Welcome to you here in London in the auditorium, also welcome to everyone out there following this via the web. As usual, you will have opportunity to ask questions. We have couple of blocks. If you're following on the web, you're going to see there's a button where you can place your question right away. I know it's going to be a pretty busy day for you. Reporting season is high, I do understand that we are sort of adding to that busyness. Let me introduce you quickly to what we have thought of as the concept for this capital markets day. As you know, we have been introducing our current strategy, Strategy 2020, back in 2014 when we announced this in Frankfurt.
You may remember that about half a year ago, we gave you what we called a halftime report on where we stand in executing on our Strategy 2020. By the way, in between, we did a couple of tutorial workshops, the one on supply chain. We had one in 2016 on e-commerce. We understand that you have understood and bought the principal concept of our Strategy 2020. Nevertheless, we keep running into a set of questions from you, from the sell side, from the buy side, time and again. As you know, we are very thorough in also measuring that. We've been tracking where are the areas where we see you still having the most questions. Yeah. We have been tracking that for a while, from our one-on-one notes. We've been doing our online survey after the meeting with you guys.
Putting that all together, we had a serious head-scratching exercise at the IR departments trying to condensing, boiling down this set of questions we keep running into and put it into some sort of structure. That's basically what you're going to hear, in the further course of this morning. For each of the divisions, for each of the board members, we have taken basically the cloud of words and issues that keep you busy when you think of our industry and Deutsche Post DHL in this industry. Here, for the example of the CFO agenda, have structured it down to a way that you will see the board member tackling those questions. I hope that this is helping you to get a better understanding of the things where obviously there's still a lack of understanding.
That's not a certain guarantee that you will always love the answer, we will do our best to give you an honest answer to the questions that you have. That's basically it, the agenda for the day. We are starting off, of course, with Melanie taking us through the set of Q1 numbers. We thought it would be a good timing to have the CEO of the PeP division, Frank Appel, giving us his update on the status of the PeP division's business right after that, because obviously that's sort of one of the main themes today. Which is why we're also going to do a bit of a Q&A on Q1 and on PeP after that. There will be a coffee break. We have a series of presentations by the three CEOs of our DHL divisions. Again, followed by Q&A.
We are concluding the whole exercise with a state-of-affairs type of update from the CFO and the CEO. There will be time to have bio breaks and to mingle and grab a coffee. Again, I hope we can take on all the questions that you have out there. We intend to be done by something like 1:30 P.M., 1:45 P.M. Without further ado, I would like then to hand over to you, Melanie.
Thank you very much, Martin, and warm welcome and good morning also from my side. I will start with the Q1 part, which, as you will have seen by now, actually needs a bit of explaining. Which is why I am very grateful that we actually have it coinciding with our Capital Markets Day because that, I think, gives us the opportunity to answer some of the questions you will obviously have when looking at our Q1 numbers. Starting with the high-level overview. I think the first important message is that actually we had a good growth development on the top line, which you don't immediately see because we had significant currency headwinds, around EUR 780 million year-over-year down on currency, and we also see the effect of the Williams Lea Tag disposal.
When you look at our top line on a organic basis, we actually had good growth with 6.4%. The fundamental growth drivers are intact. We still see a good macro environment and of course, the e-commerce growth trend continues. When you then look at what is happening in the different divisions, with regard to the EBIT development, it is a bit of a mixed picture. We had another very, very strong quarter in Express. We saw solid progress in Global Forwarding Freight, which is of course pleasing to see. We had a quarter in Supply Chain where the good operating progress was overshadowed by a write-off on some customer contracts. We clearly had a more challenging quarter on the PeP side, where despite good top-line development, challenges on the cost side in Germany held back the year-over-year progress on the EBIT development.
With regard to the Q1 cash flow, the one-off EBIT effects both in PeP and Supply Chain found their way into the free cash flow line. We also had the usual seasonal patterns, the prepayment for the civil servants, and we had working capital performance, which was a bit worse than what we had anticipated. That together led to the free cash flow number. Putting all this together, on the basis of the start into the year, we are confident that we will make our 2018 numbers for the EBIT. On the CapEx and on the free cash flow guidance, we have added a little element, which I know has already raised some questions with regards to Express extra CapEx for our intercontinental fleet renewal.
I will talk through that as part of the Q1 presentation. Ken will also cover that in more detail in the Express presentation. I will then pick it up again later on. I think that is really something you shouldn't be concerned about. It is actually good news. I hope that we will be able to explain that in the course of the next hours. Taking a look at the P&L. I already talked about the top line. Organically, we had good continued growth, 6.4%, despite 1.6 working days less. I think that is a tick. When we look at the EBIT, as mentioned, it is a mixed picture. On the PeP side, despite a positive one-off effect of EUR 108 million from a revaluation of our pension scheme in Germany, we are down year-over-year.
The reason, I will get into that in more detail, is the cost development. Frank, as a new PeP CEO, is also going to talk about that, obviously. On the DHL side, the positive thing is that despite the EUR 50 million hit in Supply Chain, we are actually seeing good year-over-year growth. That is driven by the very strong continued dynamic in Express and by Forwarding really picking up speed. Financial result is down. I think that's now the first time I have to mention IFRS 16. I will show that to you transparently on the next slide. It would have actually been better year-over-year if it hadn't been for the IFRS 16 impact, which we had anticipated. That is also the reason why the net profit is down year-over-year.
We thought, in order to give you full transparency, on the next page, we tried to carve out the IFRS 16 effect. I want to emphasize again that we haven't been able to do a full restatement because we decided for the simplified approach on IFRS 16, which I think is understandable given the fact that we're dealing with 10,000 of leasing obligations. We believe that what we show in the IFRS 16 column is really a very good number for the year-over-year impact of IFRS 16. Starting with the depreciation, the EBITDA, as anticipated, we see a significant upswing in our EBITDA, which you will also see in the next page flowing through to operating cash flow. That is strongly driven by IFRS 16, EUR 482 million additional impact out of IFRS 16, as you can see in the last column.
On the EBIT, we had a EUR 44 million positive impact from IFRS 16. You see on the right the breakdown by divisions. As anticipated, Express is the division which takes the biggest chunk of that, EUR 16 million out of the 44. You can see the breakdown across the rest of the divisions. One remark for your extrapolation going forward. Obviously, if you take the 44 and you multiply it by 4, you come to a number which is higher than 150. We still think that the best full year number for the IFRS 16 effect is around 150. Why is that? We also have, as part of our business, real estate venturing activities predominantly in Supply Chain, which are combined with leasing activities, where so far in the previous year, we have been able to take the gain on these deals immediately into 1 year.
In the future, we have to spread it out. That is going to be a year-over-year downing effect. We did not have anything of this in the first quarter. We expect some for the rest of the year. For the full year indication, EUR 150 million is still our best number for the IFRS 16 effect. That was EBIT. Now looking at the financial result, you see what I already mentioned on the previous page, a minus EUR 89 million impact on the financial result, and that is then flowing through to the net profit and explains the decline in net profit, where we had already said before that obviously for all dividend discussions, we have this headroom in our 40%-60% payout corridor to not allow accounting stuff to tamper with our dividend decisions. Because after all, IFRS 16 is accounting.
We are not earning a EUR 0.01 more. We are not earning a EUR 0.01 less on the cash generation side, and I think that is an important reminder we always have to bear in mind. Also, when looking at our cash flow statement, which is on the next slide, where we are using the same structure to make transparent the IFRS 16 effects. You can see, as before, that we have the big depreciation uplift going to the operating cash flow. We have introduced a new technical line here in our free cash flow statement, net cash for leases, so that the free cash flow is really like-for-like comparable year-over-year. On the OCF line, you have distortions. On the free cash flow, by taking the net cash out for leases into consideration, we have a like-for-like comparability year-over-year.
When we leave all the accounting stuff aside and we ask ourselves the question, how have we really done in terms of free cash flow in the first quarter, when you look at the last line, actually we are EUR 250 million worse than last year. The fact that we have a negative free cash flow in the first quarter is not a surprise. We are always having a free cash flow, which is negative in the first quarter. For example, due to the prepayments we have to do annually for our civil servant pensions. The fact that it is negative is no news. But the question is of course, why is it so much more negative than in Q1 2017? I think there are three main reasons for that.
The first one are those two special effects in the EBIT, the EUR 108 million positive EBIT from the pension scheme and the PeP numbers, which are not cash generating. The EUR 50 million in Supply Chain, one-off, which are cash negative. The one-off effects are having an impact. The second impact is working capital, where the development was not quite as good as I had hoped for, particularly on the PeP side. The working capital development was a bit behind plan, and we had a slightly higher cash out for CapEx. That explains the free cash flow side. In terms of net debt, our numbers look completely differently from what we are all used to.
I hope that this is not coming as a surprise to anybody, because yes, we had anticipated that we would get another EUR 9 billion on the balance sheet from leasing obligations, and that is exactly what has happened. Of course, again, it's just accounting. The good news is that, for example, the rating agencies have always taken leasing considerations into their calculations. Our FFO to debt number hasn't changed materially. With regard to rating, and that I mentioned, this is not going to have any impact. It is a material swing compared to where we were last year. So much for the group overview. I will now go in the divisions, of course, we have then the benefit that all the colleagues are here and can talk about their respective areas of responsibility in much more detail. Starting with PEP.
I think the first extremely important message on those challenging PEP numbers is, it's not a top-line problem. I think you can see that quite clearly here on page eight. I think that is something which is very reassuring, because both on the postal side and on the parcel side, we haven't seen any reversal in trends. When we look at the post side, we all know it's a declining business. We had this continuous decline of around 2%-3% per annum. When we take into consideration that we had 1.6 working days less in this first quarter, we are actually continuing to decline in that range. You can see that in the commentary on the first bullet point. Mail communication per workday was down -2.7%, dialogue marketing down -1.4%.
Our statement that we believe we will continue to decline in the 2%-3% corridor, that is still valid. We may see a slightly higher number in Q2, Q3, because last year we had the big election effect in the second and third quarter that may distort the comparison. Really, also what we now see in the first quarter gives us no reason to predict acceleration of this mail volume decline. When we look at the growth side of the business, we continue to see good growth in Parcel Germany, in Parcel Europe, and also on the e-commerce side. On the e-commerce side, we have a currency impact. When you take that out, the growth is actually 17%. The growth drivers on the parcel and e-commerce business are intact, and the decline on the postal side is what it has been for years.
PeP is not a problem on the revenue side. Obviously, when you look at the numbers, there is a challenge. When we look at the EBIT composition into Germany and international, in international, yes, we are worse than last year, minus EUR 8, that is in line with our expectations that in this growing business, we will be hovering around the zero line. Q1 2017, it was positive. Q1 2018, it's slightly negative. I would say this is in line with expectations. Clearly, the focus topic is Germany, where you can see here that we went down -5.1%, we have to factor in that we had this positive one-off contribution from the pension revaluation. Obviously, there is a challenge on the German side.
Frank will cover that in more detail in his presentation. I also want to give you some transparency on the next slide to at least start the discussion on what is happening here. When you look at the PeP year-over-year bridge, you see again that it's not a revenue challenge, despite the 1.6 working days less, despite not having an increase on the letter pricing in Germany, revenue is up. Unfortunately, costs are up even more. You can see material costs and staff costs. We have taken, in this view, the 108 into the other category, so that you see material cost and staff cost without this one-time effect. When you now try to analyze what is driving this cost development, there are two categories from my perspective. One are more specific Q1 topics.
We had a big flu wave in Germany, our sickness rate is up. Given the amount of people we employ, that immediately has a double-digit year-over-year impact on the costs. That is, of course, something where we would assume that with the lovely spring weather, it should get better. Very clearly, there are also a number of topics which will continue. For example, freight rates in the German market have gone up quite a bit. That's positive for Tim and our road freight business. Clearly, we see that in the PAT numbers. That's something which the whole market sees. That is a topic we have to work with. We also have to think about other ways to further improve productivity and automation, given the continued switch from post to parcel. Again, Frank will talk about that in more detail.
We are aware that we have quite a lot of work ahead of us for the year, particularly because it's not a fundamental change on the top-line side and more a cost management question, we remain confident that we will get this under control. That takes me to a very short and easy division. In Express, the growth continues. You can see that in the first quarter, TDI shipment per day growth was 9.6%. Revenue growth was even stronger. That is impacted by fuel surcharge developments, also when you look at the underlying base revenue per kilo, we see a positive trend. The yield management is really working. Yeah, it was just another very successful quarter for Express. We keep investing in our Express division. We will cover that later. You may have seen that we opened our new Brussels hub in the first quarter.
The one area where we had a lot of strategic discussions about were our intercontinental airplanes. Where our historical approach has been predominantly leasing. We have a lot of the regional aircraft on the balance sheet. For the big intercontinental aircraft, for a variety of reasons, our historical approach has been more on the leasing side. We are now in a phase where some renewal will be required. We could easily continue with this leasing approach. Nevertheless, when you look at the cost comparison between doing a dedicated financing on our side, using the strength of our balance sheet having somebody else do it us pay a premium for it, the economics are extremely clear and convincing. I will cover that in my CFO CMD section later on.
This is probably going to lead to an increase in our CapEx for this year of around EUR 200 million. Of course, accounting-wise, this will also go through free cash flow. We will, however, show it separately, because we intend to do a dedicated financing for this, so that it's also not impacting excess liquidity considerations, which I know you are quite interested in. Again, more detail on the logic and the rationale in Ken's and my sections later on. Compared to that, all the Q1 numbers in Express are quite easy. I mentioned before that Express was the division which had the strongest tailwind from IFRS 16. Even if you take that out, you have a 12% growth.
The good year-over-year improvement is not accounting related, but is really driven solidly from the business, and that is also true for the very good operating cash flow development in Express. That takes me to Global Forwarding Freight. In Global Forwarding Freight, under Tim's leadership, we have worked on two things, or we have worked on many things, but maybe two or three things are now really beginning to show. The first one is we have worked very diligently in passing the increased freight rates on to our customers. That was the squeeze which was a big challenge for us in the first half of 2017. We have been really successful in passing on those higher buying rates to our customers.
The second element has been that we have been more selective with especially some big customers which gave us a lot of volume but not the right yield. The third one is a clear cost focus and cost control. How do you see these attention areas in our numbers? The first one is because of our selective approach, because also parting from some customers, you can see that actually our volume development has been relatively moderate, slightly down on air freight, stable on ocean freight. You clearly see the benefit when you look at the gross profit development. Well, unfortunately, you don't see it because we have a big currency effect here in those numbers. For example, the air freight gross profit at constant exchange rates would be up 11%, and the ocean freight gross profit would be positive.
Altogether, our GP and DGFF would have been up 4.9% instead of the -1.5% you see here. The good thing is the currency then helps on the cost bucket, which is also smaller, so that altogether, we get this positive EBIT development with an increase of 75%. From all the numbers I see, and I think Tim will say it also again even more convincingly, it's really pointing in the right direction, including the IT renewal, which is progressing to plan. Yes, we said that before, we are all very aware that this is needed to make our guidance for 2018, but also for 2020. It's very pleasing to see that Global Forwarding Freight is moving in the right direction. That takes me to our Supply Chain business. On page 15, we give you a quick overview over what is happening on the top line.
The first number, the new signings, in 2017, we still had the new signings from Williams Lea Tag included here. If you correct for that, we are like for like, slightly up year-over-year. Overall, John and his team have pursued a selective approach, focusing more on profitable growth than on just growth for the sake of itself. You can also see that in our revenue development, if you take out currency, which is of course a big factor in our supply chain division as well, and the Williams Lea Tag disposal effect, our organic growth is 3.8%. We are growing nicely, but because of the selective approach, a little bit lower than in express and global forwarding freight.
We are also making operating progress, which you do not see because, in the first quarter, we had to take a one-time hit, due to customer contracts where, for legal reasons, I am not able to talk about individual customers. I guess you can make an educated guess on what one or two of those customers may be. I think the important message here is that we really believe that we have covered those issues now, also financially. That takes me to the guidance slide, where, as mentioned before, we have not made any changes, any adjustments to the EBIT numbers. We confirm our EBIT guidance for both 2018, 2020. The tax rate is also unchanged at 18%.
For both free cash flow and gross CapEx, we have now included the EUR 200 million for the intercontinental fleet renewal in Express, but we are consciously keeping it separate for the reasons I have already explained. Again, we will go right into the business logic in the following presentations. In summary, it was a mixed start into the year, but we confirm our targets. First of all, because the macro top-line trends and the structural e-commerce drivers remain intact. We have two divisions which are doing really well, Express and Forwarding. Supply Chain Operating is moving in the right direction. On PeP, we obviously have quite a lot of work to do. We have identified the challenges and are confident that we will put the right measures in place. We will face quite a lot of work for the rest of the year.
We are confident that we will deliver in 2018, and that is then, of course, going to be the next important step on our way to 2020. Much for the Q1 update, and with that, I will hand over directly to our new PeP CEO, who is going to explain the PeP development in more detail.
Thank you, Melanie. Good morning as well from my side. Indeed, it's always interesting to look a little bit closer. I have been around for a long time, and of course, I have seen many things in PeP, but may I give you a little bit of perspective now being in charge for that business for four weeks now. You asked us a lot of questions in the past as well about PeP all the time, that's not surprising. We condense them to four key questions. First is, how is the development on the mail business and the parcel business doing in Germany? How do we manage our cost and profitability going forward in that area? The other areas, why we are doing parcel in Europe and what is actually e-commerce doing around the world? I would like to answer these questions.
As Melanie already said, the first good news is, there's definitely not a top-line challenge if you look into that. There are some opportunities, I think, in that area as well, how we can manage top line. Here you see our volume development over the last seven years. As we predicted, we had a decline in volume by 2%-3%. We never lost a large customer. The E-POST business helped us quite a bit, but volume, more than a billion volume is now there. Without that, probably that decline had been one percentage point more per annum. That's good news. We see now an interesting phenomena that e-commerce is now touching more and more of the mail stream as well. Our customers are sending low-value products through mail, which is the larger piece of mail. Not the standard letter, it's more the larger pieces.
That creates some challenges as well for our operations, because as I will show you later, the automation is advanced much more for the smaller letters. That is good news because it helps our top line. It's a challenge for the time being after we learn to cope with that somehow on the short end. Confident that we will see a continuation of these 2%-3% decline going forward. No news here. Actually, it's good news because that decline has been much better than operators. You know that we have a tight regulation on the stamp price, that shows you the history.
In 2015, we got a deal for three years, 2016, 2017, 2018, we always knew that 2018 will be perhaps the most challenging on the mail side because we have seen the last price increase, beginning of 2016. We are able to talk now to the regulator in autumn again about the next price step. I think there's an opportunity to do something here because the inflation went up, the salaries went up, as I will show you later. Therefore there's an opportunity to do something. As you have seen, we have seen quite good step-ups in pricing already, that didn't have significant negative impact on our volumes. Otherwise, the volumes had declined more. Therefore there is an opportunity, we will see that later this year. That's definitely an area we have to look at.
As expected for the mail part this year will be more difficult than 2016 and 2017. If you look into our guidance, the guidance for the division was already flattish to the previous year. That's a reflection of that somehow. If you look into the parcel, that's a very well-oiled machine. We provide great service. We have the best parcel service in Germany. We have seen in the market growth. We have actually grown faster than the market. That's the reason why we have gained market share in that area as well for many consecutive years. That enables us to invest even more into the network, which increase then the service quality again, and therefore you have a very positive cycle here, how you can improve the performance.
We are confident that the business in Germany will grow 5%-7%, as we have told you already before. We have seen that now in many years, that in most years we even outperform that expectation in the parcel area. The question is always, are you dependent just on one or two customers? I think that clearly demonstrates that this is a broad range of customers who are growing equally fast. Here you see first how much we have grown with business customers in that period more than the market. Second, more important here, you see how much of the revenue comes from the top accounts, the medium accounts, the small accounts. What you can see is that we see a very balanced growth rate across these channels.
It's not just one customer or two customers, it's e-commerce growth, which comes from all channels. That's important. We see that even that the medium-sized customers have grown on average even faster than our top accounts. That's good news as well for the parcel business. It's not just one dependency or one or two or three customers. It's a pretty broad range what we can do here. That is, of course, the e-commerce segment here. I think that's quite important to know that we really grow here. If you talk about then finally to summarize that, yes, we will see on the level of the mail volume decline, which will continue on a certain pace, as I already said. There is an opportunity on the other side to continue with our E-POST because obviously is a good defense mechanism for our business.
There is a pricing opportunity in Post coming in this autumn. If I look into the detail and I see the effect of costs are going up in parcels as well, we also have to look, and that's too early to say, but now looking into the four weeks, I think we have also to look into the pricing for parcels going forward. The markets are growing and the markets are getting tighter in Germany with regard to labor and transportation. You have to ask yourself, what is a customer willing to pay? Finally, the parcel growth is very much intact. We will see a continuation of e-commerce. If I look onto the top line, I think there are going forward more opportunities than risk. That is also my understanding if I look into that in the first four weeks more in depth.
Of course, I have seen that already before, but it's good if you look into more detail. I think there are more opportunities than challenges. How do we manage costs? First of all, before I come to that, what we are doing there, again, this is still an organization which has 60% of revenue coming from mail, which is declining. You see here the change in Germany, it's not more than one for parcel. The division overall has even more in parcels, but that's related to Europe and e-commerce. We have almost two-thirds still in mail. That's important, and that is a trend which will continue that we will see decline. You can see that here we lost 14% since 2010, and we gained 68% growth.
That changes the mix how we operate, and that of course puts pressure on the operation somehow. These are the trends we have to face. Nothing is new about that. Here is just a high level. This is the total staff cost, transportation cost, not separated for Germany and for international business somehow. You can see there, of course, in Germany we have pressure from the market on transportation cost. The labor rates are going up, the freight rates are going up. We also have seen in all these years an increase in our salary costs somehow. As I said already, in the year 2016, it was the easiest year because we could compensate to price increases. 2017, we of course managed that through productivity. 2018 was obviously most difficult this year. The cycle will now start again in autumn.
That is of course the opportunity as I said. That's the challenge on the other side. The contract is I think reasonable because the salary increase will only hit us in October 1st. A new colleague who is in charge for HR has done I think a good job to negotiate something which actually is also significantly lower than in some other industries. Therefore I think we have found a good balance between doing something in a market which have hardly any unemployment left. On the other side, not to overshoot somehow. I think that's a good balance, but it puts another pressure, particularly in 2018, on our cost structure, without a doubt. How we have dealt with that in the past, as you know, we have extended our joint delivery.
That's good news that we still have so much mail and that mail is only declining slowly. That gives us an opportunity. Instead of having two networks, we have a combined network. You see on the left what we are doing there. That gives us, particularly in the rural areas, a significant competitive advantage because we are delivering combined and nobody can ever match that cost structure, because there is a significant benefit from having the mail and the parcels at the same time. We also have seen a switch from the mail operation to the parcel operation. Of course, the new hires on the parcel areas. Of course, because the age is different, there's also a cost benefit by hiring new people and also our second new level of salaries, which we have introduced when we had one more strike in 2015.
Helps us as well to compensate. We see growth in headcounts, but the per person, of course, is a good switch from mail delivery, which are usually where people have worked the longest and are significantly more expensive than the newcomers. I think this is one opportunity and of course, when mail declines, we will probably have more opportunities to extend that network even further. We have standardized a lot. Here you see that we have to do some pickup and unloading. There are new ideas what we can do to make it even faster and more automated to sort. In the middle, you see that for standard letters, we are fully automated. For these new products from e-commerce, we are significantly less.
That's, as I said already, a challenge on one end, but also an opportunity going forward because I have no doubt that you can automate that. Of course, the parcels are 98% sorted. That also should give you a hint that we have not a shortfall on automation. Some of our competitors has now taken CapEx up a bit because they are not so fully automated as we are. They have a need to do that. We have more to look into how we can improve productivity further. There are also opportunities in the last mile. Due to technology, we can do more. The interesting thing about the whole thing anyway, now being four weeks in the job, the opportunity is definitely there what we can do. First, I believe we have an overhead opportunity there.
Because the unit has done so much different things, and that has added some overhead, which I think we can go back. If I look into productivity and cost in this year already, there is a wide variety how well the regions have done. That gives me a hint that we can do much better. If some regions can deal much better with the cost structure than others, that's a homemade problem and not a market problem or a fundamental problem. That gives me the confidence that we can overcome these challenges on the overhead side as much as in the productivity side. We can do even more here in installing new technology. That gives me the confidence that as long as you don't have a market problem, you can fix the problem.
I'm very confident that we will see improvement already this year. That's the history summary. We have done pretty well. When we started the journey 10 years ago, many people never thought that we can really level out the profitability and EBITDA. Now we have EUR 1.5. That's not still one quarter away from where we have been before, but we lost a monopoly. I think we have managed that very well. That also gives me very much confidence as long as we don't see many issues on the market side, that we can cope with that as well. As I said, there is an overhead structure which probably creates an opportunity, and there's a significant variety in Germany about productivity as well and cost structure.
That is something you should collect because there's no reason if a business is the same why the costs are different and their productivity is different. I think there is a good track record of this organization. We have a very strong team there, and that's the reason why I'm confident to overcome the challenges. Here are opportunities as well. What we have to do is, of course, we have to continuously look into the different areas. I don't have to go through the detail. There are many opportunities to look in all the cost structures somehow. I think we will do that. We will do continuous improvement as we have done. We have to accelerate that. If you look internally and you see a significant variety, the deployment of certain things are probably not consistent. Overhead is a challenge.
I think we need to look into also how we deal with the post network going forward. If the decline continues, what we do with the parcel. I think there are many opportunities to improve the cost structure. That's the reason why we are confident that we can make our numbers this year. This is here somehow, and I already said that is balancing what you see. We have an inflation, without a doubt, in Germany. We have cost of the parcel expansion, and we will cover that through more parcel growth, through natural attrition and joint delivery, which are, I think, helpful because we are swapping the more expensive to the cheaper and we enlarge our footprint where we have joint, and that is a competitive advantage. Finally, productivity gains. That is in the operations as much as in the overhead.
That should help to compensate for the challenges you see on the left. Finally, the other two questions. Why we are doing international expansion in Europe? Here you see the opportunities. Here you see the numbers of parcels per capita in the different countries. You see that here in Great Britain and in Germany, the number of parcels which are delivered to the citizens are significantly higher. There is no doubt that all the other countries will follow that model. That is the opportunity. There is huge opportunity across Europe to really build a new business model somehow, which is our last-mile delivery for e-commerce and consumers. That's the opportunity, and we believe 4.5 billion parcels will be sent by 2025. Since we are the expert in the field, we would miss a huge opportunity.
It would be foolish not to do that, and that's the reason why we have started. Here you see what much progress we have made already. We have found different solutions for different markets. We don't think that one fits in all. Therefore, in some areas, we have taken over business over from Express, where we had already operations, and we have now moved them from more or less B2B to B2B plus B2C, and that's the list on the top left. We have some greenfield operations, Slovakia and Austria, where we really started from scratch, and they are doing pretty well, and they are ahead of the plan. We have done some acquisitions. In France, we acquired a minority in Relais Colis, and in the U.K., we acquired UK Mail. That's different answers to different markets.
On the right side, we even have in some markets, we are working with partners because we think these will be huge inbound markets anyway, and they never will be large domestic markets, the majority will be cross-border, and therefore, it's right to work with a partner. They follow our standards. That's good. They will use our technology, our labels somehow. That is the long list of activities. What we have seen is that our growth has been stronger than the underlying market. The product offering offers fits purpose. I believe there is a huge, as I said, an opportunity. We showed you recently as well, I don't know, I think with the annual result or this quarter, that we have already first countries which are in the target range of 5%-8% profitability return on sales.
That gives me confidence that you really, it takes time because at the beginning, you have to build scale. After a certain time period, you can really make these countries profitable, and then they have a decent margin. Despite that, you still see significant growth, as I explained before. That's the opportunity, and that's the reason why we are investing in Europe. What we are doing in e-commerce, last question. We are doing many different things, and that's different by country as well. We are in principle in three things. We are in the domestic delivery, in the cross-border, and in fulfillment. That's a huge opportunity as well. Some of these markets are even less advanced, and many of them will never build retail malls on a big scale because there is no space, there is no need.
They go straight away to e-commerce, the curve should be much steeper as well. We have a good domestic delivery footprint in the countries you see here. Of course, the U.S. is a significant piece and then India. Also now in Thailand, Malaysia, and Vietnam, we are doing our own domestic delivery. Thailand, the first one, is far, far ahead of what we originally expected for volume growth. That is because our product offering is good, but also because the markets are even growing faster than originally anticipated. That is good. Cross-border, we see tremendous growth as well in our crossway markets, particularly to Europe. There's a lot of demand. Some of that is, again, coming also to Germany. These e-commerce products which are larger, many of them are coming from Asia and are getting in here and then last-mile delivery.
That will continue, we have to be present. Fulfillment, I think this is the biggest long-term opportunity because particular brands are looking for a combined entry strategy, how I can get a solution for inbound warehousing and last-mile distribution. If you can make that as plug-and-play for these companies, they definitely are very keen to go straight away to the last mile. They create the portal and the products, we will then do that for themselves. I think there's a big opportunity in many Asian markets, but we are doing that also in the more mature markets already. That is, I think, what we want to do, I think there is an equal large opportunity like in parcel Europe. That's the reason why, here see, we reconfirm that we will be able to deliver these numbers.
2020 is definitely something which is achievable, I think, what I have seen so far. 2015, after a weak start, is a challenge, but at the moment, we still are very confident that we can make that number too. That depends as well on kind of measures we will develop and if there is extra cost to these measures. Overall, there is more than enough opportunity to improve productivity, reduce overhead costs to make our 2020 goals. I am very confident after I looked into that for weeks.
I definitely am more equipped to say more when we go through the year because I have the intention to do that for a while, as I have done that with DGFF as well. I learned a lot. I think I hired the right person. We set the right base. You see now the improvements coming. I am very confident that we can repeat that in PeP as well because we do not have a market problem as we do not have a market problem in our DGFF division. That is more or less what it is for PeP. As you have seen, we have challenges, and that is related to the phasing as well as post price and the productivity. We also have, I think, enough opportunities to overcome these challenges, which are not market challenges, but internal challenges with regard to productivity.
With that, Melanie and I are more than happy to answer now your questions to her speech and my presentation.
Right. Thank you. Thank you, Frank, for that. May I encourage you to use the microphones that you find somewhere near your seat. We will be dealing with questions that are coming in from the web also. Let us start by taking the questions we have here in the room. Mark, we start with you, and then Damian.
Yeah.
Is that working? Yeah, it is. Good morning. Mark McVicar from Barclays. A couple of questions. With the absenteeism, could you give us a sense of the scale of the cost of it? What gives you the confidence that it was just related to the flu incident, and there isn't just a general increase sort of sitting underneath there in that absenteeism rate?
Yeah. I think Melanie said that already. It's a low double-digit number, to really precisely define that is very difficult, but we had a massive flu this year, which was significantly stronger than in the previous year. You can read that in the news. Of course, our people catch that quite rapidly somehow. There is definitely an underlying trend, but not of that scale. Therefore, we will see a continuation of that sickness rate because our workforce will become older, but not of that scale, what we have seen, and it's a low double-digit number in the first quarter.
Yeah. You can really very clearly see there's kind of like the long-term trend and now really Q1 2018 is a blip on top of the trend curve, which is why we're able to quantify it as a year-over-year burden of low double-digit number .
Thank you. The second question still on PeP, I think, Frank, for you is obviously with any postal business, you can identify what needs to be done to get costs under control and down. All of these things tend to take time to put the plans together. You've got a unionized workforce. You've got to agree those changes. What gives you the confidence that you can sort of make up what you've lost in Q1 by the end of the year? Because that's only seven months away now.
Yeah. That's the reason why I've said, there's definitely some spend which is discretionary. You can check straight away. There is also a variation of transportation costs. The optimization in that's also more variable. If we talk about headcount reduction or productivity improvements, it's probably wrongly said headcount reduce because we will see a continuation of headcount increase because we will get more parcel into the network. It has to be more productive, and we will see how much we really can digest. That's the reason why you don't need so much restructuring, because if you make people more productive, you can produce more parcels per employee, and then you do need to lay off people. That's, therefore, I'm confident that you will see some impact already this year. Finally, the overhead, I think that's something we have to tackle.
There's, again, related to people, but where's also discretionary spend. Therefore, I think as I said, 2020 is much more certain that this is achievable. Maybe I say in two or three months something different if I really understand what kind of measures we should take. At the current stage, I'm confident that we can make also our 2018 numbers.
Okay, thank you.
If I just may add, when you look at it mathematically, if we want to get to our guidance, we have a bit of upside, from IFRS 16. It essentially means that for the remainder of the year, we have to be on last year's level. For the big workforce out in the field, as Frank talked about, we really have to focus on productivity. With regard to overhead, there are also short-term things which we are, of course, taking as measures like, every vacant position where people want to do a rehiring, is going to extreme scrutiny, and those are things where you also don't need extra money to implement it, but you can do it quite quickly.
Okay, thank you. My last question is, when you set the guidance for PeP, did you know that the EUR 108 million pension revaluation was coming through? Was it part of the guidance?
We didn't know that there was EUR 108 million coming from this pension scheme. We knew that 2018 would be a challenging year on PeP. We already discussed in March that our guidance looked cautious. Of course, we knew that it would be a challenging year, which is why we were already thinking about what levers could we pull in the year. We had a couple of measures, thinking about the pension scheme, was something which we had on an option list, but not in the order of magnitude. What we have now done with the pension scheme is something which structurally we had done to a similar degree already before, where we then used that to offset our early retirement scheme against. It's not something structurally completely new.
Thank you. One last quick question. The extra spend on intercontinental planes-
Should we expect that to continue beyond 2018? Does the EUR 200 million-
Yeah.
Get Ken all the shiny planes he needs?
No. We will go into this in more detail later on, but to tackle it already now. We are constantly going through renewal in our aircraft fleet, right? I think, what we have now analyzed in quite a lot of detail is what is really the economically sensible thing to do on our intercon fleet, where historically, for a number of reasons, we have very few owned planes, and we do the most part of the intercontinental flying with partners through ACMI agreements. We will continue to work with partners, for flying rights, and a number of other reasons. What we have now really looked at, what is the best way to deal with the A component.
When you look at our financing costs, and the returns you get in terms of operational savings from having your own aircraft, and Ken is also going to talk about the operational flexibility it gives you on top. There is an extremely convincing case to consider moving into more buying. That is going to create some additional CapEx also beyond 2018. We can't quantify the whole number yet. We have done some simulations. When you look at our CapEx intensity at the moment, for 2017, we had 3.8%, so let's say it's around 4%. We would say that even if we go the full way, it would probably in a peak at 150 basis points. That's really rough to give you a feeling for a worst case. Yeah. I will talk again later that this is really going to be accretive to our EBIT margin.
We will finance it in a separate way so that it's not going to take away from excess liquidity where you would maybe propose us to do something else with that. Again, yeah, our financing conditions are so attractive to let somebody else finance those big planes and then give them to us with a markup just really doesn't make a lot of sense. We still have that option. Yeah. If the world looks completely different in 18 months' time, we can say, okay, we go back to what we have done successfully for the past years, go back to the ACMI model. At the moment, it looks really attractive financially to separate the APs and do that more ourselves than we have done in the past. Yeah.
Thank you, Mark McVicar. We continue with Damian Brewer.
Good morning. Damian Brewer from RBC. Two question areas, please. First of all, in DGF, at least it looks on paper like the SG&A cost fell again. But could you maybe elaborate a little bit more on how much of that was currency and how much of cost is there in there for the buildup of the technology change coming within that business, how you'd expect that to trend over the remainder of the year? The second question, coming back to PeP again. Frank Appel, you mentioned there was some sort of regional variability in the business and variance. Could you expand a little bit more on that? What causes it? What kind of variance there is in the cost base? What that means you think you can do with that?
If it's not a cost impact, because as I think Mark McVicar mentioned, that would seem to take time to build up. If it's a price reaction instead, how much room for maneuver do you have on prices, particularly in the parcel side, vis-à-vis both your competitors and the duration of shipping contracts you'll have signed with your customers? Thank you.
Yeah. May I start that? What I meant with variation in Germany, I am talking about the regions in Germany. This is management. There is no other reason than we have in some areas significantly better execution than in others. That we have to realign back that everybody provides in a pretty narrow range, the same service quality and the same cost per item. That is the opportunity, I think, which is a management problem, and not a fundamental structural problem. That is the reason why I think it can be addressed. The second is, that is a very interesting area, we have grown in the parcel area quite a bit and gained market share. I think that triggers immediately the question, is there now headroom for the price line as well? Because otherwise, you should at least test that, and we have to consider that.
We have not taken any decisions, I think it is an opportunity. If the market is getting tighter by supply, then you have to consider that. We will look into that very carefully. Of course, there is always a fine area of that. I think we have learned in the other divisions as well, if you provide premium service, there is a price ticket to that. That is, I think, an opportunity for us, as I said. On the market side, as I said, the price regime in Post and Parcel, this is more an opportunity for us than a risk. We have increased prices in Parcel already in the last years. Enough, that is a good question, and that will be considered.
To the forwarding question. It is correct. When you look at our stat book, you see, for example, on the staff costs, an 8% year-over-year decline. That is heavily supported by currency. That is kind of like the converse effect to what you see on the GP side. When you look at the development at constant currencies, staff costs are down by about 2.2% year-over-year. We really see the impact of the cost measures Tim and the team have taken.
Tim will talk later about that anyway, I guess.
Yeah.
Okay. We continue with Mattia and then Dominic.
Yes. Mattia Gherardi from Goldman Sachs. First question is about excess liquidity as you referred to it once or twice. I don't know if it's later in the presentation, but how do you define it and how do you see what's the current amount of excess liquidity that you are thinking about? A second question is around the FX. We have all this data about the FX impact on the revenues. What do you think is your feeling about the potential FX impact that you have had at the EBIT level, given that I presume also perhaps in some divisions like Express, maybe it was even supportive, the FX. Just two quicker ones. Firstly, just on parcels, would you consider a price increase in parcels also midway through the year or no? Would your contracts typically run just from the 1st of January?
I think particularly in the context of your guidance for the current year. Lastly, just a quick comment on StreetScooter. Just maybe twofold.
Basically, was there any impact at the EBIT level in this quarter from the StreetScooter? Secondly, we read in the press, maybe there might be some options on the table. If you could give us any comment about I think you always referred to it as being non-strategic. How long do you think it will stay within Deutsche Post? How many years? Thank you.
Pricing is a very sensitive area, and you have to be clear you can't make surprises to your customers. I know that everybody wishes that, but we have to follow a certain process. Therefore, when we really do something, let's wait and see. You should not frustrate customers by saying out of the blue, now we make a price increase. You have to prepare the market if you want to do something.
It will not be a rapid decision. It will take some time. When we really do something, let's analyze that first and then have a discussion with the customers before we do something. On the others, we both can answer probably both questions, but maybe Melanie, you answer the StreetScooter question.
Maybe firstly, quickly on the excess liquidity and the FX impact. I am going to cover that later in the day. Both are interesting and relevant questions. We understand that. That is why I have included some slides in my second deck of
I will say, because you want to know that not only from [inaudible], but also myself, I have some pages as well in my deck as well, what we think about that.
We try to be aligned. On the StreetScooter. The StreetScooter and Frank actually has a couple of pages on where we actually stand in his presentation. It is a fantastic success story. We have 5,500 of these fully electric delivery vehicles out there on the street. Obviously, it's a story where we are now thinking about what's the best way to move it forward. I know there have been speculations what we may do with that. I think for us, a very clear focus is to grow it within the company. We are going to move it to the new area of corporate incubations now. We have a long list of interesting things. We have now started external sales. We're really going to push the sales side of things.
We are going to open our second production plant in Germany end of the month. We are, at the moment, really focused on continuing the success story of StreetScooter over the last years.
Mattia will then continue. Then, we don't disclose a number, the impact, but there is an impact as well. If you take all these impacts together, you saw if you take the year-over-year, we have a EUR 20 million expected lower EBIT number in the international business when we had last year. That's EUR 21. We have about probably, it's obviously a question, EUR 30 million-EUR 40 million less revenue due to the 1.6 working days. We have a salary increase of about EUR 40 million. We have a sickness rate. We have higher tariffs. The bridge perhaps becomes much more explainable if you see that. We expected that in the first quarter anyway because the quarter is shorter. Certain effects we didn't expect. The flu was very strong this year, and the transportation cost we have not foreseen either in such a strong way.
If you see things like the EUR 21 million year-over-year decline in EBIT for international business, we expected that. We expected the certain quarter. It was worse due to some reason when we expected. The impact of StreetScooter and other incubations have impact in the first quarter of the underlying PeP number. We will go forward as well with corporate incubations. When we are clear, we will show more about that as well. There are elements on StreetScooter as well. The whole bridge becomes much more clear. You saw as well there were some smaller one-time effects last year. That's the reason why you saw only it was EUR 44 million positive impact from others and not EUR 108, because we had last year some positive impact as well, which were so small that they didn't have to be disclosed.
Cumulative, they had a positive impact last year. Therefore, on balance, the bridge is more explainable. Nevertheless, there is an opportunity on the market side for pricing, and there's an opportunity on the cost side in the overhead area and also on the productivity side. That makes us confident to close the gap which we have generated in the first quarter. Dominic. We go with you, and then Andy.
Hello there. Dominic Edridge from UBS. Just two things from myself. Firstly, just going back to the point just made, Frank, in regard to the incubator businesses. That sounds as though as they get bigger, obviously it's going to add more noise quarter by quarter. At what point do you think it'd be worthwhile splitting it out? Because you say trying to explain all these things in an absolute number within the PeP business, where there's an awful lot of other things going on, it's going to get more and more complex. My second question was more looking at the business mix that you have. Obviously, we all knew about parcel and about the small letter business, the flat letter business. Obviously, you're now talking about the large letter business.
Can you just talk maybe a little bit in generalities about contribution between those different elements and what will happen as the business mix changes going forwards, what we should think about in terms of margins and also in terms of how the cost base will move as well there? Thanks.
Yeah. On the first one, the intention is why we have separated the corporate incubations out has two reasons. One reason is because we think we have great ideas. Where we need more visibility to our shareholders because they have a different dynamic. It's true that these businesses sometimes are growing very rapidly but have negative EBIT impact. This is very difficult and disguised somehow in the numbers of PeP, which is twofold negative because, if we have really attractive business who are growing rapidly, you should know that. It's not seen on the top line nor on the bottom line, and it dilutes our profitability in PeP. That's one motive. The other one is, I know that as well, there has been probably a little bit of loss of focus in certain areas as well on the core if you do so many other stuff.
That's right to separate that and give it somebody else and refocus on the focus in the PeP division on what is important. That's mail and parcels. We have seen that how much focus can help in the Express division, because that's Ken's mantra now for 9 years, to focus on something, that helped a lot. I think that is also what I see now, that you have to be clear there is an area of responsibility you should focus on these new opportunities. We have not made our final decision, but of course, we need to be more transparent what's going on, what's going on on the top line, what's the business model, and what's the potential negative impact currently and in the future. That will help you to assess that differently. That's a problem we have.
We have to deliver every quarter our numbers, we are competing in certain areas with startups where you don't care about what kind of cost it is, as long as it grows very rapidly. I think with corporate incubation, we want to try both to show you visibility on that so that you make your assessment on that. Separately, how really the long-term four divisions which we have are doing underneath. At the moment in PeP, this is mixed. The combination of many of these startups have a sizable impact on our numbers in PeP. That needs more transparency. How we want to do that, we are still internally in the process to define that. The second, that was
Visibility between products.
Yeah. The business mix. To be honest, I asked the same question. I have not got a full answer to that. The problem is because it's all produced in the same flow. You can make now any guess in any allocation, how you allocate certain costs. That needs a little bit more in-depth analysis to really get a good understanding what's the yield for the respective line. That's not easy, to be honest. In a integrated network, it's not so easy to really get the idea is that what's the positive or the negative impact of that.
Just to get an idea, do you feel the current pricing structure differentiates between the different products enough, just from what you can see?
That is the question we will answer as well in our price request somewhere later this year. Of course, that's the reason why we need that analysis as well. I think it's not completely odd. I think it's not completely wrong. The prices are significantly higher, and it reflects probably reasonably well the actual cost structure. That's the reason why, as again, I said, it's good news that we get volume now through something which was not original mail volume, which is low-value product shipped in letters. That should give us good opportunity also in volume in the mail business. We are not probably as effective as we have been with the standard, which was a core product, and that is new and that has to be adapted. I think we have to equip our machines differently, and that is something which takes some time.
Overall, this is great news that we see growth again in an area where we said this would be gone. Many people felt that by today already the business had been gone. I always say, if I talk to some of the Silicon Valley people, say, "Forget email." Email is gone. The young generation doesn't use email any longer. They just take messaging services. I promise you, email will be gone earlier than our letter business. Let's continue then.
Good morning. It's Andy Chu from Deutsche Bank. Two questions, please. The first one is on stamp prices, obviously the formula is somewhat fluctuated and changed over the last few years. What are your expectations, please, in terms of stamp prices? Are we going to see an annual increase? Are we going to see a sort of cliff face again? My second question is on the international e-commerce parcels business. Where are you in terms of the investment phase? Are you sort of past the peak, at the peak of investment such that we could see an inflection point for the first time in profitability next year? Thank you.
Again, that's a question we have not finally decided, I think we had a benefit for having a three-year period. Consumers are prefer to have one step and then stable prices. If that will be accepted by the regulator, we will see. If they have done it once, why should they do another next time? I'm reasonable optimistic. I think it's better instead of having smaller incremental steps every year, I think that is what consumers are frustrating. Don't forget, consumers, which is a main area of that anyway, are spending, I think, only €2.60 in the meantime on postage anyway a month. It will not be a big difference for them anyway. We have seen that in the past as well. Due to the small amount, there has been more or less no elasticity to the demand somehow.
It's very difficult to predict because we are not on our own there. I think it would be smarter to go for another step and then keep it for a certain time period stable. The second question was on, I think that's too early to say. The problem is we are still learning so rapidly, if we see, as we have seen in most of these emerging countries, we have seen stronger growth. I want to keep the pace. I don't want to stop it now due to. I said that to the team as well. We will not fix the challenge we have in the PeP division by slowing down our European parcel or e-commerce business. I think we would be foolish to try to optimize that to EBIT.
I think the focus has to be that we are really doing our homework in Germany, and that will help us much more. And the rest is that we should continue as fast as we see success, that we continue to invest. And therefore, I think it's too early to say that we have seen already the tipping point for parcel e-commerce yet.
Yes. I think in terms of financial implications, our guidance here remains unchanged, that we expect the whole international portfolio to hoover around the break-even line. Not giving us a significant contribution, but also not being a significant drag on profitability.
Could I just ask one more, just in terms of the phasing of how you see the cost challenges of PeP improving. When you look into Q2, Q3, is this going to be back-end loaded in Q4 in terms of the catch-up, such that you get back to flat year-on-year? Do you think already in Q2, the market should see the benefits of what you've been describing?
I will not promise anything. I think we are confident that we can make our numbers. How the phasing will be, don't ask me now after 4 weeks, exactly about the phasing of that somehow. I think let's wait and see how that works somehow. Q4 of 2017 was not a stellar performance on our side, and that had different reasons. Let's see what we can do through the year.
Okay. Maybe before we continue with Ed here on the floor and you, let's throw in on that topic also a question that we got from the outside, maybe to you, Melanie, from Adrian Pehl. Is the pension revaluation potential then exploited for this year? Do we see any other one-offs of this nature or this side that we expect being part of the PeP result? An understandable question.
Let me take 1 minute to explain what actually gave us this EUR 108 million benefit. It goes back to something which we already did in 2016 for our current employees and pension years. We offered them the option when they go into retirement, instead of getting a monthly payment, to get a lump sum payment. That is, accounting-wise, a change in the plan, where you ultimately pay interest arbitrage. We have a group of people which have pension entitlements against our company, who are no longer with the organization, and we hadn't touched that group yet. We basically did the same thing. Now we are also offering this group a capital payout option. That gave us, as a change in plan, this one-time EBIT benefit. That option has been explored, so there's no more coming from that area.
Okay. Very helpful. Ed, let's continue with you.
Edward Stanford from HSBC. Inevitably coming back to PeP, I guess, with a question. You've talked about the measures that you think you can take and that you hope you can achieve your guidance by doing them. You've skirted around the issue of were there any costs associated with this. Is it too early to tell how much that might cost you to achieve what you need to do? Again, forgive me if I've missed this, you mentioned that transport costs were perhaps surprisingly higher than you thought a few months ago. Are you able to quantify the impact on that?
I think that's by far too early to say what the cost might be. As I said, this is a growing business somehow, therefore, we can grow and improve productivity on the run. I think, it's too early to say anything about that.
I think my answer would be, I think we have two different areas. One is our productive workforce, where for, I think it was mentioned before, for union reasons and a number of things, it is a difficult area to really take costs out. I think the focus here has to be on increasing productivity, we already touched on some ideas. For example, when you look at those rapidly growing bigger letters in the mail work stream, that's an obvious area to focus on, where we don't need restructuring money. There are, I think, a couple of process changes. Maybe a bit of investment is required to do that. I think the question on the overhead, as I said before, we are already taking measures which don't cost restructuring money, like hiring stops and so on.
I think that is all we can say at this point in time. Frank mentioned it repeatedly, he has been now the new PeP CEO for 4 weeks. I think we have to give him a bit more time to come up with a holistic program. On the transport cost increase, yes, in line with the extremely positive economy in Germany, we see a general increase in freight rates, that has also led to year-over-year increase in our transport costs. It's kind of like a mid-single-digit EUR million number, if I say that correctly in English now?
Yeah. Okay.
Okay. Over to you.
Hi, good morning. It's David Kerstens from Jefferies. Question on the growth in Parcel Europe. Do you still see the European cross-border parcel market outgrowing the domestic market? What was behind the slowdown in the first quarter to low teens? I think you said 10.5% revenue growth. Is that mainly calendar effects, or have you changed some of the structure of the organization there as well?
No, it is definitely still that cross-border is growing faster than domestic. That's still the case. You asked me a question, I think we don't have any structural effect there. The U.K. is now also, and that is also an impact year-over-year still. That might change. On the-
We are 10.5% organic growth on Parcel Europe.
Yeah.
With 1.6 working days less, we still see that as a continuation. There's no slowdown, as Frank said, clearly from what we see, the cross-border business is still outgrowing the domestic stuff.
Seems to look like we are closing in on the Q1 related topics. Maybe one that's left over from Tobias, it is a question, financial result from Q1 EUR 135. Should we take this times four now, or is the run rate in the next quarters a bit higher than that?
I mean, we had a number of effects in there. The biggest one was obviously the, EUR -89 from IFRS 16. On the other side, we had some positive benefits, for example, on the pension interest. I think there are many moving parts. Last year, our financial result was EUR 411. Obviously, it will be a higher number this year. I wouldn't assume an increase in the run rate now for the rest of the year.
Okay. It's really good. One question up on that side.
Hi there. It's Joel Spungin from Berenberg. Just a couple. Melanie, just to start off, in terms, obviously, the working day effect on the volumes. Are all your costs also working day adjusted, or is there anything in there which is invoiced on a monthly basis or anything like that might have any impact? Secondly, just in terms of thinking more generally about the issues that you've had in PeP in the first quarter. Things like higher wage costs in Germany, higher transport costs, these aren't phenomenon that started on the 1st of January. Why is it that it's suddenly come to a head in this quarter?
First of all, in terms of the cost base, a lot is not working day dependent. For example, our staff costs, given that we pay monthly salaries, this is, for example, a big factor which is not flexing with the working days. Yes, you're absolutely right. The trends we have seen have been around for some time. We had the tariff increase on the 1st of October last year, that is now flowing through. I think on the staff cost side, the big swing factor which we hadn't expected was the steep increase in the sickness rate, which forced us to bring in more auxiliary people to cover the work. In terms of the transportation cost, when you break it down to even more detail, it's a combination of several factors again.
One is the increase in the rates, which is a market phenomenon, which we have been seeing for some time, which now continues quite sharply in the first quarter. For example, another factor on the transportation cost is this mix shift. Frank talked about that we now have more e-commerce stuff also in the mail stream. When you look at transporting letters, we have our standard boxes, and you can fit in 200 standard letters, but you can only fit in 40 of those bigger flattish things. That has also led to a higher volume requirement on the transportation side. Trending-wise, a lot of that was to be expected, there were then also some specific factors which augmented the impact in this first quarter.
Just a quick follow-up. If you think about Q2.
You use the microphone, please.
If you think about Q2, what does it mean?
Yeah. Just in terms of the working day effect is what I was thinking. If we have extra working days in the second quarter, should that give us some relief on.
Yeah
the costs as we look at that, because of the way that you account for your staff costs and so on?
Yeah. The way we normally think about working days is we see that because we take the cost base as it happens every month, and there's little working day flex. If you have more working days or less working days, it normally helps us on the revenue side. That is where the impact should help.
Yeah. Again, if you look into this waterfall, maybe we can even see that. That was in Melanie's part.
Yeah.
Maybe the page, we can
Page 10.
If you see that somehow. Certain elements we expected. We didn't expect a very strong first quarter in PeP anyway, because we knew that we have less working days. If you see, there is a miss on the revenue line, not because we are not growing. The reason is because we have less revenue in the first quarter. We expected a certain part of the material cost, we expected less. We expected less due to the sickness and this kind of stuff as well, and we have a variation. This is a mixture. We have definitely less revenue, that should go away through the year. I'm a little bit more cautious to quantify that because we have seen so many ups and downs, and one quarter is a little bit more than the other quarter. We definitely anticipate the salary increase.
If you see then the others, it's not just that we had this year, we had last year, but these were all smaller things as well in the first quarter, some positive benefits. That's the reason why the impact is only 44. We expected actually a worse first quarter than the actuals. That pension theme was a phasing problem this year more than-- That hit the first quarter more. The reason is we have less revenue, and that's not surprising as well. We had higher costs, which is a surprise, which we didn't anticipate, but not to a full extent. Therefore, we expected that the first quarter will be not terrific. That's the reason why we are confident. Beyond that, I think we have still an opportunity to reuse overhead and improve productivity. Why is productivity different? Because we have different management execution.
That's the only reason. The business is so much identical. If I see a variation, quite a sizable variation, you will ask me, "Nate, what is the variation?" I will not give you a detail, but there is a sizable variation between the different regions, and that needs to be tackled. I have seen that in other parts of the business as well, that the nice thing is you have a large scalable operations, you can make internal benchmarking. I think we have to do that and understand better what the root cause of all that is.
Yes. Maybe just to add to that, because that may not be so self-explanatory, what Frank is talking about. When you look at Germany with regions, we just don't mean west, south, north, east. We have our production locations spread across the republic. When you look at the list of, for example, our 83 mail sorting centers, our 34 parcel sorting centers, and the related areas, you see pronounced differences in productivity, KPIs, in sickness rates, and so on. Also, with regions where the labor markets are comparable, of course you ask yourself the question, why is that? That is, of course, something Frank is now focusing on. Let's look at some internal benchmarking. Let's understand why in the same circumstances, some are obviously doing a significantly better job than others, and then learn from that.
The fact that we really have, despite the cost challenge in this first quarter, well-performing locations gives us optimism that we should also be able to replicate that in the not-so-great performing locations.
Okay.
There's a last question out there
That's the one last question that we're going to take on Q1 before we go into a short break to stick about to the schedule. There will be plenty of opportunity to ask questions also in later sessions.
Thanks. I'll be brief. Daniel Roeska from Bernstein. First question on the accounting changes relating to the fleet and also the global airlift for Express. You disclosed a EUR 9 billion increase in the net debt figure you showed, Melanie. Is that kind of the entirety of the network, or are there still operational leases that run shorter than a year? About what percentage of the global airlift for Express is now included in that net debt figure? Second question on PeP and parcels and e-commerce, of course. If you think about adding capacity, you always add capacity for new networks at average cost. E-commerce volume is usually quite cheap, especially if you look at it in volume terms.
How do you think about that as you develop your own and your third-party business within PeP, third-party delivery business in PeP, where you're growing the network based on the e-commerce volumes, and what's the price level of that volume in comparison to your average?
Okay. On the first question, just I'm not obvious understood here. Of course, the EUR 9 billion is much more than the Express aviation fleet. Lots of real estate operating leases, and so on, which is why you also see the effect across all our divisions. With regard to do we now really have everything on the balance sheet, no, we are making assumptions for low-value leases, and also for short-term leases. That has the effect that not all aircraft in Express are on the balance sheet. The absolute majority. I can't give you a percentage number. Are we going to see a creeping increase of the EUR 9 billion? Well, of course, with the growing business and new operating leases coming online, that is going to increase. It's not that we have completely overlooked an area.
Of course, we don't disclose the detail of our pricing for parcels, of course, there is a difference between B2B. This is less from the pricing, more from the stock factor, and that is diluted in B2C. That's the reason why we do joint delivery, and that is a competitive advantage we have in Germany. Outside of Germany, the competitive advantage is different. We don't have a legacy. In Germany, we are attacked by companies who are working with different salary structures than we do. We don't have that problem if we go abroad because we are not the incumbent there. Therefore, we have in Germany, the key advantage that we do a lot of deliveries jointly, mail and parcels. That is, I think, a competitive edge.
In other markets, we are the new entrants, where others are benefiting in the German market from being that. That's the reason why I believe, and we see that, despite that we have changed the mix already from B2B to B2C in certain markets, we still see a good profitability in the range of 5%-8% return. You can make money in that business, even if you are more in the B2C business, and that we see in the reality of our numbers.
Okay. At this point, I would say we conclude the first session, go into a coffee break for just short of 20 minutes. Let's be back in that room by 10 to the full hour. Okay.
I am constantly occupied. I am doing myself the most good possible, which is all I can effectively, consciously can ever hope to do.
He acts like he has genuine emotions. As to whether or not he has real feelings is something I don't think anyone can truthfully answer.
Okey-doke. May I please ask you to find your way back to your seats so we can continue with the next block on our Capital Markets Day program. Same concept. Keep in mind, all the questions that we keep hearing, in a structured way, will be taken on by the divisional CEOs of Supply Chain, Express, and Global Forwarding, Freight. We start with you, John.
Thanks, Martin. Thanks, everybody, for attending this morning and afternoon. It's a real pleasure to have the chance to speak to you about what it is we do at DHL Supply Chain and how we're performing. I was asked to cover just a few questions, and as you can see, there's a number of things that have continuously come up over the last few years about areas of focus and areas of interest for us. I've been asked to cover four specific topics rather than give a general presentation about the Supply Chain division and where we are in our strategy progress. Of those four, give a little bit of background about what exactly it is that we do, and in particular, how is that affecting us in the e-commerce space.
The second is what sort of role is technology disruption playing in our business, how we're approaching things, how it's changing our plans and our progress against our strategy. A third thing's really about where are we in terms of this midpoint in our Strategy 2020 journey. Maybe offer a little bit of commentary about why supply chain continues to be an area of focus and interest for the broader organization. First things first. Really, our organization is comprised of core warehousing and transportation, as well as value-added services. Everything we do is focused on solving complexity issues in our customer supply chains, and we do that with a combination of people, process, and technology. We organize, and the way we interact with our customers is by market vertical. Automotive technology, life sciences and healthcare, consumer and retail would be major market verticals for us.
We align our business and we manage it on a regional basis. We have a couple of global products and services, but for the most part, it's a regionally managed business. We are the largest third-party logistics player in the world. We are a global organization working in all of the major geographies. We have significant presence in 56 countries, although we operate service logistics operations in many more. The way we generate profit is by doing things that our customers consider to be quite difficult in an operating environment. We do them better and more efficiently. By making things better and more efficient, we have an opportunity to achieve a rate of return for our investors. The key to all of that is having the right people. The right process and the right technology in the right places.
We believe that our market vertical orientation is a big differentiator for us, and it ensures that we have the industry expertise necessary to be successful in very technical markets like automotive, life sciences, and healthcare, as well as the tech space. That leads into lots of questions around e-commerce. There's been loads of disruption for many of our customers, whether it has to do with things like Brexit or the introduction of e-commerce cannibalizing the core retail business. Disruption is ever present in almost every one of the markets we serve, but it's nowhere more so than in the core retail logistics. Many of our traditional brick-and-mortar customers have experienced substantial challenges. We get asked the question a lot about, where are you in the e-commerce space?
I can give a relatively complicated answer to a relatively simple question, and that's because almost everything that we do is significantly impacted by digitalization and e-commerce. Almost every interaction we have with our customers, once we're up and running in a day-to-day business environment, is done through digital means. It's a very traditional and standard way of doing business, and things that we used to have, our core systems were integrated with our customer systems through EDI transactions. Now in many cases, that's done through APIs and a host of much more nimble mechanisms. Narrowly defined, DSC runs 100-plus e-commerce fulfillment operations. They are more than simply B2C. They're typically omni-channel type operations where we combine B2B with B2C operations, and it is a big part of our business, roughly 18%-20%. That continues to grow at a disproportionate rate.
All in all, it is a significant portion of our business, and the balance is all e-enabled. Almost everything we do is e-enabled now, and that is very true in all parts of the world, whether it's an emerging market or a developed economy. As we've been faced with a number of disruptions in our business, and as we're faced with a much more complicated operating environment where we're doing more piece picking instead of bulk picking because the work content is moving upstream, we've had to embrace a different level of automation and robotics in our operations. There's a lot of pressure on our unit productivity rates. We're moving into more complicated operating environments. The interesting thing is that the distribution center operations tend to be a great test bed for new robotics, automation, and mechanization opportunities.
That's because we typically have a high degree of control in those operating environments as opposed to the transport space. We have an enabling technology in the form of warehouse management or warehouse control system, and we're able to deploy different types of pilot programs quite nimbly and quickly. What we've really seen in our business is much more of a grassroots innovation approach, which is really gaining traction in the organization. We have numerous pilots in every one of our geographies where people are testing out new hardware configurations, new robotic solutions, new transport solutions, and all of them are focused on reducing complexity and eliminating work content. Typically, the best paybacks come from when we're eliminating transit time within an operation.
We've got a variety of different examples here on this slide, which we're really trying to show a lot of the pilots that we're progressing throughout the organization. Things that were really exciting to people are the way in which we interact with those robotics in a collaborative environment. I've got a little video I'll show you in just a few moments. For the most part, if it has an impact on reducing travel distances, eliminating work content, or facilitating picking and packing activities, in particular, those robotics pilots are demonstrating really good payback and really good value for the investment that we're making. It's important to understand as well that our focus on standardization in the business means that we're able to deploy those pilot programs going from proof of concept to deployment much more quickly.
The work we've put in in the first two years of our strategy around standardizing our warehouse management-enabling technologies are really starting to pay dividends for us. There's a lot of work to be done, and one of the challenges we have is that as it relates to the innovation funnel, there are many good ideas, all of which seem like they've got a great payback. Picking providers which have a sustainable track record and we believe will be successful over the long haul is something that's really important. I could speak about vision picking for one thing. We've had great success with vision picking. It's a different type of an RF device, moving from paper to an RF terminal to actually keeping somebody hands-free so that they're using a sort of augmented reality glasses.
That's worked very well for us in a number of pilots, both in the Netherlands and in other parts of the U.S. We have to pick the right application there because in some cases, we've actually found that the collaborative robotics are a much more efficient, much more effective way of doing business. Picking the right technologies, deploying them, and evaluating the proof of concept, and then making sure that they continue to be the very best answer going forward is what our team is really doing on a day-to-day routine basis. It's paying real dividends for us, and we continue to see lots of value coming from those pilots. What we're trying to do now is to narrow down the choices that we are deploying to the business and making available to our teams.
Our ops excellence team, combined with our IT organization and our solution design team, are really doing a nice job of creating what we call site roadmaps. Those site roadmaps will be the basis for deployment in the broader organization. I do have a short video I'd like to show you because I think it will do a much better job of characterizing the nature of the work. These robots are provided by a group in Massachusetts called Locus Robotics. The Locus Robotics have demonstrated an extraordinary level of productivity improvement for our team. The people that work with them are actually very excited about working with the technology. The way in which we're trying to attract workers to our organization, was we're trying to pick people who have the right quantitative skills as well as the right focus on quality.
When we're attracting new people into an organization like ours, we've got to find people that want to be part of the business on an ongoing basis. They have to meet a variety of criteria to join the organization, and once we've trained them, we want them to stick around. We're finding that things like Locus Robots are adding real value. Our customers are excited about the productivity improvements. Our people are excited about the way in which the operating environment is evolving, and the quality outcomes are very, very high. Could you run that video one more time for me? This is a particularly good example where the robots themselves are moving from zone to zone. Could we Okay, we're getting Okay, they're trying. I'm getting the wave that we're trying to run the thing one more time.
The bottom line is that, here we go, is that the robots themselves carry a variety of different technologies on them so that our people are basically stationed around the facility. The robots come and basically dictate the work that needs to be done. Our folks can stay focused on managing the activity. The robots do the transit work, and we've seen productivity improvements of 50+% by deploying this technology. One of our customers, this is a life sciences and healthcare operation where quality is an absolute requirement. Any mistake could actually be a tremendously bad outcome because we've got surgical kits that we're preparing for procedures that will be oftentimes taking place next day. Everything has to be exactly right. This drives productivity, quality, and the employee experience, which we think is just great.
We got a note from the folks at Locus Robotics a few weeks ago that we'd completed our 1 millionth pick in this operation using their robotic solutions. We believe this is one of the technologies which will be deployed on a much broader basis in our organization. A couple questions. Where are we on the road to achieving Strategy 2020? We feel like we've made very solid progress. We came out with a nine-point plan back in late 2014. We began in earnest in 2015 to put the plans in place. One of the keys in the first pillar around focus was operational standardization. We had a fairly heterogeneous landscape as it relates to our IT environment.
We've worked very hard to ensure that all of our new operations are deployed using that standard WMS and transport management solutions, as well as having the right types of back-office technology in support of the business. We've made some fairly substantial investments. As you'll see in the next slide, we've actually made substantial progress in terms of our operating performance and the productivity of our workforce. The next area was really around creating lean and effective functions. Despite the fact that we have made numerous changes and made a number of investments, you will see that the cost of our operating structure continues to decline against a variety of investments that we've made.
The fact that we've got a consistent lean organization on a global basis really puts in a position to do much better benchmarking and comparative analysis across the organization, which is also leading to improved performance. Then on this third pillar around grow, our ability to take advantage of global services and products is fundamentally connected to our ability to deliver a consistent outcome for our customers. If you were to take a look at our service logistics business, almost the entire business on a global basis has been converted to what we call our Select System. All operations for all customers around the globe will be leveraging a standard technology platform, and that's a very different place than we were just a few years ago. We feel like we've made substantial progress, but there's clearly more work to be done.
This is Strategy 2020, not Strategy 2018 as of May midpoint. Lots of work to be done, but we're very confident and comfortable with the progress that we've made. I think as you take a look at the balance of the results, it's pretty exciting for our organization in terms of the journey that we're on. I mentioned before, the focus on standardization and operational improvements has put us with a 5.8% CAGR on the EBIT per FTE in the organization, which means that we are doing more with less. Typically, we had fairly standard ratios we used around the workforce that would have to be acquired in order to deliver the startups that we were taking on, and we continue to see things improving all the time.
Now, one challenge in our business, which is a little different than some of the others you may interact with, is that for the most part, we have long-term contracts with our customers. Our ability to drive the pace of change, in many cases, is dependent on the pace of change that our customers are prepared to absorb. We work hand in glove with our customers. Even if we had a great idea, if it didn't fit into their overall plans, oftentimes IT resources are the single biggest constraint in making these changes, but we have to move at a measured pace because we can only move as quickly as our customers are prepared to allow us to move. We have a fairly substantial program around refreshing the portfolio as it relates to renewals. As we make those renewals, we oftentimes make those investments.
If you think about us having 3-5-year contracts, there is a measured pace at which we can move, and ultimately, it's that measured pace which allows us to be fairly consistent in our results delivery, as well as the long-term nature of our contracts. On overhead, I mentioned before that we continue to make progress here. You can see we've had a CAGR of reducing that expense 1.4% per year, and that's despite the fact that we've had to make some fairly substantial investments in financial systems and a few other things. We continue to see progress there, which is a clear demonstration that we are driving organizational effectiveness on the overhead side. On the growth side, where we're focusing on those global sectors and products, we see a substantial increase in overall sales performance.
We believe that will continue to be the case, and we think that now that we've got much of the work associated with Focus and Connect out of the way, that we'll see much more performance on the growth side of things. In terms of financial performance, the question keeps coming up, why is supply chain an interesting business for DPDHL and how does it fit together? That's particularly the case when we're beginning to hit sort of benchmark EBIT margins. In comparison to some other businesses, benchmark EBIT margins in our environment aren't necessarily that exciting. However, if you take a look at our return on capital employed, it's quite a different story. I believe it'll continue to be more interesting as interest rates rise over the course of the next few years.
With or without goodwill, we see very good figures there and very good development on a return on capital employed. As it relates to our EBIT, I've already mentioned that we're approaching target EBIT margins. My confidence and conviction that we will achieve our long-term ambitions has never been higher. Our organization has been tossed a few curve balls along the way, and I think we've demonstrated a fairly tremendous degree of resilience and ability to get past those. I'd also point out that from an EBIT perspective, over the same planning period, we've had 13+% CAGR in our EBIT delivery, and I believe it's when you account for the pension funding we did last year, we've got a 10+% OCF performance CAGR as well over the same planning period.
The last thing I'd say is about the attractiveness of this business is that we have long-term contracts with the world's leading companies. We work in the world's leading economies. We are subjected far less to sort of hiccups in the global economic conditions, and we're a very resilient organization. It is a long game that we're playing in this organization. We have mature businesses in certain markets. We have rapidly evolving businesses in newer markets. Along the way, we're driving fairly substantial financial performance improvements. We're very confident that our Strategy 2020 ambitions will be achieved. I think our team has a greater degree of confidence now than it's ever had. We believe that we've got the right framework and the right pieces in place to make it happen. With that, I'll turn it over to Ken.
Thanks, John. Good morning, everybody. As a sign of respect, I've had my hair cut. I'm wearing my tie, which is normally only for customers and Frank. This is not a stain, by the way, it's a microphone. I know it looks like a bit of a stain. The biggest thing I want to show you today is my DHL socks. This is a sign for my favorite small and medium-sized enterprise, which is a company called Vetements. If you want to buy these, only GBP 100 a pair. That's why I only have one pair. Anyway, I've been wearing them for the last week. No, I shouldn't say that. That's not quite true. I think it's interesting when we talk about e-commerce and about TDI and DHL in general, right? We probably only move about 3%-4% of the world's movements.
It's the high end of stuff. As my colleague John Pearson in Europe post likes to say, there's a luxury end for everything, even dog food. There's a luxury end, and people are willing to pay a premium for that. We're not looking at mass market. We're looking to be very specific, very targeted on the customers that we choose. A lot of very interesting questions. What I'd like to say, first of all, and I know analysts and everybody else like that doesn't really like to hear it, because you can't put it into a spreadsheet and everything else. Motivated people is the biggest source of our success. We all have the passport, the Certified International Specialist passport. We've got a lot of motivated people that work for us.
They should be motivated as well because we work for the most international company in the world. Not just the most international express company, the most international company in the world. I know that. Why? Because we want a global solution for vehicles. We want a global solution for telecoms. We want a global solution for material handling. There ain't any. One of the very few global providers is us. As you'll see there, we started in the U.S.A. in 1969, which means that next year we're 50 years old. Maybe we'll do the Capital Markets Day in Hawaii, Frank. Hawaii or somewhere pretty interesting, just to show what we've done. When I put this slide up with a lot of our big customers, this is the thing that they love. We have got that representation all around the world. People talk about BRICS.
We've been in Brazil since 1978, Russia since 1984, India and China since 1980. We know all the issues on the ground and everything else. Customers, this is what they use us for. We are the most international company. We're Certified International Specialists. It's a great sense of pride for all our people because anybody who works for DHL, they work for the most international company in the world, something which builds a lot of pride into our people. On focus, yeah. 78% of our business now is in the TDI segment. Back in 2010, it was about 65%. Back in 2010, we had about 8% of our business in the, what we call the day definite domestic. That's all gone. We either disposed of it or we transferred it to our sister organizations.
So that total focus on TDI is a big source of our success, and it's still a growing market. The TDD, the time definite domestic and ACS all support the core TDI business as well. What's happening on volume growth? I think it's quite interesting. First of all, what we've seen is there was a lot of, if you look back in history, starting with the financial crisis with subprime and everything. That was immediately followed by all the problems that we had in Europe. Remember the PIGS and all the restructuring that European companies had to do? Then immediately after that, China. No downturn in China, but China finished its building boom about 2012, 2013, so there was a lot of collapse in commodity prices.
I think now we're just back to a time where the whole world, the traditional B2B business is growing again. I can say that with a lot of certainty because we have a group of customers, which we call CSI, Customer Solutions and Innovation. They're our top 100 customers. They never change on a year-by-year basis. Historically, they've grown about 2% or 3%, which is in line with global GDP growth. At the moment, they're growing at over 6%. The traditional B2B is definitely growing. Then e-commerce. I really think, I'm a big fan of Jack Ma. I think this whole concept of the B2C segment exploding, the need for an EWTO, an electronic World Trade Organization for the smaller countries, for the smaller companies to drive it. First time in history, this is why digitalization is so important.
First time in history, in theory, every single person in the world could be connected to everybody else. If you've got access to internet and you've got a device, everybody can be connected, which means a massive increase in the number of consumers and a great opportunity for entrepreneur anywhere in the world to start a business. People say, "Okay, well, which parts of the network are growing?" For the last nine years, I think, eight to nine years, we've had consistent growth every quarter. Every time, it's a different part of the world that's growing faster. Sometimes it's Asia, sometimes it's Europe, sometimes it's the Americas, sometimes it's Middle East and Africa. The value of our portfolio is that it's so well-spread. And it is a network, so we get a lot of network advantages.
If we sign a customer in one part of the world, we do get synergies in other parts. Because we are so focused on this business, we're always looking at how we are subjected to competition that come up. This is the classic Porter's Five Forces model. If you look at the threat of new entrants, right now, we're really down to three players, FedEx and TNT combined, UPS, and DHL. It's interesting if you think about it, throughout the history of this industry, even 15 years ago when Japan was the second most strong economy in the world, there was never really a Japanese entrant that came into the global market. I think being from English-speaking environment, I think it's a big advantage. We've got three players. We compete on quality. We don't really compete that much on price.
We have the likes of the threats from Amazon, from Alibaba, the Uber fragmentation, the drones. I don't think any of those, especially in the medium term, are going to make a much difference to our business. Like on the drone side, I was in Guangzhou, a couple of months ago. Maybe we'll try a drone out. The delivery densities and everything else make it only relevant for specialized reasons. From a macro point of view, I think the threat of a major new entrant is pretty limited. On the bargaining power of buyers, we've got about 2.7 million customers. I can see in 5, 10 years' time, that could be 270 million because more and more we'll see small and medium-sized enterprises and even individuals being a bigger and bigger part of our customer base. That is fantastic for us.
They're all looking for service quality. These are top-end, small and medium-sized enterprises and high-end consumers who want to use a service like ours. We look at the threat of substitutes. 3D printing. Again, I've looked at that in a lot of detail. It's still very expensive. You can't 3D print everything. I think it's good for experimental pieces, but on a mass production, maybe not. I think the on and near shoring could be the biggest factor, but that's going to take years for that to change. On the bargaining power of suppliers, as Melanie says, I think as we look deeper and deeper into our core networks, and this is the power of focus. The opportunities become more and more obvious to us. I think we're in a very powerful position overall.
As we've seen that, just to emphasize that our shipment per day growth has been very strong. These are volume figures on the left. This is nothing to do with fuel surcharge and everything else. Our volume figures. I think if you remember, at a time probably between 2011 to 2015, 2016, the rates of global trade had slowed to more or less the same rate of GDP, which hadn't happened before in history. We've always grown generally about two times the rate of GDP. I think what GDP now doesn't take into consideration is e-commerce. 2017, we saw that trend reverse. Global trade expanded. As I say, a lot of customers now in the B2B segment are growing a lot faster than they've done for some time.
First quarter of this year, the last two bars, strong growth at 9.6% versus 8.1% same time last year. That's a good start to the year. Our market share is gradually improving up roundabout at 1% per year. I think in the early days, a lot of it came from TNT when they were going through that process of do they want to sell, what they're going to do next. That was very good for us. I think a very important point for us, and I think this is particularly important when you get into the e-commerce market, because the temptation there is some of these customers have huge volumes, and it's very tempting to give in on price to get volume. For an established player like us, we've got a very well-established long-term yield management program.
The first one is every single year, we look at inflation, we look at what's happening in wages in the country, we're looking at our security costs, we're looking at anything that's impacting us. We review every single country in the world, and we decide on a GPI every single year. For big customers, where there's a lot of competition, we have a tender review board where each region and then a global sign-off looks at those big customers and where do we want to play, and what are the advantages and disadvantages of taking them on. We have what we call red and yellow cards. Red cards are sort of obviously negative margin customers. Yellow cards are marginal customers. A lot of focus on there as to how do we go back and up the rates or get more volume from them.
On the surcharges, the 2% relates that we don't want to lose more than 2% of our revenue by surcharge exemptions. Sometimes in the beginning, we exempt remote area. We exempt some volumetric things, but we want to keep it very close, and it's something we're looking at all the time. Then ship-to profile. As everybody knows, density is one of the biggest drivers of cost in our business. If we sign a deal for 500 shipments a day and they're only giving us 300, we're going back and saying, "Give us the other 200 or we're going to have to look at the rates again." A very disciplined process about that. I think when you look at the e-commerce scenario, we have to be as disciplined there as well. That brings me on to e-commerce.
I think what we've found is we've had to take a much more consultative approach to this sale. You would think that the best way to find e-commerce customers is to go digital and have lots of digital marketing. Actually, it's still a lot of knocking on doors. Because a lot of new companies, they automatically use the post office. They don't realize the advantage of working with a company like ours. We've got numerous examples where somebody started to use DHL Express. The shopping cart size improves. The customer satisfaction improves. We can really help these customers because it's great to go and see them because they're all young, and they've done a great job raising money, and they've got a great product, and it's out there. They don't always realize what an opportunity there is in the international market. A lot of them start domestically.
You go to them, and you have a look at their website, and you say, "Right. You're a Canadian company, but do you realize 30% of your hits are coming from Belgium and 10% are coming from Australia? Do you have an international offering on your website? Can we help you to do that? Do you have an express delivery option? Do you know what the total landed cost for your customers is? If somebody wants to get some spinners from Canada into Turkey, what's it going to cost and everything else?" That's what we're trying to do as well. We've got these electronic shipping solutions. We call it MyDHL now. Makes it a lot easier for a SME to start up and get shipping internationally. Think logistics, think DHL. We want to be part of the high-level thinking, 21st century spice trade.
This is where it shows that the cross-border is growing at 25%. The great thing for us now, we were always a B2B company. Now we're getting into B2C deliveries in this e-commerce world. More and more business companies are now going online to have their deliveries made. If a company like Toys R Us can't make it with their margins, how does a Staples that's just selling stationery, everything online in a business environment, be able to make it? We're going to see more and more business-to-business moving into this e-commerce world. Globally, I'll touch on in a moment. The interesting thing about e-commerce is that every single brick-and-mortar retailer has got to get into e-commerce now or face the end. We need to help the existing brick-and-mortar retailers to have an e-commerce offering, and that's why it's more of a consultancy sell, as I say.
Global-e is a small company that we took stake in. They go into big companies like Marks & Spencer, like Harrods, give them an international offering. Let a customer log on from Australia, find out what the transport cost is going to be, what the duties and taxes are going to be at destination, what the actual cost of delivery is going to be. From an economic point of view, we don't treat B2C as a separate product. It's part of our industry verticals, just like life sciences, automotive, banks, and everything else. It is now a bigger and bigger proportion of our business. It's the fastest-growing, and it will soon be the biggest. It does drive all our economic issues. The shipments per day are going up. The weight per shipment is lower, but that's great for our automated processes, everything else.
The last mile now, I think we've turned the corner there. On last mile, we can't look at a house as the final delivery point. I think we have to look at streets and bigger areas. Now we don't see any productivity negatives from that last mile delivery. I think we've cracked a lot of those issues. The gross profit triangle on the top line, if you listen to John Pearson, who runs Europe and Commercial, we obsess on growth at the right price and with the surcharges. If we're not growing in a certain area, why aren't we growing? Everyone's a salesman, sell, sell at the right price. Just keeping that top line moving. The aviation network, I'll touch on that as Melanie's come to it as well. Honestly, there's no issue from a CapEx point of view.
We can finance it separately and everything else. It's just a logical step in our way to increase our margins, and then the efficiency in the ground operations, that's what the volume drives. As I say, we're starting to see the positive impact now on a lot of that e-commerce business. The story's been quite good so far. Pretty consistent growth in EBIT. In the first quarter figures, last year, EUR 396 was 11%. If we take out the EUR 40 odd of IFRS, we had EUR 443. Same figure, EUR 444, which is 11.8% margin. We are seeing gradual increases in margins as well, and we've still got a little way to go to catch up with one of our competitors. The conversion to cash and the use of CapEx has grown steadily. Return on capital is pretty good. Mel? I know you always want more.
This has been our historical CapEx spend. You do see that increase in aviation. We have recently spent a lot in hubs. I think the investment in hub is peaking, that should start to fall as you see it there. Let me talk about aviation when I come onto it, because I think the aviation story has been great. If you look here between 2010 and 2017, our dedicated flights would increase by about 4% a day. Our ability, because they're bigger gauge aircraft, our capacity's gone up by 9%. Even though we've added all that extra capacity, our weight load factors have increased as well. We've got more space, we're filling more capacity. The absolute cost per kilo is coming down. The commercial airlift cost has been coming down as well.
It has a great effect on the environment as well. All that works in our favor. What Melanie is going to explain in a lot more detail than I can is, at our current growth rates, we'd need to add some four to five 747s or 777s every year on that 4% or 5% growth rate. Recently, we've been looking at some of our older aircraft that we need to take out. When we've looked at these figures, we're looking at a no growth environment even. Just replacing existing aircraft. We'll have to add existing aircraft anyway. When you look at ACMI, the aircraft maintenance crew and insurance. On the insurance piece, we've already moved some of that cost in-house. We have an in-house insurance broker. Some of our partners use it as well.
We've used that leverage to reduce our cost overall. Maintenance is usually just a pass-through. Every single company uses the same maintenance facilities worldwide, there's not much of a say in there. Crew, we obviously need that from our partners. On the aircraft piece, we've renegotiated a number of those aircraft leases where we've got an equity interest as well with those JV partners. We've started to unravel how much of that financing cost really inflates the cost of that aircraft piece. The lessor is wanting to recover his money in 10, 15, 20 years, whereas those aircraft can last up to 30 years. As we've looked at it, we've gone to Melanie, as Melanie said, we could have just carried on leasing. The opportunity of EBIT increase and cash flow benefit as well by bringing that in-house is pretty big.
What a lot of people don't realize is because we're not a U.S. airline, we have to fly through partners in many places around the world. If you take all those flights that are dedicated to us as DHL, we'd be the biggest cargo airline in the world. If you look at how much of our fleet is with some of the big aircraft suppliers, we rank in the top two or three customers. I think we've done a great job. This is express only. This is not including my colleague from DGF. As we go forward, we're trying to squeeze more margin out of such a great product. Breaking down the individual constituent costs is something that's showing us a big opportunity. All favorable, nothing to worry about. I'll stop at that.
I had a video as well, but I'm nervous to show it now, because you probably don't have enough time. It was just an e-commerce video. I won't bother playing it. I just think, as Mel said, don't worry from a CapEx point of view, we'll finance it through separate financing, and we can do the return on investment there. It gives us a lot of flexibility within our networks. We've got three or four partners globally. We can move planes around as needs come up. The overall cost of ownership is so positive that it's something that we've got to look at. If you guys don't like it and you want us to sort of keep at the same EBIT levels, we can just go back to the old system.
Okay, with that, let me flick on and hand over to Tim. Thank you, Tim.
Thank you, Ken. I'm glad you didn't show your video because I didn't have a video prepared, and I would have been the only one without a video, that also probably is not the best place to start. Your questions or the questions from analysts and investors around freight forwarding, which I, of course, always find highly interesting, having only worked in this part of the industry, there is reasons to ask questions, as always, it makes sense to have them. I only had three questions to answer. Why is forwarding interesting industry for DPDHL? I'll talk a bit about markets and how they develop and why we believe it's important to be in these markets. Structural changes. Is tech disruption a problem for forwarding? How much of a problem is it? Definitely something we have to look into.
Last but not least, what role does DGF play for the DPDHL group? Let me start with the first question on the industry, characteristics and dynamics. If you look at this slide, and especially the two parts of it, the left and the right side, you will see the growth of the market in the last, well, starting from 2010 up to 2020, you will see, of course, the dip we had during the financial crisis when it came to growth in the freight forwarding industry. You can also see that it has been recovering after that, it's a market with growth, which is seen with a 4.1% CAGR going forward to 2020.
If you look at the market players, the top 10, which have more or less 44% market share, we are the number one with market share of 7.9%, closely to 8%. There is room to move, room to grow within this market and to be in the position that we are, it's actually a very nice position to be in because you can also somehow manage the markets in which you are working in. If you look at air freight especially, you all know that last year was probably the mother of all air freight years. We've seen growth like we've never seen before, probably comparable only to 2010, right after the financial crisis, when we had this big rebound. Last year was a huge year.
We actually had a peak season not only in Asia, but also one out of Germany, which was never seen before, and which caused a lot of trouble on the trucking and handling side at the airport in Frankfurt. It took hours for trucks to get to Frankfurt because they couldn't be unloaded, because the infrastructure wasn't managing this kind of size of volume. That is something which really was probably the strength, strong for 2017. 2018 is something where people like Seabury see a growth of 4.3% for the air freight market. We predict also that there will be a peak season again this year, strong again out of Asia. If we see the same constellation out of Frankfurt, we have to see, but it will be again, a strong year for air freight.
A strong year for air freight means you have to think on how you want to challenge or how you want to move around this challenging environment. Why is air freight so strong? One of the big drivers is the e-commerce business. It's not only the e-commerce business, which is managed by postal organization, but also e-commerce business managed by the freight forwarding companies. It's something which is a new driver. It hasn't been there. It's in a way comparable to what we had before the financial crisis when this industry started flying computers and notebooks around the world. This is the new driver with huge growth in it, a CAGR of 17.8%. This takes away space in the airplanes. This drives rates up, and there's not enough capacity coming into the market, especially when you talk about freighters.
For us, it's important that we know these things and that we take them into consideration of our plans. It's also one of the reasons why we have now two flights that we control directly, where we control capacity on the market and are not so much dependent on commercial carriers as probably if you do not have these flights. Ocean freight, it's a bit of a different. This is again, a slide of Seabury's, looking at a CAGR growth until 2021 of 2.3% on the ocean freight side. Here the question is a bit more different than when it comes to air freight. Here, the question, of course, is the consolidation of the carriers, of the alliances. How will this work going forward? It's a question of how much capacity is going to come into this market.
There you've heard a lot of stories in the past, and I've been sitting in a lot of discussions in the past on this, and to foresee what's happening here is really, really difficult. Last but not least, the market shares of the leading forwarders in this market is very small because you remember that carriers dominate this market by themselves, a lot of the market. For us, it's also actually a very good growth opportunity to grow the ocean freight business going forward. Together, it really makes a lot of sense to be in freight forwarding and be in this market. The second question was around disruption of technology and what does this mean for freight forwarding? This is a bit of a complex slide, but it shows you the 21 touch points which you in average have for every air and ocean freight shipments.
These touch points are difficult to really get away because as I always say, freight or cargo has one disadvantage to us being passengers on an airplane. It cannot wave, it cannot read, it just sits there, and if someone puts it on the wrong place, it just sits there and doesn't get noticed for doing it. We have to keep these things in mind. Important is that there will always be people who have to handle these 21 touch points. You can discuss it with 21 or 17, but it will still be a double-digit number of touch points within this industry. It's really important in forwarding that you have expertise in your organization, you know your customers, because customers work differently, even though they only ship things. Some of them just do it different than others.
Some are very good in planning and forecasting, others aren't, you need to know these things. You have processes in place and that you are able to consolidate and bring the right service at the right price to your customers. What you see here now on this slide is a bit of a simplification of what can be done differently or how IT can support you on this. The examples you see here, starting with the online quotation tool on the left-hand side on the top part of the slide, to the online brokerage platform, freight brokerage platform, these are all examples what we are doing today or what we have already today for our customers in place.
What this means is that these programs or applications support and simplify the way that our customers work with us, because for them, it's easier to get an online quote online than asking someone to generate an online quote. An online quote for an import shipment out of Asia in the past took 24 hours because you had to wait for Asia to wake up to submit the quote. Nowadays, you can get these things much quicker. It's a simpler way of working with us or with the freight forwarding industry. These innovations will accelerate also the way we work and will exploit our strength and will make us better in our way of managing the market.
We will continue to work on these things, we have to do more on these things because a generation of new decision-makers is coming, they are used to more e-commerce, more shopping at home, and they will bring these habits also into the normal way of working in our B2B environment. Third question was the question on DGF contribution. As you know, I will come another slide to our Simplify strategy, which we rolled out last year and implementing and working on every day. We have to get back to being a company which also generates the right EBIT GP conversion, which is our KPI of measuring us towards also the competition. This, of course, means that our EBIT margin will go up.
You see here that as of 2018, we are aiming a solid line to get north of 20% conversion rate, EBIT GP conversion rate by 2020 in this part of our strategic cycle within the group. There is no reason for us not to be able to do these things, because if you look at the structure of the organization, if you look at the network that we have, we are in the right places. We have a very large network. We made the right decisions in 2015 and 2016. I will touch on that a bit later, too, on how we started to roll out the new transport management systems. All of these things are the basis for us, together with good organized people and a good organization, to come up back to where we need to be as the company with the highest market share also.
A bit on the IT renewal. What you see here on this slide, I am apologizing, it is a lot of information on it, the important parts are on the lower half of it, shows all these things which we have been doing in the past already. We have updated our customer relationship management system. We have harmonized the quotation tool. We have the online quotation and booking tool out in the market now. The big rollout what we are doing is we are going into the transport management system. Our legacy systems are a bit outdated. You can clearly say they are from the 1980s more or less. They were developed more or less in the 1980s and come also from two different parts of the organization. We are right now, after we have piloted ocean freight last year, rolling out ocean freight.
It is difficult to say exactly every day how many countries have been rolled out or deployed because every month we have at least two rollouts per different parts of the region in the organization. We expect this year to roll out countries like Germany, China, piloting the U.S., all in ocean freight with a lot of smaller countries around it. We are making very good progress. As I said, every second week, I get a new email saying, "Okay, this next Monday, Costa Rica and Croatia will go live." The noise around it is very limited. We have no issues towards our customers. They are not noticing this. We can invoice, we can do the right things.
Especially those countries where now we have trade lane pairs working on the new systems, we already see small benefits in the way they work together because now suddenly when you have this, you have a transparency in your transportation. If you have a transparency, it is easier, again, it is simpler for you to talk to your customers and tell your customers what is going on with the shipment or if there are any issues or other things. That is ongoing. We will also pilot this year one air freight country, most likely in Africa, as a basis then, South Africa, but it is large enough, as a basis then for the rollout of air freight next year in larger countries and for smaller countries, we will roll out air and ocean together. We have an aggressive plan on rolling this out.
It is aggressive, we also know that it has to be sustainable because we have to make sure that our organization follows up on this and is able to manage the changes within the organization. If you say we have to change a transport management system, that is for a forwarder changing the way he works from 8:00 A.M. to 8:00 P.M. at night. We have to bring people along and have to take them with them on our journey. Until now, it is working very well, and countries are actually asking to be pulled up front to be first in line, and that is quite interesting because that you normally do not have because people normally do not like changes like that that much. Simplify the contribution. That is our motto, our strategy.
In easy words, simplify means that we look into the way that we work, and we try to find waste in the way that we work, which we can take out so we have more time to talk to our customers, talk to our suppliers and partners. That gives us more ability to do the right things and work in a better way together. It is based on three things, the entire strategy. One is in the clear set of business rules, which has three areas. We have talked a lot about how we should work together and the mindsets and behaviors. Who is responsible for what? It is very important in forwarding with the cultural way of working that it is clear who is responsible for what. If you have discussions on that, you lose time again, and then off your customer goes.
We are clear on how we steer and how we incentivize the organization. If you do that, you see things happening. We talked about the reduction of FTEs already as part of it also because the steering and incentivization was changed in certain ways that this becomes clearer for the organization. We are also looking at structural cost reductions on all levels. Structural cost is cost on running the organization. That does not mean that we look into taking out clerks to bring our productivity up. It is more about making sure that we ask the question: do we need full-fledged management boards in countries like Honduras or Guatemala, or can we do this differently?
Those are the things we're looking at and trying to make things easier again, simpler again on how we work internally, and again, to have more time to talk to the customers and talk to our suppliers and partners. Of course, on the last slide, you also saw the importance. IRR, the IT renewal roadmap, is a very integral part of the Simplify Strategy to make sure that the systems that we use going forward will be the basis also for us to become even better when it comes to results, when it comes to conversion rates. Looking here also at the contribution, this is my last slide. You know that forwarding is an asset-light and high-return industry. You see the return on capital employed also excluding and including the goodwill.
You see our dip that we had in 2015, and we are working hard now to go back to similar ROCE we had in 2013, but also keeping in mind that EBIT margin and the conversion rate has to go in the right direction. The organization is very strongly committed to this, and the good thing is, after the first quarter results and the reactions I get also from the organization, the people are noticing that they can do it. If people notice that they can do it, they get used to larger numbers. Once they get used to larger numbers, even larger numbers are not that difficult to digest anymore for this sort of thing. That was my last slide, and I think we are now open for questions and answers.
Exactly. Tim, thank you very much. For this on-time delivery by all the three of you, we've got a few minutes left, of course, for your questions and their answers. Although the concept is we answered all questions already, but obviously, no, the more you share, the more questions are coming in. Penny, why don't we start with you and then Cristian?
Thanks. Penelope Butcher from Morgan Stanley. I have one for each of the speakers. On the supply chain side, again, it's been reiterated that you are comfortable getting into your target margin range, in the midterm plan of 4%-5%. Given the noted more specialization of services you are providing for customers, the automation potential of some of those, why is 4%-5% still the cap on margins for maybe some customer verticals could you do better and potentially take out more cost and have that opportunity?
We already have some portions of our business which are exceeding 4%-5% EBIT margins. The problem is that when you take a look at the totality of the division, we have certain portions which are hamstrung with older contracts, which were much lower in nature than they are now. Some of those deals we wouldn't renew at the current rates. That's been part of the process of what we've been working our way through over the last few years, is getting the portfolio right so that we're working with the right customers in the right environment with the right commercial terms. One of the reasons our team has the level of confidence we do about achieving our stated targets is that we have portions of the business which are doing substantially better than that.
It's about how quickly we can refresh the portfolio to make sure that we've got that right mix.
Thank you. For Ken, you alluded to the comment about your peer margins and getting towards those levels. Could you speak about it in the same sort of timeframe of the midterm targets? With the maybe fleet renewal potential in place, what is the scope for the margins we should think about in Express specifically?
Yeah. I think this is the power of the focused strategy, right? As we sort of limit ourselves to that TDI market, there's no reason why it shouldn't continue to expand, especially in this sort of e-commerce arena. It's systematically looking at every element of cost and pricing and capital investment and seeing where we can squeeze out any cost that doesn't impact service. I've never set a margin target. I've just said that year in, year out, we just need to see where are the opportunities. I think, the example that we're talking about now is an opportune one because we're taking all the risk on a lot of those flights, right? We should have the lion's share of the return on them, right? That is just one element.
I think if we keep this level of volume improvement going as well, that should automatically lead to the next area, which is the lower of the absolute delivery costs around the world. All I'm prepared to say is that, I don't think we've plateaued from a margin perspective.
Great. Thank you. Finally, on forwarding, I happened to note on the charts you showed of the particular air and sea growth opportunities, that it seems very clear why you'd want to continue concentrating in air and what e-commerce might continue to drive. I could also maybe see from road freight perspective that U.S. and Europe have shown strong data. What I don't really understand is the ocean side, that even Seabury is forecasting a CAGR below global GDP run rates. How does that influence your sort of decisions about where to focus your sales force and customer focus as well?
I think we have to go back to look at how large our market share is in ocean freight. I would assume, because it's difficult to find out exactly, it's around 2%, below 2%. There's always opportunity to grow in ocean freight. Only because markets don't grow significantly- Doesn't mean that you cannot grow inside a market. I think for us, it's more important that we understand where we can have profitable growth in certain markets and look at different trade lanes the way we're doing it today. Today, we are very much focused on maybe one or two trade lanes, and we have to go into other trade lanes also where we can also generate a higher margin per container.
For me, also towards the customers, it's important that if you offer air, you have to be able to offer ocean. If you would separate it, your value story towards the market really declines, and it becomes more difficult also to keep the other up and running.
Maybe just a quick follow-up. Do any of your customers signal why there's such differentiated growth rates between the two? What are they shifting for? What are the advantages of air versus ocean?
If you go back four or five years, all the customers were shifting their air to ocean because they were more relaxed on production time, and they could plan much better than they could in the past. Nowadays, this is changing a bit because consumption is so high around the world. That brings, of course, more and more of the plans that they used to have to go by ocean, they're putting it more and more on air. If you talk to some of these customers, they will never openly say it, but you sense it, of course, when you see the volume development, when you see the ship-to profile on the customers based on the RFQs.
That's why you need both, because customers are looking for transport solutions with different transit times, and you have to be able to manage all of them. Christian.
Now, Cristian Nedelcu from Baader- Helvea. I have a question on forwarding, maybe. It's some kind of a scalable business. In the first quarter, you delivered minus growth. You're not growing with the market, but you're absolutely not growing. Going forward in a market which is very fragmented, of course, how would you like to deliver that kind of growth? When it comes to the IT system, you are now changing the IT system, and it looks like you were saying everything is working very smoothly, and you are implementing your new IT system almost every two weeks, something like that, in a new country. When we see some kind of a scalable development going forward in 2019 and 2020? What is the main trigger for that scalability then going forward? What is the difference to the former system?
It seems that the entire organization had a lot of problems by implementing SAP Transportation Management System. Now you are saying that you are implementing a new system, and there is almost no problem by implementation. What is the main differentiation between these two systems, and why is it so easy now to implement that kind of system?
Okay.
Thank you.
Okay. Maybe let's start with the volume question, the first one. You don't see volume growth with DGF in the first quarter based on the fact that we looked at our customers very closely last year and made decisions on pricing that we, as a bit what Ken explained on how ship-to profile and how margins work with the yellow and the red card, made decisions to step away from business. I think we had to clean up our portfolio also.
That's done now.
That's done now. It will continue a bit in the second quarter because we have a portfolio of more larger customers and smaller customers, and larger customers typically have contracts. Of course, we honor the contracts and bring them to the end. We're in discussions with them. That doesn't mean that we don't want to give everything away. We're trying to bring the rates up then. Sometimes it happens, sometimes it doesn't happen. The good thing on the volume, however, is that we've only had a volume reduction in one region, and the other regions are working fine. There, we are growing volume profitably also. We knew this one region would be our problem when it came to that. Also, we budgeted this year not much of a volume growth, but more of a margin improvement. That's all working fine.
You see it also in the EBIT result. That's question one. We will go back to a growth modus probably in the second half of the year, but next year, we have to go back into the growth modus. To your other question. Where's the big difference between an SAP introduction and then the system we're using now? The system we are using now has already been deployed to, I would say, 10 or 12 different freight forwarders. It's a system developed by a specialized company who only does freight forwarding and custom system, and it's very close to what we actually do. SAP has a SAP Transportation Management solution, which is a bit further away, probably, of what freight forwarding is. That's the big difference, because if you bring a system in which is already used by competition, it works from day one.
We were able on day one to generate 44 shipments in the Netherlands when we implemented last year. That is a lot compared to what we were able to before that. What's the big advantage? There's two things. It's you have a workflow component and a one file component, which gives you transparency, and it's easier for you to work on a shipment globally. That's what you need, and our customers are expecting from us answers on questions. Where's my shipment? Why is it stuck in customs? What's happening? If you have a one file system, you can easily answer these questions. Today, we have to write emails, pick up the phone, and try to figure out what's going on. It will simplify our way of working.
That means that you don't have to train your entire staff not so much than you have done it before with the SAP system.
Yes.
It's very easy to switch now to the new system?
You do have to train the staff because our old system is a green screen system.
Yeah
This is a web-based system, you still have to train them, of course. I think we learned also a lot from the SAP implementation, we take a lot of the information we have and the knowledge to make sure that this time we do it much better. Openly speaking, we can't fail a second time. We have to make this work.
Do you have some double costs currently by running two systems?
In those countries where we implement, we only run one system. If we implement Ocean Freight, we implement Ocean Freight ex and import in one country, the entire country is then off the old and on the new system.
As for implementation cost, I think you are exercising well within the guided numbers.
Yep.
Okay.
Okay.
Thank you very much.
Thank you for that. We want to stick to the time schedule somehow. Therefore, Mark, you're going to conclude the Q&A round on these three gentlemen. We're going to have a last final Q&A round on all.
Okay. Thank you. Is that working?
Yes.
It was.
Is that working? That's better. Okay. I again, also have a sort of question for each of you. If we start with John. John, as you're introducing more sophisticated technologies and systems and robotics and all kinds of clever stuff for your customers, how do you ensure you get paid for that? Because supply chain has a long history of sucking up every service that someone is prepared to offer, but not paying for it.
Yeah, that's a great question. Today's creative, innovative new idea is tomorrow's commodity. What we have to do is to strike the right spot between where we have the right types of contractual incentives, whether it's a closed-book contract or an open-book contract. We're picking customers and deployment opportunities which will provide the best yield for our organization, as well as address a meaningful and supportive client need. Like I said before, we don't really have the opportunity to invoke ourselves in our client's operating environment. In some cases, we work in their manufacturing plants, and we have to very much align with what their needs are and the way they run the balance of the business. We've done a much better job of focusing on closed-book contracts.
We've done a much better job of embracing, what I call gain share mechanisms, and that's becoming fairly standard. Where we really have challenges, as I said before, is old legacy contracts, which were very low yield with very little opportunity for upside. I think what's happening as the market matures, is that buyers are realizing that while it seemed like a good idea to nail their suppliers down with such low yields, they took out a lot of the proper incentives to move forward, and they're becoming much more balanced in their view. They simply now want high quality, low cost, and things to come together in a sustainable fashion. They're open-minded about the contractual terms as well as the way they incent their providers and us to perform.
We see this as being a much more fertile field these days than it was just a few years ago. Like I said before, we're being diligent in picking our areas of opportunity in the same way that Tim and Ken have talked about. Pick those areas that offer the best yield and move quickly to take advantage of the opportunity.
Okay, thank you. For Tim, you've obviously been the head of DGFF almost a year. What have been the surprises on either side, things that when you got inside the business were better than you had expected and those that were worse? If you can give us a few examples.
No, I think what surprised me positively was, first of all, the setup of the network. No. Wrong priority. What surprised me really positively was the mindset of the people and their willingness to change and do something and get out of that corner, which they were somehow in and stopped running around in circles and trying to do the right things for them also as individuals and for the entire organization. I thought that there would be much more work in trying to motivate the organization, but there was a lot of motivation. I think what was also good were the decisions made especially on the IT part. When I saw the system for the first time, the capabilities, I was hugely surprised how well it was.
Knowing and seeing how well and easy it is to implement because it's a standard software for the freight forwarding industry, and us being a fairly large customer there also, of course, supports. Those were the two upsides. The downsides were a bit the ability to make decisions, and this, again, this turning in circles, and that's why the Simplify Strategy has this important thing about roles and responsibilities. We founded ourselves some guiding principles on how we want to work together. I think that's probably also together, if you pair that then with being more successful, you see how this entire thing can work. I think that was also the one where I sometimes got a bit disillusioned and where I was a bit skeptical sometime.
Also what I will always forget was my first discussion on how we prepare for the peak season 2017. The ability or the non-ability to speak to customers about higher rates was something I really had to digest and make myself very clear. I can be sometimes, if you ask my wife, very, very stubborn.
Okay. Finally, just a quick one for Ken. I totally understand the buy versus lease option on the new aircraft, does that or doesn't it increase the operating leverage into the next downturn? Because you'll have more planes on your balance sheet, or is it offset by not having long lease commitments? Can you just walk us through the sense of that?
I think when we started to look at the replacements and the plan, we're talking in a no-growth scenario. We have got a certain number of old aircraft that's coming to the end of life. There's better types of aircraft with lower CO2 emissions, greater efficiency, and everything else. Just a pure replacement
Gives us a good EBIT benefit. I'm sure Melanie will tell you, and a good cash flow benefit as well if we finance them separately. I think the way I look at it, I hear a lot about these asset-light models, which is great if you can get away with it. I think the most important thing is asset owner. This is why the pricing is so important. Asset owner has got to make sure that he gets the fair return for all the risk and investment that he's taking. When I look at some of those planes that are flying around, and we go back to the dark days of 2008, 2009 when we had to sort of almost close down the U.S. fleet, and we had to reduce the amount of planes that we've got. We've grown every year since then.
All the risk really with those planes, okay, we've got a lot of them on short leases, but the real risk is on us. We're responsible for filling them, for getting them around the world and everything else. I think it's just one of those progressions where you look at that A piece and you think, "Should we do it or should somebody else do it?" As I said, I think it's an ultimately Melanie question more than a Ken question, because it's does she want more margin or not? I can live with the current margin that I have. Then it's just the way we are FedEx and UPS, as you know, they own all their planes. That bit of margin that they get on theirs is denied to us unless we start to change our approach.
I honestly think it's a zero-risk game because we're going to have to add four or five aircraft anyway. If we could get flying rights to certain places, we would be adding planes tomorrow. It's not even a new expansion strategy. It's what have we built as an existing network that gives us a bit more ability to take a bit more margin into the current result.
Pretty clear answer. Thank you, gentlemen, for that. Thank you, Mark, and I'm going to release you now for a 10-minute bio break before we continue a quarter past. Thank you. Thank you for rushing back in such a timely fashion, and now we are all ready and freshened up for the final section of our Capital Markets Day program. State of affairs, we're starting off with the view of the CEO. The CFO, sorry. Melanie.
Yeah. After you have now heard from our divisional CEOs, on what is happening in the different divisions, I want to take you through some of the questions which obviously come up in meetings, Frank and myself and Martin and the investor relationship team has with you. I think most of the topics on this page should ring a bell with you, so we have tried to cluster them into five topic areas. The first question is dealing with the capital allocation process, return on capital employed. How do we think about those topics? Second area is free cash flow. How do we see free cash flow generation, going forward? Then two quite specific, but obviously relevant topics, tax rate, and foreign currency exposure.
You heard from Ken, currency is something we have lived with for a long time and will continue to live with. Last but not least, the question, what do we think about our balance sheet position, the topic of excess liquidity and our finance policy. Starting with the first topic, capital allocation, return on capital employed. As you know, we have, and you can see that on the bottom of the page, over the last years, we have increased our gross CapEx. The guidance for this year is EUR 2.5. Last year, we had EUR 2.3, and we now have this aircraft topic, the EUR 200 million on top, which I will come back to also with regard to the flexibility question.
I think what is important on this page is that at the same time, we have significantly improved our return on capital employed. Small technical remark for those of you who will try to do the numbers later on. I am using a slightly different definition here to what the divisional colleagues used. They looked at our internal divisional definition for ROCE, where we take business operating assets and goodwill. Here, we just take the number you can directly get from our balance sheet. We take assets minus current liabilities. Yeah. That is why this number is on a slightly different definition basis, but of course, consistently across the timeline. You can see that in 2017, we came to a return on capital employed of 14.7%. Obviously, we will have an impact from IFRS 16 on this number.
This is something where we will have to see at the end of the year what the ultimate number is. Our current modeling suggests that it will be an impact of around 250 basis points. For me, that is going to be a rebaselining. Of course, the ultimate aspiration continues to be the same as in the previous years, that we want to provide you with sustained growth metrics then going forward from the new starting point. The next page is a variation on the theme. It basically takes the absolute numbers, rebaselines them to 2010, and then shows you the growth rates. I think two important messages here is our return on capital employed growth has outgrown the CapEx to sales ratio increase, and overall, we now had at the end of last year a CapEx to sale ratio of just below 4%.
I think overall, we still feel very comfortable with this dynamic. That takes me to the question, how do we do our capital allocation process? That's a topic we have already covered in previous events, I don't want to go through all the details. We have picked here some pages we showed in previous Capital Markets Days. I think the obvious important message here is it is a topic of the utmost relevance to us. We have regular processes, our regular general strategic capital allocation discussion, where we look at how much do we need for replacement, how much goes into growth. We have different criteria, strategic, financial, risk-based, to assess on how much money do we want to put into the different areas. That leads to the annual budget, where the divisions get allocated their share of the CapEx budget for the year.
We also have a year 2 and year 3 plan, which we adjust in the next budget cycle. Obviously, that's not a surprise, we have two divisions which tend to get more CapEx because they are our two more asset-intense businesses, the PeP and the Express division. Which is why I'm showing you on the next page an overview on where this CapEx goes. I think that is also nothing totally new. We have shown these breakdowns before. Just wanted to give you a bit more of a feeling for where do we actually spend it. The one thing I want to point out here is on the lower right. In Express, we already had quite a bit of aviation CapEx in the year 2017.
That was driven, for example, by the Air Hong Kong transaction, where we had the opportunity as part of this deal to take some aircraft on our balance sheet. That leads us to the interesting question of how do we think about this topic and ownership versus lease fundamentally. The three axes I have already used a long time ago when I was still the CFO of the Express division. Because ultimately, you have to continuously look for the optimum point along three dimensions. The first dimension is the cost position, where obviously, in terms of EBIT operating cash flow, ownership is the preferred model. You have to take into account what does it mean in terms of asset intensity, how much assets do I put on the balance sheet, and how much CapEx do I have to pay upfront? You have the question of flexibility.
On flexibility, there are actually two things to bear in mind. Operational flexibility, where owning the aircraft gives us more operational flexibility. If we have a partner and we have an ACMI construction with the partner, the aircraft is bound to the partner and the routes we fly with that partner. If we control the asset, the aircraft, we have more operational flexibility where we want to utilize this aircraft. That's the one dimension of flexibility. Of course, the other dimension of flexibility is how much headroom do we have in terms of a crisis to get rid of airplanes, which is why we have always been very careful to have a healthy mix between short-term and medium-term and long-term leases and ownership. That's a graph we don't have in the deck this time. I know we have shown it in the past in capital markets events.
We will probably also come back to that slide. You see that even if we now shift to a bit more buying on the intercontinental side, there will still be a lot of flexibility. That was, of course, also a big topic in our internal discussions. If things would turn into a different direction, would we still have the flexibility to shed capacity? That would still be the case. That's the fundamental way how we think about these questions. On our regional Express fleets, we already have a high degree of ownership, particularly when you look at our European fleet. There are numerous reasons for that. For example, the type of aircraft you fly there tends to be older, and you have to put it on the balance sheet earlier anyway. On the intercon side, we historically had a relatively low share of ownership.
I think there are a number of reasons for that. The first one is, especially on the intercon side, we always had to work with partners because we didn't get the flying rights. We will continue to work with partners because we still have certain routes on which we, as a European carrier, cannot get the flying rights. That created the simple opportunity to do it through an ACMI construction and not get into the CapEx ourselves. The second point was, of course, that there was a time like 10, 15 years ago when we were in a financially different position as a company, where also the economics of taking it on our own balance sheet was not the type of option we have given the strength of our balance sheet today. That is why we went into a very thorough reevaluation process on that question.
Obviously, on the cost side, by upgrading from older aircraft to newer aircraft, which we have to do anyway, independent of the ownership question, we will get to a better cost position. Of course, if we then also cut cost on the A component, that gets even better. That is why, based on our current assumptions and what we are looking at as scenarios, we clearly see through these intercontinent shifts a 5 basis points margin improvement potential going forward. As I said, this is going to lead to some CapEx beyond 2018. We have to come up with a concrete plan of how we want to do with the refleeting before we can tell you more on this. The current modeling in all scenarios doesn't show, for no year, an increase by more than 150 basis points on our CapEx to sales ratio.
I think very importantly, as I already said, we will fund this through a separate debt vehicle. We will be able, through the operating savings and the cash flow, to repay that in a very good time horizon, so that in terms of excess liquidity, it's not going to be detrimental to what is relevant to you. That's the first question topic, capital allocation and the Express intercon fleet. That takes me to the second topic, free cash flow generation in general. This graph shows again how we have developed over the last 8 years, since 2010, where I think quite obviously the biggest driver for our improvement in operating cash flow has been the EBIT growth. Yes, we had a couple of things like provision movements, which tempered off. The fundamental growth driver for the OCF has been EBIT.
the improvement in OCF has been the basis for investing into future growth on the CapEx side, but also for generating free cash flow to pay our regular dividends and to also accumulate some excess liquidity. I'll come back to that later. What to expect going forward in terms of the levers of free cash flow? There's nothing fundamentally new on this page. We are still convinced that the biggest driver for free cash flow growth will be continued EBIT improvement flowing through to the OCF line. We have highlighted here where IFRS 16 is distorting the lines. Obviously, in the depreciation, we have the one-time step change now in 2018, thereafter, we expect a slow gradual increase. Changes in provisions, no change. This is going to be aligned there for a number of accounting reasons.
We will always have movements in the course of the year. Cash outs expected to trend flat to slightly down year-over-year. Working capital. Fortunately, we are a growing business, that is obviously something where we will see a little bit of cash drain, but there's a very strong focus also through the management incentives to make sure that this is kept under tight control. Taxes. We are growing EBIT and our operating results, that will also lead to increase in taxes. I'll give you a bit of an indication on that in a minute. On net CapEx, we expect to grow in line with what we have seen in growth over the last years. There will be the separate topic of the Express intercon fleet.
Redemption of lease liabilities we have included newly, as previously mentioned, to make sure that the free cash flow number is comparable year-over-year. Last but not least, net M&A. I think Frank is going to talk about that as well. It will remain opportunistic and bolt on. Overall, like we have successfully done over the last years, we expect that increasing EBIT is going to translate into increasing operating cash flow and increasing free cash flow. That takes me to another interesting topic, tax rate and cash taxes paid. When you look at our tax rate over the last years, it has been quite low, as you know, low, like 12%, 13%, 14%. That is obviously not our long-term tax rate. We still have EUR 4 billion of unutilized tax loss carry forward, which we can, over time, activate.
We expect that we are not going to do on the tax rate, but there will be an increase to what we currently assume is around the mid-20s and also over the next couple of years. For 2018, we feel comfortable with our guidance of 18%. Again, we will, especially in the U.S., be activating more tax losses carry forward. We have to expect that there will be an increase in the tax rate. I know that this is very relevant to you because it impacts our net profit and hence our dividend, our regular dividend. The important thing to bear in mind here is that we have our 40%-60% payout corridor. Of course, when we talk about the regular dividend progression, we would want to avoid a situation where, because of the tax rate, things are not moving into the right direction.
That takes me to another fascinating topic, FX exposure. We had a long debate of how to show it here in a way which is explainable. Maybe the first thing I have to say is, if you now expect the great unified theory and a simple formula, I have to disappoint you because it is hugely complex. Why is it so complex? We are the most international company in the world, and we have impact from a lot of different currencies. For example, in 2017, we had a lot of influence from Egypt, which many people probably wouldn't have had on the radar screen. What we have tried to show you here is those currencies where we have a net short position and those currencies where we have a long position. The big short block for us is the US dollar. Why is that?
We have a lot of buying to do on the aviation side, and that is denominated in US dollars. The other two currencies, where we are in a short position are in Malaysia, and in the Czech Republic. Why is that? We have our two big IT service centers there. Those are essentially our short currencies. The rest is long. Now the important thing here is when you look at the US dollar block. Even though we are USD short, and you would assume that depreciation of the dollar would actually be a good thing, we are long on more US dollar correlated currencies, in Asia predominantly, so that we have a net positive exposure to the US dollar block. Okay?
That means that if the US dollar depreciates, that would be positive on the red box on the very left, but because of the big green block of the USD correlated currencies, it would actually not be good. Now the complexity comes when you look at the light green thing. Even if you understand what is now happening between US dollar and euro and the US dollar correlated currencies, we also have a lot of other large currencies, like the Japanese yen, like the British pound, Russia, Turkey, where there is no direct correlation, and so that really makes predicting the currency developments a little bit tricky. What does that all mean for us as a management team? It means that currency movements are a reality we have to live with, and where we are clearly focused on then taking action.
When I look at the possibility to take action, clearly, Ken talked about the annual price increase they do in Express. Obviously, one of the factors going into the decision of what we do in terms of the local rate card is how has that currency developed vis-a-vis the half currencies. I think in Express, we can react in a very well-controlled and very established way. In forwarding, it ultimately also goes into the rates. It takes a bit more time, and it's more of a market-driven thing, but I think there's also a natural process over time to take currency fluctuations into account. The one division where reacting to currency is most complex is in John's division in Supply Chain, because we have local revenue and local costs. Take the U.K. example here.
We have our revenue in GBP, we have our cost in GBP, we have our EBIT in GBP. If the GBP depreciates, that doesn't change anything in the local P&L, but we get a translational effect when we put it into EUR. To then explain to a customer, "Hey, we're going to increase your prices because we as a group report in EUR, and we have this translational effect," that's a bit of a more tricky sell. That is why in supply chain, it is more of a question of how do we steer our portfolio across the different geographies. Much on currency. That takes me to a comparatively simple topic, the cash generation, excess liquidity, and the balance sheet.
I've shown you this slide before, here the important message is the yellow bars are taller than the gray bars, that tells you that over the last years, particularly since 2013, we have been able to generate more free cash flow than what we have paid out to our regular dividend. That was the basis why we did our first ever share buyback, distributing EUR 911 million of this excess liquidity to our shareholders. Obviously, we have now accumulated more, we intend to accumulate more of this excess liquidity. I know the question is, what are we going to do with that? In this context, I really want to reiterate the firm commitment to our finance policy. We are still targeting our BBB+ rating, where again, all the IFRS 16 lease accounting is not going to have an impact on.
We are committed to our regular dividend payout policy, this 40%-60% corridor, which we are of course going to utilize should there be through IFRS 16 or through tax, be an impact, to make sure that we show a good progression on that. The one area where we have adjusted our old finance policy is on the topic of excess liquidity. We have said so far that excess liquidity will be used for share buybacks and/or extraordinary dividends and/or additional pension funding. We have taken that out for two reasons. We are now at a funding ratio of 75%. That's a ratio with which we feel very comfortable. Also with regard to regulatory pressures after the funding we did in the U.K. at the end of last year, we are also very well covered on the regulatory side.
I think more importantly, even should there ever be an additional pension funding in the future, we would do it like we did it in the past as a liability swap on the balance sheet without impacting excess liquidity. Our finance policy is in place. There is a clear commitment that at the right point in time, we will have a discussion about what to do with the excess liquidity. Obviously, that is not a topic we are going to have pre-discussions on when would be the right point in time. It is a topic we are fully aware of, we know it's of interest to you. It's a very clear commitment that we are not going to do anything stupid with this excess liquidity.
I hope that gives you some assurance, Frank Appel is going to cover that as well in the CEO presentation and the final wrap-up for the day.
Thank you, Melanie Kreis. Let me go straight away into the final set of questions, which we see. How do we see e-commerce and how important that is very often on your mind. Of course, we have a clear opinion about that too. Therefore, I would like to answer that first. Second is, what is the volatility? What is the tailwind or risk in our portfolio? I would like to give you some ideas and our perspective on that as well. Third, is there any big M&A or any change in the structure of the company necessary? What are our targets and how we want to make them? What it means for you as shareholders? Finally, what means digitalization and disruption for our business? Let me start with the first one.
Here you see all the activities we are doing in the different fields of e-commerce. With our broad portfolio, we are well positioned to capture all opportunities which are in the e-commerce world. Ken Allen talked very intensively about the opportunity in the premium segment and how much that has helped to grow the Express division. We have helped our customers. I have seen that or heard that from customers myself, that they say without, bless you, without yourself as DHL, we would not be in existence because we are connecting the small enterprises to the world. Cross-border is driving not only Express but also our PeP division. The international trade is getting now, that's one of the reasons as well we see now for sustainable growth at a lot of air freight is now e-commerce actually. That captures a lot of potential there.
B2C and B2B supply chains are going all on our multi-channel and that means that B2B customers need fulfillment centers and not only B2C customers. You can go around that, we are really well positioned to capture really the full potential. That's the reason why this industry is very important for us. Here you see what we're doing from a product offering across the whole portfolio. Of course, we are sitting in the Express segment. We are also sitting in the smaller or slower speed products, that is when either Express or PeP, Supply Chain does multi-users and dedicated fulfillment centers, as John Pearson explained. Global Forwarding is capturing not only deferred in economy, but also in some places, even small multi-users activities for the e-commerce there.
We are well positioned in that industry, fortunately, that industry is still at the beginning because we have seen so far only the consumer conversion of e-commerce and not the business conversion, which will happen. We are serving, these are not just customers, this is just a list of different activities, and you see all people are looking into that. The platforms, the marketplaces, a lot of retailers and small companies. That's interesting as well. We see a lot of growth, and you saw that in my presentation as well. The small companies are growing now as well due to the conversion that the internet gets much better. They are getting more intelligent as well so that they are found through the search engines. We see a lot of small companies are growing rapidly as well, despite the marketplaces.
Finally, of course, the brands which are looking as well. They want to be visible themselves, they need a great service so that the customers have the same experience in the same way as if they go through the marketplaces. That is what is happening. What is important as well, so far, no customer represents over 2% of our total revenue. I think that's an information you are looking for quite often as well. We are a very customer-centric organization, I think we have really been successful in competing in all these markets. In all our four divisions, of course, in P&P, that's clear. In Express, you have seen the impressive growth we have seen in e-commerce. John Pearson talked about a lot of fulfillment activities for e-commerce, that will continue to grow.
In DGF, of course, in a fragmented market, there's a lot of opportunity to consolidate and do even more. We have seen that already that in this industry, the players have, the large players have gained market share already. I think we know that's not new for us. These are competitive markets. At the end of the day, I think we have good recipes for success in all of them. The key elements are actually in e-commerce, the customer centricity. At the end of the day, what e-commerce really has helped is, it helped give consumers power. In the past, customers have power, now consumers have power, that really has changed quite a bit. Therefore, it's very important that we are most customer-centric. I think wherever we are really customer-centric, we see the benefits from that straight away into our numbers.
We have gained market share in Express for many years. In PeP, we have gained market share, or we minimize the losses in the mail area. In Supply Chain, in certain segments, I think we have grown faster as well. In DGFF, due to the struggle we had, I think Tim Scharwath has now laid out the right foundation that we will benefit from that, too. We need to be customer centric. We need as well that we are paid for the service. We are providing premium service above the market. The markets are complex, without a doubt, but that generates an opportunity. The more complex the situation, the more benefit it is for the service provider because we are helping to take the complexity out for the customers.
Excellence Simply Delivered is actually the promise that we make it easier for the customers than they can do themselves. That's e-commerce. E-commerce will be a very strong growth period for our company across all parts of our company. Second question is, how much risk or volatility or tailwind or headwind we have. That shows you on two dimensions. What is our exposure to GDP growth? That means the volatility, of course, and that's different for the business. The other is the growth rate we expect. In B2C parcel and express, we definitely have a structural change. That's the reason that the volatility, even if the GDP is slowing down, the structural change will continue. That business is not volatile because it's a structural move, which is taking place and will continue definitely for the next decade.
On the other side, DGFF is more volatile to the GDP growth because that's a fundamental support of global trade and global economy. The growth rate is still pretty good, but it's not as strong as we see it in e-commerce. This is a more volatile business as we've seen, but this is very asset light, as you know. The Post, of course, there is hardly any growth. It's probably more slow. Also here, we have seen hardly any strong correlation with the underlying economy in Germany. That's pretty little volatile. What it shows here is that I think we have a pretty diversified product portfolio with our divisions, and we have seen that in the past as well. We are not just the high growth engine if the economy is very strong, nor we are the dog if the economy is poor.
We have, I think, a very balanced portfolio if you think about our companies, and that makes us, of course, more resilient as a company, and you have seen that in the last 10 years quite often. Here you see even, more by numbers, how much the different areas are contributing. Of course, we are in the circling. We have still 45% of our revenue. The structural decline is just 15%. That's a mail business, or it's probably even slightly less and getting less. Resilient growth in supply chain in particular is 20%, and 20% is in structural growth. That I think shows here that we are really having a good balanced portfolio from a risk perspective. Therefore, we will never get the maximum momentum if the economy is very strong, nor we will ever see the penalties of a recession.
I think that gives us certainty that we always will see a good EBIT development and a cash flow generation midterm. That's what the portfolio of our company is all about. If you look into then the different divisions, because that's a question as well, are they are self-funding? Yes, all divisions are generating more cash flow than they need as CapEx. I think that's an important indicator as well. We don't shift money from one pocket to the other. They all are generating sufficient cash flow to fund their own CapEx. DGFF was easy because they hardly have any CapEx, but the cash flow generation will improve significantly if we see an acceleration of a profitability as Tim has outlined. We have already seen a significant better EBIT as working capital was not great.
We will see a tremendous change in Global Forwarding, and the difference will become much bigger than is shown here. Supply Chain always generated more cash than CapEx. Also our cash, the divisions with more cash need or capital need have generated significantly surplus in cash flow. That shows that we have a self-financing mechanism for our portfolio in total. The last dimension to that, sorry, two dimensions to that is, yes, we have some synergies between them, not only in the back office, if you go around that, but also in the front end. We have done much more on the LF than we have done in the past. Interesting enough, we are benefiting as well with our around the world freighters, that we are a strong buyer in that market.
That's the reason why we get access to these around the world freighters for DGF. There are probably more opportunities going forward than we had in the past. I think that after Global Forwarding is now gaining strength again, I think we will see even more upside in that area. We also benefit tremendously from our two brands, which is important because that we are not ending up on the purchase list of a procurement guy. It's difficult to explain to your bosses sometimes that is a benefit. Finally, what Ken described as a Certified program, we are rolling that out in all divisions, and we are seeing the benefits of that in all divisions. The mood is going up, that will help us to become even more customer-centric.
I think we have a good structure, that leads me to the last page of that chapter. We haven't done too much M&A in the last 10 years, as you can see here. A little bit, it was all some small activities, we still don't see any major acquisition needs because we are well-positioned with our business. On the other side, if you look to the bottom, that's the reason why we only show ROCEs for DGFF and our Supply Chain. We don't see any need why we should separate that. I think when that discussion comes hardly ever up now. If you ask me why we should split that, we will be more busy in separating that than we generate shareholder returns.
You see that we have, yes, we have still a way to go for DGFF, because if you include goodwill, the ROCE is below the threshold of our weighted average cost of capital. Supply Chain has now delivered that for many years, and I have no doubt that DGFF will deliver that soon as well. We don't see any need because they are self-funding, they are well-positioned to the e-commerce world, we are generating even some synergies in our portfolio. I think that's important to understand because that's a question you might ask, do you want to buy something or sell something? The answer to both is no, we don't. The targets. Of course, as I said already earlier today, we are very committed to deliver our target numbers. 2020, I think, is something we are very confident that this can be achieved.
In 2018, we reconfirmed. We will see now in the next weeks what we need. Is it easy to achieve that without any major restructuring or not? That will, of course, depend. I'm very confident about the 2020 numbers, and I'm confident as well about 2018. We will see that in the next months, and that's the reason why we are reconfirming today our goals we have set already a while ago. Remember, the goals we set for 2020 are going back to 2014. I'm standing here in front of you and being more confident than ever before that the 2020 goals are achievable. How? Yes, we have to continue to grow in PeP. I think we have a good base, and I demonstrated this out. We don't have a market problem. We have a cost challenge in Germany, not in Europe and internationally.
If we tackle that, I think, that's a problem we can easily tackle than the market problem. I think there is an opportunity to improve the PeP numbers to the goals we have set. Express is a flywheel anyway, that's amazing how well we have done. Ken is so right. The reason is because that division has by far the best employee engagement, that makes such a big difference in that industry. If you sit in boardrooms of others, they all talk about employee engagement. I think we have really a role model, and I think the other divisions are learning from that and we can improve in the others as well. DGFF with a simplifying plan. I think it's a perfect combination. I think Tim was perfectly right.
When I left that, I probably took some decisions, I never understood really the dynamics of the business. Tim, as an expert in the field, understands that very well, that goes a long way with the organization. We have now a very clear plan. We have a great platform with the new IT platform which is coming in. We have high motivation. Now it's really time to take cost out as he does and grow the business in a profitable way. That starts with being firm that a good service needs a good price. I think you see already the benefits in the first quarter and to come. In supply chain, I think the beauty about that is it's much easier now than it was to manage that business because we have significantly more consistency in that business.
That was the strategy focus, connect, grow from John, you see that. The business cases we get are significantly more consistent. I think there is a significant upside potential as well. If it goes like Penny, you asked already if there's an opportunity about four and five. We always say, "Let's make the numbers first, and then we talk." We said the same for Express. He said today maybe we can close the gap further. That has always been the aspiration, we are only committing ourselves to what we can deliver, and we have done that in the past, as you know. I think that we have a very clear plan by divisions, and I think that became very clear for the DHL divisions.
On PeP, I gave you some first ideas, and of course, you wait for more, but I feel very confident that we will see in due course a good plan as well to improve the performance. The next S-curve is digitalization on one end and e-commerce. Globalization, fortunately, will not go away. That will be a core driver, but we can do more. I will share that later on as well at the end. Fifth dimension is, what do we do with the cash flow? This is a different picture, but Melanie presented already that we are generating more cash flow than we need for ourselves and then for the dividend. Of course, if we accumulate more and more cash, of course, we have to find ways to give the money back to shareholders, and we will.
As Melanie already said, we don't want to do any pension funding any longer because we are well-funded now. Therefore, if we continue to generate more, then we have to find a way to give excess liquidity back to the shareholders. As we have done that in the past as well, we always say we generate it first before we talk about what we want to do with the money. We are very committed to the whole finance policy, which is in place now for a long time. I think we have seen a significant increase in the dividend with the strong support from the supervisory board as well. That's, I think, is a good trend as well for you. There is acceptance that the company is doing well and there's a need to return money back to shareholders.
You have my own commitment as well, but I always say let's deliver first before we talk about what we do with the extra money we have. Final thing is our digitalization, and that is only what's today, probably not enough time to talk about that. That will change our industry tremendously. That picture shows you more how we think about digitalization.
Since we started that, and that framework came from our new colleague for HR, who was my right hand before, and he created that because he said as well, "The organization will only capture what digitalization means for the organization if it's easy to understand." That is very easy to understand because we say, if you think about your own processes you have currently, think about data and technology, how they can improve your existing processes or, even more challenging, rethink due to the technology or processes and adjust them. But don't forget to make them more customer centric. That's what is on the left side, what we call technology exploitation. I believe that will be the majority of all activities we have, and we call that small I because it will change our business model.
On the right side, there are stuff where we can use technology to even disrupt in certain areas our own approach or where we can leverage our unfair competitive advantages we have. We have in certain areas unfair competitive advantages. We should take those and use the technology to make them to business models. That's the area where Jürgen Gerdes should focus on now in particular, that we have, I think we have good ideas where we have an advantage over others. Postbus probably was not an example. We didn't have We felt that we fought through our brand, we have a competitive advantage, but unfortunately, this market is just cost driven. People don't care what the brand of the bus is as long as it's cheaper. Therefore, our idea didn't work out in hindsight. So what? That's the reason why you stopped it.
The Streetscooter, I come to that later on, it's the other way around. We have such a high demand that we can build a business model and now start selling to others. That needs to be supported by a consistent culture and leadership approach, and we have that established now for 2 years. I don't talk about that today, but we are measuring our leadership even on these leadership. Are they role model, and then that influences their variable pay on an annual base. Small use cases. There are many from different divisions, a lot in PeP themselves, trunk delivery. We were the first to really create that solution. It's still small.
The drones are still more interesting for civilians or inventory measurement inside the walls than on the street because the complexity is much smaller, first, and second, we have it under control. That's an easy business case to replace security guards by these drones. These drones are actually in some markets where you know that corruption is a significant problem, drones are not corrupt, so that is helpful, too. Data analytics. We are building now as well our data lake, and we see very good business cases where we predict churn, where we predict routings, and there are many other business cases we follow. We do that case by case, so we are only putting data into our data lake based on business cases. Augmented reality, John talked already about that, Sawyer as well, and [inaudible] as well.
These are all things from supply chain where we really see significant productivity enhancements. That's what will happen in our industry. Our industry suffered from very little productivity gains. If you look into what we are doing, it's very similar to 20 years, 30 years ago. The technology will change that. That opens a huge opportunity for all our business units to improve productivity. That's great for the planet as well because productivity creates at the end of it wealth. There are only two reasons which create wealth, either population growth, because everybody who works creates value by definition. If more people work, it's good, or the people, what they do in an hour creates more value or more output. That will change our industry entirely.
The nice thing is for us, in many parts, if we have an idea, we can scale it immediately to other places. Some of these pilots are quite expensive, but if you have done that and see the benefits, you can scale them very rapidly. That will definitely hit particular supply chain where we will see significant opportunities, but also the others. Data analytics, we can do it in one country, and then we can scale it to 200 countries. You can go through that. If you have drone surveillance, you can do it in every facility because even in the low-cost countries, there's a business case. That's an advantage of our scale and reach. The StreetScooter, which is a big eye test somehow.
We are so successful that Jürgen and I came to the conclusion it's right that he focus on the new incubation ideas and I take over from him for PeP, that we have maximum focus on both. Here's the journey. We acquired the company already a while ago, we really launched the first in 2015. We really started to use them for joint delivery. My career has it already for two and a half years or so. I'm living in a small village close to Bonn, we have a joint delivery, and he's using that already for a while. We have now 4,500. We have different scale. The XL is now coming, which is really for dedicated parcel delivery. The others were so far for joint delivery, and now we have even an electric vehicle for parcel delivery.
Here are the different types. The interesting thing is here is that these toys or devices or are things which you can only produce if you have an internal need in the first place, nobody actually from an OEM would ever accept that there's a car which drives only 85 kilometers, hasn't reached 200 kilometers. You need really an internal demand. Now the things are changing. If you can live with that as Deutsche Post, I can live with that easily when I'm a craftsman or a University of Bonn recently bought one. The point here is that it takes some time. That's B2B business.
It takes lead time to see a big step up in sales if people are taking a pilot, they want to see the results of the pilot, they want to do a second pilot, and then you will really see the breakthrough. It's still some time to go, I'm very confident the feedback we get from customers is superb. There is an opportunity for us. It needs attention, that's the reason why this is one of the core elements of corporate incubations. Here you see some numbers. We have, of course, the charging installed and that is also an example why that works if you have your own demand.
To build these charging places for us, a no-regret move anyway because we know that we will always have enough StreetScooters and we need them, and they come back to the same place anyway. That's not for private person, it's no different. If you look into private cars, why they start in the premium segment is pretty straightforward. Tesla attacked exactly the right segment. If you have already two cars at home, you don't care if a third is an electric vehicle or a combustion engine because you have a car for 800 kilometers at home anyway. You can use then the other just for city trips. That's very different if you go for, you buy only one car and you own only one car, and you live in a 20-flat building, that's different with charging than being at home.
Here, we have a charging infrastructure straight away. All couriers are coming back to the base anyway. That's the reason why it's so attractive. We cannot produce up to 20,000, we are looking into enhancement of that, including autonomous driving, which we have already in place, but it's not allowed to do that, as you know, on free streets. This is what StreetScooter is all about. I have in more detail. I think it's straightforward, easy production, which we have scaled now. We have a market leading position. That brand is known now, we get more and more interest even from our competitors, too. Because there is more regulation coming about city centers where only electric vehicles probably will be allowed in the future. That's a great case, it shows what I meant with unfair competitive advantage.
Our internal demand and our knowledge about what we need and our perfect application, because delivery is stop and go, that's a perfect application for electric vehicles, is a competitive edge. Others don't have that. If you would produce it as a startup, you would fail because with these lead cycles of B2B purchase, it takes so long. In consumers, that's different. In consumer business, people switch straight away from a Nokia to an iPhone, from an iPhone to something else. That's easy. In the B2B world, it takes much longer. The decision-making process is different. We don't care because we have more than enough demand internally to fill these operations, these plants. If it takes longer for others to buy them, they will come, I have no doubt. We are easily off. That's the reason why this is the new structure now.
We have now four divisions, we created more or less a fifth pillar, which I would not call a division yet. You asked already earlier, we will give you more information, what is part of that, what is inside, what is the revenue, what is our losses or profits in this area going forward. When we will do that, how we will do that, we will come later back to you. It's important we have CEOs who are driving the classical business, we will have something which creates new ideas, bigger ideas, which are related to our core. We will not do things there which are completely off. They will leverage always something. We have tried that twice to do that.
We did that around 2000 when we IPO'd. One of the analysts wrote even at that time, our startups at that time were EUR one and a half billion worth. We had an email address for everybody in Germany. We had a SignTrust center. We had even a portal. We lost focus on that, unfortunately. In hindsight, it was a mistake because it was separate from the core. The organization said, "That doesn't work. That's all nonsense." Because it was completely separate. We said in the last years, let's integrate that and do that in the business. That's possible, but it creates new frictions, like you see now. We have costs in the PeP, which is invisible, and you will measure us only on the existing core business as long as you don't know more about that.
We combine both approaches because we have now somebody who deeply understands what the logic of our core is. Therefore he can develop ideas which are adjacent and close to our core. It's not somebody, and that's the reason why we don't call it business ventures. We call it corporate incubations because we want to leverage what is close to our core. This is the big idea area, and I'm very confident that we have enough unfair competitive advantages in our operations that we can build more business models around that. That's the story behind that. To conclude, you have seen that before. I think we are still a very attractive business. I explained why I think the portfolio is not only resilient, self-funding, but also attractive.
We continue to have a very good dividend yield, as we have demonstrated just a couple of weeks ago. I think we have improved our performance consistently, and we will do so in continuation. Don't forget, yes, we had a challenging first quarter, but years ago, nobody believed that PeP will ever make EUR 1.5 billion. Yes, that is true, and we will tackle that, but it's not that this is all a problem. When we started, we felt this will go down to the zero line, and we are far away from that. Therefore, we have, I think, improved consistently. Finally, the digitalization is already set. A busy slide, but so what of that page is, we have built a global player benefiting from globalization through many acquisitions.
We use organic growth to leverage digitalization in our company, in the existing business and in adjacent businesses. That's the story. Our business model will be in 15 years very different from now. We are investing into that area, and we are very confident that we can transform, because we have the scale and the reach to transform our business model to the new world. We will benefit from digitalization, e-commerce quite a bit because we are well-positioned for both. That's the end of the story. Thank you very much for listening. We have another Q&A session. More related to that, but whatever you want.
My colleagues, the three DHL colleagues will sit there, but they have a microphone if you have questions, because we do not want to stand here in front of five and four people at the aisle the whole time. If you have questions to the other colleagues beyond Melanie and myself, you can ask them as well, and then they will pull out the microphone. Thank you very much. All right. Thank you, Frank. Thank you, Melanie, for that roundup. Grab a water. Yeah, we got a couple of questions that came in from the web, but I want to give you the benefit of being here in person. Tim, why don't we start with you, and then Damien.
Thank you.
Just on the StreetScooter, is the plan or will you consider maybe listing part of it at some stage if the market environment looks right?
It's too early to say, but of course, we have to think about if we really get more and more traction externally, how we fund growth and how we unlock the potential. There are different ways to do that. I think it's too early to say what we want to do. We believe there is significant value already in that, and we have to make it somewhat visible for you as a shareholder, because at the moment, they first started to put a price tag of the best is proof of evidence instead of having any theoretical logic. That's too early to say. Okay. Damien?
Damian Brewer, RBC. Can I ask three, please? First of all, coming back to dividend and potential surplus capital, are you still content paying a dividend once a year, or as the mix of the business changes and its seasonal cash flows change as well, will you ever look at a more steady picture across the year? If so, do you have any initial thoughts on that? Secondly, with the focus on excellence and what that can drive in terms of revenue growth, particularly with the changes with IFRS 16, has the supervisory board had any thoughts about the way management are remunerated looking at something more beyond just the absolute share price and the return on capital, or is that still the absolute focus?
Then very finally, I guess linked into that, Frank, a little while ago, you made a quite sizable part of one of your presentations on the sort of the impact of the business, both socially and environmentally. Could you give us an update on your thinking of that? Thank you.
Okay. Maybe I start with the first question. I have to say on the question of dividend spread out through the year instead of once annually, we are not getting consistent feedback on that. There are different preferences. I mean, that's a topic we touch upon quite frequently in discussions. I haven't seen a clear picture on this yet, there are no concrete plans yet. Of course, I'm going to see many of you over the next days and going forward. That's a topic we're happy to discuss. As I said, so far, there was no consistent picture.
Yeah. I think those of you who are shareholders just approved our vast majority, almost 90% of the new incentive scheme we have as a senior management team. That is, we have one-third is a fixed, then we have one-third, which is a variable income in the first year, and half of that is deferred. As long as we don't earn our cost of capital as a company, that will disappear. That's still in place. The last third is completely related to either the absolute share price increase or the relative against index comparison. What's important is the whole thing is empty if we are not increasing share price. We will not get from that for any euro after four years if the share price is down on this period.
I think that's right that we should not be remunerated or rewarded for underperformance regardless what the markets have done. Because I think it's right that the management only gets something if you get a return, and that doesn't include the dividend. That's a model more or less, and it has been already for a while. There's some changes now. The hurdle to get the long-term incentive is a little bit higher because there's another step now, which in the first year, the supervisory board can give you more or less on these stock appreciation rights phenomena. That drives mainly the income of the senior team. That is share price related. I think that's right because that's the best measure. Shareholder returns beyond a share price are embedded somehow.
If we would say we do an extra dividend, then we have to drive the share price as well. These things are embedded, I think, and best reflected. I think that's a good model. What you should expect, I should be rewarded on long term. That means four to six years. The majority of my income, if you look into the annual report, is always driven from the long term as long as we're doing well. If we don't do well, I get my fixed and I might get half of a short-term variable, and that's it. I have less income, but if the shareholders get a good return, then the management should get a good return as well. That's the basis for incentive, and I think that's right.
You can criticize me, but the shareholders actually felt that this is right. Of course, the supervisory board decides on that, I was heavily engaged in that, and 90% or 88% felt that this is a good model and voted for that.
Corporate social responsibility.
Of course. Corporate social responsibility has now been a part for almost 10 years of our whole strategy. We always said that corporate social responsibility can't be something different from what the company does. Therefore, now our three bottom lines, customers, employee, shareholders, there's always is central that's our planet. We continue to roll out our activities, which are GoTeach, where we work with different organizations to work with the people at the bottom of the pyramid. We are not sponsoring the Ivy League universities. We are sponsoring the activities which are on the bottom. Teach For All is the major activities in SOS Villages, where we really help disadvantaged children to get a proper education. The second is GoHelp, where we use our logistics expertise. When natural disasters are happening, the UN and the country can call us, and we come for free, of course.
We pay for our people and help them with logistics, which is usually the bigger need than money. Money comes in from all places, but logistics need is not well covered. The last one is GoGreen. We are very committed to deliver until 2050 a carbon-free, not a carbon neutral, a carbon-free operation. I very often say that politicians, COP 21 did that, the Paris Agreement, who set a goal, should say that's the goal, maybe there's regulation how you enforce that. The technical solution should be driven by the demand of companies like us. We need airplanes, which are carbon neutral by 2050. Whoever produces them first will make the race. I have no doubt that other logistics companies will follow our model pretty soon, like they did that when TNT and us started that for the first place in 2008.
All others followed the postal industries, all on carbon neutralization and all this kind of stuff, the logistics industry as well. I have no doubt in a couple of years, all our key competitors will say, "We go for 2050 carbon neutral as well." It gives you more and more advantage in the customer market. We will lose that when they join. If they join, if the whole logistics industry say, "We want to have carbon neutral airplanes by 2050," the Boeing and Airbus, these world better put their sleeves up and produce them. If they don't do that, somebody else will do that. There will be people who will produce carbon neutral airplanes, I have no doubt. On the carbon reduction, we are already on the journey anyway with our own StreetScooters.
This is what we are doing, I think that is the journey we have to do as a company as well because we are working in 220 countries, we have to give something back and have to take responsibility. You can't do that just on Sundays as christians, when you go to church and pray. You have to do it every day in your day-to-day operations, this is what we are doing. That goes a long way with our employees, by the way, too. Long answer, too, but you asked for the social responsibility.
It's good to get these questions from this audience. Didn't get many-
We don't get them so often
not so many years ago. Damian, thanks for that. Toby, continue with you, and then we'll carry on.
Hi there. Just a couple for Melanie. Just starting with the tax guidance, obviously, you're saying, mid to high 20s. Is that by 2020? Also, it feels like quite a big jump from where you've been. Can you explain maybe how you arrived at that guidance? Also what the implications for your cash tax will be on that basis? My other question is really just a point of clarification about the EUR 200 million that you talked about, the debt finance vehicle. I'm still a bit confused about exactly how that will work and why it doesn't impact your excess liquidity. Also, it doesn't feel like a big number given what, say, a 777 Freighter costs. EUR 200 million is not a lot. Why is it that number?
Mm-hmm. Yeah. Okay. First on the tax rate, I think you have to take into account that our tax rate in the last years has been abnormally low. Why have we been able to get to such low tax rates? I think we had some one-time opportunities, like in 2016, we had a restructuring of our German pension vehicles, which gave us a one-time opportunity. We've really worked on tax optimization, legal, not gray zone, very legal and transparent tax optimization opportunities. The second big driver over the last years was the uptick in the business. With the good growth of the business in the U.S., also in countries like France, we have been able to utilize so far untapped tax loss carry forward potential.
I think what we are now seeing going now to 18% this year, probably into the 20s in 2019, is a bit of a normalization. As I mentioned, we still have EUR 6.4 billion of unutilized tax losses. There is going to be some opportunity to temper it. I think we wanted to be more on the conservative, transparent side in telling you what to expect in terms of P&L tax. In terms of cash tax, you've also seen that in the slide that has been a more continuous increase, and that is also what we assume going forward, that with the increase in our operating results, that is also going to go up. Secondly, to the aircraft question. As I said, we are quite sure that it makes sense to go down that route.
Of course, we now have to go into the sourcing and we have to look into different opportunities. Of course, there's a lot of demand in the market, we really have to see how we go through it in terms of timing. Obviously, the EUR 200 million we anticipate for this year is not the final number, which is why I gave you that indication that even in the peak year, based on our current modeling, it shouldn't add more than 150 basis points to the CapEx ratio. We will give you more clarity once we have finalized our thinking on the sourcing. Given that we have a very high likelihood for this to impact the numbers in 2018, we wanted to use the opportunity of today to already give you a heads up and put it out in a transparent format.
The last one? Why that doesn't impact our cash flow generation?
Of course, technically, this is going to impact free cash flow and CapEx. Because we are leveraging our good balance sheet position to prove dedicated financing, and because we are also going to repay out of the excess cash flow from the savings this obligation which we will have for a couple of years, in terms of thinking about excess liquidity, we're going to put it into a different bucket. We will be transparent about it. We will probably just continue showing it separately so that in our return discussions, it doesn't distort the picture.
Rob, why don't we continue with you, and then Mattia.
Good afternoon. It's Robert Joynson from Exane BNP Paribas. A couple of questions on the higher aircraft CapEx, if I may. First of all, Melanie, you mentioned a really interesting figure in the presentation, which is you said that there could be a five percentage point margin improvement for DHL Express from the higher asset ownership. It's obviously quite a tantalizing figure for us analysts in the audience.
50 basis points.
Oh, 50 basis points. Okay.
It was in writing on the.
That's less tantalizing. Okay.
Just I don't want you to get too excited. I think 50 basis points is also interesting, but yeah.
In that case, maybe even around that figure, could you provide us with some details on how much the asset ownership would need to change for that to be achieved and what type of timeframe you're looking at?
Yes. I think, again, the way we also discussed it internally, we have two elements. The first one is that over the next years, we are going to do some re-fleeting in our intercontinental air fleet because some of the planes are quite old and no longer the most fuel efficient. You have airports where you have noise restrictions and so on. We will work on some form of re-fleeting. That is going to give us some savings, for example, through the higher fuel efficiency of the new aircraft. The second question is, does it make sense to continue leasing those aircraft like we have done on the intercon side so far, or is it more economical to go into a buying position? Here we clearly look at the financing costs that we have ourselves.
If we fund that CapEx, when we have the final number externally with our financing costs, or if we do it through an airline partner, there we have to look at their financing cost and the markup they put on the A component. Right? That is all on top of the generally more efficient aircraft type giving us the second type of saving. This together creates a cost benefit, which based on the current modeling, should help the express margin by around about 50 basis points plus.
The second question is just on the timing of the higher aircraft CapEx. I think on the last few conference calls, the question's been asked a couple of times about could the aircraft CapEx increase materially, and the answer's been "No." What's changed internally to kind of prompt the announcement today that there will be a change in that respect? Is it just more analysis internally on the cost benefit analysis, or what are the reasons?
Yeah. I think it's a couple of points. Obviously, the whole aircraft market, also for a larger wide-bodied aircraft, has been heating up over the last months. When you look at the announcements others have done on how much aircraft they are securing, obviously we have been following the market. We are continuously following the market, but clearly there is also a certain capacity constraint becoming apparent. We also have new players who all of a sudden start buying airplanes. In light of that, we revisited our general re-fleeting plan. There, of course, we have a multi-year plan, and we used that occasion to reassess the question again, does it make more sense to continue with our leasing model or go into the buying model? Right? I think really we have two things we have to treat a little bit independently.
The first one is the question, do we have to renew our intercon fleet over the next years? The answer is yes, it makes absolutely sense because there are more efficient aircraft out there, and they're going to give us a lot of fuel efficiencies. Renewing in itself is something which, due to the age of the aircraft, we have to do, but also because it gives us operational savings. We looked independently at the question, is there an economic benefit that we can also communicate to you by going heavier into the buying than what we have done in the past? We look at the way we would be able to refinance those aircraft and what we are paying if somebody else does it for us.
If we then look at the flexibility we will still have, because those would be tangible assets, which if the position should ever change, we would be able to take off balance sheet and give them to somebody else. I think it is really a no regret move to make this change now. We completely kept in mind that we said we are not going to have a big mega CapEx explosion on the aviation side. I think first of all, in terms of numbers, that is clearly the case. If you now talk about a CapEx intensity of 4%, where maybe for a while we will go up by 150 basis points, that is not like going into the six, eight, 10% range.
Secondly, we also want to make sure by keeping it separately, by doing this debt funding, that it is not hurting you on the excess liquidity side and on the dividend side.
Okay. Being mindful of time and knowing the type of questions that you, Mattia, have, just as a pre-warning, we have to stick to our schedule. There are flights to be caught later on. You probably have got great stuff to do also this afternoon. For the physical round, it's going to be the last round of questions from Mattia, please.
Mattia Gherardi from Goldman Sachs. My first question is going back to page 112, which is the CEO slide about excess liquidity. If I read it correctly, you are showing, well, left column minus right column, EUR 3.2 billion of excess liquidity, less share buybacks, which you already down EUR 1 billion, I read that as around EUR 2.3 billion of excess liquidity. Is that a fair assumption? A follow-up to that, if you consider excess liquidity, would you have a preference between, say, dividends or share buybacks between the two? Another question for the CFO, just we talked about taxes, the headline tax is going to go up. Perhaps, you still have around over EUR 2 billion of deferred tax assets. Are they going to be utilized to some extent in the coming years as well?
Maybe just second question about taxes is, what about your guidance about cash taxes? Where would you expect it to be? Should it be in line with the reported tax going forward? Or if you can give us some color. Thank you.
The first page you referred to was done by the CFO team anyway, probably Melanie can explain that better somehow, how these numbers came together. On the second question, what would I prefer? I think I have said that several times already. The share buyback needs to be reflected somehow, how attractive the share buyback price is somehow. When we did that, we started that last time, our share price was at EUR 20. We felt the share price is significantly depressed and undervalued. There is not every time, I think it's perfect timing to do a share buyback. On the other side, a special dividend is in a German-listed company complex. That's the same with these quarterly dividends. That's also more challenging than in other jurisdictions.
Therefore, we have one AGM, and therefore we need a proposal and we need approval of that, and that is complex in a German-listed environment. Therefore, I would say I have no preference. I think we have to assess that if we have excess liquidity, what is the better process to get these things through? Because on the extra dividend, you have to approve that and we have one AGM. Of course, we can do an extraordinary AGM, but that is very uncommon. Both have advantages. If you give money back straight to a shareholder, that's clear. You don't have to sell your shares, and you get the money. Therefore, that's a clear preference. The share buyback is easier to execute.
Okay. On the excess liquidity, yes, this is why we put the slide in to show you how we generally think about it. Free cash flow minus regular dividend, what is left in terms of excess is what we, as a category, see as excess liquidity. Based on the math, there is excess liquidity accumulating. I think on share buyback versus a special dividend, I can only echo what Frank said. I think we're fully aligned on that topic. In terms of the tax rate questions, so yes, we still have the DTAs, and this is going to be also utilized over the next year. I think we have flexibility on the tax rate, but I just wanted to give you a transparent feeling that the rates of like 12%, 13%, 14% were abnormally low, and we are expecting a normalization now going to the 18%.
There are still numbers which will give us a little bit of a shielding over the next years. In terms of cash taxes paid, you can see on page 93 that it has trended roughly in line, I think, but you always have the timing differences, of course. I think ultimately for me, with our profit going up around the world, we will also see an increase in the cash taxes paid. Yeah.
Cash tax rate.
It is going to go up, and I think it is going to go up with our increasing profitability. Yeah.
Okay. Would you have thought that we're going to end this whole exercise on a tax question?
Our head of tax will be very pleased about that.
I consider that good news. Okay. No, well, thanks, Melanie. Thanks, Frank, for this last session. That basically concludes our program for here today. Thank you very much for coming here, participating. Thanks to my IR team for the great preparation, and looking forward to see you sometime soon. Bye-bye.