Good afternoon, ladies and gentlemen. Welcome to today's Deutsche Post DHL conference call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Mr. Martin Ziegenbalg.
Thank you. Hello, welcome to everyone. Thanks for joining on such short notice for our call on our P&P measures introduced today. We have here with us Frank Appel, the Group CEO and interim CEO of the P&P division, who will take you through the presentation to acquaint you with the set of measures that we have introduced today for the P&P division going forward. We will, after that, have time for Q&A. For that Q&A, we will have also here available with us Melanie Kreis, the Group CFO. Given that we are all on a tight schedule, right over to you, Frank.
Hello from my side as well, and thank you for joining us on short notice. Of course, this is not the nicest discussion to have. Definitely surprising for you when we came out this morning. Of course, we'll reflect as well what we said four weeks ago. What has changed, and why we have now a more precise plan what we want to do. Let's go into the presentation. On Page two, you see the bridge to the new P&P target for this year. That is a reflection of what I have learned in the last. We have learned under my leadership somehow in P&P, what is going on. We definitely have a challenge in the operational performance, and I will explain that in a second.
Equally, we also have to increase our investments in OpEx to really improve the underlying performance. That leads before one-offs and restructuring expenses to EUR 1.1. The EUR 150 million is costs, which we will continue also in 2019 and 2020 because we believe that this is necessary to improve and deliver what we have promised originally for 2020. In addition, we have EUR 500 million restructuring costs, and I will explain later on how that is constructed, and how we want to use that. That leads to the EUR 600 million new reported guidance for this year in P&P. Where we are and what is the current state of our assessment? There is good news and bad news. Good news is, we still believe that the volume will continue to structurally grow. We have grown quite nicely.
Prices in the Mix and Mail have kept stable but not increased. We come later on to that challenge and what we think about that. On the Post side, volume decline has been lower than in most other postal operators, but we didn't get, as you know, a stamp price increase since January 2006. That puts already some pressure, if you see there, to the operations. What the key learning is from the last 4 weeks somehow in direct costs is that we are not able currently to compensate factor cost increases for productivity gains. I believe that is happening because we have not really invested in OpEx. I'm not talking less about CapEx because we invest a lot of brick-and-mortar stuff and sorting equipment, but we have not sufficiently enabled the organization to improve productivity.
That's something I have learned more after I look deeper into the detail, and I think that's a big lever going forward. We will see that later. Beside of that, we have a tight labor and transport market, which has led to price increases there, too. We have definitely, due to the strong growth we have seen, a stretched organization. We have also a little bit imbalance in utilization of the capacity at the moment. That puts all stress to the organization in addition to the productivity is not improving. On the Post side, we also have, of course, the continuation of the decline. That puts, of course, pressure on the fixed cost. In addition, we have a change in the mix, as we explained already. That puts additional pressure because certain larger volumes can't be really sorted in the same way as standard letters.
Finally, indirect costs, as I mentioned already 4 weeks ago, we have a challenge there. There is a challenge with overhead buildup in the parcel area, which is not completely wrong, but we did it probably too fast. On the other side, we have not mirrored and responded sufficiently to reduce overhead in the cost side. That's overall put significant cost pressure on our operations. That led us to the conclusion, the overall target will not be achieved this year. On the next page, you know that. That's a good story on both sides. Our decline is much smaller than other places. We have continued to grow very nicely. These diverging trends put pressure on the operations.
That's the reason on Page five why we believe that we have to invest on an annual basis and continuously EUR 100 million to EUR 150 million to, this is not CapEx, that is OpEx, to really improve the performance. The reason for that is we were probably more focused on facilitating strong parcel growth and short-term profitability than regular productivity investments. There are some missing elements in IT and operations to drive better customer service and higher efficiency. I will talk about in a second about the main pillars of what we think we should do. In addition, to get a lower cost base and get in contribution pretty rapidly, we build up EUR 500 million restructuring expenses. Part of that has cash flow impact. Others, even as we generate a cash benefit, as I explain later on. On page six, you see the overarching themes we will address.
On the parcel side, we will definitely more balance growth and yield. We had many years of outperforming the market growth, and we think now with a tightening market, it is right to balance growth and yield better. We will go with the regulator for a regulatory price review, as we already told you. The productivity measures will be, of course, a core of that. I am confident now after I looked in many details, there is plenty of opportunity to improve our productivity, but you have to address it in a very consistent way. That is the reason why we need these EUR 100 million to EUR 150 million, and that is the reason why we put it in the underlying run rate instead of in one-offs. Finally, indirect costs. We have to restructure our overhead. We have too much overhead, and we will tackle that as well.
Finally, as already announced, visually, we had announced it as of Q2. That is the amount of money you will see later on what we will put into corporate incubation. These are all measures which will give us a better cost structure and are the base for profitable growth overall. On the next page, you see pricing measures. The pricing measures are different. That addresses here on the parcel, mainly the business customers. We have to revisit in a tightening market, what we can do to do price increases customer by customers. There is a challenging issue, shift to profile. What we mean by that is if you give people discounts, and they deliver significant less volume, of course, we have to adjust and collect the money, which we probably have not done rigorously.
That is one element which Express, I think, is doing very nicely, and I think we can learn from that. Finally, as I already said, the growth should be more in line with the market, different from the past, where we grew always above the market. On the right side, we took already action for a small niche product, which is existent in Germany. The regulatory part will follow the normal schedule, as we already explained. On page eight, you see the different areas where we need more OpEx. Automation, digitalization, people think in a straightaway always about investment in big IT projects and infrastructure. No, we can do a lot, I think, with smarter analytic tools and to build up. We have already people who are doing analytics, but I think we can accelerate that. That comes with extra OpEx.
There is a lot of leverage in that. If you better forecast, if you monitor your quality even tighter than we do, address qualification, you might be surprised that we do that. It is enabling the sorting equipment to make less mistakes, which are still happening. That is all not big amount of CapEx. It is more like training people, understanding the processes better, and that will give us significant leverage. The same is a constant dynamic route planning, even down to daily district definition, which will help quite a bit. Joint delivery is a common theme which we can further extend. On the right side, you see not only the dynamic network utilization, that becomes more and more important, in particular, if you think that the product between mail and parcel, the borderline between these two is more and more diminishing.
Finally, a big lever and a quite expensive cost, continuous improvement. We have to train our people through our First Choice and certified programs, and that will give us a significant leverage to avoid waste in the day-to-day operations, because there are no single silver bullets. It's day-to-day management, sticking to the standard operating procedures, enabling to identify waste in the current circumstances, and that will give us enough flexibility. This is an ongoing process. You can never stop. You know that originally ideas came and were deployed mainly in Express, and I think we can leverage them as well for Pack and deploy them more. Coming to the restructuring measures on page nine. That is one effect which is retiring the civil servants. We will only retire civil servants where we know that we don't need to replace them. That has two effects.
The first is that we have a one-time hit because we more or less build a provision for all the expected salaries, payments in the future. On the other side, we will have an ongoing impact up to EUR 160 million per year. The interesting thing is that the cash flows over the whole period of their early retirement, but the EBIT impact is now negative, in the coming years, always positive. We see a shift from one time now into ongoing improvement, and we see even a positive cash impact, as I explain in the next slide. There will be further smaller restructuring measures to get to the more than EUR 200 million target we are shooting for, but I'm very confident that this is all doable and executable. On the next page, you see more detail. Of course, investor relations can explain them more in detail.
What you see here is if people stay until they retire, and we don't need them actually because they are overhang, or we take the money and say, or we build an EBIT impact now, and then you see in the coming years, we have zero impact on the bottom line and even a positive operating cash flow effect of one quarter, roughly. That's the reason why we decided to do that. We have identified enough civil servants, without telling you now precisely how many, but it will be a sizable number which we can take out of the overhead. We are not talking about operations. I think that's important because our operations is scaling up. That means if we send somebody home, then we have to replace them with somebody, and then the effect is negative. Finally, shift to corporate incubations.
We told you already, StreetScooter was the first smart truck in India, which we launched last week, is another one. In total, with also some central functions for that, we are shooting now for EUR 20 million. I think important to know here is that we assumed a lower number in the original guidance. This number is higher than we gave you a guidance, what we expect for that. You have seen that we're building up capacity for the StreetScooter and that leads on the short-term for more higher losses. That's the reason why this number is higher than originally anticipated. For the Q2 release, we will report that now under corporate functions. Altogether, you see on page 12, the bridge. You see that the base 2018 excludes, despite the guidance still includes the one time, EUR 100 million from these pension restatement.
We are shooting for the first three pillars because this is, of course, revenue increase, price increases, staff increased due to more volume, but also salary increases. The same for material costs. We overall expect EUR 250 million net impact from that. From the productivity improvement, we assume and believe that we can make it happen. Additional EUR 150-250. Overhead will be north from EUR 200. In the international parcel business will be between zero and EUR 100. As I said already before, it depends a little bit how successful we are in growing. That might lead to further investment in this area, and then, of course, the number is lower. Or we might end up that we say, "Okay, we are getting more profitable, and we can do both," or it's just, we want to show also some profitability to increase confidence.
That will be the bridge somehow, and that is where I'm very confident that this is achievable. On page 13, that leads to the restatement of our guidance. You see here what is including everything. We go down from originally EUR 4.15 to EUR 3.2, around EUR 3.2 with the different elements, P&P EUR 0.6, corporate functions now EUR 70 million more. DHL stays at the same. If you exclude the restructuring one-offs, then we are at EUR 3.7. You see that we reassure today that the target for 2020 is absolutely achievable. Of course, the impact in P&P has impact on the free cash flow as well. We now say instead of above EUR 1.5, it will be above EUR 1 billion, excluding the debt financing of the intercontinental fleet. That is the new guidance, and we feel very comfortable that this is doable. Finally, summary.
We do now some fundamental readjustments. The program we now launched is about all elements, productivity, overhead, and pricing measures. Focus is not on the short-term, but to deliver our 2020. That's the reason why we lowered the guidance for this year. You see the numbers. We invest one-off and ongoing expenses. That makes me sure that we really lay the foundation for future success in that division. It will be a challenging journey without a doubt. Nevertheless, as I said already four weeks ago, I was very confident, and I remain equally or even more confident today because I dig even more in the detail and know now more than I knew already four weeks ago.
The particular difference, if you ask what is the particular differences, I learned definitely a little bit more on the pricing and even more how little we really focus on continuous productivity improvements. This is definitely my priority now going forward, and that leads to what I just explained. Thank you very much for listening, and now the floor is yours for any questions.
Yes. Operator, initiate the Q&A, please.
Yes, of course. If anybody would like to ask a question, please press nine followed by the star key on your telephone keypad. If you wish to withdraw your question, please press nine followed by the star key again. Please press nine star now to state your questions. Our first question comes from Mark McVicar, who's calling from Barclays. Over to you.
Hi, Mark.
Thank you. Good afternoon, everybody. I probably have about 100 questions, but I'll limit it to three. First one, I think for you, Frank. When did you first start getting worried about the P&P performance? I think you said at the Capital Markets Day, you weren't totally happy with Q4, which I think slightly alludes to. Are you satisfied that the flow of information up or your early warning signals worked as you had hoped them to do? Or does it need tightening up?
Should I answer them one by one? I'm happy to do that. This is a good question. I'm a person who's always worried, despite that the good run we had in the last years. Probably I got more serious about what's going on late summer last year. You always balance. If I'm early and honest, you always balance and say, "Okay, there are worries, but on the other side, the numbers are still moving in the right direction." That was probably the time when I got more concerned about what's going on.
As you went through that, are you happy now that the data that you get out of that division is good enough to allow you to really see where the problems are and tackle them?
Yes, absolutely. The interesting thing is the amount of data which is available is massive, which sends me a signal that we have probably too much overhead. Any question you ask, you get an answer. This is the interesting thing. The deeper you go into that, the more opportunities I saw. That's good news for me because my job was not to run the division. I asked, of course, certain questions, but not all questions. What I'm seeing now is that there is plenty of opportunity in all angles. That is very encouraging for me, and that's the reason why I've said also to my colleagues, "Let's now make a cut and go out instead of fizzling around and hoping." Because that helps me also internally.
I say, now we have a problem, now we work on that, but I'm very optimistic that we can go through that. That's the reason why we said now it's the right timing instead of hoping and guessing and trying. We needed to get the story, and the story is we have to turn everything around. Whenever I look under a stone, I find something. That is very encouraging.
Then the next question really was probably a very quick one. In terms of the early retirement of the extra civil servants that you've identified, do you have to get any further union agreements for that to happen, or is that already incorporated in the existing agreements that you have?
No, this is a voluntary program, so we offer that. We don't need any agreement with the union. We offer that somehow, and the employees can accept. This is an offer. We can say, you can go earlier home. You will get a little bit less salary than in the past, that's actually 32%, but you don't have to work any longer. That's a voluntary program. We have done that already 2 years ago, and that worked out very well. In the meantime, people got older, and we found even more areas. I'm very optimistic that this is doable, and we don't need any agreement because that's in place. That's legal. The law says you can do that and offer that to people.
Yeah, I think as Frank said, when we did it in 2016, there was huge interest. I think the program is obviously going to be focused on people in the overhead areas where we do not need to replace. That makes the economics so attractive despite the EBIT that we have to take in 2018.
Okay, Mark, what's that question number 3 then?
Sorry. One, just very quick question. Doing the numbers, however, sort of in a rough and ready fashion, says that your retained profit after the EUR 500 million of restructuring is clearly going to be quite materially down year-on-year. In terms of thinking about the dividend, are you going to be prepared to step outside of the normal range of payout ratio to maintain the dividend? I know it's a question for the board early next year, but just in principle.
Yeah. I think, first of all, we have this headroom in the 40%-60% corridor. We have also looked at one-off and made adjustments for one-off in the past. I think we are, of course, fully committed to the statement that dividend continuity is of absolute essence for us.
Okay.
With all cautions, because Mark, as you know, this is not in our sole control. We are very confident that we will make our 2020 numbers. If we are confident, then it would be a very weird discussion if we not do what Melanie just said, that we look into that as a continuity in how we deal with that. I'm very confident that we will make our numbers, that's the reason why, of course, we have to look into the underlying first, as Melanie said. I'm very confident that we will see as we have done that in the past, a continuation of our finance policy in the right way.
Sure. Because the dividend is very much a medium-term prospect, isn't it?
Absolutely.
Okay.
Yeah, absolutely.
That's brilliant. Thank you all very much.
Okay. Thanks, Mark.
Thank you.
The next caller, please.
Next up is Edward Stanford calling from HSBC.
Good afternoon, everybody. Two questions please, if I may. I suppose the first one's for Frank. The last set of results came at a difficult time for you in the sense you've only been in the job for a month, and you had to stand up and express confidence in guidance for this year, which has proved to be a little difficult to sustain. You're now standing here expressing confidence in the 2020 guidance. Just do you now feel you have got to the bottom of the issues? How confident are you that there will be no more surprises? That's question one. Question two, just a little bit interested in the early retirement program in the sense that what do these people actually do that you don't need to replace them?
I feel very confident. Between end of April and now, I spent majority of my time in digging into all elements with a lot of people, and I kept them very busy. If I listen to some, they say, "Okay, it's different how Frank leads that, but we are definitely more busy now." Which is, I think, good news for me if I hear that. I think I have really found wherever I look I found something, and I'm very confident that there are no hidden surprises left for me. That's the reason why I'm very confident. On the other one, this is linked to the overhead reduction. The civil servants are not our youngest bunch of people anyway. Of course, I believe we can do with significantly less. If we offer Excuse me.
If you offer the early retirement, we will assure that this work, if there's anything left, will be done by the remaining people, and we will not hire any new people. That will be very cautiously monitored. We have done that already two years ago, and we monitored that very tightly as well.
Yeah. I think, it is connected to the fact that, particularly in the postal area, I don't think we have made sufficient adjustment in the overhead number in light of the decline in volume. I think that's now an opportunity.
Thanks very much.
Thanks, Ed. The next caller, please.
The next caller is Daniel Röska, who's calling from Bernstein.
Hi. Good afternoon, everybody. Three for Mei, too. Maybe, Frank, first one, as you're turning stone, maybe what has kept the organization from reaching the same conclusions you're reaching kind of six months ago? What kept them from executing the measures you're putting in place today, six months ago? What's changed over the past six months, and what was missing to kind of reach that realization? Secondly then, as we, a couple of years back, went through a similar episode at DHL Freight, you stated your intent very early that you were looking for outside leadership to lead that business unit. Could you comment a little bit on the medium to longer term, what changes you would like to see in the P&P leadership and how you think about setting that management team up for success in the medium term?
Lastly, on the volume price mix a little bit, how do you see volume and kind of impact on prices from the mix shift in the business towards e-commerce and the pricing developed in the medium term? Will the price increases you're trying to put through in the summer be sufficient to kind of keep prices stable or expand prices in the near term? Thanks.
Yeah. Maybe on the first thing, I said earlier, the challenge probably, Mark asked me more when I got more aware. The fundamental problem started probably already earlier. It's a consequence, I think, of focus. I told you four weeks ago that I think that we are splitting that area of responsibility was a little bit, that Jürgen was distracted from the day-to-day because that was home and you always are probably more easy when you see that and trust that this is the right stuff is going on. Actually, that was not happening in the. There was not enough focus on that, and that's definitely different for myself. I focus that quite intensively, and I see that as well, that the organization is responding positively to that different approach. We are different characters as well.
I'm very clear with my expectations, I ask many questions, as I always do, I get a lot of answers, which is helpful. The leadership, of course, because you might ask the hidden question behind that. I let it. Then we need it for another year. I think this will not happen here in this case. I have some ideas, but it's too early to talk about that. I am now focused to help this organization to shine as it did in the past, for a long period. That is what they deserve, and that they deserve as well that I show myself responsibility, what is necessary to do. I will do that, but of course, I will not do that forever. On the volume side, there is some impact.
As I already said, I think this is a little bit more tricky. Pricing is always the most difficult part, I see from the first analysis also some opportunities. It's too early to say what kind of levers we can fully pull, there is an element of that. That has to be executed in a cautious way. Overall, the market is tightening, it's getting more that everybody has difficulties to find enough labor, the capacity is not growing sufficiently for the e-commerce, that will help the market overall. The detail is probably too early to say. We hinted to some elements that there might be more, that needs a little bit more assessment also from my side.
Okay, thanks.
Okay. Thanks, Daniel. The next caller, please.
Next up, we have Tobias Stettner, who is calling from MainFirst Bank.
Yes, good afternoon. Two for me, please. Firstly, a lot of the things that you seem to be doing in Mail sound like common sense if you run a tight shop. I am just wondering whether you are controlling that slip a little bit, and whether you draw any conclusions on how to control the business differently going forward to avoid those things in other divisions going forward, it seems a little bit like a repetition of what happened in Forwarding. The second one is on your 2020 guidance. In my thinking, guidance should be somewhat a midpoint of realistic scenarios. Maybe below that, is that how you think about 2020, or does a lot have to go right for you to meet 2020? Is the realistic midpoint maybe somewhere lower? Quite obviously, it is not where market expectations are at this point. Thank you.
First of all, the situation here is different from the DGF situation that was a major transformation program and the root causes are different. You are right, Tobias, that of course you always have to ask as a CEO, how do you lead the organization? I think you always have to find the right balance. The right balance by trusting your divisional heads checking sufficiently. If you look over the period of 10 years, I think it was for nine and a half at least, or 10 years, or 10 and a half years. We had 10 and a half years was the right balance in build and experience trust. As I already said, what happened probably in the last period of Jürgen's leadership, there was a little bit defocus. Therefore, I would not blame now the controlling organization.
I think that's what you have to take. What you on the other side, have to do as a CEO, when you realize that something going wrong, that you have to change. I think this is what we are doing. We should not now say the whole history was just a fake, and the numbers are the numbers, and the numbers were good. When we started 10 years ago, nobody believed ever that we can make these numbers possible. That's proof of evidence that the right balance between trust and tight management is right. On the other side, if you ever manage every division very tight, you will not get good performance. You wish, because then people say, why I should doing that? Nevertheless, there's also responsibility for my own side. The root causes are very different.
The other one was a fundamental transformation program, and this one is a more, not enough focus on long-term existing business.
What I'm maybe referring to is that basically, it sounds like you keep the guidance for a very long time, and then there's a very substantial write-down, change in course, change in shift, rather than maybe early warning indicators telling you to modify things a little easier earlier on. This is what I may be referring to.
Maybe if I could just add from the finance perspective as well. First of all, I agree with Frank. I think the situation with NFE and Forwarding was different. I think ultimately we had to come to the realization in Forwarding that the transformation approach we had taken was simply the wrong one. This big monolithic IBM SAP system, that was not the right approach. Once we saw through the pilot that it was not the right approach, we took that decision to change fundamentally our IT renewal strategy, and that led to the write-off in Forwarding. I think here the situation is different, and trust me, we are also having this in the finance team, intense discussions on that question. I think the point is that P&P continued to deliver the numbers and to make the budget.
I think what has now become apparent over the last four weeks particularly is that was really at the expense of making necessary investments, particular in the production area, to make us future-proof. Yeah, of course you could say, why didn't we see that earlier on? As Frank said, there were warning signs. Yeah, they delivered the numbers the whole time, and I think it really took this eight-week deep dive now under Frank's leadership to get to the bottom of the situation.
Okay.
Thank you, Tobias. We've got time
We have the second one on the 2020 guidance, please.
Oh.
Yeah, that's more midpoint or?
As I digged into that, I'm really confident that this is a good number, and achievable number. There is plenty of opportunity all over the place, and that's the reason why we put these ranges in. If you take the upper end, it would be more, but that's too early to commit now even more than we already committed. But I'm very sure that this is doable, because I see enough levers. It's not the market. That's what I said already four weeks. We have not a market problem. We have an inside problem, and that's a easier problem to tackle. With that announcement, we create enough muscle and headroom for us to do something instead of trying to achieve the numbers and squeezing and squeezing.
This gives us, even if it's a disappointment, gives us enough opportunity to really do now something on a continuous base. Don't forget, we invest every year EUR 150 million into improvement of productivity. That's a quite a difference one we have probably done in the last two years.
Okay. Thank you.
Thanks, Tobias. Now the next caller, please.
Next up, we have Joel Spungin, who is calling from Berenberg.
Yeah. Hi there. I have got two. One is a very simple one, which I will start off with, which is simply, will you take the full EUR 500 million provision in the second quarter numbers?
No. With all likelihood, that will be more after the summer. As Frank said, all the legal ingredients for the retirement program are in place. We now have to go through identifying the right people in the right positions. It is going to be more in the second half of the year.
Okay, thank you. Just really coming back on this point around the 2020 guidance and your confidence in that, which seems obviously really key here. I guess I wanted to ask the extent to which you have, or how you go about working out what the payoffs are on the incremental EUR 50 of investment that you are making. Especially given that you have highlighted that a lot of these cost saving programs are yet to be firmed up. I am just curious to understand why you have so much confidence, and the stress testing you have done around the payoff on that investment.
The reason is because I have seen already a list of ideas which were already on the plate before I took over, but have been postponed. They have not very long payback periods. Why that happened? That's a good question. I ask that myself. Probably because we wanted to deliver the numbers. If I had knew that, I definitely had decided differently, but I didn't know. I'm not deciding on Programs which generate EUR 2 million here and EUR 3 million there. There is a longer list of these things because there is no silver bullet. On the other side, if I see that there are many ideas, it's more about executing that and taking the challenge and creating headroom.
That's the reason why we put this EUR 150 million to create the headroom instead of discussing, oh, we don't have the money because we have to deliver this number. Intentionally, we said, let's create some headroom so that we can do something about it. That is what is happening, and that's the reason. If I see the list and on the other side, the funding which is embedded in the guidance, I'm very confident that we will see significant improvement in productivity. That's the reason why I think we don't need a new think tank to do all things right. We just have to leverage the ideas the organization has already.
Okay. Just to follow up quickly on that. These are ideas that were out there that had actually been quantified in terms of the long-term payoff. It's simply that you weren't able-
Yes
to make the investment maybe to release that saving.
Yeah. This is different. If you think about, of course, training in First Choice, which is a continuous improvement, this is what we probably invest more in 2018 and get benefits. If you have an organization which has learned in starting locally to take waste out, and I could tell you interesting anecdotal stories, but that's not the right level for discussion. You will see what is possible if you really have the right mindset. We have to invest into that. We did, but not sufficiently. That's the reason. That is something which happened. There are other ideas which have a very short time period, and there are a third category of ideas, of course, where we are changing fundamentally and more looking for 2020 and 2021 and whatsoever.
In summary, all that should help us to get to the level which is necessary to deliver the 2020 goal.
Okay. Thank you.
Okay.
Thank you, Joe. We've got a bit more time for a few more callers.
Okay. Next up, we have Andre Mulder, who's calling from Kepler Cheuvreux.
Hello? Andre? Andre, you're on. Otherwise not any longer. Operator, we might want to-
Okay. Move on to the next one.
Get the next one.
Next up, it is Andy Chu, who is calling from Deutsche Bank.
Thank you. Good afternoon, everyone. Three questions from me, please. In terms of the P&P bridge to 2020, are you able to help us in terms of the phasing of the profit step-up from EUR 1 billion to EUR 1.7 billion? Is it going to be slightly backend loaded toward 2020? Obviously, you will have the stamp price increase likely to come in 2019, so maybe some help between EUR 1 billion and EUR 1.7 billion, i.e., what does 2019 P&P look like? If you could just clarify that you are happy with the DHL divisions, that there are no sort of early warning signals in each of the three DHL divisions, are they sort of performing to plan?
The last question is in terms of the last time, obviously, you took a restructuring charge was ahead of the stamp price rise and review in 2015 and kind of feels that three years later, here we are with a sort of big restructuring charge. Is that coincidence and what you are doing here is basically nothing related to the stamp price increase, it is just simply that you need to get the business into a much more profitable place? Thanks very much.
With the phasing, I think I am pretty smart, but not smart enough to do that. I focus more on getting an idea if there is enough leverage across the different functions to get to the 2020 number. I understand, Andy, your request. We will continue to work on that and might be sooner or later ready to give you a better phasing, but that is too early to say. Of course, the price increase will be implemented January next year, and that is so. I ask for understanding that my focus was more to get an understanding what is doable, and I am very confident. On the DHL divisions, yes, we think that they are on the right track. That is the reason why we are reconfirming the guidance for this year and beyond. We have no reason to do that. The stamp price. It is interesting question.
If you think about that, we always assume that the third year of the stamp price increase will be the most difficult one, and we said that already four weeks ago. What in hindsight I probably missed, and this is linked to what I've said earlier, that we missed an opportunity to stabilize that. If we had started earlier already to invest more in the ongoing, we probably would get now more benefits. We have not leveraged what we got at the beginning to equalize more or less the impact by doing something at the beginning. In hindsight, you are always smarter. At that time, we probably felt it's important that we demonstrate that we really see movement of the results, and that's the reason why we might already earlier started to reduce that.
If you are then on a slope, and then the most difficult year comes, which is referred here. It is to a certain extent, it is a consequence of the model. Of course, that should give us some insights going forward that we are not saying all the stamp price is straight away, and we continue to invest somehow even in the year where we might need that to demonstrate that this is a good year. It's a complex answer to a simple question. It's probably not just coincidence. I think we missed an opportunity, and we should not miss it now again. That's definitely what is on my list.
Can I just ask one more, just in terms of the restructuring charge to the civil servants. How many people would that roughly equate to, please?
Andy, I have a very clear opinion. I don't want to raise concerns for a lot of people, knowing that they will stay around. That's the reason why I always say, I'm committed to cost reductions, but I don't want to give headcount figures, because that ends up in newspapers and it sends the wrong signals to people. The people will be very individual, but if the press picks the number up and then the press writes this headcount, and then people who are not even in the scope of that get concerned. I don't want to have that. We have a lot of civil servants in the operations, and they should not worry and they should not say, "Oh, that's not valid for me as well." That's the reason why I'm pretty reluctant.
You never see that in my tenure now for more than 10 years. I never said any headcount number because I think that is wrong because it confuses people and makes them nervous without any benefit for us. We are very committed, and we will tell you later after the fact, but please not before.
Okay. Thank you, Andy.
Thanks very much.
Good. We've got a few more callers. The shorter the questions and the more they allow for a short answer, the more callers we can take care of.
Matthias Gerstle, calling from Goldman Sachs.
Hi. Yes, hello. Good afternoon. Two quick questions for me. The first one is on yield management in parcels. Could you give us maybe a bit of color what kind of, say, annual yield management results should we expect? I don't know, 1%, 2% per annum, or would you expect at least initially to have a bigger result? The second question is around, say, excess liquidity, excess capital, as we were debating it at the Capital Markets Day just a few weeks ago. Now, considering the lower guidance, would you still say that now you have excess capital that you would commit to return to shareholders? Those are the two questions. Thank you.
Melanie has something to do as well. Melanie Kreis will take the second question, and I will take the first question. Despite that I see opportunity on what is doable, I prefer not to give different type levels all the time, what we intend to do. I want to have a clear communication consistent to everybody at once and applies. What we do usually, we start with the customers first instead of sending that around, because that confuses as well our customers, and that's not good. I ask for some understanding. As I said, we found opportunities in that area, but I think the order is definitely not to announce in an analyst call any general price increase whatsoever. We have to work on that, then we have to prepare communication, then we do something and not the other way around.
I say, Matthias Gerstle, that I can't say more, but that's my logic about that. I can assure you, I think there is opportunity.
I think on the second question. Yes, we have a challenging situation in P&P, but that doesn't mean that we are changing our finance policy. I think it says very clearly in our finance policy that once we accumulate excess liquidity, we will think about the right ways to share that also with our shareholders. Obviously, given the changed guidance, that is now going to be more challenging for the year 2018. We still acknowledge that we have generated excess liquidity in 2016 and '17. How and what we do with this excess liquidity remains open, but it will be dictated by the unchanged finance policy.
Thank you very much.
Thank you, Matthias. I think two callers we still could take.
Next up, it's Robert Joynson. He's calling from BNP Paribas.
Good afternoon, everybody. A couple of questions on the numbers, if I may. The first question concerns the benefits that are expected to be derived from the EUR 500 million restructuring charge. You said in the presentation that the expected benefit is greater than EUR 200 million for 2020. Would it be fair to assume that the benefits will be greater than that in 2019 and then start to fade from 2021? If it's possible to give a total benefit, that would be extremely helpful as well. The second question concerns the EUR 100 million-EUR 150 million per year of recurring OpEx. You said that that will recur in 2019 and 2020. Is it possible to estimate by how much that will decline from 2021 onwards? Thank you.
First of all, the reduction will not generate a peak and then it slows down. The costs are gone, then they are gone, they will build up over time, depending on when people really go in these restructuring measures, be it early retirement or other measures we will take. We believe that these will be measures which will last forever because we will not rehire these people. The same is true for EUR 150, EUR 250. This is not something which we generate. I think what my intention with this investment now is that we establish an ongoing culture of continuous improvement and optimization.
As I said already earlier, the whole service industry, not today, but in other speeches and presentations, the whole industry is now getting through digitalization, automation, a new period. If you look into what we are doing in many areas, we are still a very manual organization or service industry. That will change. These EUR 150 million every year, 2018, 2019, 2020, will set the base, but this investment will continue to really learn and leverage what technology will bring to our party, and that will drive continuous improvements in productivity. This is probably the point where we have better started earlier, but we didn't. I can't change that. What I can change now to say, "Okay, we earmark money, which should go into continuous improvement of operations." The nice thing is now it's easier because technology has advanced.
Certain things were not possible even three years ago, even if you dreamed about that. Artificial intelligence, data analytics, all this stuff is moving so rapidly that you can capture that. If you don't have enough data analysts, you can think about data analysts, and if you don't have them, you can't make any changes. That will change now with that money. That is not peaking even in 2020. I think it creates a base even for more improvements beyond.
Can I just ask a follow-up question, please? Is the early retirement being offered to only employees who have a maximum number of years, before retirement, I don't know, four years or something like that? Or is this available to anybody?
By law, it is only applicable to civil servants age 55+. We will, of course, define the criteria. One criteria is obviously going to be that those people have to be in positions where no refill is required, because that is what makes the economics work.
Okay. That's clear. Thank you.
Great. Thanks, Rob. That was crisp. If we stay that crisp, we've got time for one last caller.
Last up, we have David Kerstens, who's calling from Jefferies.
Hi. Good afternoon, everybody. Thanks for taking the question. I've got two, please. First of all, on the expected slowdown in Parcel Germany volume, is that because you see the market becoming more competitive with Amazon Logistics ramping up, or do you deliberately step on the brake to manage costs more effectively? Secondly, regarding Parcel Europe, you're highlighting profitability of up to EUR 100 million. What measures would you take to improve profitability faster for Parcel Europe? Does that mean more cooperation agreements with incumbent operators and less direct investment? Thank you very much.
On the first one, we say it's more a balance of growth and yield. We don't see any slowdown in the underlying growth, but we believe after so many years of market share gains, there is no need to further gain market share. It's focusing as well on profitable growth more in line with the market, and that's the objective. The market is not slowing down and not because others are starting something. I think we will see a continuation. If a market is tightening from the supply, I think that's the chance where you should think about what is your yield. I think that is what the whole industry has to think about more carefully. I think that's the opportunity not only for us but for the whole industry. The second is, this is too early to say, and that's the reason.
I think there is an opportunity to do EUR 100 million in e-commerce in Parcel Europe until 2020, and that's the reason why we write 0 to 100. I don't want to see that we are cutting back on our expansion plans just to deliver a number. That's the reason why we say, if that's not doable to generate profits because we wanted to continue to grow, we come up with a 0. If we continue to grow very nicely, why we should not generate? We have countries who are already pretty profitable, as we demonstrated or showed you already before. That's the reason why I've said this is a part of a journey, and let's see then. That's a positive development in comparison to what we said so far.
On the other side, so that you're not saying, "Oh, now they are putting something in which we said differently before." Even if you've taken 0 in, we still can make the EUR 1.7. We are not changing our expression, but you should not be surprised either that this business is making profits by 2020 different from what we have said in the past. That is meant by that. That is an ongoing discussion we will have in the next two years. What should we do? I will not compromise on growth and opportunity just to squeeze out profitability.
Very clear. Thank you very much.
You're welcome.
Perfect. Thanks, David. Basically, that concludes the Q&A session. I think we've taken care of all the requests out there. The next scheduled communication is then for our Q2 results for August 7th. That concludes today's session. Over to you, Frank, for closing remarks.
Again, sorry for surprising you with bad news, and the change in guidance. I hope that we could demonstrate that we created more confidence than we had even four weeks ago, that our long-term plans are executable and not too aspirational and therefore realistic. On the other side, that this needs some short-term help from restructuring expenses and reinvestment of OpEx, in this year and also then in a continuation. If we do that, we will make our numbers. I'm very confident, and I feel even more confident than four weeks ago because I have digged more into that, and I spent a lot of time with the folks. I think we have a strong management team, with the right ideas. My job is now to focus them on the right stuff, and I started already, but this will help as well internally.
The message is now out. We can be very clear and blunt in talking to the organization, and that will help to get traction. That is also something which I have not mentioned, but this is beneficial to us. The organization needs to know what has to happen, and that's now very clear, and that's the reason why we went out as well, because nothing is worse when the organization doesn't know what's going on. Now the organization knows, and we will pull up our sleeves, and we'll make it happen. Thank you very much, and see you soon.
Thank you. Bye.
Thank you.