively keep our customers, we grow with them, on top of that, we win new business. That's why that part is very important, and that's a very important part of this strategy, which then gives us the possibility to own tomorrow. That's the investments that we're making in, to lead in innovation, to lead the digitization agenda, and to be able to invest like we're doing in for instance, in markets like India and Colombia, which we're doing as well. These are the programs behind it.
I'm going to deep dive on a few of those. And as I mentioned, there's a certified program, which we're going to talk through, our execution edge and then the CXM 1 on tomorrow part. So this is, the people at that part. So it is very important the way we hire our people. So we digitalize the way we actually do job tryouts, so that people actually on their mobile phone can do a job try Once they actually pass that, they get the final interview, then they get actually trained in these recruitment centers.
We now have 7 of those centers around the globe, and there will be another 7 open pretty soon. The impact of this is really important because what we've noticed is that these people are not only hired by these recruitment centers, but they're also trained in these recruitment centers. And only then after they went through the certified program, they go to a site and start their job. One we've noticed is that the number of people that we lose in the 1st 3 months of the job, when we talk mostly at blue collar people, has reduced by half So that has an enormous impact on the quality of our operations, the productivity of our operations and also the cost to hire, which is reproducing. And as you remember, high number of people that we're hiring, that this is a very important aspect that whole digitalization of the way we hire, train, and then we need to develop our people because what is really important is that once we have people in house, that we give them the possibility to continuously grow because that's a way that we can differentiate.
We can't differentiate purely on salary and costs. We can differentiate on providing opportunities to grow and develop. So that's what is, what sits in the overall certified agenda. So it's not only about engagement, it's also about, competency training, so that people can actually grow and develop within the organization. And then there's the overall engagement agenda, which is really important that we keep people as part of our existing, as part of our agenda.
This is OMS. So, when I was managing Europe, I could and I always said, and it's still the case that wherever we have implemented OMS, we haven't lost a single customer. What OMS is all about, it is a standardized way, a standardized methodology in which we set up and improve an operation. So this is about a standardized way on how we, how we do job descriptions, how we plan, how we measure, how we then compare productivities, how we retrain and redevelop people, how we identify, improvement potential continuous improvement, and then that circle keeps on going around. And it's a very important standardized methodology.
It started once in Brazil, When I was then, still CEO of Asia Pacific, I got curious about this one when I started to see in Brazil that not only productivities started were going up, but at the same time, their staff engagement went up. And then it actually means that your productivity improvement is sustainable. We can do that with engaged people, not by pressuring it. So, that, we rolled out globally. We now have 60% of our people working in an environment, which is working under the LMS standardization.
This is what I was mentioning before about, delighted customers. So when we started to where we are today, we've reached a substantially improved our customer satisfaction survey. And but we also use that to engage the people on the floor with the feedback that are given from customers. So it's not a desktop exercise. It goes all the way back to the floor to make sure that people fully understand what's happening and also see the improvement, but also that customers know what feedback they're given is really used all the way up to the floor.
This is our, This is our agenda in e commerce. So I've already thrown some of those figures at you, when I started this presentation. 12% of our staff works in e commerce operations, that we have 1,000,000 square meters of e commerce, operations so far. 33% of our new business consumer retail is in e commerce. We have about more than 100 customers.
But what's also very important is that we have best in class technologies now we're talking about robotics and collaborative robotics enabled to that enables us to face the required flexibility that you need on capacity to be able to do fulfillment. So you then wonder what are we talking about? So These are, and this goes for all our operations. Obviously, done of those 2000 operations that I've mentioned, we have mapped all of them At the same time, we've identified 12 processes, 12 core processes for which we have identified collaborative robotics and digital opportunities. We've then matched them globally to be able to implement 1 or 2 or more than solutions over each of those sites.
We started doing that 14 months ago, we are now in the middle of rolling that out. We've identified 1400 implementations, 400 are ongoing. The numbers you see there is not the numbers of robots obviously, it's the numbers of sites where we are implementing these solutions. And they go from the left side to the high impact ones. So when we talk about assisted picking robots, those this is when somebody does the picking, this robot is with him, once he has filled the basket, the robot himself goes back to the packing station, whether somebody else who then does the packing, in the meantime, the person that does the picking has a new robot with him already and finishes that off.
So the only thing that that person does, he stays in the same lane, It does all the picking and all the physical movements within those large 30,000 or 40,000 or 60,000 square meter sites are being done by these robots. You can imagine the impact that that has on these operations. We have done that now in 10 sites. I'm not going to talk you through each of them. But the right side ones are the more simple ones to implement on a larger scale, when we talk about a wrapping robot.
So that's a robot that does the wrapping of Palace, don't need system integrations for that, so you can pretty easily implement it. The impact is also not that huge, while obviously the impact of this or self moving, reach trucks is actually quite substantial. Wearable devices, for instance, where we now have, which we're rolling out really fast, as you see, 137 sites, where people at home, they're used to work with a smartphone. Well, instead of having these great things with the green letters, where you scan with, now you will have basically your tip, on your wrist, You have your ring finger, you would say, where you scan with, but you can also do your overtime on it. You can do your surveys on it.
You can tap which process you're actually in. So we facilitate, a very much way of working, which also helps for people that we're a better place to work, but at the same time, we increase productivity because they have 2 hands free, instead of having a pistol in 1, so therefore, productivity goes up, also quite actually.
If This is a loss with a 2 entry and54 stake improvement.
These are the robots that bring the wreck to the tracking area rather than the person goes to the wreck. Several versions of that. As you can see, almost all of them are collaborative ways of what we saw between the person and, and robots except for this one. This is a pretty big one because this is where we are working in several environments where we have reach trucks that are unmanned. This is a collaborative way.
This is an operation in the UK, where we do a lot of packaging activities, where that robot is very fast to program. So for each batch of activity, you can very fast change the way it's working. And then it works together with people This is a this is why we actually do inventory So instead of having over the weekend, this continuously does inventory counts automatically and pulls that back into the system. We did it first with drones. We tried them with drones, but actually this one is cheaper, less sexy, but actually it works better.
So that gives you a bit of picture of, where we, as what I was hoping to read, transmit to you, is that where we went through an organization, it has improved its EBIT by optimizing, its business, by optimizing its portfolio, which is now ready to then accelerate of at least to actually to grow further on the basis of that, to make sure that we differentiate ourselves through our standardized processes, the way we hire and train our people and our aggressive digitalization agenda that we're having. The digitalization agenda finally gives us the possibility to, have this big advantage of the scale that we're having because if we, this is not about implementing it in 1 or 2 sites, and then show it in via video to you. This is about implementing this in 50 or 60 size, the same solution. That means that then skills start to give a bigger advantage but not only that, that also the barrier of entry into our business becomes higher and higher through a more advanced operation It's not only about, verbose, it's also about data because by data analytics, we, and all the data that we actually own, We will be more and more able to tell our customers what will happen tomorrow, better forecast are, are both our people and trucks on the basis of that.
To actually optimize the already, robotized processes. So that's the overall, approach that we're having at the moment, I feel that can accelerate our growth because we can keep and build our customers because we can show and provide them and efficiency advantage at the moment. So that translates into, a top line growth while maintaining the same 5% leading, EBIT margins that we're having, accelerating at least, now creating a top line growth maintaining the same setting of asset light, maintaining the same setting of how we win, and how we invest. But by keeping and building with our existing customers and winning new business, at the same time, training the people properly, we can accelerate our growth overall growth and meet these numbers.
Damian Brewer RBC. Can I just touch on one thing in the presentation? You talk about this line, you need to give you scale of vantage and obviously differentiates you from some of the competitors. With that advantage, you opened by saying you're only in 55 countries. Does that sort of scalability and almost franchise ability mean you can address the other 150?
The DHL operates in, or is there a reason why you still wouldn't want to be present in those?
One of the things is our customers would expect a certain level of quality a certain level of expertise. And one of the limitations of growth in a contract logistics business is skilled and well trained people. It's not the brand, it's not where you want to travel into a country, it's about the number of skilled and well trained people that you have. And that is, and you obviously, you always competing not so much with your own sector, but also with other sectors. So that's why, focusing on those 55 countries gives us the possibility to, folks in the country where we think we can get the best out of the people that we have and the people that we will have and create and that's why we focus there.
You set in the beginning to be a city for MaineFirst. You said in the beginning, you went into franchise, partnership in China, or you sold the activities, however, you put it. You have a similar discussion on Africa now going on. Are you shaking your head? But there's been at least some press coverage on that.
And yes, maybe you can elaborate on how you think on which markets you should be in and how and the rationale of
step
getting rid out of, getting out of China on the one hand and, Africa is currently not.
Yes. So first, the 55 countries that we now are, we feel that we have now finalized the portfolio refresh that we've done over the past 5 years. That's completed. So that we now can actually focus on growing the business on the portfolio that we have. And that portfolio is not only about countries.
It's about customers, sectors, type of contracts, that's done. That's why I shook my heads by head when you said about Africa because we're not into further looking at the portfolio? Where should we be? Where should we not be? Where we are at the moment?
Are the right places for the products that we have? What we've done with China specifically is, we felt that by doing the arrangement that we've done, we could better facilitate the growth of our business in China. And still grasp the benefit from it by getting a percentage of the revenue that we are getting over the coming 10 years. So I was in China last, now was it 3 weeks back to visit the ESF operation, and you can already see, well, it's very early, but you can already see the accelerated growth that actually going through at the moment over there. So so far, early days, but so far, the strategy over there is working, but we're not going to do that in other markets.
In India, we have actually in a program where we're going to invest more because we have a very successful business in India, where because of the fact that we've been in that market for a long time, we know, and it is a very difficult market from a supply chain perspective, which gives possibilities to actually add value there. So there, we're actually looking at accelerating our growth and investing ahead of the curve into India further So that's actually an opposite strategy of what is done with China.
And maybe one follow-up. On real estate sales is something that we as analysts always struggle a little bit with because it creates some windfall profits in the given quarter. So it's not quite easy to to extract the underlying margin of your business. So in your 5% margin assumption, how much of that is coming consistently sort of from real estate streamlining in your mind and how much is really the ongoing contracts?
Okay. So I can't give you the exact figure, but I can tell you that it's less than 10%. Of that of the overall number. It is what you but it is an important part. What our real estate Finishing or real estate solutions is all about is that we open, lots of square meters of new space every year.
Right, based on customer contracts. So it's not speculation. It's based on customer contracts. So, that's a very attractive investment for funds. So instead of going to someone to develop it for us and actually take that whole benefit, We create that benefit ourselves by I'm backed up by a customer contract.
So we've got a customer contract, we built a site, and then we, we sell it on and we'll lease back back to back with the customer contract. So it's a value that we create that we actually benefit from and that's what it that's effectively what it is. And that's why I think it is part of our core business. Does that answer your question? Yes?
Just interested in the point there about it being asset light because there's quite a lot of lease CapEx every year. So do you not consider that really CapEx and how does, I guess, return on capital feature in the outlook? Because you talk to quite margin, but I guess sort of misses the CapEx side?
Yes. Our return on capitals should be a bit higher. I don't know, but I can actually give that number or not, but, the return on capital of the division for 23%. So our
return on capital is
pretty Your point about SSs, yes, sure. We do have long term leases. I mean, that's true, but we don't own the buildings.
So when you say 23% return on capital, that's including the leases, okay.
How are you actually remunerated?
Sorry, Chris. I'm calling Farber. How are you actually remunerated by your customer? And assuming, for instance, we will see, a decline in global GDP. Is this going to hurt your business?
Are you remunerated on a and packaging on a per item, on a per item basis, or do you receive a flat revenues on a contract basis where you can shed some more light on that?
Yes. Most of our contracts, are the revenue is directly related to the cost drivers. And that's, I think, the benefit of not being a network. So to give you an example, in an open in a closed book contract, we would still have a fixed fee, which is covering the fixed cost of the site, and then you have a variable fee, which is covering the handling of that site. So that's in the variable part.
And then in the context, we often have if the deviation is more than 50% up or down or 10% up and down, then rates can be revised. So that's why, while on the one hand, you could dispute our average percentage on the one hand, but on the other hand, it's pretty safe. We're pretty well protected compared to the fluctuations.
Matia Gergolis from Goldman Sachs. Quick one. What is the synergy here between the supply chain and say the parcels business or even with express, how say how much of sales, not the things that you eventually ship around to your customers. Are being handled
the volumes that go out of our sites, how much of that goes via DHL, not via DHL is, depends on the type of contract that we have. So it's not always that they are so often we have contacts which are carrier agnostic. And in some cases, we have contacts where we do decide which carrier to Now those are the contacts, obviously, where DHL as a whole would benefit from it, in other cases, they would not. I think Frank said it very nicely this morning, is that while our customers do not necessarily all want to buy end to end, but they still like to, buy the pieces from the same supplier because it creates and gives them actually, mind power. And so we often have that aspect so where a customer would work with both us and express NTGF in separate contracts, but for them, it's still gives them the confidence of having a buying power with us.
That's one. The other thing is, well, for us, I said in an earlier discussion today, the brand's DHL itself, gives us a lot of access and a lot of confidence towards the quality that we provide, and that helps us also with our overall growth.
Good afternoon everyone. Okay. Good afternoon, everyone. Just by way of introduction, I think some of you I may have seen in London as over with Martin a couple of weeks back, but I don't recognize too many faces. So John Pearson, I joined DHL Express in 1986, some 3 or 4 months after Ken, in the Middle East, And for the last decade also, I've run Europe And Global Commercial.
So some of the things we talk about today are a little bit Europe related. Many of the things relating to Global Commercial. Joe Joseph, our divisional CFO is on the frontier. I joined the company in 1998 and has been the prior to being the divisional CFO for the last 4 or 5 years, replacing Melanie, running being the CFO for Asia Pacific, Hamir, and Europe. So fairly familiar territory for us both in terms of the topics that we're talking about and we'll just whiz through and try and leave enough time for some Q and A at the end.
So referring back a little bit to Melanie and Frank's presentation in some of the present these slides. This is the profitable core, which we seek to strengthen and accelerate and become even better at. It's what we started doing. It's what we're passionate about and it's what we can be the best in the world at as the world's most international company. And that point about our international coverage and being in 2 20 countries is very important that widely distributed revenue base sort of being all things to all industries in all channels, in all countries comes up sort of several times as we go through some of the reasons why we are growing and maybe we're growing faster than market and faster than the competition.
So our core is TDI, DDI Economy Select, so Day Definite International and TDD, are what I describe in old DHL red and white languages core supportive. They support the core. We would not ordinarily sell DDI or TDD to any one customer that wasn't shipping TDI with us. So in that sense, they're core supportive of our TDI product portfolio. There are 1 or 2 very large domestic businesses, Mexico, Russia, and previously blue dart in India, which is now transferred over to Ken's division.
And those are very large standalone domestic businesses where the domestic business in Russia, in Mexico and India is sort of typically bigger than the international business. And then ACS filling up the space at the back of the plane. It's not sold by DHL Express sales people. It's not managed as a commercial by DHL Express. It's within DHL Express but is managed by specialists in air cargo sales, John Roche.
Who came to us from forwarding. And then you can see the market shares on the right hand side, maybe worth just commenting that since focus strategy was born in 2010. We've taken 9 percentage points of market share and you can see there the comment that We've taken 4 percentage points of market share or grown our market share by 4 percentage points since 2014 and maybe of interest to split between when we last did it, the split between Federal Express And TNT globally there is commented on the right hand side. Our 4 pillars, as we call it, and I'll talk about it in a minute, our sort of 4 pillars, 3 letters in a passport, P equals GQ and our CIS passport is really on this page motivated people driving high levels of service quality, building customer loyalty top line revenue growth, are delivering a profitable network sort of squeezed into the 3 bottom lines here. Comment just maybe very briefly on each corner.
Employer of choice is built around our supervisory program to have the world's best supervisory program and be obsessive about it. That then drives frontline engagement. So the supervisors are the people that manage people that don't manage people and they're the people that manage the relationship between the customer and ourselves on the front line. And that builds loyalty. On the provider of choice, yeah, the sort of the sort of wrapping a sort of ribbon of quality around our product, our transit time, our insanely customer centric culture and the programs that relate to Net Promoter and First Choice.
And having a focus on e commerce and SME on top of everything else we do and then largely a blend of efficiency productivity and a sophisticated approach to pricing, which I'm going to comment on in a minute here. So this is the, sort of eponymous, Mark James Blackboard slide, Mark James heads, our global pricing function, and has done for the last decade. And these, we've sort of moved from a level 1 to a level 3.5 pricing organization, level 1 being fairly basic and level 5 being totally optimized and we're sort of between 34 as we roll out some of our digital initiatives in pricing will be a level 4 pricing organization in the language of pricing consultants. It's not always 5, sometimes it's 10, but we've come a long way in terms of, the sophistication of our toolkit, which is really here. And is whistling through it, making sure that our customers are on the right level of discount for their shipping volumes.
So someone who ships 50 a month should be on contract band 3. We might have signed them up on 6. We've got to get them back to their band. General price increases have been launched to the market over the last, every January for the last 10 years. In 2 thirds of those countries.
That's published in the national press, so people are aware that we're having it. The red and yellow cards, people do creep in volumes, shipments or customers as a whole creep into our organization that perhaps shouldn't be there if we seek to be a 12% margin business. So they're sort of the red and yellow card philosophy, you'll know, red is, up or out and yellow is just improve it. Keep the customer, but find some way of improving it. In e commerce, it could be having a higher percentage first time hit rate at delivery.
Meaning we deliver with neighbor or we find a way of making sure they always get it on the first time. So that improves the profitability of the customer. Other cases, it'll mean changing the pricing or charging some surcharges that are otherwise discounted or not got some element of leakage to them. And perhaps the most important one is NPC net price change. This measures the net price change in the sales territory.
In a country, in a region or the division as a whole. So if you take the first pillar here, that's the sort of GPI that puts our prices up. That might be STP. It puts our prices up. Other sort of leakage programs could be that one or bottom on the right there puts the pricing up.
And then from January 1 onwards, salespeople are out there giving discounts every single day, 2% more discount, 5% more discount. Things go through the TRB Siemens might have a procurement program, 10% discount. So over the course of the year, the sort of the green bars get whittled away to some extent by the competitive nature of the business, which is still very rational and we have our net price change, which the last green bar in that sort of visual representation and it's very important that we improve that year on year. Malaysia might have a net price change of 0.5 percent positive and that's the total business versus the total business from the same customers and the same shipments what it would have been last year. Very important part of our pricing toolkit and all these programs are alive and well, they're all under stood by everyone in each and every country.
So as I talked about focus being launched in 2010, And from focus comes growth, that talks about the growth that we've achieved on the top line, talks about the market share that we've gained, the 9% if you remember 2010. Our house, so to speak, 4 pillars, 3 letters, and a passport is here. And all the programs that we rollout and the initiatives and the themes and the pricing programs are sort of under here, all of our eye CCC and First Choice and Net Promoter is here and so on and so forth. Is well known to the whole network across every country and it's sort of repetition, repetition, repetition, repetition. So people understand what our focus is.
As we move forward into the next strategy cycle, which you've heard about this morning, and the way I would say it is 4 or 3 three themes have been extracted for a heightened area of focus. So the first three digitization was as much not such a priority in terms of putting it up to the sort of top of our to do list. So I'd say that 3 have been extracted and sort of heightened in terms of visual communication. And these are the 4 initiatives that my management board think will drive the EBIT generation and the potential for incremental margin expansion over the years to come over and above. The many dozens of things that sit within this area of our business.
So I'm just going to talk a little bit about some of those programs. Efficiency, so not necessarily in order. I'll start with the gross profit angle, which is really the engine room of our business, notwithstanding anything we do with our indirect cost, HR, IT, customer service sales, our indirect cost line, seek to manage that down from 18 percent of revenue to 'seventeen and 'sixteen. So lots of activity around efficiency and span of control and how we use digitalization to improve that world on the right hand side, but the ramp of our activity is on in this triangle here, which goes down to gross profit level. I've talked a little bit and I will continue to talk about the top line having come from managing commercial globally for the last 10 years.
This is sort of my world of the things that we've been doing with the brand, the things that we've been doing with collateralizing our e commerce sales toolkit under the name of power up your potential. We'll talk a little bit about that. Putting the pricing tool kit together generally aspiring to have excellence in commercial leadership, strong commercial leaders that stay in their role, that stay in Express, they have low levels of turnover, And then the first point there, so like never fall. Nothing more than an internal sales initiative worth mentioning in the context of it's sort of it's very much B2B related. So I think the way I'd like to say it is if we didn't mention e commerce for the next 12 months, Express would still be the Express train would still be running pretty quickly at the end of 12 months.
It's got that much momentum. There's that much sophistication in the commercial initiative that I think it would roll on. There's a lot of excitement about it. So my concern or my priority is that the B2B emphasis continues to be extremely high. It's the ramp of our business.
It's well over 80% of our revenue and a good percentage of our growth, obviously, and we need to make sure that B2B as the macro world sort of reoxygenates itself that we're very much there getting even a disproportionate part of market share in the B2B world. Then we have all our programs on the PUD side. So everything that you would think goes on on the ground with our van and our delivery network everything that goes on in our big hubs and pipes, our hub cost per piece, our OCPM and our moves for FTE per day. And then the the aviation capacity weight load pack to CPK. You can imagine, and you know, as well as we do that in a network of 250,000,000 shipments, any small basis point improvement on the bottom half of that chart delivers significant upside and those are the programs that are in play now.
So it's a sort of efficiency world driven a little bit by run faster try harder get better, but driven as time goes by by digitization, which I'll talk about
in a
minute, But coming to e commerce, 6 years ago, I think we stumbled across e commerce, roughly 5 or 6 years ago, mainly in the UK, definitely a growth rocket, not a live boat. So Express was growing at 6 or 7 percentage points as we came out of 2010, the focus strategy getting some share back that we lost, typically growing at 7% or 8% when there was no e commerce about And, e commerce came along in 2016. It was very much a U. K. U.
S. Germany thing, my Theresa, Farfetch, NETAPORTA, Asos, Match's Fashion, and IHub and some of the big U. S. Brands. And that's how we started.
And we look at our verticals. We manage it as a vertical, so verticals to life science, engineering and manufacturing, automotive, banking technology. And interestingly, this vertical or the top 10 customers in this vertical, within the space of 6 years are bigger than the top 10 in any other vertical, not on an aggregate basis in individuals. So top 10 e commerce are bigger than top 10 engineering and manufacturing top 10 high-tech. So what's taken Siemens and Adidas and Apple since 1969 to build up there profile with us.
These are from brands that most people didn't even, hear of 6 years ago. So if I said, to anyone 6 years ago about Farfetch or NET A PORTER matches. Some of them were known, but not as much as they are now. So they've gone sort of 0 to hero very quickly. There's an element of hero to 0 back again in my mind where the models get replicated or just things happen, so we're very conscious of that, but it's maintaining a disciplined approach to who gets in our network, a very disciplined approach to the people that are in it at the biggest end.
And I think there's 2 positive pieces of news within e commerce. One is that if you If you think about that time 6 years ago, we had some very large customers on very high discounts as e commerce started to move into 50 or 6 or 70 countries. And we've got great customers in Croatia who have built something in their garage and have put it on the well stage and are top 10 Croatian customer. As we've started, there's now a very long tail. And the longer tail is in smaller countries with smaller customers.
So the average price point of e commerce has sort of increased over time incrementally as we brought on the SMEs. Now those SMEs then become big and they ultimately may attract the same type of discount, construction as some of the large UK customers. The other thing that's happened is if you can imagine the supply chain of an e commerce shipment pick up at origin, so very high origin density, ASOS will give us 2000 shipments in one day. They may even bring it to our gateway, so very low cost of entry into our network. These shipments was around our increasingly automated rather than mechanized sorting systems, Russell's great example, that's a great example.
Especially if they're in a box and not a t shirt and a plastic bag that has some scanning and conveyorability issues. They land up in the quarter on a corner of a shelf vehicle and then they deliver So previously, the last mile was only the sort of the only everything was a green arrow, in terms of this type of shipment in our network apart from the last mile. Which was knock on door, not there, go back tomorrow, knock on door, not there, go back tomorrow, knock on door. It was never that bad anyway, but now with the on demand delivery tool, they can select where they want to take delivery of it, leave with neighbor, leave in safe place, leave at pharmacy, Dave in Pac Station or I'll be home tomorrow within this window come and deliver tomorrow. So the first time hit rate e commerce now is as high as B2B.
And if you think about it and take our head office in bond as an example, Nextdoor, there's a house. That house receives e commerce? What's the difference between e commerce and B2B anyway? So assuming someone's home, so the efficiency of the last mile is getting better and better. As e commerce has become a bigger part of our network, you know, very well the way in which our EBIT margin has expanded.
And the second and last slide on e commerce is that we seek to be the best in the world at it, our U. S. Integrated competitor are very focused on U. S. Domestic e commerce.
It is a global game for international e commerce outside the U. S. Meaning if you find customer, they do want to know you have the ability to ship everywhere. So given that, it was a great customer Magic White Board in the UK that suddenly had orders to Ukraine and they rang up and said, do you go there? And of course, yes.
So, so the partnerships that we're creating allow us to maintain our price point and maintain the fact that we're a sort of I coined the word consultancy, we can really help people grow their e commerce volumes. And a good example is in our partnership with similar web where the way this would play out was we go to a UK e commerce customer and say, why don't you sell internationally? They will typically say, well, there's no interest in our product outside of the UK We'll show them the similar web tool that tells them where their web traffic is from. It'll say Germany, New Zealand and Australia and USA make up 100% of your overseas web traffic or 50% of your total web traffic. They commonly say that's interesting.
I didn't know that. But then in response to that, we'll say just put an express offering on your site and put an international offering on your site. And it's a no regret move. And sure enough, we know what happens. There will be express orders.
There will be international orders and typically an express order that has a repeat by of about 62% higher than something that moves by the post office. So the thing there is that we found at the front end of journey, our sales people would go into a merchant say, how much do you pay the post office or if we do it for will you use express was exactly what we don't want to happen. We don't want to be competing with a lower cost, lower longer delivery provider. So we can both coexist happily there globally is an e commerce enablement company that we bought a minority stake in that allows merchant to expand their sales globally and have the receiver think they're buying on a local website, have no duty in tax issues, have no foreign exchange issues, we're just wrapping around these services. This is all about disintermediaries, making sure that our relationship with the customer stays with the merchant rather than Shopify or Magento get in the middle.
So I think we've got a sophisticated program. We're very cautious about low cost shipments getting into our network. And we're very conscious of those, what we call surges, people that have 25% of their volume in 1 month of the year. If those happen to be a low price, we need them out of the network and they need to ship with someone else. So we need to get and we are getting more and more sophisticated in our pricing with e commerce Digitalization, the D in seed being around forever and ODD has been around for 5 years.
So this is really about about sort of accelerating the understanding of it in the organization for 3 benefits of either customer employee or significantly operational efficiency coming back to that point about 220,000,000 shipments moving through the network and honing in on the sort of top 10 initiatives that we want to get out there and accelerating it. So it's been there We've had digitalization success, but it's about the acceleration of that. In terms of our people, putting people through the supervisory journey, having them graduate in the way that you see here, and they're, they're becoming the guardians of the frontline promise, if you will. Frontline people stay at a company when they like their supervisor and frontline people give great service to the customer, customer service, Korea, when they've been led by a supervisor that can coach them and directs them. So it's a program we're obsessive about.
We plan to have and do have one of the world's best supervisory programs and we invest heavily in that. Coming on to the last two slides, The CapEx story, maybe the way I like to say it is our meat and potato purchases are about a weekly shop, is sort of 1,000,000,000 a year in terms of Vans, IT, service center, renewal, or Greenfield, Brownfield, hubs, gateway, and aviation. And that's pretty much been a story. That number has gone up over the years until it got to a steady state of about 1,000,000,000, not so long ago, and that happen to be the time where we entered into our re fleeting exercise with the 777s where you see the yellow bar come on top. I think what I'd want you to see after the 22 bar is another 1,000,000,000 or 1,000,000,000, where we manage our network to 1,000,000,000 of CapEx and thereby keep the cash flow generated cash generation and cash flow going on the back of the EBIT, the absolute EBIT production.
And that sort of rise has obviously been we're 50% higher in terms of shipments. So we were at a certain time. If you just imagine things a little bit, there's 40 service centers in the UK or 70 in Italy. So on just pure mathematical basis, if each one last 10 years, you'd be doing 70 years. So we're always renewing, extending, expanding our service centers, gateways and hubs.
3 big hub rebuilds, leipzig Doubled, Brussels, brand new, doubled, East Midland, doubled, all within these two areas here. There's some big hubs to continue to come through the pipe, Paris, Copenhagen and the Central Asia hub. We get back to that steady state of 1,000,000,000 if you were going to have some more gray bars across the page. And then the last slide is yes, the summary of, yes, so it's difficult to difficult to say what the market is really growing at, but all the different sort of rule of thumb of double GDP and Sebree, one of our partners in terms of market growth for us and so on seems to think that with e commerce, it's maybe a 4% to 5% story and there are our expected market growth is sort of green, slightly upwards line there that will be at least in line with that. And I think we're were a couple of pips above on a year to date basis if you took the January to July market growth.
CapEx, I spoke about getting back to the level of 1,000,000,000, getting the benefits of the efficiency of the 777s on the bottom right hand side of the gross profit triangle as opposed to the ground and hub activities on the bottom left. A big play on digitalization for efficiency. And there's some big levers there on route optimization on real time visibility of forecasting, knowing what's coming into Hub or what's coming into a service center so we can plan our staffing and rostering and so on and so forth. Robotics and RPA processes in gateways to populate badly written pro form a invoices with a robot script rather than many, many people. And then as an outcome of all that, sort of page 1 absolute EBIT production from profitable top line growth coupled with the sensible and practical pricing strategy and the efficiency programs be it sort of blunt instrument or digitalization, giving that absolute EBIT generation.
We've got a mentality of strong top line growth in our organization, sort of no stone unturned. If you're not finding as much as your neighbor, got to look again and understanding task all my people with being as fascinated by why we are growing is why we're not growing. Can't just high-five each other and say Dubai is growing at 35% and not understand why. So there's a lot of challenge around growth and why one country grows faster than other. Which channel are we getting it from, which industry we're getting from, why aren't we getting it from e commerce if we're not getting it from anyone else?
And then sort of page 2, if there happens to be No, if it happens, notwithstanding how FX and fuel impacts our top line, expecting to find incremental margin expansion going forward. Another way of saying the same thing, I think the journey from 0 to 10 was one thing, 10% The journey from 10 to 12 over the last 3 years was another and then that sort of incremental progression from north of 12% is what we've got to deliver over the coming sort of 3 to 5 year period of time. So with that, I think we have a few minutes left for any questions, I'm trying to answer those.
Matija Gergoi from Goldman Sachs. First question is on the CapEx. How do the billion of CapEx you mentioned that there's a portion, which is just for basically refurbishment of the old hubs. How much would that be, say, just the let's call it maintenance CapEx for the existing network?
Well, it's all I would say it's all maintenance in a way. It's carpet, first, I'll joke and add to what I'm saying. So it's is split up between IT, routine, we're just putting digitalization side routine, IT upgrade, either new or new or expanded service center, new or expanded hubs and gateways. That's really even aviation putting aside the 777s is sort of routine expansion and sort of reconfiguration of our air network is all of it. And then the 777s is a completely different proposition.
When you saw the slide before, when you saw the green bars, it included 4,000,000,000 for the last couple of years, included everything, including the aviation. The aviation is in a range of a 400,000,000 plus ticket. The big hubs which John mentioned where we've expanded the capacity. And you have to bear in mind, those capacity expansions are not with 5 or 10 years in mind, but 20 or 30 years growth in mine. Some of the largest facilities in our network have been built with with that time frame in mind, like Rybsick, Brussels, East, Midlands, etcetera.
So the big hubs another couple of 100000000 or 300,000,000 depending on the timing and we've tried to stagger them. And then you've got your, your normal facilities in a country, your terminal, the depot, replacing vehicles, IT, etcetera. But the big 2, the fleet, and that's the point. We've grown our volume, by expanding the intercontinental fleet and the regional fleet where we own most of it within those gray bars. That 777 is a separate unique distinct opportunity.
Well, don't forget if it became
0 here, We're building facilities in that year that were planned, big hubs that were planned 2 or 3 years before. How long is a decline anyway? So I think if we see a 0 with still a 0 in January February, and it became a 7 in March. So the lowest volume point we ever had was in February 2009 after the financial crisis It was only it was a lot at the time. It was only 14% down and then it was sort of minus 8% and then back to 0, so on and so forth.
So maybe if it was prolonged enough, you might end up spending 1,000,000 or 1,000,000, but in reality, a slowdown in any one quarter Now if it were to happen now isn't really going to change because we've never experienced a slowdown longer than even the financial crisis of 3 or 4 or 5 months. And for a lot of that, it was actually 0, not so we've got good flex in our aviation and in our in our OpEx and people and even with our 777s now, you put them on the ground. There's no fuel. There's no landing charges. ACal is 100 percent flexible for commercial spend.
So we've got quite a lot of flexibility within our air and our ground. If there was any, Thank you ladies and gentlemen. Thank you very much.
Okay. Here we are back on the plenary after a short lift, and a very entertaining session sequence of 5 divisional breakouts for our 4 groups. You could follow that over the web. I could see that. So that worked out well.
And, so we are now back here in the room basically for the joint Q and A, but before that, I think it's going to make sense for Frank maybe to wrap up your thoughts and impressions on the day.
I wanna do that very brief. I wanna start with, again, our household strategy. So I think you have learned more about what that, how that translates into the division strategies. I don't have to repeat everything, I believe, but it's important to say as well, what is not on the agenda here will not be on our agenda. So I think that's important.
It's sometimes more important what we don't do instead of what we actually are proceeding. So, the second is, this is what I showed you earlier on with 2013, 2019. This is actually what we are striving for. We believe that we can move all these divisions to the upper right hand corner In some areas, it's more a growth challenge and ours is more a margin and some is a combination of those. We believe that we have a very clear plan that we can deliver to move everything in the upper right hand corner in the next 6 years until 2025.
If we do what we have outlined on the previous page, So that's our clear goal. We believe that this is doable. We are well positioned to achieve that goal. Here again, the repetition of what we said as well. We want to deliver until 2022, our EBIT, which is higher than 5.3 We had gave you for the first time a free year horizon expectation what we want to spend on investments and how much we want to spend on or how much we want to earn on cash flow.
I think that's an enhancement we believe of our guidance for you because that was something you quite often requested. In the past, can we get more certainty on the cash flow? Our target for group is on this cautious macro scenario. So we don't expect, as Melanie already said, we don't see any significant change to what we have experienced so far neither to the positive, to the negative, but we have to face reality. We can't walk on water either.
If things are changing, massively one way or the other, we have to see what that means, from potential upside if it goes better than the current environment. So that is the new rolling guidance going forward. And not to forget, we believe, as a company, we are a significant difference and we help to make the world a better place. This is what we tell constantly internally, and we are really confident that we provide better service will make a significant difference for many people as well. So with that, I will hand over back to Martin for some Q And A on the overall picture.
Thank you very much.
Thanks, Frank. And yes, for the Q and A, it probably makes sense if I ask all presenting members to come on stage 2 deal with your questions that you may or may not have, right away. And So we have one glass and 2, Mike. That's unfair, right? So let's take that away.
Good. So before dealing with the questions that already we have received from the web, I'd like to see whether there are any questions from your end. If you're seated on a table, please make use of microphone, so the web audience can also follow that. Who's going to start? Tobias?
Yes. I've got a question for Melanie or, 2, actually. Because, on the, on the CapEx guidance, you guide for 8 and 9 and our 1,000,000,000 when I add up the divisions, what they said, that's adding up to 7,000,000,000, then maybe 500,000,000 for the plain orders. So there's, a delta of 1 to 2,000,000,000 in your CapEx numbers. What is that?
And why haven't you been a bit more conservative on the CapEx side there? And secondly, can you comment on, on, sort of interest costs and cash out and tax rate for the years to come as well to give us a bit more support for line. Thank you.
Yes. So, starting with the CapEx question, so, the way I would look at it when you kind of like take 8.5 to 9,500,000,000. First of all, we have the 800,000,000 in Boeing in there, 500 in year 2020 and close to 321. So I think if you take that out, depending if you go at the lower end or not, think you end up with, let's say, roundabout 2.7 on an annual basis. And I think the first important message is that this is pretty much in line with what we now have as underlying CapEx excluding the Boeing in 2019.
So it is in sync with our statement that cash CapEx will be stable slightly increasing over the planning horizon. If you look at where it's coming from and you saw that in the division of workshops, so the biggest spend now continues to be expressed where we forecast around about 1,000,000,000. The 2nd biggest bucket is, P and P with $500,000,000 to $600,000,000. And then we have more continuation, in the smaller CapEx divisions. But you're absolutely right.
There's a gap of around about 500, and that is CapEx, which we have in corporate functions, where we do a lot of purchasing for the group, be it on the real estate side, but also on the fleet side. That's the delta. In terms of tax, we haven't mentioned that explicitly because there hasn't been any fundamental change to our previous statements, as well as I think for this year, we are in the ballpark range of 19% to 22%. We expect for 2020 and further increase in the tax rate and then over time a normalization to the high 20s. And in terms of interest, particularly with regard to the cash flow statement, I guess, is your question, so net interest payments, which are, of course, one of the elements between OCF and free cash flow, I would say a good number is probably around 50 order of magnitude.
And that 1,000,000,000 CapEx ticket annually in Express is more or less flat over the next
that's quite flat. Also, the expectation is once the Boeing is out, there's a strong commitment from John and the team that roundabout 1,000,000,000 per annum will be it. Correct?
Well, that's where we've been before. I describe it, and not everyone likes it, maybe, but our meat and potato shop, you know, our weekly shop is 1,000,000,000 for service centers and IT and normal stuff. And the aviation has been within that 1,000,000,000 up until the re fleeting exercise and then we need to return. We've done some 3 major hubs in the last 2 or 3 years. So leipzig hub Brussels and East Midlands have all doubled in size.
So whilst there's more in the pipe, Paris and Central Asia hub, we'd return back to that 1,000,000,000. That's a commitment, Melanie.
Alright. We continue with Mr. Resca.
Stein from Bernstein. Just a question on, you mentioned earlier Melanie that you're integrating the cash flow targets into the management compensation, where could you elaborate a little bit more at what level that fits and how that will work. Thanks.
Yeah. So, it is mandatory for our top 2100 executives, that is where we really mandate it from the group side, which then in most cases lead to a further push down of those targets. But what we are mandating from the group is that for our top executives level, B2F, they get a cash flow target in two ways. 1st of all, in the individual IQOS, there's normally EBIT and operating cash flow component based on their division or region, or country. And then those individual IPOs are multiplied with a group multiplier, and the group multiplier is based 2 third on group EBIT and 1 third on group free cash flow.
And is that new or what's changed in that? Changing?
So, the fundamental construct has now been in place for some time, what we are now up and strengthening further in, 2020 is that in the individual, I KOs the minimum, share of the financial goals, is up.
So and that is just the annual incentive. You know, with bigger chunk is actually the long term incentive. We have for all executives for the top 2000 about other company. And that is a significant chunk of fee income. And our long term incentive plan is very clear.
It's 100% related to the share price performance, and there is an all return after 4 years if a share prices down over these 5 years, excluding dividend. That means the dividend will be paid and that will not be looked in when we award after 4 years. So it's completely the share price is down over 4 years. There's 0 for the executives. That's not only for the board, but also for everybody else.
If the share price appreciates when, of course, relatively that goes up and accordingly somehow. That is has been in place now for many years. So actually, the senior executives hardly got any variable short term because we missed our own targets last year. And they haven't earned that much from our from the share price development. And that I think is the right model.
We should not get anything as executive our share price is down over 4 years. Excluding the dividend, then long term incentive program should be 0. And that's the case.
Okay. Why don't we continue with Andy first? And then over to you.
Thanks very much. It's Amanda Chu from Deutsche Bank. Can I just ask one question, please, just in terms of the 22 guidance of GBP 5,300,000,000 and just looking at that number versus the EUR 5,000,000,000 in 2020 doesn't feel like a lot of growth in there? Is that, Frank, just, due to sort of assumptions over row, just to confirm there's nothing else that we should be thinking of in terms of just bridging just those 2 years, please. Thank you.
Yes. So what you should not assume is that we have any special surprises, which we want to disclose and we know already that they will happen. Think we have taken here, a right approach that we say we don't know what will happen with the economy in the next 2 years. We will continue to improve. So you don't have to expect that our profits will go down.
They will go up in the 2021 2022. And that's what we are guiding for. We don't expect any major negative one offs in these periods.
Yes, maybe if I could just add to that because that was, of course, also a topic which popped up over lunch, and in the coffee breaks. So maybe 3 different perspectives. The first one is what do we really see at the moment? And I think very clearly when we talked to you through our numbers in August, yes, we saw that in air freight, the market is at the moment, not in a buoyant mode, but we saw continued good growth in our parcel volumes and our Express volumes. And we don't see any change to those trends in our Q3 numbers.
So there's no thing which we somehow read or interpret now, that things are going into a fundamentally different direct compared to what we have shared with you before. So that's kind of like the short term thing. Fundamentally, now thinking more in a longer term, active. We are convinced that there will be continued growth in our logistics businesses in line with what we showed you in the divisional workshops. And that is what gave us this base case assumption, a model towards 25.
Then in between, we somehow had to deal with a question of, okay, what do we assume for 'twenty two? And I think given the current amount of uncertainty, and the current sluggish, macro situation, we felt that it would be right to take a cautious approach and not to assume kind of any form of a sudden positive tailwind, taking us to 22, but to really focus more on the things we can control ourselves towards 'twenty 2. And that is why in the wording we used with the 2020 guidance, the 2022 guidance we use that word that this is based on a cautious macro outlook.
Alright. And You wanna continue?
Yeah. Just a quick question, actually, on, net working capital development. I was just wondering, what is baked into the guidance on free cash flow until 2022? Any further improvements that you see here and maybe where the
Yes. So I think, when we look at the different divisions, we are at different stages of maturity in the divisions. But we have been working quite consistently on working capital improvement programs and we have, receivables as one of the top KPIs for us, in the finance organization for the current year. So fundamentally what we expect is when we talk about the DHL divisions, given that we see continued growth in those divisions, based on all those working capital management initiatives, We want to keep the outflow from cash from working capital on a moderate level, but we do expect that there will be some form of negative working capital. Level, and that is, of course, baked into our overall cash flow guidance.
But given that it's a growing business, with all the good measures, we hoped keep it in a very tightly contained, a frame, but there will be some form of outflow. I think on the P and P side, we have specific situation, because we also have the transformation from letters to parcel on the cash flow side, stamps tend to be prepaid, to a certain degree. And of course, the payment terms with big parcel customers are different. So that why, we have a particular focus on working capital for the P And P division.
It's Christian Robs from Baader Bank.
I'd like to have some kind of
an idea about the interaction between the the divisions you have, how much are these disposals? And, company is getting in that in the end bigger and bigger and bigger, you have 100 of 1000 employees. Is there some kind of a yeah, some kind of a limit where you come to an end and say it's getting too complex and we have to split the company up and think about that. So what do you need less from these divisions going forward? Thank you.
Yes. So we have no dependency as such we have benefits, if that work together. Some central benefits from bundling procurement, but not one of the divisions is dependent on now, the sister division somehow. So we have upsides in Big Express And Global Forwardoner, which we have done in certain areas for a while. We also now would start to offer a new product where we use the Express activities in Globe foreboarding, and there are many others.
The interesting part is if you really go through the presentations, I think the consistency shows you in the approach that divisions are taking, that the biggest benefit is by the cultural similar approach to how we can improve performance. And that's a blend of activities we've got so that we have now a clear focus on the profitable core and our one D and A is the benefit of having great ideas in different parts, which we brought together in a cultural approach. And that is the benefit the consistency of message. So if you ask myself, the complexity to manage that company has been never smaller than now for me. So it has never been smaller than now for me.
And that is my deep conviction. That's the reason why I'm sad. It's pretty exciting. And on one end, and they have never been easier to run this company than now, because we have significantly more consistency among the divisions.
Yes, maybe if I could add from kind of like the finance perspective, I think there are areas where, we see clear and tangible benefits even though I would also agree with what Frank talked about is is probably even more relevant. But when I think about what are the areas where we see also in a tangible way, the energies. I think they are. And that is not because it's forced upon them from the top, but because it makes win win situations, they are operational synergies between the divisions. So for example, what John and Tim are now doing at airports, we have the expressed infrastructure, which is not utilized a lot during the daytime.
So we are now piloting whether the forwarding colleagues can use that, to act provide the unloading and customs clearance, for our airfreight product. They are doing that because it benefits both. It's offering a great opportunity for forwarding and to perhaps John to make use of his capacity during daytime. So we have operational synergies but we are not forcing them from a group perspective anymore. They are really based on win win situations between the divisions.
That's the 1st category. The second category is where we have really from the shared infrastructure benefits. Frank mentioned procurement and there are obvious things. I think for me, the biggest topic here is how we can now intelligently leverage for example, the centers of excellence in digitalization. We are setting those up centrally And I think that speeds up significantly how quickly we can roll out new technologies like RPA across all of the divisions.
And that will then give us an operational head start in the divisions. And then thirdly, maybe boring, but also super important. Of course, we have significant advantages on the financing side, on the tax side, from the current group structure.
Okay. We continue there in the middle. Hello,
Christian Adeco from UBS. Thank you very much. One quick on Boston parcel, on your target for margins of stable margins post-twenty 20 Could you give us a rough idea of the main assumptions that you use there in terms of the labor cost growth in terms of other costs growing as well as on the pricing side what was sort of pricing growth in parcel and mail you would need to stick to that number.
That could come a relatively lengthy answer. So, we obviously have detailed assumptions on this. On the labor side, we have a situation that is characterized through basically 3 different cohorts of labor. We have, older people who are higher paid, which will gradually phase out. We have, the contracts period from 2003 to 2019, where we had a certain steeper increase with tenure and then we have the new contract that is valid from this year on.
So if you look at that in combination, you can expect that before, adjustments inflation through new agreements. There is a gradual decline. Obviously, we also do expect to have a moderate increases over the coming years, through the wage negotiations, but we've assumed a moderate increase on that side. So that should give some input on the, on the wage side. In terms of pricing, we have a regulated mail product where the period is 3 years, that would be up on the 1st January 2022.
We do have also unregulated parts of the portfolio where we would also in the coming year see a moderate increase in those prices. And we would expect, as we have also recently announced, to continue to increase
Okay. David, let's continue.
It's David Kerstens from Jefferies. Just a question on the 2,000,000,000 targeted investments in digitalization projects, how does that roughly break down among the different divisions? Is it a bottom up approach on a divisional basis, or did you take a top down approach and do you manage it at corporate level that investment?
So we have not distributed that budget yet. I believe we will see as quite equal distribution because there are opportunities in all divisions. But of course, we have not allocated all the money. And that's a forward looking statement, and we will do that where we see the opportunities. Of course, we have a we will have a process where we assess what this will return but because technology will give us everywhere significant returns, I expect some of an equal distribution for the large four ecommerce solution, of course, from a business side, significantly smaller, but if you take that out, the other division or should see significant investments in technology across all divisions.
Okay. Then Matija, please. Dave, can you switch off?
Yeah. Matija Gergolet from Goldman Sachs. Three questions. First one on M And A. I mean, over the last few years, we have had some small scale
M and A, but not like this
year, there's a significant capital gain coming from China. How should we think going forward about your, also, portfolio of assets? Now are you fully happy now, or should we still expect some M and the margin and you saw more buying or more selling, would you say? 2nd, the equipment
Maybe let me answer that. So on the M and A front, we definitely will continue what we have done in the past years that we will acquire smaller companies. We have currently no major plane plans to divest parts of our logistics business going forward. And in express, there are very limited, opportunities, but not to say none in P and P what should we acquire, in supply chain, there is a need to acquire, except certain capabilities and small activities. In global forwarding and trade.
I think the focus should be now on really rolling out the system, getting the benefits and digitalized. I think the threat is significantly more potentially as stimulate out as well from new entrants than existing competitors, and that should be the focus for the time being.
Then, going back to, say, the conservative assumptions, could you share, perhaps, say, what type of, say, you know, GDP for Europe? Have you assuming for the next, say, 2, 3 years because currently we are kind of at 0 or 0 to 1%. Is that also what you assume through 2022?
Yeah. I'm not going to give you a specific number for the different regions also because what the GDP means for all different divisions, can be very different depending on the portfolio. So I think we have clearly not assumed an uptick compared to the current situation, over the next 3 years to 'twenty 2. So we have assumed that this current modeling through sluggish type of environment, stays in the current form and that there's no tailwind been building, towards 22
Okay. Thank you.
As I said, just
the third one, just on the on numbers. I think as a follow-up to previous questions, you mentioned, a certain figure of interest expenses between, say, EBIT and, say, pretax profit can just repeat that because they, I think, was 150,000,000 or?
Yes. I
think that's the order of magnitude, kind of like, for the planning horizon or the next 3 years. I mean, if you're just kind of like finalizing our midterm plan on that level, but I would say kind of like, all of magnitude between 100 and 150 once we are done with the detailed planning, for the next 3 years, we can give you a better indication. But it's not kind of like the most significant number out there. But obviously, that is one of the lines between OCF, and free cash flow.
Alright. Over there and then David again.
Hi there. It's Sam Bland from JP Morgan. Just talk about back those macro assumptions. I appreciate there's some caution built into the 5,300,000,000 number. Could you just give some feeling maybe for how wide the kind of confidence in is around that if you start putting moderately weaker plausible GDP type scenarios through through model.
Thanks.
I think we have said everything we can say at the moment. I think that's the idea of this rolling forecast. Some more uncertainty, and that's the reason why we say, okay, let's be cautious with the outlook as well. And then we see in due course what will happen in the next 6 months. But I think we have currently with no conclusion on Brexit, no conclusion on the U.
S, China trade tensions, I think it's right to assume that we will not see a significant strengthening of the economy soon. What the right number is, I don't know either, we will see in due course, and we probably will know significantly more in next year anyway. And then we have probably, hopefully, by then, more foresight.
David, hit a follow-up and then Damien.
Just on the CapEx in the corporate functions, and on Stitch I almost actually now planning to, to take streets scooter to China and significantly ramp up the production capacity there to 1000 vehicles. Is that included in the additional CapEx for corporate functions, or would that be on
top or will there be
a solution before you get to 2021, too.
So first of all, the StreetScooter CapEx is included in the corporate functions or yes, corporate functions number I gave you. But we don't foresee a significant increase in the CapEx for StreetScooter because obviously this construction in China, it's a joint venture structure, where we are not going to fund this ramp up, yeah? And I think, just fundamentally on StreetScooter, I think there are many different ways you can look at it, yes? So I think the first important message also reading over the last couple of weeks announcements that other companies are going to have 100,000 electric vehicles out there by 2030 and so on. I mean, we have 10,000 electric delivery vehicles out there already.
And so street scooter is an important, yeah, tool, particularly for DPS in P And P. So I think the first thing they have to bear in mind for future considerations about street scooter is We really need street scooter in our operations. John is beginning to use it increasingly outside Germany. So we want to make sure that we have street scooter as an important and in those green days, even more important, a clean delivery vehicle. The second important message, however, is that, I mean, we're not going to spend billions in ramping up, the production for StreetScooter.
So obviously, we have to find a setup, which gives StreetScooter the opportunity to grow and get the resources for future growth. For example, through a joint venture construction in China, where we ensure that we have it, as an important operational tool for us And that is what we are now, without any haste with the new streets scooter team, which came on board in April. That's what we're now working on.
Yes. And the idea in China is not that we bring the cash. We bring the intellectual property in what we have, and that is a sign that we really have a good product. As Melanie's head. So to put your mind to rest, we either have a solution that we find partners who scale it, and we are talking about scaling external sales or we find a solution that we can use it for ourselves.
But that should definitely be solved latest by 2022 that we know one way or the other. We The value maximization is the goal, and the goal is that we might be participating in if there's more value to be unlocked. And if that's not possible, whatever reason is, then I think we have a great tool for using that internally in our operations.
Damien had one more question.
I touch on the ESG issues, which Frank presented on earlier? In particular, can you talk a little bit about what kind of targets you look at on a rolling basis there. And secondly, other than what it impacts on the share price, how you'll measure your managers against those targets.
So we have already said that, you know, the way until 2050 is pretty long. So we want to reduce that to 0 carbon emission in our goal. Until 2025 is really improving the efficiency up to 50%. We have already reached 33 last year. There's still a way to grow.
So to make the carbon emission per parcel for container, propel it 50% more efficient than we had that in 1008. So that's 1. Then the second is by 2025. We want to have, you know, all delivery done by electric or carbon free delivery on last mile where we are on a good journey as well. Of course, a significant chunk of that comes from the P And P division.
We want to train our people and grow green activities and our certified process, and we will continue to plant a million trees on an annual basis these are concrete targets already until 2025, just on the go green part. Yes, we measure, certain elements of that already. We have not a goal yet in our incentive plan for carbon reduction. And we have to look into that if that becomes even something, you would be keen off to have that as well because that would take incentives away from the financials at the end of the day. Currently, that's not a part of the incentive scheme despite that we are reporting on that on a record basis.
Okay. So in the meantime, we did of course receive a couple of questions also from the web. The topics covered there. However, you have pretty much covered with with your questions. So, therefore, just to the Thank you for the questions.
I think you got the answer. Looking around, whether there are any other aspects that you like to discuss at this stage, This seems not to be the case, so we have an on time finish. Thank you very much, gentlemen, for not taking the time also today. That's also in the whole preparation. Fantastic.
Thank you very much. And Frank, you wanna close the event with a few remarks. Yes. So let me summarize. I think we have a very clear strategy where you have also seen that this
is nicely translated into the strategies of the divisions. We believe that we have never been in better shape than now. And that's a fantastic base to move forward. The big lever beyond that we are focusing on our strengths is for digitalization. We really believe that this will change our industry a lot.
And since we are the largest and have a broadest portfolio, it should give us competitive advantage across all divisions. That is our conviction, and that's the reason why we are very confident to deliver next year in 2022. And so therefore, thank you very much for coming. And of course, we are looking forward on I looking forward as well to see some of you soon, somewhere in word on the roadshow. Thank you very much, and have a safe trip to home.
Thank you.