A warm welcome to anyone out there listening to our Q4 full year 2018 conference call. As you have seen in the invitation, I've got with me our group CEO, Frank Appel, and the group CFO, Melanie Kreis. I hope you have in front of you the material that we sent out this morning. As you may have noticed, in a slightly modified format, designed to give you maybe a bit less busy, more focused slides, some early management comments. I can assure you that to the material that we had in the past, no content has been dropped. Whatever we had in the past, you still find in the material either in the deck or in the stat book. With that more of a technical comment, right over to you, Frank, please.
Thank you, Martin. Hello, also from my side, and thank you for joining us this afternoon. Let me just start straight away with page two, where we summarize how we concluded 2018. We had a strong year-end, with a quarter result, which is very close to our previous record quarter in 2017. In particular, if you take into consideration our ongoing restructuring expenses in PeP and a one-off, which is not related to our company, but a consequence of a court ruling in the U.K. Second, we propose a stable dividend. We are very confident that we will deliver our this year's and next year's numbers, and therefore, we also want to demonstrate as a sign of confidence that we are paying a stable dividend this year. Finally, our guidance. We come to that later more in detail, but the guidance for this year is relatively broad.
We'll explain later on why that is the case. We believe with the measures we have in place, we will deliver that, and we will create through that delivery a very good basis to deliver our midterm goals, 2020. If we now go to the next page, I will focus on the top line more, and Melanie will cover chapter two, three, and four, and I will come back then to our dividend and guidance for this year and next year. If I turn to page four, you can see the results are pretty straightforward. We had, as a group, good organic growth in Q4, even above the average of the year. We had, as I said, a good EBIT result as well, despite that we had some negative one-offs, and overall, we met our guidance as predicted in the summer when we changed our guidance.
PeP is continued to grow despite the decline in mail. I come to that later on. The quarter was strong enough that we were slightly better than the originally guided EUR 600 million, fully loaded here with all restructuring expenses. Express, strong growth, very good development of the bottom line and now very strong overall year to date or total year margin. We are very happy about the progress. DGFF, as you can see here as well, healthy top-line growth. Very good bottom-line development that shows that the strategy Simplify is getting more and more traction, and our IT conversion is getting traction, too. Supply Chain, good growth. Flattish on the bottom line, but if you back in the EUR 42 million from the pension charge, then we would be even nicely up.
Overall, if I include Corporate Functions in consolidation, just to the point, slightly better than the EUR 420 we mentioned in our guidance. On the next page, you can see the development in volume revenue. Nothing new on the mail side. Still in the corridor. If you correct for these election type of things, we are at the upper end, but we are still on the corridor of -2% to -3%. Volume growth in parcel has been a little bit slower, but still in the range of a market growth, 5%-7%. We don't know exactly the final growth. The full year was even better than that. What you see and what is encouraging is that our price measures are getting traction now because revenue growth was stronger than volume growth. You have seen the past, the opposite trend.
That is very encouraging, we see also in the new year already, the acceptance of customers to accept higher prices is pretty good. That's the reason why we are confident that we can see a good development on the price front in 2019. Next page shows you the revenue growth of our new division, eCommerce Solutions. Continuation of strong growth. Can definitely now focus on defining the strategy. We have good areas and good bits of pieces there and some challenges. I think the objective has to be that we define more precisely how we want to grow in that part profitable from the overall e-commerce stretch. Page seven, continuation of the strong growth, shipment-wise and revenue-wise. You see here the trend. Europe has been still our powerhouse. Very healthy growth. That's very encouraging.
We have, without a doubt, again, had another year in 2018 where we gained market share. Of course, we were supported by strong B2C growth as well. Next page on DGFF. Tim's strategy to be selective is working very well, despite that we lost quite some volume in the fourth quarter on air freight. Stayed stable on ocean freight. We had a nice growth in gross profit and also gross profit per ton in TEU. That is exactly what we try to achieve. At the same time, we are streamlining our operations. That should help us to deliver even more EBIT and a better conversion rate. We are now shooting for by 2020, a 20% conversion rate. We are still some upside then for that division. We are very confident. Also we want to grow again.
That has to happen in this year as well, that we start growing again, but in a profitable way and not just by market share again. Supply chain, also very consistent picture here. We had some challenges in the U.K., but if you take an overall the growth, it's very nice in Americas, North and South. Very good profitability development. Melanie will talk about that later. Europe as well, good growth. APAC looks a little bit weak, but as you can read from the management comments, there is a change for some contracts we have in Australia where we have passthrough revenue, which is under IFRS 15, differently recognized, and that has led to the small number. If you exclude that, we have been almost 8%. Steady organic growth and good improvements in these regions as well. On page 10, that's more a reminder of our well-balanced portfolio.
We have some businesses which are exposed to GDP decline, if that happens, even if we believe still that we should expect for this year 3%-3.5%. On the growth side, overall, we have some very strong businesses like the eCommerce driven. Of course, the Post is not a structural growth business. Supply Chain sits more or less in the middle. We believe that this is a very balanced portfolio. On page 11, we put that intentionally in to just demonstrate, despite that we don't expect a significant global downturn, if it happens, we have more than enough measures in all parts of our business to be well prepared. What we mention here is more a reminder for our capabilities.
We have seen before as well, a reduction in growth, even if we don't expect that, and we feel very well prepared if that happens, even if we wish that it doesn't happen. Again, at the moment, we have not seen any major decline. We expect 3%-3.5%. Brexit, the same. That's not a good idea in the first place, if it happens, whatever happens, we don't know, we feel well prepared. We have worked intensively in all parts of our business for preparing for that. Our mantra is to serve our customers in the best possible way. Of course, we will have then chats with our customers that they compensate us for any extra cost. That will be seen then if Brexit happens. I'm optimistic that we will do the best for our customers, that should help us.
Whatever the impact will be, will depend very much on what really will happen. We don't know that yet, we can assure you that we feel very well prepared for any outcome. That's more or less on the revenue and markets front. We feel very well equipped to continue growth in this year and 2020. With that, I would hand over first to Melanie on the profitability and cash flow, then I will come back on our dividend and our guidance.
Thank you very much, Frank, good morning, good afternoon, to all of you listening. Thank you very much for joining us. As Martin mentioned in his introduction, we have added our management comments directly onto the presentation, which we published this morning. We hope you find that useful. Don't worry, I'm not going to read it all out to you. I'd rather point out a few noteworthy developments, that we have ample time for your questions at the end. Starting now with Group P&L on page 14, I again want to point out what Frank has already covered. Despite all the often mentioned uncertainties, 2018 was a good year for us in terms of top-line growth, with an organic growth of 6%.
The delta between the reported revenue growth of 1.8% and the 6%, is partially due to the Williams Lea Tag disposal, clearly also has a significant currency component in there. FX effects had once more a significant negative effect on the top line, but also on EBIT. As you know, Group EBIT is down due to PeP restructuring as well as to a minor extent, Supply Chain one-offs, while we had very strong EBIT growth in Express and forwarding. The IFRS 16 effect on EBIT is slightly higher than our initial assumption because in our Supply Chain division, we signed more leases with on average longer contract terms. For the other divisions, we actually made a spot landing. I have to admit that we are a little bit proud of having been able to predict the IFRS 16 effect quite accurately.
One effect of the IFRS 16 accounting change, which we had predicted, was that the negative impact in financial results would be higher than the positive effect in EBIT. That explains the more pronounced decline in net profit compared to EBIT. The good news on this is IFRS 16 is now done for us. In 2019, it will be a year-over-year comparison without IFRS 16 extraordinary explanations. That is the last call in which we have to talk about that topic.
Obviously, putting it together in terms of EBIT progression, and also net profit progression, it was a challenging year, which is why we have included page 15 to put things into a slightly more long-term perspective. Looking at this longer time horizon, while we have had our ups and downs in 2015 with NFE and the postal strike, in 2018 with PeP restructuring, overall, we have made significant and steady progress in group margin expansion. Very obviously, that progress is by no means over. Every division has its role to play. With that, I'm now turning to the divisions. For quite obvious reasons, I will start with PeP, will spend a bit more time on PeP, which in the last presentation we are now talking about in the old structure with Germany and the international activities combined.
Starting on page 16 with the three buckets of restructuring and turnaround activities we have been focusing on since June. I think the first important message here is nothing has changed with regard to the categories we are addressing. There have been no new surprises, and we have actually made good progress in all three dimensions. I will talk about pricing in more detail on the next page. Let's briefly talk about the cost measures. First of all, on the direct cost side, on the productivity, we have said that this is more about ongoing investment to improve productivity going forward. We had indicated that we intend to spend on an ongoing basis, around about EUR 150 million in this area.
We only started in June, it's not surprising that in this first year, 2018, we have only spent EUR 120 million, EUR 65 million of which in the fourth quarter. I think we are now in a good, steady state, and we are beginning to see the first benefits. As we have already said in the previous calls, this is clearly a very, very big machine room, more than EUR 10 billion in costs. That is probably the slowest moving from all the three categories. On the indirect cost side, we had said that we would invest EUR 500 million into restructuring, the biggest chunk of that going into an early retirement program for civil servants. We did indeed spend the EUR 500 million. The remaining quarter saw EUR 59 million, taking us to a total number of EUR 502 million.
Obviously both cost improvement measures will contribute to improvements in 2019, continue to ramp up towards 2020. Looking at the first category, the pricing measures, on page 17, I think there are two different topics we have to talk about. What is happening on the letter side and what is happening on the parcel side. Regarding the regulated postal products, we had a first decision on the letter pricing at the beginning of the year, which foresaw a headroom of a price increase of 4.8% on the whole bucket for the time horizon 2019 to 2021. Since then, we have had an announcement that the underlying regulation is going to be changed. On this basis, the regulator has put the pricing decision on hold because they have to wait for the new regulation, on this basis, come up with the final decision.
The unfortunate news on that is that there is a further delay. We still don't have the final decision. I think on the positive side, we obviously hope to get a bit more headroom than with the initial decision. We now have to wait for the final decision of the regulator. On the parcel side, you will probably have seen that already in Frank's presentation. In the fourth quarter, you saw that revenue in parcel grew more rapidly than volume. We are really beginning to see the positive impact from the yield activities, which the parcel team has been very focused on since the summer. That is obviously something we expect to continue into 2019, a very important element also in the ramp-up towards 2020. Turning to page 18.
Since the start of the year, we have also implemented the new divisional structure with Post and Parcel Germany focusing on the German activities under the leadership of Tobias Meyer from the 1st of April onwards. The international activities being regrouped under DHL eCommerce Solutions, under the leadership of Ken Allen. We are still reporting 2018 in the old structure. You will, of course, get full restated 2018 numbers with our Q1 reporting, I already want to draw your attention to the split, how would it look like going forward. When you look at the revenue, we have around about EUR 15 billion in Post & Paket Deutschland, German activities, eCommerce Solutions, the youngest member of the family, is close to EUR 4 billion in revenue.
In terms of profitability, not surprisingly, the profit is being made in Post & Parcel Germany, because in eCommerce Solutions, we have quite a lot of startup activities, and the starting point for 2018 is going to be around EUR -27 million for that new division. So much for PeP, I now come to the DHL division, starting with Express on page 19. Regarding the outlook for Express, we expect continued B2C growth, while visibility on B2B growth is impeded by the general economic uncertainty. For your modeling, it's worth having in mind that our active yield management to price heavy weights out of the network is leading to lower average weight per parcel. That is something you should expect in the next quarters. Revenue per day will grow less than shipments per day in the upcoming months due to this heavyweight effect. Turning to Global Forwarding on page 20.
You can see with the yellow bars how the GP to EBIT conversion has developed over the last years. It's quite pleasing to see that Tim's measures are really taking a hold now. The GSF is delivering for Global Forwarding. The Q4 EBIT margin was the highest since 2012. But obviously, that's not the end of the journey. Tim has said very clearly that for GP to EBIT conversion, the short-term aspiration is to get to 20% by 2020. I think based on the trajectory we have now seen in 2018, we are on a good path to get there. Turning to Supply Chain on page 21. Obviously, when you look at the combined EBIT for the division, you don't see progress from 2017 to 2018 because of the pension effect in Q4, because of the challenges we had in the first quarter in U.K.
I think that is really covering up a bit of the very good progress we had in the Americas, in Asia Pacific, also in mainland Europe. In the Americas and Asia Pacific, we have now reached very remarkable margins. Obviously, the one region where we now have to pay specific attention to is the U.K. That is something we are addressing, partially using the EBIT gain from the Supply Chain China transaction that has been completed in February, you can see that on page 22. So as a reminder, the deal which we have just closed with SF, the sale of our Supply Chain business in China and the entry into a partnership where we will get a share of revenue going forward. Financial impact, we will get a one-time EBIT gain of round about EUR 400 million. You will see that in the first quarter of 2019.
We will lose through the sale revenue of round about EUR 500 million, and EBIT net round about EUR 30 million. That's kind of like the EBIT of the business we have sold, minus the income stream we expect going forward. Out of those EUR 400 million, it's our intention to reinvest round about EUR 150 million into the Supply Chain business. This chunk, round about EUR 100 million is intended for the U.K. That is the last region where we still have some work to do. There's a very clear improvement agenda for the U.K. The proceeds we get from the SF transaction is now giving us the means to address those challenges. The intention is to really get into a steady improvement. Obviously, we want to compensate at least the EUR 30 million we are losing from Supply Chain China by 2020. But the intention is to really use these funds wisely.
That is leading to a sustained improvement in the profitability of Supply Chain. Coming to our new DHL eCommerce Solutions division on page 23. Well, as you know, he has been off to a flying start, even though he's officially still in his first 100 days. He is going through a thorough initial portfolio review. There are a number of very nicely profitable countries in the portfolio. There are a number of countries which are more in a startup phase. We have granted Ken also a bit of headroom, so that he can take the actions he deems necessary within eCommerce Solutions. He has put the expansion on hold for the moment. I think the most important strategic topic here is the long-term vision for the division, which is dealing with end-to-end e-commerce solutions, also stitching together components of what we are offering through the other divisions.
You will certainly hear more about this in the course of the year, once Ken has a bit more time to look into his new area of responsibility. Much for the divisional earnings improvement agendas. With that, moving from earnings to cash, starting with CapEx on page 25. For 2019, we do expect a significant CapEx increase, as we will see the peak of our investment into the Boeing 777 Express refleeting. This will increase CapEx by EUR 1.1 billion for the year. We will then also have a significant impact in 2020, and then it will trickle off in 2021. When you look at the underlying CapEx, taking out this spike from the 777 refleeting, the underlying regular CapEx has been increasing gradually over the last years, mainly supporting the expansion of our Express and Parcel network.
You should expect this to continue in a steady fashion, in line with growth in the business. Nothing extraordinary there. Page 26, I think is very important because it shows that group ROCE has been going up in parallel to the CapEx increase. I think that's the evidence that these investments we have made over the last years have been paying off. Here again, IFRS 16 is re-basing the starting point. Due to IFRS 16, 2018 is starting from a new base. Still, even under the new accounting standard and including fully loaded PeP restructuring costs, our ROCE remains above our WACC, also for this rather challenging year, 2018.
Clearly, going forward, we anticipate to continue our track record of profitable investments and again, show steady improvements in ROCE off this new base. With that, I come to the cash flow statement on page 28, which is always a bit of a complex page to look at. I think this year, unfortunately, even more so because there have been several larger moving parts, which you need to consider when looking at our cash flow statement. When you look at 2017, we had the Williams Lea disposal and the U.K. pension funding as two big discrete events. This year, we see a very strong impact on OCF from IFRS 16, which we have spelled out here on this page. We also see the fact that the PeP restructuring costs had a strong impact on EBIT in 2018, but not so much on cash.
For free cash flow, as you probably all know, we have an apple-for-apple comparison because IFRS 16 is not impacting free cash flow, and I'm really glad that I'm also saying this for the last time. When you look at our free cash flow development overall, it is down EUR 373 million compared to last year. When you look at the CapEx line, yes, the biggest driver of that is the fact that we have continued to invest for future profitable growth also in the course of 2018. When you compare it to our guidance, we actually closed the year on a more positive note than what we had expected. We had said that we would generate more than EUR 1 billion, excluding the 777s. We now have finished at EUR 1,059 million, including EUR 180 million from the 777.
Finally, one technical remark, because we had some questions on that. The famous stamp provision, this has changed lines in the cash flow statement. IFRS 15 has overall had limited impact on us. One of the impacts Frank mentioned in the Supply Chain Asia revenue growth. One other impact was that the utilization of the stamp provision is now recognized in the cash flow statement as a working capital movement and no longer as a change in provision. In terms of order of magnitude, nothing materially has changed. It's just changing lines. That is making it, again, a little bit more complex. I think bottom line is free cash flow is below last year due to the continued investments, but we are quite pleased that we have ultimately delivered a full year free cash flow well ahead of our guidance.
Regarding the operating cash flow development by the divisions, you can see that on page 29. Obviously, IFRS 16 has had quite a significant impact here. We have taken this out on this page, and you can see here that both Forwarding and Express had a very good year, not only on the EBIT side, but also on the operating cash flow performance. While PeP was actually obviously impacted by the downtrading in the core business in Germany. I think that's really now the last time I will mention it. As IFRS 16 has brought along quite some changes across many balance sheet figures. We have added a very brief summary on some key balance sheet ratios that you can see on page 13.
I think the key message here is, yes, the numbers have changed significantly after the first full year under the new accounting regime. Nevertheless, we feel very comfortable with those new ratios. We have a very strong balance sheet position, and I think that is what those numbers show you. Net debt to EBITDA at 1.9 times and a five times interest cover are very solid numbers. While there are challenges on the PeP side that we are addressing and while we continuously work on improving our cash flow performance, we still are generating good cash flows to finance our growth CapEx, and we are in a very solid balance sheet position. Which is, of course, relevant for shareholder remuneration and in particular, our dividend proposal. With that, I will hand back to Frank for the last chapter.
Thank you, Melanie. That leads us straight away to the dividend. As you can see on page 32, we are suggesting, and as already mentioned, EUR 1.15 as a payout. This is exactly in the range of our Finance policy now for many, many years. We, of course, reconfirm that policy as well. It's a very good dividend yield based on yesterday's share price. We do that because we are confident that we will continue to improve our performance in 2019 and 2020. We believe as well that we should give something back to our shareholders. If you look then into how we use the proceeds of the transaction we have done in China on page 33, you can see here the EUR 400 million Melanie mentioned already as a one-time gain from the P&L.
We want to invest some of that in the restructuring of our operations in Supply Chain, in particular in the U.K. That should help us to close the gap. We now have some on our midterm plans from the sale of our Chinese business. We also want to do something in the eCommerce Solutions, as already mentioned as well, and that should give us still a EUR 200 million upside in the DHL numbers, which is reflected as well in our guidance. In Corporate Functions, we still have to ramp up in StreetScooter and Smart Trucking that will be visible in our numbers, and that's the reason why the amount of EUR 100 million will be reflected in the Corporate Function, Corporate Incubation line. Nevertheless, at the end of the day, we will still have a net positive EBIT impact from EUR 100 million. Turning to the next page, the guidance.
We reconfirm first our guidance for next year, that we will deliver more than EUR 5 billion based on EUR 1.6 billion, which was originally EUR 1.7 billion, but we carved out eCommerce Solutions, and we always said it will be EUR 0 to EUR 100 million, so that's now included in DHL, the EUR 3.7 billion. Above that, and the reconciliation line will be then EUR 350 million negative, leading us to, in total, more than EUR 5 billion. In 2019, the range for our P&P is pretty broad. The reason for that is because we still have significant uncertainty with the postage. We also are preparing in case that the postage is not meeting our expectations, that we have headroom to do something to accelerate our indirect cost reduction. That combined is then the reason why we put a broad range into that.
We believe that this year is important to prepare for the significant lift we anticipate for 2020 in P&P, sorry. We are confident that we can make that. We believe we have the measures. As I said, depending on the outcome of the postage decision, we want to be prepared also to accelerate our reduction in our cost to assure that we can make the 2020. In DHL, which includes our eCommerce Solutions, we have a much more narrow range. EUR 200 million of that comes from the one-time gain. There is significant lift year-over-year to this year, but we are very confident that we are well prepared in all parts of DHL to deliver that.
Corporate functions, EUR 100 million are reflected here as well. Next year it should go down because we believe that we can make significant progress in Corporate Incubations and keep the cost stable in Corporate Functions. That's the guidance. In summary, to wrap up, we believe that we continue to be in a very strong position, not only strategically but also financially. We have clear measures to improve our EBIT numbers this year. If we deliver what we have promised here, it will be a new record for us. If we deliver that, we are very confident that we have laid out the right base for next year's success. Overall, strong cash flow, good balance sheet, healthy balance of growth investments and opportunities in the business, and a clear list of measures how we want to accomplish that. That's it.
Thank you very much for listening. Now the floor is yours for any Q&A. Thank you.
Operator, you initiate, please.
Sure. Thank you. Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad. In case you want to cancel your question, press 9 star again. Please press 9 star now to state your question. The first question comes from Mark McVicar from Barclays. Please go ahead with your question.
Good afternoon, Frank. Good afternoon, Melanie. Hi.
Hey.
I have 3 questions, 1 sort of a slightly soft one and 2 more numeric. The first one is just on guidance. Can you just remind us of the process that you and the board go through before you either issue new guidance as you've done for 2019 or reiterate the 2020 guidance, which you've also done? Can you just give us a sense for how formalized all that has to be or not?
Okay. Yeah. There is a quite formal element because the guidance is part of our annual close process. The Corporate Board has to officially discuss the guidance and agree on the guidance. It then goes to the Finance and Audit Committee of the Supervisory Board, where we discuss it with the Finance and Audit Committee. And then finally, it is being discussed with the Supervisory Board. There is this very formal sign-off process by Corporate Board, Finance and Audit Committee, and Supervisory Board. But I think, for me, probably even more relevant, we have regular discussions in the Corporate Board, both about what do we want to do with the guidance for 2019, but also in this context, how do we feel about the 2020 guidance? I think that's probably the background to your question.
Looking at this steep step-up from 2019 to 2020, do we really stand behind it? I think Frank can maybe talk a little bit about what you have to believe for the PeP guidance element. Maybe I say 2 sentences on the other 2 buckets. I think when you look at the DHL number, when you take the number for 2019, the EUR 3.4 billion-EUR 3.5 billion range. We have the EUR 200 million one-time benefit in there. If we take that out and we look at the midpoint of, let's say, EUR 3.25 billion. To get to above EUR 3.7 billion implies a step-up of EUR 450 million, which obviously looks quite ambitious.
When you then look at what we have achieved over the past years quite consistently in terms of step-up in Express, when you then take into consideration that with Global Forwarding, we now in 2018 had the second DHL division joining in. When you then consider that, by the way, in Forwarding, we saw EUR 145 million year-over-year improvement from 2017 to 2018. When you then look at all the good stuff which has happened in Supply Chain, which unfortunately, again, has been obscured in 2018 by one-time effects, and you believe that those won't happen again in 2019 and 2020, and that with the restructuring spend, we are now really also getting U.K. on the right trajectory. We should have Supply Chain delivering absolute year-over-year contributions
Finally, you know Ken, I don't think he's going to be satisfied having his division being the one DHL division with the wrong sign. We also expect significant improvement in DHL eCommerce Solutions. From 2019 to 2020 looks like a big number for DHL, but what gives me confidence on this number is that we are actually steaming ahead on four cylinders now, and not like in some of the past years, just on the Express engine. On the Corporate Function side, yes, around EUR 500 this year includes some headroom for the startup activities in Corporate Incubations, where we have to use the time in 2019 to bring that in terms of run rate, on a more positive trajectory. On that basis, should be able to get back to the range of around EUR 350 where we were before.
I think I'm taking some time for this answer because that is the question we heard repeatedly. How did you get to this guidance, and how confident are you? Maybe, Frank, you answer for the PeP part, and then we have that pink elephant covered.
Maybe we can even go one step before I come to P&P. What we actually do, in particular Melanie does at first with the respective division, but also I do that with them, that we go also for the individual measures. You might remember we showed for the PeP recovery, a clear waterfall chart, how we want to do that. You might even ask why it's not in the deck. I come to that in a second today. We do that for all divisions, and we also reconcile the P&L, what has to happen on average price, what has to happen on average cost, and all this kind of stuff. If you do these two things together, you get a pretty comprehensive view what is doable and what needs to happen and how realistic that is. Are these assumptions doable?
This is what we have done, pretty comprehensive, I think, in autumn up to Christmas, until we put the budget in place. We'll be reviewing that in the new year again in what we see as operational results. That's what we do, and that makes us confident that this is doable. You might ask why the waterfall chart is not included. The reason is due to the unknown postage, we have too many moving targets, and we felt it's inappropriate that we are changing these numbers. We better wait now for a ruling, and then we will update. What we, of course, internally do is that we are constantly looking into the moving parts. As I already said, the guidance is pretty broad for P&P because we have assumption what we need to do if A happens or B happens.
We would like to disclose it more if we know at least one significant pillar, which is the postage. That's the reason why we didn't update the picture, because it might confuse only everybody if we come then again later on, why is that moving and so on. Therefore, we felt it's now better. We are still working on the same plan. We are confident that we have enough measures in place to deliver what we have promised. As long as we don't know the postage, we abstain from updating that, but we will do that if we know what's going on with the postage.
Okay. That's great.
Okay.
Thank you very much for that. My other two small questions were, first of all, within the P&P range, do we therefore assume that the low end of that range would include some restructuring costs if you felt you had to cut further into the cost base? Is that why the bottom end is where it is?
Yes. That's the right assumption.
My final question is with the EUR 150 million going into Supply Chain, could you give us a few, maybe one or two practical examples of things that you've got to deal with? Is it retail RDCs in the U.K. or outdated road networks? Just a little bit of color around where that money's going to go. People have noted it's quite a large sum of money.
It is quite a large sum of money, and I think the first important message is that's kind of indicative. Of course, we will have a business case for each individual component. There will be several components. You actually touched upon some of them already. One of the attractive growth areas where we have under-invested in the U.K. is transport management. That is an area which is going to get some growth investment going forward. We have in the retail area, indeed, a couple of contracts and sites, where we have more of the classical cost of change. It will be a mixed bag. If in the end we come up with a lower number and we don't spend the full EUR 150 million, so be it.
I think we just wanted to give you an indication for the order of magnitude we have granted to the Supply Chain team. They now have to bring forward the individual business cases, we're not just going to blow the money for blowing the money, but we really want to have a very clear return path, to compensate, as one element, the EUR 30 million net EBIT loss due to the divestment of the Supply Chain China business. This is more about really getting us into a sustainable profits run rate for Supply Chain U.K. also beyond 2020.
Okay. That's great. Thank you very much for that. It's very clear. Thank you.
Thank you.
Thanks, Mark. We continue with the next caller, please.
The next caller is Tobias Sittig, MainFirst. Please go ahead with your question.
Hello, good afternoon. Thanks for taking my questions. I've got three. Firstly, on eCommerce Solutions, could you provide a little bit of granularity on what you've done, what you've been doing? You already discontinued some loss-making operations. How much does that save you in EBIT, and how should we be looking at those EUR 60 million that you provisioned for 2019? Is that something which allows you to exit one or the other country operation, or will there be operating losses in your mind? How should we be looking at that? Secondly, if I'm correctly informed, the NHS contract, which is one of your biggest ends this year, could you give us some idea on what that will do to the Supply Chain division?
Lastly, your free cash flow number, the guidance for 2019, does that include the EUR 700 million proceeds from selling Supply Chain China, or is that excluding that cash inflow? Thank you.
I take the second one, and Melanie may answer then the first and the third. On NHS, we still have a significant business. They wanted to distribute the suppliers, or the government wanted to have what several suppliers are providing. We still kept pretty attractive businesses. Of course, that will not generate the same EBIT impact as we had before. That is already reflected in our guidance. That happens once in a while, that you sometimes win and sometimes you lose, but that's what it is. We still have significant NHS business in the U.K.
On your first question with regard to eCommerce Solutions, it is relatively early days. Ken hasn't completed his first 100 days yet. I can't give you a full and precise answer. I think what is already clear is, when you look at the eCommerce Solutions portfolio, it is quite a mixed bag. We have nicely profitable businesses in there. We have early-stage startup activities which are loss-making in there. I think the EUR 60 million will probably be spent on 3 categories. The first one is that it is obviously a component of overhead restructuring taking place here as well, because we had built up overhead not in line with the more startup nature of this division. That is going to be one clear component. We will have some countries where we are going to rightsize our operations, maybe take a different approach.
That is going to consume a bit of cost of change. There will also be a very positive forward-looking element. There are some countries where we would actually like to accelerate the growth based on the good performance we are seeing. I would say that we probably have to give Ken a little bit more time, and then in one of the next quarters, we will probably give you a more holistic view on what is happening in eCom Solutions. That is directionally where we intend to spend the EUR 60 million. With regard to our free cash flow guidance. We also got a couple of questions on that this morning, obviously, because the EUR 500 million looks relatively low. It does include the proceeds from the Supply Chain China sale as a very positive cash in.
It also includes the cash out for the 777s as a very negative cash out of EUR 1.1 billion. It also includes some other moving parts, like we will have a higher change in the provisions line this year due to some of the cost of change from the civil servants in PeP now becoming cash effective in 2019. I would emphasize that obviously, the intention is to do better. We have said that the EUR 500 is our minimum aspiration in that dimension.
All right. Okay. Thank you.
Thank you, Tobias.
Okay. Thanks, Tobias. Over to the next caller, please.
Next question, Adrian Peal, Commerzbank. Please go ahead with your question.
Yes. Hi, this is Adrian. Hello, everybody. Three questions from my side. Actually, first of all, there was quite some operating cash flow swing in Q4 net of the IFRS 16 effect in Supply Chain. I was just wondering whether you could give us some more insight on what happened here, because it was quite a sizable number actually. The second one is on CapEx net of the 777s. I was just asking myself, should we continue to expect CapEx in 2020 to be at the level of '19 or lower? What is the at least qualitative assumption that we should take here? Last but not least, on parcel pricing. When I did the math correctly, actually, the parcel unit price is more or less flat in 2018 versus 2017 at EUR 3.76 roughly.
It looks like that it actually picked up a little bit in Q4. I was asking myself, is the market ready in 2019 actually for a more sizable increase, i.e., EUR 0.10, 3% or something, for example? Is that what you're aiming at? What should we think about it? Thank you.
Maybe starting with the supply chain cash flow question. Indeed, we had a very strong cash flow in supply chain in the fourth quarter. That was also driven by our real estate venturing activities with regular part of our supply chain business, but where we have a typical cyclical pattern over the year. This real estate venturing stuff is when we win a new customer contract, we have the opportunity to go and lease a warehouse or in certain attractive cases, we can also build the warehouse ourself, and then sell it on with the real estate gain to somebody who then wants to operate it or wants to keep it in his books going forward. That has been a part of the supply chain business for years.
In terms of phasing over the course of the year, given that a lot of this stuff still happens in Europe and North America, you typically start the project in the spring and then complete the construction towards the fall, and then everybody tries to get the transaction closed before the year end. I would prefer this to be spread out more evenly across quarters, but unfortunately, the colleagues tell me that this is the nature of the business. That was the big driver, because during the course of the year, we built this up in working capital, and then it is released and really brings us the cash in when the real estate transaction happens. With regard to CapEx, what I call the regular underlying CapEx, this has grown gradually over time. We don't see a catch-up need here.
It's not that we have under-invested, but we also expect that it will continue to grow gradually with business growth. I think it's a very steady pattern we expect also going forward, with incremental step-ups year-over-year in line with business growth. Finally, with regard to the parcel unit price, yes, when you look at the full year 2018, it looks relatively flattish. The important thing is that even though we only started with the heavy yield management activities in the second half of the year, it was quite pleasing to see already in the fourth quarter, stronger revenue growth than volume growth. That is very obviously something we expect to continue in 2019, because we are increasing prices quite significantly. The benefit here is, the whole market has been ready for price increases because also our competitors feel very strong cost pressure.
We have a 45% market share, obviously, we as a market leader also have to take the lead in that area.
Maybe I add to that. We do not talk about the Q1, but of course we have changed quite a bit of contracts January 1st. What we get so far as the visibility is that we continue to see good, healthy growth in volume, but we also see good increase in the average price. That is very encouraging. I think the market is ready for significant price increases. We will never comment on cents per parcel. There is acceptance in the market, and I have no doubt that our competitors are following our role model as well, because we all have cost pressure due to the low unemployment in Germany and the increases in transportation costs. Not to last by the toll increase the government has taken January 1st. We are very confident that we will see a significant increase in average price.
Even if you still have to keep in mind mix and match, because we are doing that mainly on the business customers. Of course, on private customers, we have done very little. Therefore, the average price will not fully visible in the average, but we will see that in the respective segments more.
All right. Thank you.
Good. Next caller, please.
Next question is from Andy Chu, Deutsche Bank. Please go ahead with your question.
Thank you. Good afternoon. Three questions, if I may please. Firstly, in terms of CapEx and from an underlying CapEx perspective, I understand that the EUR 2.6 billion probably won't include anything that Ken needs to do in his new role. Could you give us a flavor of what sort of headroom may be granted to Ken to accelerate the strategy within the new DHL eCommerce Solutions? Could there be a material uplift in CapEx, going forward? Secondly, on the P&P division, why are you not going ahead with restructuring, and why does that depend, I think you mentioned, Frank, on the stamp price and where that goes? Isn't that something that you can control in terms of indirect costs and potentially restart or start again the early retirement program for civil servants, for example?
In terms of yesterday's announcement in P&P of a new head, who's been with the group for some time, but in strategic roles and within the DGF division of late. How important do you think it is to have somebody that is in tune or aligned with union negotiations, or is that not a big consideration when making that appointment? Thanks very much.
I think Melanie will say something about the CapEx for eCommerce Solutions. Maybe I talk with the appointment. Tobias has been around and known as well by our social partners for a while. Of course, that plays a role. I think he has demonstrated in the short time period that he really digs into the business. He has been out in the field to deliver parcels and letters almost 10 times. That gives him tremendous credibility with also the unions and the workers' council, not to speak even about our operational leaders and our mailmen. He has taken that decision from day one when he took over the COO role. That has been also his recipe for success when he joined to DGF. He did exactly the same, fundamentally understand the business.
What I hear from our social partner, they highly respect what he has done to go out and understand before he takes actions. That's one of the drivers. He is very smart, but he is also very close to the detail. He will be a great operational leader for that type of business, despite that he has a different background. He is from education, an engineer. That might help as well. I think I will see a lot of tailwind even in that relationship. By the way, the negotiations are usually led by our HR director, Thomas Ogilvie. I think that will work. On the other side, the whole process with regulation is pretty complex, and we try to avoid any disturbance in addition to what we have already. That's the reason why we are a little bit cautious to mention too many things.
It might confuse the process even further because we might get questioned, what does it mean? That means, that's the reason why we are a little bit reserved for talking too much what we should do in addition. Therefore, we wait, and let's see what comes out. Of course, we are thinking as well what we can do in addition.
Okay. On your first question, the concern that we may see a surge in CapEx from DHL eCommerce Solutions, that is nothing I would be concerned about. First of all, for this year and the midterm planning horizon, we have split the old PeP CapEx planning into a portion for Ken and a portion for Tobias. Of course, we had included something for DHL eCom Solutions already in the old plan. With Ken's current approach, I think he is going to be extremely restrictive on this. That was also mentioned on the DHL eCom Solutions slide, that before spending more, he really wants to finish his comprehensive business review. Additional CapEx step-up from DHL eCom Solutions, I wouldn't put into the worry category.
Okay.
Andy? Just maybe one more, just in terms of the stamp price.
Where we stand on the process or
Andy?
Andy?
You were sort of cut off. Operator, is Mr. Chu still on the line?
Yes, he is.
Okay.
The line is still open. Yeah.
Sorry, Andy, can't hear you. You either unmute or try again. We would try to maneuver you in again. Okay. Operator, it looks like we lost Andy for now. Why don't we continue with the next caller?
Sure. Okay. Next question, Damian Brewer from Royal Bank of Canada. Please go ahead with your question.
Good afternoon. I've got probably three questions as well, might as well give me one last. First of all, on the DHL division in the Express side. Seems like with the focus on what seems to be yielding up on the more optimal size parcels, the focus in 2019 seems to be turning a little bit more to margin rather than volume or share. More generally thinking, at what point do you think you would need to reverse that process and start focusing on volume again, i.e., become self-diluting to prevent anyone else starting to erode your position? Just, where are we before you think bluntly margin caps out in that business? Second question, I guess this ties to the sort of corporate center EBIT guidance. One assumes the extra EUR 100 million there, a lot of that relates to StreetScooter.
Can I ask, when does StreetScooter not just turn profitable but start to cover its 8.5% sort of standard cost of capital in the business? Therefore, what does StreetScooter become? Is it going to become a sixth division of the business, or what is the long-term objective there? If you could elaborate a little bit more on that, I think that would be quite interesting. Very finally, just turning to financials. Could you clarify in terms of the PeP restructuring charges, the EUR 502 million. If we're to look at the cash phasing of that, how much of that is already in the 2018 numbers? How much of that turns into cash out in 2019? How much is left to come out in 2020 or onwards? Thank you.
Okay. Yeah. Maybe starting with the last question. The biggest chunk of the EUR 500 million, is the early retirement program for civil servants, the EUR 400 million. That had very little cash impact in 2018, but will have a cash impact, going forward. The highest one will be in 2019. We actually assume that in 2019, that will be around EUR 100 million, and it will go down in the subsequent years with the civil servants over time going into full retirement. That is the biggest chunk out of the EUR 500, and it is going to have a material impact in cash flow in 2019, gradually going down in the subsequent years. In terms of StreetScooter.
StreetScooter has been chunking up the production in 2018 going into 2019, and is in a typical financial pattern of a startup company, which is very dissimilar to our rest of the business portfolio. We have said clearly that we don't want to stay an automotive manufacturer or turn into an automotive manufacturer. We are very pleased with the operational progress StreetScooter is making. We are looking for the right financial set up going forward, where we should be able to give you more clarity in the course of 2019. With regard to Express. That is really a very fine, delicate balance. This is why we included this picture on the gross-profit triangle in the presentation. To make money and a good margin and a good growth in Express, you need constant rebalancing along those dimensions.
Starting, of course, also with what you do on the top line, where we have seen very strong shipment per day growth. What we have now started in the second half of last year was a campaign on heavyweight shipments, where we have managed out quite a bit of heavyweight stuff. That leads to a reduction in rate per shipment, and hence also to a reduction in revenue per shipment. What we expect very clearly now in the first quarter is a delta between revenue per day and shipment per day. I think in terms of more general, how to calibrate optimally in the year, I think we have to see a little bit more of the first quarter. January and February are notoriously difficult to interpret, and in those uncertain macroeconomic times, even more so.
What gives me confidence on the Express side is that we have this extremely experienced team with John now taking over from Ken in a totally smooth fashion. They know how to optimize along this triangle. We really have to see now, in the course of the first quarter, what is really the right position for the year 2019.
Okay, thank you. Can I just follow up with one, just given cash is in focus, particularly at the moment. How much capital is being sunk into StreetScooter, and therefore, how much potentially is there sitting in the business that could be released if there was to be a change in that business?
I think the big portion of cash drain in StreetScooter has been working capital, which again, is not unsurprising in a startup business, where we have ramped up production quite significantly, with opening the second production facility in 2018. Very obviously one of the key priorities now for 2019 is to really find the optimum balance between production output and sales uptake of the StreetScooters.
Okay, thank you very much.
The next question comes from Edward Stanford, HSBC. Please go ahead with your question.
Good afternoon, everybody. Two questions from me for a change. First of all, going back to your guidance on PeP, and the spread between the upper and the lower band. Are we to assume in the upper band that you have made some assumptions on what pricing might look like? I'll chance my arm in asking if you're going to tell us what that is. Secondly looking at the air freight business. Obviously, volumes have weakened in Q4, and that's been consistent with the rest of the year. We're hearing from your competitors that the air freight market was quite challenging anyway. Can you perhaps provide a flavor of the extent to which the volume fall was market-driven and the extent to which it was, if you like, a choice to have profitable volumes? How is it looking so far this year? Thank you.
Yeah. On the postage, unfortunately, Edward, I'm very reluctant in giving public guidance somehow to the regulator, what we would think is sitting there and there, because that has, of course, potential impact on the process. Let's wait what now finally the government will do, and then we will look into what the regulator will decide. We definitely assume that it will be better than the 4.8, which they gave us the first time. We don't know yet. Of course, we're assuming certain elements which are necessary to happen. Also the timing is important, when it happens and how much compensation we might get for the delay of the process. All these are still moving parts, and I'm pretty reluctant in saying more than what I've just said.
Can I just follow up on that? Sorry to interrupt. Just to say that you have made some assumption on all those variables at the upper end of the guidance, though?
Of course, sure.
Yeah. Okay. Thank you.
On the air freight side, the shrinkage of the business is very predominantly associated with our own internal decisions. It's not a statement on the market. It has been this focus on yields, which we have pursued, especially in the last one and a half years since Tim came on board. The focus for 2019 is to slowly get back into growth territory, so to change the sign. We don't have to grow in line with market yet. The focus is really on keeping the good profitability levels we have achieved, but getting from a shrinking position into a, again, growing position. That's the top priority, get into profitable growth mode for both air and ocean freight.
Thank you.
Okay. Operator, maybe before we go to the next caller, Andy dropped out of the line, but grab on his keyboard and send us the last one question that he wanted to raise regarding stamp price regulation. We still think that the three-year framework is going to be the basis for the decision. That's basically his question.
That's the question.
Yeah. Okay.
Yeah. We are still assuming that will be until end of 2021.
Okay. Andy, that's for you. Okay, over to the next caller, please.
Next question, Ed Steel from Citi. Please go ahead with your question.
Good afternoon, everyone.
Hi.
Two areas I'd like to ask about, please. The first is, am I right in thinking that with regards to that extra EUR 100 million of ramp-up costs in the Dorporate Functions, the assumption that that'll just be a one-off is because you expect gross profit from those associated Corporate Functions to grow by that amount at least? In 2020. If that's correct, what can you say to help us be reassured that that's a reasonable assumption, please? Then on the second question, again, on these modeling considerations. The EUR 100 million restructuring efforts in the U.K. obviously is a very big number relative to the size of the business and its profitability. What have been the misjudgments made, please, by that team in pricing of their contract bids in the last few years such that this is necessary?
Why should we not be fearful that these are signs of industry maturation that could repeat in other geographies over time, please?
May I take the second, and then Melanie the first. I think if you look into the U.K., what probably happened there is we were a little bit too satisfied with the progress we have seen. That's a big business. It's not a small business. It's a huge region. It's the foundation of Exel when we acquired, they did over many years, pretty well. If that happens, then maybe there have been some mistakes in detail made, I think it's now time to correct them somehow. We brought a new management team in to shake up that, and we found some challenges which we better address now. With the opportunity we got, we can do that now, that will help us to get the U.K. business back on growth and profitable growth.
Therefore, I think it's a decision from us as a management team that we say, "Let's go for it," and correct some things. For instance, the standardization is significantly less than we have in other parts of the world. The upgrade of facilities is probably a little bit not done in the way as we should have done. That should be all addressed by these restructuring expenses. I think there is opportunity to improve the underlying performance quite a bit. John said, I would like to reuse some of the proceeds we get from our sale to invest that and to help us to close the gap we have gotten from the sale of our Chinese business.
Your first question, the EUR 100 million Corporate Functions. 2018 was the first year of Corporate Functions, where we had grouped together some of the startup activities we had in the group overall. We have now developed solid business plans for all of those activities, with Streetscooter and Smart Trucking in India being the two biggest elements in the portfolio. On the basis of these business plans, we assume that in 2019, we will see quite a burden in our P&L, which is why we have flagged the EUR 100 million. Of course, the anticipation is that we will see some return, and hence elimination of the EUR 100 million by 2020, turning things into the right direction.
Again, I think this is really in terms of profile, we are talking about startup activities here, where we need the years 2018, 2019 to really get it into profitable territory. I think on the underlying corporate center, that is quite unspectacular. It actually had a very strong finish in 2018. We're keeping a tight cost control on that bucket. It is really making sure that the Corporate Function startup activities deliver according to plan.
Okay. Thank you very much. Just on that, though. Obviously, you've got a business plan. What is it about your order book or your client discussions that gives you that conviction that that level of revenue is going to drop through so quickly, please? Is there anything that's actually happened, or is it more just conversation?
I think there are a number of important elements. I guess for me, the most important element is the professionalization of the management team we have been working on over the last month. We brought a new CFO from the automotive business into the company 6 months ago, who has helped us enormously with inventory management, matching production and order book. We have announced just last week that we have a new CEO for Streetscooter. I think we have gone now over the last month, through the transition from a very much engineering research company into a professional operations managing company. I think for me, the biggest reason for my confidence is the strength of the management team. Just looking at what the new CFO has already done over the last 6 months on the finance side, I think we are seeing very good progress.
Yeah. Not to forget, we have now 9,000 cars ourselves out in the street. We are gaining every day more experience. How you charge these cars, how long they last. That is factual evidence also for external sales because people see now that this is not just one winter, it's really now on a big scale, and it has worked pretty well. Of course, I hear noise from the operation, being the head of that for some time and also from our workers' council. The only subject that didn't come up in the last weeks with regard to what we do in operations and when the unions complain is the performance of the Streetscooters.
That's interesting. That's not positive evidence, that's negative evidence, because they usually never stop to complain because they hear that from the couriers. It had worked very well. We delivered great service quality through Christmas, despite that we have 9,000 vehicles now in the business. That is also important for the new management, because that demonstrate that we really have a robust vehicle produced, and that should help to accelerate external sales as well. Yeah. Okay. Thank you very much. You're welcome. Over to the next caller then.
Next caller is Joel Spungin, Berenberg. Please go ahead with your question.
Good afternoon. I've just got a couple left, actually. The first one is, I'm sorry to once again come back to the issue of the P&P guidance, but just curious to understand whether you considered maybe setting a range around the PeP profitability for 2020 in the way that you've done for 2019, especially given how much it could swing in 2019. Also, given that I should imagine the regulator is going to look at this and say, "Well, if you think you can make EUR 1.6 billion of profit in 2020," which would be a margin back up to as high as it's pretty much been, that might have some bearing on whatever decision they've come to. I'm just interested to understand why you think under any circumstances, EUR 1.6 billion is where things will drop out.
My second question is, again, just back on the investment you're making into Supply Chain and actually indeed into e-commerce. Melanie, I was wondering if you could just clarify how much of that expense is non-cash as opposed to cash. Also, interested to understand what you think the payback will be and how long it will take to come through, particularly on the Supply Chain side. The underlying margin in Supply Chain actually wasn't that bad if you strip out the one-off. I'm interested to understand where you think it could go from here. Yeah. Let me start with the first one. The number we are planning for next year has been already reported to the regulator. To artificially change that now just to say the number is lower, they would not trust us anyway.
We believe we have all the measures, and we have to disclose all the measures as well to them, too. It's very difficult to say, "These are the measures we intend to do and this is the impact," and then say, "But overall, it doesn't lead to these numbers." That's the reason why we are confident that we have more than enough measures to make that number. Now to change that number to a lower number, just to hope that postage regulation will get better, it would be screwing up a process entirely. We looked into that again and again. We believe that we can achieve that goal through the measures we have on our desk.
I can't give you the final answer yet because we are just going through the long list of individual projects which are applying against the EUR 150 million pot. It is, however, clear that in terms of cash out for this year, that will be substantially lower than the EUR 150. I think I would also say that overall, not all of the EUR 150 will be cash relevant. We probably need a couple of weeks more to really get to the final answer. That's just in terms of direction. In terms of EBIT margin, yeah, we have a very good EBIT margin performance already in the Americas, in Asia. What has been holding us back over the last years was mainland Europe, which has now consistently moved in the right direction, and now it's the U.K.
I really think overall, we have put out some time ago this 4%-6% EBIT margin range for Supply Chain. I see no reason why we shouldn't be now really solidly moving into this territory.
Okay, thank you for that. Just to the EUR 150-ish of investment, that's all going to be one-off. We shouldn't expect there to be more going in in 2020?
No. For Supply Chain, I think, Frank also said that, I think historically, you will recall that we had a couple of challenges in the mainland Europe region to fix in Supply Chain. I think the U.K. was a little bit of a fortress of its own. That is really the one area where big chunks of the Supply Chain agenda, driving standardization, digitalizing, and so on, have not been picked up in the same way as in the other regions.
We are confident that with what we are now granting them as headroom in 2019, they should be able to really address those challenges. It is clearly a one-off, you shouldn't see a continuation in 2020.
Sure. Thank you very much.
Thank you, Joel. Over to the next caller then.
The next caller is David Ross, Stifel. Please go ahead with your question.
Yes. Thank you all for taking the time. Starting off on PeP, the slide you showed about longer term margin changes at the different divisions on page 15 of the presentation showed that really PeP was the one that's been underperforming. As you think about that longer term, where do you see it settling out? Is 6% roughly a floor? Do you see it trending back up closer to 8%? What does it need to be to earn in excess of your cost of capital in that business?
Yeah. I think the first distorting element was that, over the past years, we had two very different animals in PeP. One was the startup activity in what is now called DHL eCommerce Solutions. As you will have seen on one of the slides, we are talking about EUR 4 billion revenue, which has been ramped up over the last years at virtually zero EBIT. That had a margin dilutive effect. That is obviously now very high on Ken's agenda for DHL eCommerce Solutions, to turn it from a slightly loss-making, zero-ish position into something where we earn a reasonable return. I think Ken's aspiration is to first go to the mid-single digits in terms of EBIT margin aspiration. That is going to fix that part of the problem.
I think in Germany, Frank can maybe also comment on that. For Post & Parcel Germany, we had, for a long time, been quite successful in managing the transformation from letter to parcel. 2018 was a setback. I think clearly now the aspiration, also with the guidance for 2020, is to go back to the levels we had before. That is quite an ambition because, yeah, we are still losing on the high contribution product in letter, and we are ramping up in parcel. I think with those measures which we have explained, we are quite confident that we can get to the 2020 number.
Yeah. On the cost of capital, we are earning far above the cost of capital. You might remember that the government changed regulation a couple of years ago from a return on capital into a return on sales comparable to the players in the market. The reason is because this is not a tremendously capital-intensive business, but a very labor-intensive business, and therefore, the return on sales is a better yardstick. We also continued last year that we earned our cost of capital, and there is no risk that we not will earn. We are not guiding on margins because we are committed to more overall absolute EBIT, because there are so many moving targets with top line and price average and all this kind of stuff. We feel more confident instead of guiding for a return on sales.
What is happening at the moment, that the government is looking into that and to make it more precise, what is a comparable return on sales. It looks that this is a higher number than they have assumed so far, that should give us room for improvement as well. We want to increase our return on sales, but we are not guiding on that because we feel more competent to guide on the absolute number for profit. I can assure you, we are making our cost of capital, including charges for goodwill.
That's very good. Then last question. Frank, you've got a unique perspective on what's going on in China and Asia more broadly through Supply Chain, through Global Forwarding, through Express. I guess, how do you see the Chinese economy right now, given the trade tensions with the U.S. and the broader Asia Supply Chain?
That's a difficult question, because we are now at the end of February and not further on, and Chinese New Year is always something special in the numbers. We definitely have seen some significant traffic from China into the world by the end of last year, particularly U.S., and we see a continuation of that even. How much that is an early reflection of expected increases in duties and all whatsoever, we don't know. We believe that China will continue to grow on a pretty high level still, taking their scale of the economy into consideration. Chinese New Year is always, every time when we have our annual numbers, one of you asking that question, and we always say the same, to say really something about China, we need March and April, the first two months.
It's driven by assumptions these guys have made to shut down their operations, and they're not changing that on short notice because they give people vacation, all this kind of stuff. It's tricky. I don't believe that we are really getting massively south. You read as well, the newspapers, that they say the expectation is lower than last year's. They now want to do a tax reform and all this kind of stuff. I think the Chinese government always looks into that very carefully, and that's the reason why I believe we will see a continuation of good growth out of China.
Excellent. Thank you very much.
You're welcome.
Dave.
Thank you for that. One more caller, I think.
Yeah, one more caller. Dominic Edridge, UBS. Please go ahead with your question.
Hi there. Thanks for taking the question. Just two very quick ones. One clarification, again, running back on the free cash flow. Can you just quantify, I know you said there's EUR 100 million from the early retirement plan. Is that the only major movement we should be thinking about year-on-year, except of course, for the CapEx and other things? Looking at the EBIT growth that you're obviously guiding to, that implies a lot better cash flow. Should we just assume, and I know that you did say it in the presentation, that that's the floor for free cash flow, and therefore, it could easily be higher than that depending on circumstances? The second question is related to that a little bit on the new aircraft.
Can you just remind us what benefits you'll get from the CapEx from that new aircraft, and B, how you're financing it? Lastly, the benefit you're talking about, is that just the financial benefit of owning versus leasing, or are you including any operational benefit from lower OpEx in there? Thank you very much.
On the free cash flow guidance, there are a number of moving parts. First of all, there are the kind of like freed one-off elements, the cash in from Supply Chain China, the cash out for the 777. As I said, round about EUR 100 million from the civil servants. There's probably going to be a little bit from the other restructuring changes and provision stuff on top of the ordinary stuff. The two other things which we have assumed is that, we assume that we will have an increase in cash taxes paid. We have also guided for an increase in our tax rate. That is also something you have to take, unfortunately, into consideration when modeling for the cash flow.
Of course, in growing business, we have assumed that in line with growth, there will be some cash out from working capital. We said more than EUR 500 million and, of course, it would be very nice if we could give you a positive surprise. It's very early in the year. We have to see how a number of these elements develop. The EUR 500 is clearly the floor in the guidance. On the aircraft financing, that's also a topic where we will probably give you a bit more of an update in one of the next calls. In terms of where we stand on the actual financing, we are working on this. We are getting the first 777s delivered in the second quarter. We are looking at very concrete financing concepts for those aircraft.
That is a very special market with some very creative opportunities. I'm quite optimistic that we will really get excellent financing deals done for those aircraft. In terms of fundamental logic, why are we doing it? Historically, we've had those intercont airplanes to a large degree leased by our aviation partners, where we took not only crew and maintenance, but also the aircraft from our flying partners. When you look at the strength of our balance sheet and the financing conditions we have as a BBB+ rated company, and the spread that gives to other companies which would finance those aircraft potentially, there's just so much upside for us doing it ourselves, that we decided it would be financially stupid not to leverage our balance sheet for financing those aircraft. They will still be flown by partners to a large extent.
I think the last argument is, we would have had them on the balance sheet now anyway, in terms of IFRS 16 accounting. For me, the important bottom line is when you look at the free cash flow, you get benefits both from the financing and also by replacing aging 747s with modern aircraft. That is going to be the big impact you will see in the Express OCF going forward. We are going to use more fuel efficient aircraft than what we had before.
Okay, thanks. I'm sorry, just to go back, just follow up on the tax. I know that obviously it's a bit of a moving part. I think it went down by about EUR 1 billion, your unrecognized deferred tax assets. Can you just say what the situation is on the tax side? Is it always the case of just waiting and seeing how the planning works out for this year?
Yes, Arne, this time, we have given for the first time a range on tax because it has always developed a bit differently from what we had guided for the beginning of the year. Last year, that was actually due to the reduced profit in Germany. In terms of tax loss, we still have around about EUR 5 billion in unutilized tax loss. That is, of course, something which can potentially have an impact on how the tax rate develops. I think we have to see how the business performance is. That was the reason why we have now given a range for 2019 with regard to tax.
Thank you very much.
Okay. Operator, any further callers waiting?
No. There are no further questions.
Well, in that case, thank you very much for your very good questions. I hope you're equally satisfied with the answers. Thank you to Melanie and Frank. Before we now rush out and going to see you over the next couple of weeks on roadshows and conferences. For some final remarks on this call, over to you, Frank.
Yeah. To summarize, of course, we are satisfied that we met all indicators of our revised guidance. It was a bumpy year for us. We have taken all the actions which are necessary to put us on the right foot this year. We have seen good traction in all parts of our business in the last quarter. If you look into the year-over-year development of the last quarter, it was pretty positive. That's the reason why we believe that we can make the EUR 3.9 billion to EUR 4.3 billion this year. It also makes us confident that we have then the right base to deliver more than EUR 5 billion next year. I think we turned the corner. We are heading again in the right direction.
We are working on all cylinders now somehow and heading on all divisions. We have the right momentum and the right direction and the right measures in place. Of course, I'm very happy that I have now my complete team back, with Tobias joining April 1st. Then I also can focus more on the midterm, long-term perspective for the company, which is, of course, important for me as the CEO as well. Thank you very much for listening. We are looking forward to see you very soon again in different settings. Thank you for joining us today.