Good morning to everyone out there on this Friday morning. As you have seen in the invitation, we're going to take you as always with Frank Apple, our CEO and Melanie, our CFO, through the Q1 deck that I take it. You in front of you and we're happy to deal with your questions after that. And with that, over to you, Frank.
Good morning as well from my side. So let us turn straight away to the first page where we highlight the Q1 results So overall, we are satisfied with the start into the year. We had a relatively slow start with volumes in parts of our business, but that has accelerated quite a bit in the quarter. And confirms our perspective that we will see this year a solid growth in the global environment. We have also worked on all our agenda points intensively and we see already impact from that starting with the drop mayor regulation, which is helping us now going forward is higher than the original ruling and is at the upper end of the potential outcome we expected.
So that's good news. The parcel price increases are working as I will show you later, volumes growing still very nicely, but revenue is even growing faster. We expected, relatively little or non growth on EBIT in the first quarter in Express because in October last year, we took volumes above 300 kilograms out and that has led to a lower utilization rate of our airplanes as expected. And that has led to no further progress on the bottom line, but this is perfectly in line with our expectations. DGFF had another very strong quarter, very nice development in both parts.
Supply chain as well have, if you take our transaction out and some restructuring expenses we have booked as announced, we have seen very strong development there as well. That's the reason why we are very confident that we can deliver this year and next year's guidance. The quarter overall is fully in alignment what we expected. So we are happy with that. That's the reason why I can go back straight away back to page 4 where you can see the revenue development for the quarter by division.
So with PeP, we had a relatively small growth, but that's in line or it locations. We didn't get, in this quarter, any postage increase. We knew that already before, but of course, now for more than 3 years, no postage that has impact parcel continued growth and mail volume declines. Express group development, but as I said, due to the change from heavier weights to lower weights We have not as strong growth as we have seen in previous quarters. DGFF good development as well, particularly on yield gross profit is developing nicely.
Volume, still declined, but also as expected, supply chain good momentum on the top line and also good growth in our new division e commerce solution. So overall, this is, as I said, in line with our expectations. If I go now to the growth of the different divisions by page 5, You can see here the development, and I would like to highlight 2 things. One is that the overall volume decline is still on the range of 2% to 3.1%, but that includes also a shift of one smaller product to Parcels, you can see here very nicely that volume have grown still on the upper end of our loan guidance 5% to 7%. And nevertheless, we had even stronger revenue growth.
That shows us for the first time that our price measures working. It's definitely too early to declare victory that all customers are sticky, but it's very encouraging that see such a strong growth in volumes despite significant price increases. And don't forget, we have a mix effect our larger customers, our business customers have grown faster than our private customers. And of course, private customers are paying significantly more. If you look into individual customers, you'll see even a higher increase of process, which is very encouraging second.
We are still working with some customers on the implementation of price increases, but anyway, it's a very encouraging sign. What we have done here is working. It shows also that our quality is better as we monitor that very precisely We had a great Christmas performance in quality and we had equally a great Easter performance So that shows that the fundamentals are heading in the right direction. Express You see here that the revenue per day growth is smaller than the shipment per day. So we still see very healthy shipment growth And that was started weaker and accelerated quite a bit in the quarter, but this mix effect from having taken a large heavyweight out is, of course, leading to that the revenue growth per day is slower than the volume growth because if you take high yield product and a lot very few shipments out, then you have that effect.
That should normalize in due course, and we are fine with the development we have seen in this quarter. And as I said, it has been expected by us as well. On Page 7, you see still that on volumes is still some work to be done. Our focus on profitable customers is still working as you see in the overall development with GP per ton and GP per TEU. So that's right.
And of course, the agenda now will change that we start to grow profitable and Tim and his team is working on that, but overall, we are very satisfied, particularly because this gross profit has churned in a higher EBIT as well. As you will see later. Then I'll turn to page 9. This is the EBIT development for all So the development in P And P Germany is fully in alignment with what we expected. I explained in a second more or less what's probably the phasing.
We had last year a significant one off, which of course, have taken out a bit. Even if you take that out, we are still down here over here, but that doesn't come as a surprise for us. We have put additional measures in place in the first quarter to improve productivity and the benefits are not there yet. And second, of course, we haven't had a price increase, which had been supporting the business quite a bit. It had had already taken place in the first quarter.
As I said, I will comment in the second about the overall development, as I said, this is in line for Q1. Express is stable year over year. I explained the reason is not that we have more volume growth or that we significant slowdown in the economy. It's really a reflection of a significant measure we have taken because we took the heavy stuff out. DGFF, very nice development, a significant increase, in the bottom line, definitely one if not the best first quarter in the last 10 years.
So that's very encouraging. So the journey to close the gap in our margins to our competitors continuing, which is great. In supply chain, if you take out the China benefits and our restructuring expenses, double digit bottom line growth as well, which is also good. And in e commerce solutions, despite that there's a small number, if you take a restructuring numbers also, we are up year over year as well. So overall, very good in corporate functions.
Finally, we have not seen the expected ramp up port in the scale as we planned for. So that's the reason why we had a good start here as well. So overall, all what we see here is in line with what we have expected for the first quarter in all measures if you go through all divisions we see that they are generating impact. Next page, Page 10, yes, if you go through that, you, of course, have several impacts. We had no price increase that will not take part in summer.
I come to that in the what the next steps are in a minute. The parcel price increases are working. We see a reduction in direct cost. What we said in the last months already, that takes always longer than you expect. Have enough measures.
We have a good pickup of the early retirement, but it takes time until the people are really leaving the company. So we will see acceleration of declining indirect costs, but we have now seen since August every month was lower than the previous year, but it takes time. And finally, the productivity measures, that's of course back end loaded as already said. So we should see the second half significant more impact from that already than in the first quarter. And that's the reason why we see here that Of course, first quarter will be still down year over year, but second quarter will show improvements in alignment with our guidance we have given you.
And next year, we shall see then the full impact. So what I see in detail is very encouraging even if it's not visible in our numbers. Yeah. On page 11, and before I come to the posters, agreement you see here, we appointed a new colleague to that, Tobias Meyer has worked for me already when I was in charge of that division as COO and Head of IT. He has done a great job there and helped me to define the agenda, which is described here.
So we are following here exactly our normal procedure. We have measures to become employer of choice, provide our choice and investment of choice we are very clear that we have to intensify our certified program and you know that we have done that in other parts the company very successfully, in particular in express. We have to improve the equipment besides. So we have probably a little bit 2 less invested in the last years into that. And if you don't enable our people, you shouldn't expect great service quality.
We have to focus more on an open dollar culture and focusing at the same time on improving performance, which is happening already, that shown from the top very much, and I think Tobias does a great job there. On the provider of choice, if you go through that, gross, you know, we have to follow the standard operating procedures and that has improved significantly quality. I see that as well. And I'm still monitoring that on a daily basis despite that I handed over because I think that's a recipe for success. We have a significantly better forecasting where we also use, some artificial intelligence to predict better, which has held and the focus on service quality, service quality, service quality is very clear.
We have now brought some of these parts under operations so that there's even a closer link between customer service and operations. On the investment, price increases, will continue. We feel very encouraged what we have seen. And anecdotally, we also hear that our competitors are doing something. So that our customers are telling that we are not the exception, and that is helpful as much as they really do.
I don't know because we have no visibility about that, but it's more anecdotal evidence that this is working. On indirect, I talked already about And we have good ideas or very good ideas what we can do to improve the process. We have seen a stabilization of productivity declines in the first quarter already. So this is again heading absolutely in the right direction. So last page, from you on page 12, so we got now the new proposal that is 4.8to10.6, which is a very good step.
The final decision after they listen to, comments from interested parties will be decided end of May. The proposal will then translate it in real price suggestions, which needs to be approved by the regulator in Bell as well. And hopefully by July 1st, we can implement that and that we are very confident that this is now the right journey. So that's the process. That's the reason why we're not to date talk about that, what the real final price increase will be, but the regulation gave us now significantly more headroom, more than twice what we have.
A government from the regulator in the first place. And that definitely will help to achieve our goals this year and next year. So with that, I hand over to Melanie, and she will comment more on the EBIT numbers, the cash flow in these countries, thanks for the group and the divisions.
Thank you very much, Frank, and good morning, everybody. I will now start by covering the DHL divisional EBIT results in a bit more detail. Starting this express on page 13. When we presented our full year numbers in March, the global macro situation showed a lot of uncertainty and somehow that hasn't changed. At that time, we saw a rather slow start to the year was a high comparison base.
In March, we began to see signs of normalization. So when you look at our express phasing over the quarter. January February were definitely significantly slower than March. End by March and now also going into April, we saw again solid growth in Express TDI volumes. And I think it's important to mention the timing year because we were fully aware of this dynamic when we issued our guidance for the full year 2019.
You can see on page 13 also the mascot for our heavyweight campaign, as we, as communicated in March, have actively managed heavy rate shipments out of the network. And that led indeed to the effect I mentioned 2 months ago of slower revenue per day growth compared to shipment per day growth, as you saw in Frank's slides, we had still 5% TDI shipment growth about 150 basis point difference to the revenue per day growth. And that was really driven by the heavyweight campaign. This effect will still be visible in the second quarter, but should diminish as we lap the start date of the heavyweight campaign in the third quarter. Currency is obviously always a topic for a global business like Express.
And for us, that's a normality and a reality of life. In the current quarter, we have seen a strong year over year increase in the dollar versus euro rate. And that has increased our sales, but costs even more so. So if you would look at the Express EBIT, excluding those FX movements, the numbers would be slightly up. To summarize it, All these effects made for a more demanding start to the year, but we are confident that Express will remain a strong growth engine for DHL We currently see growth again on more solid levels and the very experienced management colleagues at Express really know which levers to pull.
That takes me to page 14 and global forwarding, where it was a very good start into the year. We see a continuation of the upward trend in Global Forwarding. And we are very pleased to see now in the first quarter conversion ratios back to previous peak levels. So I think we are in a very good way here to reach our numbers for 2020. The global forwarding improvement agenda is clearly more than IT, but IT does play an important role as an enabler.
And we are, hence, pleased to see good progress in the rollout of the new IT systems now both in ocean and in air freight, we still have a way to go before both have reached full implementation status and deliver full benefits. So it will be a gradual ramp up over time as we have discussed in the previous quarters. Turning to supply chain. Obviously, the Q1 numbers are the supported by the closing of the transaction in China with SF Holdings. And the proceeds from this transaction allow us undertake some restructuring primarily in the UK, which I had already mentioned, last year, we began with those measures in Q1.
And have so far used a bit less than half of our cost of change budget. And on that basis, we are confident that we will, for sure recoup the lost EBIT from the disposal of the business in China. And that this will really boost also the profitability in the region UK Ireland. That takes me to our overall group P and L for the quarter. We have already talked about revenue and EBIT there obviously, we see the various one time effects.
The two lines I want to mention here on that are the financial results. The increase in financial results or the more negative financial results line is due to 2 effects. The first one is the impact of the mark to market of long term incentive plans based on our higher stock price. And we also see the higher interest costs from leases, a normal development in line with more leasing due to more business growth. And finally, the tax rate in the first quarter was 22% in line with our guidance range of 19% to 22%.
And we also have a higher profit before tax back based, hence, the increase in taxes. That takes me to a cash flow and balance sheet topics, starting on page 18. So the first thing I want to mention is that in the first quarter, our cash flow always negative due to seasonal effects and in particular, the annual payment for the civil servant pensions here in Germany. Having said that, the cash inflow of the SF transaction had to counteract the normal Q1 effects so that the free cash flow in Q1 2019 was significantly negative than in a usual year. We also, as we have now, a 1 full year of IFRS 16 implementation, we have clear year over year comparison numbers.
And you can see in the net cash for leases, that, yeah, as well due to the growth in the underlying business and the underlying lease portfolio, mainly for land and buildings for new supply chain, the housing contracts we have an increase in this line. So that is the standard slide on cash flow. But we are obviously aware that cash flow is one of the big topics on your mind. And in recent investor meetings, We got a lot of questions regarding free cash flow, which is why we have now included 2 rather detailed slides on Page 1920 to give you an indication for how to think about the key elements in our cash flow guidance 2019. Page 19 first shows the bridge from EBIT to, operating cash flow.
And here we have 2 technical aspects, which are worth taking into account. In 2018, we will 1,000,000 in provisions for the early retirement program in P And P. And we expect roundabout 1,000,000 of out from this program in The second thing is that with more and more people accepting, and going into early retirement, we will see accounting request indication from provisions into other liabilities. And so there will be a technical move, which is also going to impact the changes in provision line, which is why this line will be higher than our normal round about 400 in this line. The second technical thing to point out is that obviously we have to eliminate in the operating cash flow, the impact of the one time gain in EBIT from the China supply chain transaction.
So that as well is impacting OCF. And you can then see otherwise observation remains that the 2 biggest cash utilizations on our way to free cash flows are the investments we are putting into our operations through both CapEx and ongoing cash for leases. I think there's no surprise here that is in line with what we have talked about in the past quarters. And as you flow from what we have said before 2019 is the peak year in our spending on the 777 investment plan. In 2020, CapEx will be significantly lower than in 2019, although again, we remain very keen to invest into attractive return opportunities with all business.
You can see that overall, lower CapEx and lower M and A gains will essentially net in 2020, which is why 2020 free cash flow will be driven by EBIT growth, which we expect to be substantial as we will feel the full benefits of our P and P and other restructuring assets. That takes me to page 21. A couple of comments on the balance sheet. I think here the key message is that we have a strong balance sheet, which allows us to support the level of investment, including the exceptional 777 buying, which is peaking this year. You show me here some leverage ratios and to put those into historical context, generally speaking, we have always delivered over time.
But in 2018, as you obviously see, due to the implementation of IFRS 16, we had an upward step change, but the leverage still remains very reasonable. Now our rating agencies have both confirmed the debt rating, so they are fully aware of what we're doing on from the 777s to our cash flow outlook for the year. So naturally over time, we will strive to generate free cash flow in excess of what we need to pay our dividend. However, we are not concerned about paying 2018 or 2019 dividends in excess of our free cash flow. Also, because we are confident that over time, our CapEx, including, and particularly with regard to the 777 program, will improve returns.
So finally, just one last sentence on the 777s because they are also always coming questions on that topic. That is a Crete program and is not intended to be a permanent step up to that level of CapEx intensity. That takes me to a very easy slide, page 23, because that slide is fully unchanged. Nothing new here. Based on what we have seen in the first quarter, we confirm our guidance both for 2019 and for 2020.
We are, however, aware of a certain element of skepticism with regard to the achievability of our 2020 guidance. Frank already talked about what levers we see in P And P to get to those numbers. We have now included page 24 to give you a little bit of a feeling for why we as a management also believe in the DHL guidance for 2020. What we have tried to do on this slide here is take out one off effects. So when you look at 2018, excluding the 1,000,001 off effect in supply chain, we're talking about a starting point of around about 1,000,000,000.
So we want to go from 1,000,000,000 to 1,000,000,000 by 2020, which means on average 1,000,000 year over year, We have it a little bit back end loaded as you can see here, because some of the restructuring activities in 2019 are going to dampen 2019 and then put the full swing into 2020. I think the important thing is A, when you look at what we have achieved in terms of step up from 2017 to 2018, we had a year over year step up of more than 1,000,000 in DHL. So that is not an unrealistic order of magnitude we are talking about here as such. But these, unlike in the past, when most of the DHL growth of pretty much all of the DHL growth year over year was coming from one division expressed, we now see a much more balanced situation. And that is one of the really positive things for me with regard the Q1 numbers.
We said it in March that we expect all 3 big DHL divisions to really contribute to 2019. And what we nicely see in Q1 now, both forwarding and supply chain on an underlying basis have really delivered a very good year over year growth. So I think the order of magnitude is clearly ambitious, but it's not unrealistic. And the key ingredient here is that this is really 3 cylinder game, which will take us to 2020. So to conclude, yes, the growth in Q1 was slightly slower, but we had growth across all divisions and it was in line what we had expected to include our 2019 guidance in March.
We are making good progress on all of the planned improvement measures and they will start to deliver more and more going forward throughout the year. And on that basis, as we are confirming our guidance, both for 2019 2020. So much from my side, and I think that now takes us to the Q And A part.
Thank you. Over to you. Thank you, Frank. Thank you, Melanie. And operator, if you start the Q and A session, please.
Thank The first question comes from Matija Gergolet calling from Goldman Sachs. Over to you.
Yes, hello. Good morning. It's Matija from Goldman Sachs. Three questions on my side. Firstly, when it comes to state to the guidance for 2019, you mentioned that when you provided the guidance in March, there was some uncertain is a slow start of the year, no clarity yet on the on the tariff, say on the increase for regulated mail.
Okay, we don't yet have the final confirmation for the regulated mail increase, but now do you feel more comfortable about the guidance or outreach and say the upper part of the guidance and given that as you said, the mail price increase is at the high end of your expectations. That will be my first question. Secondly, in July, when you get the price increase for the regulated mail, will you be also considering increasing prices to business customers? And then thirdly, still on the PEP, with regards to the 1,000,000 of say, you call it, restructuring automation costs, Just wanted to double check that these were basically the same costs that you have already signaled last year or whether these are incremental costs for the division. I think there's a comment about that in the press release.
Yes. So I take the 2 first and then Melanie on the last one.
Okay.
So, so on the guidance, as long as we have not a final decision, of the regulator, Matija, you answered more or less a question, we will not narrow down because guidance. And that's the reason why I'm not commenting now where we end up. As I said already, it's also considering how much restructuring we will do and we are working on that as well in conjunction with the regulation. And that I have to say, we are still saying we are very confident that we can get into this range as have given. With regard to the stamp price, we have not taken a decision yet what we will do January 1st.
We have taken decision in Norway now. July 1st that we are not doing anything on July 1st. We have communicated that already. If we take some increases for business customer journey first, we have not decided yet.
Okay. And on the 150, this is nothing new. Those are the 50 we have been talking about since last summer. It's just a hint that obviously we didn't have the impact from those in Q1 2018. In Q1 twenty eighteen, which is why we're highlighting it, but it's nothing new.
Clarification, you mentioned that on business customers, you have not yet taken a decision whether there will be a price increase in July. Is that correct?
No, no, no, no, I, maybe, so I mix it up. So So we have taken a decision not to do any price increase in July 1st. We communicated that already because we believe we we can't do that with business customers who have budgets and all this kind of stuff. What I added in addition, we have not taken a decision if we don't or don't do or don't do something in January 1 2020.
Okay, very clear now. Thank you very much.
Thanks, Matija. And over to the next caller, please.
The next question comes from Andy Chu, who's calling from Deutsche Bank.
Express, several parts. So just in terms of, could you just sort of quantify what you mean by sort of solid levels of growth in Express as we exited the quarter, do you mean sort of more like 8%, which has been sort of more your run rates of TDI volume growth? And what levels of, of capacity will be freed up by taking your sort of over 300 kilogram shipments off And in terms of phasing of Express, would you still be down in Q2 given that you mentioned that you're looking at sort of the price, product mix effects should continue into the first half of the year, will EBIT be down in Q2 and Express? And then on PMP, you took the 1,000,000 charge for the early return on civil servants. Why are we not seeing any of that impact already coming through in Q1?
And when you look at the sort of TE equivalent numbers in P And P, it was 159,000 in Q1. Versus 155,000. Last year, clearly, you'll be adding more people in the growth era such as parcels, but can you just give us some flavor as to what sort of FTE equipment run rate you'll be looking at going forward in P and P? And then lastly, just in terms of the restructuring and, costs investment cost, of 1,000,000 in supply chain, 1,000,000 in DS and 1,000,000 of investments in corporate. Is there any sort of sort of steer that you give us in terms of the quarterly phasing of those costs because obviously they're pretty hard to sort of nail down, from the outside.
Thanks very much.
Yes, so may I take just the $400,000,000 in the FTE run with Melanie answers all the other questions. So On the $400,000,000, yes, we see already a reduction in headcount, but it's phased and we will see in the 2nd quarter 3rd quarter 4th quarter and acceleration of how many people lead. The reason for that is it's a very clear a powering process. So first, people we can announce it, then people can raise their hand that would consider. Then we have to take accordingly restructurings of the organization.
Some of them are still happening in our operations, which is a significant part of overhead is only taking place mid of th/is year because they're in negotiation with the unions. If the people then identified, then we have to send the paperwork to the rec to the, not in regulator, but to an area, we have to check if that's right, what we have suggested. So there is a significant time delay and that's the reason why we now see every month that some people are leaving and that is accelerating through the year. That's the reason why you haven't seen the impact in the first quarter. May we have better explained that already earlier, but that is a significant time frame before you raise your hand until you get really or leave really the company.
With regard to FTE, that is it reduction in indirects. The increase you see in our numbers is exclusively coming from operational increases. We are adding people there. We always refused to give headcount reductions because they are ending up. And in the wrong moment, we confuse people only We never said how many people will leave and that's the reason why, Andy, we will not tell you now what you should take into consideration.
What I can tell you, the number of reductions will always be lower than the addition of people for the operation. So we see a continuation in the year of headcount because we are growing 7.7% growth in parcels quite a bit. So you should expect that this number will grow. But on the other side, we see that in the indirect people are leaving and we have seen already a reduction in the headcount, but we have never disclosed that. And I will not do that today.
And there are seasonal fluctuations, particularly from Q4 into Q1, right?
Of course, that is also.
Yes. So I think what I would add, Andy, I mean, like, when you look at that book and the staff cost line for P and P, it is a bit confusing this year because obviously, last year's number is depressed by the 1,000,000. So I think when you look at the underlying development, first important message is on the indirect cost, which is predominantly staff cost. We see that it is down year over year q11 2019 versus Q1 2018. But in terms of run rate, this has to pick up in the course of the year, but that is also what we had planned for.
On the operating staff cost side, we see the impact from the wage increase, the 3% we had on the 1st October last year. And we also see the increase in headcount. So probably the right number is around about 4% growth here. That takes me to the expressed question and the general cost of change question. So I think in terms of looking at the growth pattern in Express across Q1, I think first of all, in terms of weight, January February together are roundabout the same order of magnitude of revenue compared to March.
And growth was very slow in gen and fab. So until Chinese New Year, not a lot happened. And then also the pickup after Chinese New Year was more subdued. I think by March, we were getting back into more normal growth territory not to the peak levels we had seen before. The encouraging thing is that April is more moving in this March and not with the January February.
So we expect now to be back in solid growth territory, but a little bit less dynamically what we have seen in the past. In terms of how is the heavyweight stuff and the aviation capacity going to play? I think for us, the main focus here was not to really take down capacity by getting rid of the heavyweight stuff, but to really slow down the rate with which we have to expand capacity. And that means that we somehow have to grow into it, which is also what we have tried to show on the Express slide with the elephant. In the short term, this has a negative impact, but in the medium term, as we are growing in the freed up capacity, this will have a positive impact on our aviation core KPI cost per kilo.
And of course, we also expect benefits on the ground ops side. With regards to the second quarter, based on what we see at the moment and the April dynamic being more in line with March, it should be a bit more dynamic than Q1. But obviously, we will still see the impact from the heavyweight campaign. So the bigger uptake will be in the second half the year, but Q2 should already be a bit more dynamic than Q1. With regard to cost of change, So both in supply chain and in ecomsolutions, we've booked a little bit less and then 50% of the allocated cost of change budget in Q1.
We expect the majority of the remainder to go into the second quarter, so that really the big chunk of the whole cost of change will have happened in the first half of the year. The benefit of that also going to be that we should see some benefits already coming into the second half of the year. And with regard to a corporate functions, corporate incubations. As you may have seen, we have a new management team in StreetScooter, and they are currently coming up with their business plan going forward. And we said we clearly give them the time to do a thorough drop here.
I think once that is finalized, we will have a better point of view on the phasing of the impact we expect in copper function.
So, Andy, lots of modeling in. Any more?
Next up, we have Damien Brewer, who is calling from the Royal Bank of Canada Over to you.
Good morning, everybody. 3 questions, please. First of all, just coming to DGFF. Obviously, across the market, pricing per unit has gone up, but yours looks like it's gone up bit better. Could you talk a little bit more about how much that GP per unit increase has been down to your mix and efforts and how much was market?
And therefore, how much should probably spill over into Q2 as well? Secondly, coming to P and P, given it sort of identified the issue early in 2018, could you give us an update on where your staff and customer surveys are going there? Are they improving? Is there some sort of support from the metrics there or anything else you can elaborate on would be appreciated? And then very finally, you've hinted at it already, I think, in one of your last answers.
Could you give us an update on the group structure and whether there's any other tidying up you're envisaging there, for example, street scooter or any other parts of the operation, which are in focus at the moment?
Yes. So, may I take the second and third question? So, on step we only do an annual survey, which took place in autumn, and it was very encouraging that we have seen that our EOS data went up the most of all divisions, the group went up, but the P and P division went up the most. Which is very encouraging despite all that. And where it went up the most was in operations.
So the people apparently saw already that we are taking bright direction that we are communicating differently that was well received. And I believe that has not changed We also see a significant improvement in the underlying operations and that has led, in the last months to a starting decline on complaints of customers about service. You can read in the news all days what happens to what the regulator counts, but the regulator counts 1 complaint for 200,300,000 shipments, letters and parcels. So that's very low. We see the early indicators which are customer complaints coming down, and that is very encouraging.
So there's response to the better performance the performance is better because the people are more engaged. So that is making me very confident that we are taking the right actions and heading in the right direction with P And P. So on the group, I think we have made significant cleanup in the portfolio of P And P, on other S spects, we might sell some small pieces as we have done, which seems to me recently, but on the bigger scale sweet scooter. We have a new management team. I think they have a very good understanding of what should happen.
We always say that we don't want to be forever the owner, but we are not in a hurry, and we will consider that in due course, I feel very encouraged what I've heard from the new management team with a lot of expertise in in this field, we had a great innovator with the previous CEO who created a product, which is working well. I asked as well, I mean, your CEO, what's your feedback? What he sees? Because he has worked in that environment. He says we have a great product.
External customers are happy with the product. Internal customers are getting happier every moment, so or every month. So that's, that's the reason why we think we have a very good product and that makes us confident that there is a journey with Fourth StreetScooter as well. And now I hand over to Melanie to answer the first question.
Yes. So the first question was on the DGFF GP per tonne on PTU development. That's a trend which we have seen now for a couple of quarters because we have taken this conscious approach on being selective with regards to volumes and to focus more on profitability. So I would still say that what we see in the first quarter is more attributable to our selective approach then to what we see in the market. Obviously, our aspiration is to get back into growth mode in the course of 2019 but in a very controlled and selective way and not at the expense of affordability, which is why we are obviously focused on holding that.
So may I add to the whole because you asked well about the mood in P And P. Maybe I comment as well about the mood on and this division, that is now really black and white to 2 or 3 years ago. There's high energy in that division, understand fully that you really can drive yield. And at the same time, improve your or streamline your operations, they are very positive about the rollout of the IT. So these are all green lights for me.
So I'm very happy the changes we started already before Tim came and Tim has accelerated. That is working well. So that's very encouraging and that's also it in the mood of the organization. If you talk to them and I'm now traveling after I handed over the division, I'm traveling significantly more again myself. Outside of Germany and it's very encouraging what I hear from the DGFF colleagues.
And that's great news. Thank you. That's good to hear. Thank you.
Thanks, Damien and right on to the next
The next question comes from David Gerstens, who's calling from Jefferies. Over to you.
Hi. Good morning, everybody. It's David Kerstens from Jefferies. Three questions, please. First of all, could you an indication on what you expect the volume decline in mill would be following a 10.6 price increase based on the elasticity that you've seen in the past, if any, I think the price was relatively or the impact was relatively limited in 2016.
Then secondly, on DHL supply chain, what is behind the improving earnings momentum in the first quarter? I think you said double digit underlying EBIT growth despite the fact that you missed the Chinese asset in the first quarter. Also heard you say that the lease portfolio had expounded largely due to supply chain, what's the effect of that? So what was behind that improvement in earnings momentum? And then finally, maybe on Express, you're highlighting that you expect volume momentum to improve going forward.
What could be any impact, if any, from the increased tariffs on U. S. Tariffs on Chinese imports to 25% this morning? So may I answer the first and the third? So of course, we have analyzed that as well.
Of course, again, the lift is slightly higher if you compare that than what we got last time. So we can't really predict, but of course, we have some assumptions made and we have not taken it for granted that there will be no price elasticity. We have to watch that. Last time, it was not very strong, but we have, of course, calculated that in our assumption as well that we see some elasticity, which is larger than last time, but not massive either. That's mainly for the small and medium and private consumers.
So yes, there will be impact, not huge, but higher than last time. That's our assumption at the moment. The impact on volumes of Express is very difficult to judge. We have seen in Asia different patterns. China had a very good development.
Other parts of China were weaker maybe that will now change because there are ways, of course, to move stuff around then for some manufacturers as well that might change when trade line traffic. Overall, we still believe that we will see a continuation of the economy. We have seen not so much surprising, I believe, but for the public more that U. S. Had a very strong quarter 1st year China, not in our numbers, but I mean, the economy Europe was better than expected.
China was better than expected. And I don't expect that this fundamentally changed because we still have a pickup in increase in employment around the world and we have still a continuation of increase in, in middle class and that drives fundamentally both things, the B2B and the B2C growth we have seen in Express. So all this noise is not healthy. And you see that in the capital market, they respond to that very volatile, but we have not seen that in the last four quarters or 5 quarters, this volatility is happening. Yes, there might be 1 month weaker and then stronger because maybe now people will ship even or delay now shipments because they want to now wait.
So it could happen with May, it's been weaker on the short end, but then if it Things are changing then again, then June will be very strong. Overall, the fundamental growth dynamics have not changed. That's our
Yes, that takes us to the supply chain question. And, I'm really glad that you asked that question, and I think the supply chain colleagues will be delighted because I think what we now see in the first quarter is actually what we have seen in most of the supply chain regions for some time. So I mean, in Q1, underlying this year, growth in operating results by around about 12%. We had that dynamic in most of the regions already in 2018, but it was unfortunately overshadowed by the step back we had in the UK Ireland. So for me, what we're beginning to see here now is the underlying growth potential of supply chain.
And that is driven by the standardization agenda, the automation agenda, which the team under John Gilbert's leadership has been pushing for the last years, where they're now really beginning to see the benefits. And on that basis, what I already said in March is in 2018, we had global forwarding beginning to really deliver year over year step up to the DIA Lprogress. And in 2019, I'm deeply convinced that supply chain will also be a significant contributor on an underlying basis. And that's indeed very encouraging to see this coming through in the first quarter. With regard to the leases, that was actually not pointing as unusual development, but obviously the nature of the supply chain business is that many of the warehouses are leased, in line with the duration of the underlying customer contract.
And so that's a natural growth driver for the lease portfolio, nothing unusual.
Okay.
Then over.
That's great. Thank you.
Good. Thank you. Over to the next caller then please.
The next caller is Daniel Roeska. He's calling from Bernstein Research.
Good morning, everybody. Just
a little bit more detail on forwarding I may. You already commented on GP. Could you touch a little bit on conversion? How much of the conversion improvement in Q1 is really due to the GP mix that's that's different? And how much is it really due to underlying productivity gains, and OpEx improvements And kind of as a follow on, if there are significant OpEx improvements here, how much of that is already driven by the new IT?
Okay. So at the beginning, we are at the beginning of seeing benefits from particularly the rollout of cargo wise. I mean, the aspiration is to get to the full out for ocean freight by the end of the year. At the moment, we are in the co existence phase, and so we currently don't have significant benefits from that. However, the IT transformation is more than just the cargo wise rollout.
So we see benefits from a number of other systems and process optimizations. So I would say at the moment, it's a mix and the big benefit from particularly the CargoWise rollout is going to come beyond 2019.
Maybe one point of follow-up, one of the strategies of Tim was to kind of manage the mix, go for higher yielding grow a little bit slower. And that's something we've seen, kind of over the last couple of quarters. How long can that strategy kind of still continue, kind of the slower growth margin optimization in your view?
Yes. So I think the aspiration is that in the course of 2019, we want to get back to a more normal growth level because we all acknowledge that you can't shrink forever. Obviously, now in the first quarter, the whole market dynamic, both in air and ocean freight wasn't that buoyant. So, I think for the focus is still very much on profitability, but acknowledging that we have to slowly get back into growth mode. And that is what the team is focused on.
So Daniel, that was question 2 out of 2 or do you have any more?
No, thank you. That's all for the ad hoc follow-up. No, thanks very much.
Good. Cool. Thanks. And also next.
Yes. The next one is Edward Stanford who's calling from HSBC. Over to you, Mr. Stanford.
Good morning, everybody. 2, please. Following up on an earlier question about the decision to remove or discourage large volumes in Express. You mentioned that this is a way of reducing the capital needs for the business. Are you able to quantify how much you think you'll be saving in this initiative?
And secondly, again, following up on these questions. Just looking at the kind of return I may have missed this return to growth in freight forwarding, do you think growing volumes in the current market environment is achievable given competitor activity?
So on the heavyweight question, I don't want to quantify the savings here. And again, will not lead us lead to us cutting back on the network. It will be a slower expansion than what you would have seen otherwise. How much that is actually going to contribute will also depend on the fundamental growth dynamic, as we said before, we expect things to pick up in the second half of the year. But that's a little bit a moving, continuous improvement game.
I think the important thing here is that with the great experience we have in our express management team. They really know how to play this and are able to react also on relatively, a short notice. And that is why we have also kept our whole aviation capacity in the right baller between firm commitments, own aircraft and also shorter term lease commitments. So it depends on this on help with the small stuff fill the capacity now in the next quarters and we will adjust accordingly. I think on the forwarding question, I mean, obviously returning to a growth path is easier when you have some tailwind from the general market, which wasn't there in the first quarter.
And visibility and finding the right balance. If the market picks up more dynamically, it will be a bit earlier, but we're really not fixed on a specific date here.
Robert, let me add because the transformation in that he gives us more visibility. Our customers more visibility helps as well. And I'm talking at the moment more about sea freight and air freight is to come. More stability in service quality. And you see that as well in the industry, our best performing competitor has without a doubt, a right recipe to grow even in a difficult environment.
And that's based on similar IT in the core and very stable processes, great service quality. I think there is, of course, an opportunity even to grow, you know, challenging. But we are not in a hurry because I always and Tim sees when exactly the same we are we have a focus on service quality is important. And we will never compromise on that just to gain business. So we have to be sure that what we win, we also can execute to the expectations or even better of our customers.
And I think this focus from him, despite all the transformation and to make it leaner, will give benefits, but we are not in a hurry. If it takes a quarter longer, I'm equally happy, the focus has to be that we provide the best possible service for all our customers.
The next question comes from Ed Steele, who's calling from Citigroup. Over to you.
Thanks very much. 2 areas I'd like to ask about, please. The first is the incubation of 1,000,000 that we guided for this year don't seem to have impacted the first quarter. I think that's mostly in street scooter. So I guess if the guidance is still the same, that implies the run rate on a quarterly basis will be 1,000,000 a quarter for the last 3 quarters of the year rather than 25, obviously that provides a bigger, offsets required next year.
Do you still think there's enough momentum going on there you'll be able to get enough revenue and gross margin to offset that, that higher number, please? And then second area, obviously, you're on the cusp of, putting forward your proposal to the regulator for the the implementation of the stamp price rise, is, I mean, clearly there's a range of options there for you still, but One, of course, would be to delay the bulk of that across the various categories until the 1st January, which would then give you a bigger percentage gain and a bigger contribution to the 2020 profit number. Is that something you're considering please. And if so, what do you think would be the implication for the next stamp price agreement given you obviously have a higher average rate going into that, please?
Yes. So may I take the first one, we have currently with the intention to make a price increase in July 1. But of course, you are thinking about all these dimensions but we believe that we should do something now, which is helpful. Whatever run rate is, it doesn't have any way because in 3 years' time, the data will be compared with your original proposal. In event, the StemPro is higher, the regulator, if that's too high from the mathematics because we delayed it, then they will say, you have to reduce process.
So you don't get a long term benefit if you just push it backwards and say, because, of course, you can say, if you wait half a year and then you get 2 years and forever a higher price, the regulator is smart enough to figure that out. And that's the reason why that will not work in such a way. So we have currently the intention to increase by July 1st.
Yes. Then to your first question, the 100,000,000 for corporate functions, corporate incubations, you're right. That is mainly targeted at StreetScooter, where we are still very much convinced the growth potential and hence the opportunity to get a good return on the invest here. Internally, we continue to be a very strong buyer of StreetScooter. And our P and P colleagues are not the easiest customers.
So they really want a robust product for the P And P operations. What is encouraging is that we are now also beginning to sell to completely new customers externally. We have a completed deal with Yamato to also go international with StreetScooter. All, as mentioned before, we have the new management team, there's a lot of votive experience now on board. And we are giving them the time to really come up with their plan and phasing in their plan.
So we will probably be able to comment more on the exact timing in August when we talk about the Q2 numbers.
That's great. Thank you very much.
Thank you,
Ed. And I think we've got 2 more callers waiting.
Next, we have Per Ola Heiligren, who's calling from LBBW. Over to you.
I've got only one question, and, it indirectly relates to your guidance for 2020. The question is, what effects, if any, do you see in terms of your business coming from the IMO 2020 measure and the likely effects that this would have on World Trade. Obviously, your forwarding business would be affected in the first level. But, generally, there would be repercussions due to fuel costs, for demand worldwide coming from this. So the question is, have you quantified these effects in terms of your business?
And alternatively, if you don't see any major issue out of this, Could you please elucidate as to why you don't see any effects coming from this? Thank you. Yes.
So this is for us not the most material effect. And hence, we don't have precise quantification model for this. I think when you look at the overall volatility, in rate and at the general pricing level, driven by numerous other macro factors and capacity factors, we still see that not as the main driver. And I think the good thing is given that it's an industry thing. We expect that to be then more of a general uplift in the market.
Which, yeah, customers will have to adopt to. So overall, it's not our number one worry on trials.
Okay. Okay. Thanks. Okay. Over to
the next caller then please.
Thanks. The next caller is Joel Bongin, who's calling from Berenberg.
So maybe if I can just start off by asking about your pricing initiatives in parcels in Germany. I was just wondering if you could give us a sense like how far you are now through the process of implementing price rises, maybe how much of the volume has now seen some kind of year on year price increase. I know that you still have some outstanding negotiations with larger customers. But if you could give us a sense of how much more we might expect on that side would be useful. So that's my first question.
My second question is, again, just on express, just in terms of understanding some of the dynamic there, given the changes in the weight. I know it's not a number that you normally give out, but in terms of understanding what's going on with underlying pricing, if you could give us of what's going on with maybe revenue per kilo, that would be helpful. And then finally, just on the additional detail on CapEx developments and the investments in the new 777s. I mean, obviously, you've highlighted there that there will be quite a big step down in 2020. I think million step down in CapEx relating to the 777s in 2020.
I just wanted to check, is that new information? Is that the first time you've disclosed that? Because in my head, I thought it would still be quite elevated in 2020 and then come down in 'twenty one side wanted to check whether you're thinking on the investment pattern has changed?
Okay. So on the first, I answer the price initiative. So I would say we are about if you take the average of the first quarter, I would say we are probably 2 thirds, maybe up to 3 quarters through. So there's still something to come. But of course, that has already developed through the quarter somehow.
But there's still something to come in the course of the year.
And of course, we will continue to see a year over year step up. And I think the second important thing is This is clearly not a one time exercise, but I think the other important focus is to now likely have an express get into a regular general price increase, annual pattern in parcel. So I think we have kept such a big chunk for the 2019 volume, but obviously, this is supposed to be a continuous exercise.
Yes, it may add to one of our things. And so we have definitely best in class guys in Express to work on yield management. And of course, they helped the team, I got and I some of the guys, when you in P And P than I took over last year, and they have learned a lot from our expressed colleagues. Probably they are the superstars in yield management, I believe, and they learned a lot in P and P in the meantime, and therefore, we monitor that. And I have not seen the last statistics, but it's probably, as I said, 2 thirds or 3 quarters, which is already visible in the first quarter.
I think that's a nice lead through to the next a question on the base revenue per kilo development in Express, which is I think a very well question in the current quarter. I can assure you that this development is still healthy. Also, that is one of the reasons why I'm so confident with regard to express development for the rest of the year. We clearly can see that the impact on the revenue per day is driven by the weight per shipment and not by the revenue per kilo. And then with regard to the 777 CapEx, that is nothing new that is in line with what we have said before.
And I think it shows again the law of relativity. You can look at it as it's a big step down in 2020 from 2019, but it is still elevated compared to our normal CapEx level. So I would say 2020, is this going to be on a path to normalization, but you will still clearly see the impact from the 777 CapEx.
And just maybe just a very quickly follow-up on the domestic parcel pricing initiatives. Do you think the run rate in the first quarter is a reasonable guide to where you would like to sort of be for the rest of the year?
Can you say that again?
So the in terms of the revenue, per item in the German parcels business, do you think that the what you achieved in the first quarter is a reasonable guide for the rest of the year in terms of the price increases?
I would say that's definitely on the lower end of what I expect. So it should be better.
Good. Thank you, Drew. And one last caller.
Yes, the last question for today comes from Andre Mueller is calling from Kepler Cheuvreux. Over to
you. Good
morning. A question on the heavyweights again. Would you be able to quantify what that did to growth, and possibly to margins? Secondly, for how long will the will this continue? Should we expect another few quarters or longer there?
No, so the heavyweight campaign was started in second half of twenty eighteen, which is why we will still see a visible impact in Q2. And then it will normalize out in the course of the third quarter. I think in terms of number of shipments, this is a relative refinanced number of shipments, but of course, in terms of kilos, it has impact. And that is why it has a distorting impact on the revenue per day growth versus shipment per day growth. So it will continue in Q2 and then it will fade out in the second half of the year.
But any specific size? Did the depressed growth by 1% or so?
I think you don't see the impact on the shipment per day growth side because it is a small number of shipments. So the 5 percent shipment per day growth is not impacted by the heavyweight campaign. The delta between shipment per day growth and revenue per day growth. That is due to the heavyweight campaign. And I think that is why it's important that the underlying revenue per kilo development is healthy.
So the area where you see the impact is really in the spread between FPD and RPD.
Okay. And then the final question. I saw numbers on CapEx, 3.7,3.5, what's in between there?
Sorry, I didn't get the question.
I saw two numbers for CapEx. 3735. What's in between there?
Yes. So, and the 3.7 is our gross CapEx number and the 3.5 is the impact in the flow statement because, of course, we also have a disposal of assets. So that's a historical number. I think that's the number we have had for a couple of years quite stably now that there's a 200,000,000 delta between the gross CapEx for the balance sheet and, of what we see in the flow statement?
So, as mainly we are selling vans, we have used and trucks, which we have used to a lower price, but it's of course, generates a positive cash flow.
Yes, okay. Thanks.
Again, nothing unusual will be in line with this year. All right.
Andre? Any more?
Yes. No, thanks. Thanks.
Good. Okay. Well, I think then that's concluding the Q and A round. And, Frank, you
want to close the call with your comments? Yes. So, as we said already, we had a start into the year. If we go through the different divisions, as we did, we see a positive momentum of our actions. We focused on in the last couple of months.
So that's the reason why we feel very confident that we can deliver This year, the guidance, and this has been a very good base to deliver next year's guidance, which we confirmed today as well. So I said, I'm traveling around the world. And wherever I go, I see very positive momentum and mood of our organization, which is very encouraging. For me because, obviously, we have taken a lot of bright decisions last year, and now we start seeing the benefits from these actions. So with that, I would like to conclude.
Thank you for listening this morning on a Friday and talk to you soon. Bye bye for now.
Bye bye. Thank you. Bye bye.