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Ladies and gentlemen, thank you for standing by. I'm Natalie, your Chorus Call operator. Welcome, and thank you for joining the Deutsche Post DHL Group conference call. Please note that the call will be recorded. You can find the privacy notice ondpdhjl.com. [Operator Instructions] And I would now like to turn the conference over to Martin Ziegenbalg, Head of IR. Please go ahead.
Thank you, and good morning, everyone, and thank you for joining us on our call on Q1 '23 reporting. As flagged in the invite, I've got here with me our designated CEO, Tobias Meyer; and our Group CFO, Melanie Kreis. We are aware that it's a busy reporting day in the industry. So without any further ado, over to you, Tobias, please.
Thank you, Martin, and good morning to everybody. Welcome in this new setup for my first quarterly reporting. If we look at the first quarter, I think we can overall say that we've seen a very resilient business performance in a very heterogeneous market. So after some recovery from the January, February trough where we've seen quite some contraction, it's now not really consistent since about March. So we have some weeks where volumes in certain regions up next week, they are down. So it's really hard to read at present surely, this has something to do with holidays in the different regions as well. But overall, an unusually inconsistent scenario, but we are confident that we are able to deal with that.
And I think the Q1 numbers also show that, that even in this inconsistent macro environment, we are able to deliver for our customers and also are able to deliver when it comes to financials. Given that, we can confirm guidance today, we are confident that we'll stay within the range that we've outlined on the March 5 reporting when we talked about the full year 2022 and the outlook for this year. However, we are not yet able to call one of the scenarios that we've sketched out there. So the range stays basically intact entirely.
We have to see how it continues to develop as we now go through the second quarter. Again, in the recent weeks, we don't really see a consistent trend as it comes to the macro developments. With that, I would hand it over to Melanie to give you an overview of the development of volumes and then go through the divisions.
Yes. Thank you very much, Tobias, and hello and good morning to all of you also from my side. Let me start with taking a closer look into current trading momentum staying with the B2B development on Page 3. I mean obviously, had expected the first quarter to be a weak quarter in terms of B2B volume development, and that is what we have seen.
But as you can also see on this slide, we have seen first signs of stabilization in March versus the initial 2 months of the year. This is encouraging and in line with our expectations based also on the experience from prior cycles. But to be very clear here, the picture remains volatile and not consistent enough to call a recovery.
I know that you will probably have lots of questions about April. So April is not easy to interpret months to start with. It's impacted by the holidays. The Easter holiday was in April this year and last year, but in different weeks. So week over week comparison is slightly challenging. We've had significantly less working days in April than in March. So I would say that overall, April continued slightly the same way as March, slightly encouraging but very volatile and too early to really interpret it in a meaningful way for the trend in Q2.
The second topic I want to mention on this page because we have had many questions on that in the last weeks and months. And you kind of like compare Express and Global Forwarding. Express is once again holding up much better in terms of volume and weight than air freight. And this is a typical cycle picture and not a surprise to us. But I know that there were some doubts particularly with regard to the rate development in Express.
I think what we are seeing here, the post-pandemic unwind is not different to previous cycles and we also do not see a larger-than-usual reduction in Express weight. So that in terms of general introduction to the volume trends in the quarter.
Let me now turn to the individual divisions, starting with Express on Page 4. So shipments per day overall, down 5% rate per day down 9%. And there's still really great EBIT of EUR 903 million I think what you can see here very clearly is that we have successfully been pulling our well-established flexibility levers to rightsize airlift and ground capacities in line with the actual volume development and we have also maintained a very strong yield discipline.
I think what is helping us, and we have mentioned that before, but I think it can't be overemphasized. We have experienced team across all divisions, but also particularly in DHL Express. They know how to flex the network up and down across the regions. And I think in that way, we have now also shown in the first quarter that we can effectively minimize the effect of declining volumes on operating leverage.
So overall, I'm very pleased with the resilience shown by our DHL Express division. That being said, please be also aware that the Q1 EBIT saw some tailwind from shorter-term swings in oil prices. You know that we have the well-established pass-through mechanism with a 2-month time delay. And this benefit in the first quarter more than offset currency headwinds, which we saw.
We expect the fuel surcharge benefit to unwind later in the year potentially already in Q2. Let's see it is what it is, but I just wanted to be clear that, that was also supporting the Q1 development in Express to a certain extent.
Now let me continue to run through how each division is tackling the current circumstances with Global Forwarding Freight on Page 5. So volumes and rates have also developed pretty much in line with our expectations. And you can see our resilient GP performance, which shows that the lower market rates also come with lower costs to buy capacity as typical at this point in the cycle, and in that way, we have been able to cushion the spot rate movements in our GP unit development, both on the air and on the ocean freight side.
And beyond that, also nothing new. We continue to benefit from our internal improvements based on the new IT systems and the related improved processes. And in that way, we are driving sustainable efficiency gains supporting our GP and EBIT performance. And you can see that the conversion rate in Global Forwarding in the quarter was right at the 35% mark, which we are aiming for over the cycle.
Now turning to DHL Supply Chain on Page 6. I think here, we have a very nice proof of the resilience of the business model. We've talked about that in the past, but you can see that supply chain revenue was actually up in the quarter by 8%. That's a combination of growth in the existing contract portfolio but also additional momentum provided by new startups and last but not least, successful pass-on of cost inflation.
You can see that the long-standing focus on that division on standardization and digitalization is fully paying off. And that really leads in combination with the new business wins, good margin performance to actual year-over-year EBIT growth. We achieved an EBIT of EUR 227 million in the quarter, that's up 11%. I think that is worth pointing out, particularly given the current macro circumstances.
Now turning to the B2C volume picture with DHL eCommerce Solutions on Page 7. We have seen across the e-commerce part of our business and also in the division, which carries the name e-commerce solutions that consumer behavior is showing some reservation in light of inflation and general macro. But overall, and Tobias will come back to that in a little while, we see e-commerce volumes holding up relatively well. And also here, in eCommerce Solutions, we saw some improvement in momentum in March.
So while revenue and EBIT performance once again reflects our price increases and our targeted cost measures also in DHL eCommerce solutions. The focus of this division clearly lays less on short-term EBIT growth but more on the longer-term opportunity based on the attractive medium- and long-term structural e-commerce growth potential.
And on that basis, we are very pleased with the EBIT contribution and the 5.4% EBIT margin we saw in eCommerce solutions in the first quarter of '23.
Now leaving the DHL divisions and turning to Post & Parcel Germany on Page 8. I think on the parcel side, with 0% year-over-year growth per working day, we have seen a similar trend to what we saw in e-commerce volumes in the DHL divisions. The consumer is prudent, but overall, volumes are holding up. However, as you know, if we don't have growth on the parcel side, we tend to have still decline on the mail side and we also have ongoing cost inflation. So the situation in P&P is a bit different to the DHL divisions. And moreover, specifically, this Q1 carried some additional costs related to strike risks and of course, we also saw the triple-digit impact of the new wage agreement.
So putting all that together, it was a tough quarter for P&P, and you can see that in the development of the results. What does it mean going forward? Some of the Q1 burdens will lessen going forward, and we will hopefully also see some acceleration in parcel volumes growth in the course of the year. But it is a different game compared to the DHL divisions. And one important element here is that the German government is currently revising the post law, and that is key for the future ability to successfully continue the transformation from mail to parcel in a profitable way.
So we do hope for a new post law, which will be a modern framework, which will allow us to offer a sustainable nationwide postal service at affordable prices with good working conditions and wages and keeping the profitability on a reasonable level. That is what we will now figure out over the months to come.
So putting the development in the five operating divisions together, let me turn to Page 9 and the group perspective on some key P&L and cash flow metrics. So group revenue and EBIT development reflects the freight normalization in Global Forwarding as well as general macro with a resilient profit performance in line with our expectations and guidance assumptions.
As you can see, free cash flow was strong in Q1, with freight rate normalization also leading to lower receivables being tied up in our working capital. We have seen that very clearly in our Global Forwarding Freight division. So along all metrics, a good quarter in the light of circumstances which clearly confirms our planning assumptions and shows that even in a cycle trough, we are well ahead of former pre-pandemic record levels of profit and cash generation. So that was the look back on Q1. And with that, I hand over to Tobias for the look ahead.
Yes. Thank you, Melanie. This brings us to Page 10. This is actually pretty straightforward because it is largely what we have said on March 5, when we talked about the full year 2022 and the guidance for this year. So based on what we've seen in the last 8 weeks, we cannot call either of these scenarios that we've laid out on Page 10. Again, it is unusually, I have to say, inconsistent what we currently see in the volume development is clearly better than the start of the year, what we have in March and April, but there is no consistent trend.
And that shows that, for instance, out of some regions, we have a week with growth in air freight, but declined a more significant decline in ocean freight, whilst in other parts of the world, we see this inverse. So that is really the manifestation of what we call an inconsistent current picture, and we will see now in Q2, whether that continues or we get closer in calling out one of these scenarios.
On Page 11 is the breakdown, which you also know in terms of how the guidance splits on DHL and P&P Germany. We clearly need some positive momentum in P&P Germany to reach this guidance. based on volume development, but also obviously, the usual seasonal pattern that we have, particularly with the strong Q4.
DHL, Melanie explained that, particularly in Express, we have a small tailwind at least net of currency changes when it comes to fuel. So in overall balance, we stick with the same numbers and outlook as we had on March 5.
Now on Page 12, you might ask the question with the transition of the CEO role from Frank Apple to myself. Is there going to be any short-term changes in strategy. and that will not be the case. We have our usual 5-year cycle, which has served us well. to provide a framework to the broader organization. And that is very relevant for us because we are an organization spread out over many countries and many, many locations we operate out of more than 10,000 locations. And this consistency in the basic framework, what is our purpose, our vision, the three bottom lines that we manage operationally against being employer of choice, provider of choice, investment of choice and then sustainability that has served the organization very well. And there's no reason to change that short term.
We're obviously going to have the discussions starting this fall, how we react to changes that we see in the geopolitical landscape and so forth, but that's the normal cycle of strategy. What we do see is that the four major themes that we always watch out remain very relevant.
Globalization surely changes in its nature. We see certain trade lanes that have more growth than others. We see certain geographies with the China plus one strategy that many manufacturer companies now adapting. So that changes the trade pattern. But that is perfectly normal for us, and this gives us more opportunity in some markets. And we need to be a bit more careful in others. So that's exactly what we are doing.
We do not see -- and I think we've also shown this with the connectiveness Index that John Pearson presented a couple of weeks back. We do not see a general contraction in trade. The pattern is changing, but it remains something that for us is the bread. And obviously, focus needs to remain on that.
Digitalization, we continue to utilize to enhance our operations and service. E-commerce and sustainability, I want to talk a bit more about on the next pages, starting on Page 13 with e-commerce. E-commerce and I think Melanie also alluded to it in the divisional updates and results presentation is very important for us when it comes to growth, and it's not only e-commerce solutions and the parcel business of P&P it's really across divisions by now, and you have some key numbers here.
With the number of the growth in DHL Express B2C shipments per day over the last 4 years being up 48%. So that is something that continues to be very relevant, obviously, in e-commerce solutions. In markets like the U.S., in India, in the Netherlands, where we are very strong, that drives this growth, but also smaller geographies where we have a footprint. And then obviously, the DHL Parcel business in Germany where we had to absorb the reduction of the large customer, Amazon volume due to the in-sourcing into their network over these 4 years, but still quite a substantial net growth that is left there, also with a lower share of Amazon volume. So that, I think is testimony to the importance of this trend, and we truly believe that e-commerce for us has at least a decade more in the tank to deliver significantly above GDP growth.
You see on the right side that we are not only present on the last mile, which is often the focus, but it really also drives volume on the inbound side where we deliver to the fulfillment centers through Express and global forwarding. We're increasingly engaged in fulfillment operations, not only dedicated operations for consumer-based shipments, but increasingly also multichannel solutions where there's a common pool of stock used to resupply shops, but also to fulfill direct shipments to consumers.
So that's something where, obviously, supply chain is very much engaged in and we also intend to grow further. And then on the last mile, it's surely the delivery side, but also return solutions, which become increasingly important and provide opportunities for growth particularly as more companies think about circularity and the reuse and recycling of their product that drives additional demand for logistics, which we definitely want to be part of.
Page 14 alludes to sustainability. We recently had a very successful conference in Valencia, where we not only presented what we do, but also had suppliers, some aspects also competitors included and also producers of alternative transportation assets like battery electric trucks but also fuels and obviously, a lot of our customers. And I think that was very encouraging.
You really see that the discussion is evolving. That the setup of products, which we laid out on this page across the different divisions, which is not only the easy-to-do offsetting, but is the hard work of reducing emissions through use of alternative assets, like battery electric trucks. But also alternative fuels like biomethane and obviously, sustainable aviation fuel, which is so important given the scale of our emissions when it comes to aviation. And we see really that the discussion with customers is moving that there's increasing willingness to participate and contribute to this so that we can also accelerate our efforts.
You're aware that we made this EUR 7 billion commitments. That we put EUR 7 billion at least -- or around EUR 7 billion into sustainability technologies until 2030. We are underway with that. But obviously, as customers increasingly buy into that we would definitely like to increase that journey and also provide a stimulus to markets like sustainable aviation fuel production.
So with that, we come to digitalization where we offer a couple of extra sessions to basically provide more transparency to you how we move on that journey. It is, again, important across the divisions where we highlight how it contributes to ESG, but also automation think some of you had the opportunity to also see in North America, what we are doing there in terms of robotics, which is something that we're very excited about as it helps us to deal with the changing labor market to capture the growth opportunity in fulfillment and enhance our service quality.
So additional sessions, which are laid out here to provide transparency on that. Which brings me to the final page, Page 16 as a wrap-up. I think we can say that we are satisfied with the first quarter given the circumstances that our balanced portfolio across the different sectors, but also the different geographies has proven its resilience. That we continue to drive the right priorities that the organization remains very focused to deal with in volatile environment, which obviously, in our large and dispersed organization is very important and that we are able, thereby, to continue to drive profit and also cash flow.
We remain clearly focused on the opportunities that such an environment offers that we continue to drive growth where we can. We have a very strong balance sheet, which enables us to obviously look at opportunities but also see them as opportunities and not necessities. And at the same time, tackle the challenges that such a macro environment also entailed particularly also the situation in Germany.
Melanie alluded to the discussions that are ongoing on the postal law so that we set up our operations in line with those boundary conditions and context. That's what we are working on and what you also expect of us. With that, I would hand it back for questions.
Thank you, Tobias and Melanie. Operator, you please start the famous Q&A session.
[Operator Instructions] Our first question is from the line of Cristian Nedelcu from UBS.
The first one is on your guidance. You have a bad environment in the quarter in volume-wise, you have done EUR 0.6 billion of EBIT. We annualize this and then we had the usual seasonality for a stronger Q4. So a few hundred million of extra EBIT. Get somewhere to closer to EUR 6.5 billion EBIT for the year in a scenario of no economic recovery. Question here, it seems there is a good dose of conservativeness in your guidance when you talk about the EUR 6 billion at the non-recovery scenario. If you that if I may, on Express. Could you tell us -- give us a bit more color on the trends that you're seeing or you're expecting in Express in Q2 in terms of revenue per unit. The price increases that you've passed through -- that you've pushed through, are those sticking? What is happening to the emergency surcharges and any other moving parts -- understand your revenue per unit in Q2 and Q3 in Express in TDI can remain flat or up year-over-year?
Last one, if I may. On the free cash flow, you seem to -- your Q1 run rate seems to be a bit ahead of -- within that EUR 3 billion free cash flow guidance that you have in place, could you talk a little bit how much are you counting here on tailwinds from DGFF, so working capital savings from DGFF as rates come down. Could you help us understand a bit what do you expect in terms of contribution there? And if there is upside to that number?
Right. Maybe I'll start, and then Melanie particularly on questions two and three will add. So first of all, obviously, your math in terms of extrapolating that is correct. But I think we -- Melanie mentioned that, for instance, in Q1 in Express, we had a little bit of tailwind when it comes to fuel, also still a net even if you take FX into account, which went against us, both on the top line as well as on the bottom line. We've obviously talked through the different scenarios. And for us, it's just too easy -- too early to tell, given that the last week's -- if I would have to summarize it into one word, I would say it's wobbly.
The organization can deal with that environment. But obviously, we would like to see a little bit more substance when it comes to macros. And that's just currently not what the actuals offer. It is very inconsistent. And we'll see, as we now go through May whether we see a clearer trend. April has not offered that. As it's relating to Express, I think there's nothing really that sticks out in terms of changing expectations. The emergency surcharge that you're referring to is a cost offset. And obviously, as cost -- if they continue to normalize when it comes to air freight, when more and more belly comes back, we'll adjust the network.
And I think the Express organization has in 2022 when the Russian aggression on Ukraine happened and capacity was falling away. It has reacted to that in a way that I'm very happy with and something that I think makes us all proud that we were able to deal with that. And similarly reversely, the adjustment of capacity now in Q1 has happened in a way that has helped us to offset those revenue declines. And maybe as important for us, has not had a negative impact on service, which obviously express is utterly important that such adjustments in the network do not hurt our customers. And some more belly space lanes were brought back into and on some lanes that enhance the service. So I think that has worked out very well. So neither on price nor on emergency surcharge, we would see a significant change in trends.
With the free cash flow, I think, yes, it's right. We had in the first quarter some tailwind from the release of working capital. Now a little bit of that will still come, but obviously, we would also expect just also because on the year-on-year comparables that, that cycles out. So it's a little bit too calm, but it's not really decisive for the remainder of the year. Melanie, do you want to add some points to that?
Maybe just on the last question, I mean, that's also linked to the fact that despite the broad range in our EBIT guidance, we have actually given for the free cash flow, just one number, around EUR 3 billion. Because, obviously, if we see an uptick in dynamic in the second half of the year, that will then also have a negative impact on working capital. If things remain sluggish, we will have more of a release in working capital. And of course, also on the CapEx side, the EUR 3.4 billion to EUR 3.9 billion range, we will make adjustments. So I think that's one of the good things about the moving parts on the cash flow that we have counterbalancing elements in here and hence, the overall guidance for the year around EUR 3 billion.
Chris, I think that's three answered questions, right?
Very much, yes.
Thank you and onto the next caller, please.
Next question is from the line of Alex Irving from Bernstein.
Hope all is well. As suggested, three or five, please. First, on Express, could you please give us a sense of how you're currently pulling your capacity you're still taking out further lease capacity into May? Or is that beginning to reverse?
Second thing about destocking and restocking. Clearly, the forwarding volumes in a soft patch at the moment expected. But as we exit that and move into 2024, how would you expect air and ocean volumes to evolve? Should be back to 2019 levels ex Hilla brand or above or below that?
And finally, on more of a macro level, one of your U.S. peers is quite cautious last week, softness in Asia in particular. Is that something you're also receiving? And if not, why do you think you're enjoying the differentiated demand experience?
So Alex, on the first question, our portfolio in terms of owned long-term lease, short-term lease and the we call ACS, so the use of ballast space, that's the overall portfolio. And that will obviously evolve as certain things cycle out. So that also provides the opportunity, for instance, on the short-term lease side to be able now to participate in the normalization of such rates and thereby by lower cost. I think we have some flexibility.
We have made those capacity adjustments. We will obviously also -- we have also a seasonal element in there. I think that's important. So yes, there might now, as we go into summer, be some further adjustment, but it's not necessarily a sign that we expect it to weaken but more a matter of seasonality, which would then inverse in Q3 Q4. We have also flexibility, for instance, on the block hours of leased aircraft. So we typically agree there, a range of block hours where we then have a relatively variable cost for that aircraft within that range. And that is what we use to be able also to show that profile in terms of seasonality.
So I think directionally, and adjusted for seasonality, we basically keep capacity currently. When it comes to, I think, the volumes Obviously, we would like the market to return to growth. We are not yet there. I think that's clearly visible both in air and ocean. I don't think that we really, in that business, have a strong view on 2024 yet, and we don't need to. It is a trading business where we will flexibly adjust is very different from Express in terms of asset intensity and so forth.
So the -- for us, this is too early to call and there are no real decisions linked to that. As it comes to Asia, we looked at that very carefully. And the interesting thing is really that the countries are behaving very differently. We had end of March, a very strong week out of China. We had just recently a strong week out of China, but it's just not consistent. So I don't think that we are as such cautious on the whole of Asia but there is just no consistent trend currently visible, neither in Express or in air or an ocean. And I think that's what we honestly have to convey to you that the changes week-on-week are unusually high. It's nothing that really worries us. We have been able to deal with that operationally but we cannot give you a clear macro indication in this call. It is just too inconsistent what we see on a week-on-week basis.
And maybe just to add two points from my side on the last topic. So I think, first of all, as a reminder, I think what sets us apart also from maybe U.S. competitors, Asia for us has always been more than China and the Trans-Pacific trade lane. And I think that is something which I think overall is beneficial for us. And as you specifically mentioned the comments made last week by a competitor of ours, where there was talk about things actually getting worse out of China in the course of the first quarter that is clearly what we see...
Alex, useful enough for you?
Thank you very much.
Very good.
The next question is from the line of Robert Joynson from BNP Paribas Exane.
A couple of questions from me, please. One on Express and one on Forwarding. If I start with Express, so if I think about some of the statistics provided in the presentation, you outlined that the TDI yield was up 5%, which I think is very reasonable that the average weight per TDI shipment was down by around 4%, which, in my mind, is very reasonable as well. If I kind of think in that context about the bear case on Express, which is essentially the yield benefited enormously from higher air freight rates and that the weight per shipment benefited enormously from supply chain disruptions and shipments being transferred from Catoir and so on. Are we now at the point where it's fair to conclude that supply chain disruptions and the spike in air freight rates maybe actually didn't benefit Express EBIT to the extent that some people thought -- it just seems to me that Express profitability was going to disappoint, it would have happened by now. .
So second question on Forwarding. If I look at the GP per container specifically, it was up by around 12% in Q1 versus Q4. And during the presentation, you did to some benefits from lower buy rates. Could you maybe just talk about how you expect the GP per container to develop during Q2 and the remainder of the year more generally?
So on Express, I think honestly, you phrased it very well. Express, also the way we handle it, customer loyalty is very important and customer relationship. And we could have earned more money in Express the heydays of the pandemic. But conversely now, it is a more stable model than what you see in forwarding. And we've think this is very normal given that one is an asset-based business where we have often very long-term relationships, goods have a certain affinity to using that mode of Express. And therefore, we are not surprised by what we see in the first quarter that the normalization in Express looks very differently than the normalization in forwarding.
I think in forwarding though, what is important that the we will see how the cycle continues to pan out, but it is quite normal that in the downturn, you have still quite some GP opportunity. We have to see now if the environment would remain very volatile, that's in tendency good for GP margins. If you have a long luggish trough, which very gradually then sees an improvement that is not positive for the forward market. So that is how we think about the forwarding yields going forward. We'll have to see whether there's continue to be disruptions not of the scale we have seen, but in different trades and volatility or we get into a long trough, which would definitely not be so favorable. So that is how we look at forwarding going forward. Melanie?
Yes. And just to add, I think on the following side, what you rightly picked up on this kind of like increase in GP per TEU from Q4 to Q1 was really due to the improved buying rates we already experienced in Q1. I think that's really typical for the late end in the cycle where directionally, our selling rates are still going down further. But now in Q1, we were able to really also benefit from the lower buying rates. And I think on the Express side, just to be very clear, these abnormalities of stuff, which came over from forwarding into the Express network, the PPE equipment, the tires that stuff is gone, right? So I think what we are now really seeing is the typical macro cycle impact on Express. And I think essentially, we are waiting for volume to come back in Express.
The next question is from the line of Muneeba Kayani from Bank of America.
So I also just wanted to first have a question on forwarding and the EBIT performance there. The conversion ratio strength and costs look like came down sequentially. So kind of have you taken any actions here on the cost side? And I really want to understand how much of the performance was market dynamics around buying and selling rates that you just talked about versus kind of actions that you've taken from help perspective on Forwarding.
Second question on Express and kind of related to the earlier question there. So is the weight per shipment, it looks like it stabilized in March. And so do you think this is kind of the right level for this business going forward? And kind of where does that settle then compared to 2019? Because I think you had given us that number in 4Q compared to 2019.
And then lastly on free cash flow, if it does turn out to be better than your guidance, what would you do with that? Would potentially higher share buybacks be on the table?
Right. I'll take the first 2, and then Melanie can talk about the last one. So the conversion rate has come down a bit. That's correct. It's still we're closing the gap basically to competitors. And I think that's exactly what we would like to see. Yes, obviously, there is some adjustment of the resource level if volumes normalize, but it's a normal part of the business. We would expect that of any forwarding branch to balance, obviously, the volume with the resources required. So there is no need for us to have big cost savings programs essentially that is a normal part of what we expect from the Forwarding division and the forwarding division from their country organizations and branches. As you know, this is a business that is best managed very locally when it comes to P&L responsibility and that's exactly what's happening. In terms of...
One short thing because that may look confusing when you look at the FTE development in the stat book, here, we have the inorganic impact of Hillebrand in there. And if you take that out, FTEs are actually down in forwarding, as you would expect at this point of the cycle.
Yes, absolutely. So obviously, we have the increase now with Hele brand, which will then cycle out in the relative data in the year. So when it comes to Express weight per shipment, I think this is -- there isn't a specific kilo that we would say is the right kilo. It always depends whether we get high-yielding shipments for what they are. So if we add premium e-commerce, you would see weight per shipment drop. That's not to say unhealthy. The important thing is that each shipment is a profitable shipment, and that's what we manage two words.
The trend we've seen, Melanie talked about, some of the very large stuff that we got during the peak of the pandemic that has already cycled out. Now we'll see whether we have continued success with premium e-commerce that would bring weight per shipment down but not in a negative way. So that's what I would say. There is not per se the right weight per shipment. It's important that each of those shipments has a contribution that we can handle them well in the hubs. If we have too high a share of non-conveyables that creates certain challenges there as well. But else wise, I think we are comfortable with the business that we now have on board.
And with regard to the third question, should free cash flow be better, what will we do with that? I hope we have proven to you over the last years that we will apply then a very balanced approach to that. As you know, we have just up in March, our current share buyback program, and that's where the focus is. But I'm also very confident coming back to the question, what will change with tubes. I think the prudent and balanced application of excess cash that will not change.
Next question is from Sam Bland from JPMorgan.
I have 2, please. The first, in fact, both of them are on Express, the first one is, so we had a help from fuel surcharges in Q1 and a negative from FX. I guess the fuel part has to reverse just a matter of time. Is there a reason to think that what was a negative from FX will reverse in future quarters? Like can you look at current FX rates and have line of sight to that negative from FX reversing or not?
And the second question is, I think TDI volume in total was down 5%. B2B was down 1%. Is that sort of roughly implying that B2C in Express was down closer to 10 million I guess that's quite a different trend to what you saw in PMP and e-commerce solutions. Just wondered if you could talk about that B2C volume in Express.
Yes. So on the first one, yes, it's -- in principle, what we would expect that also on FX, I mean, we are not the business of forecasting a foreign exchange. But if we just look at where we are currently, we had some hits also from smaller countries where you had extraordinary volatility and depreciation of currency against the euro, which had that impact in Q1 point, there's at least no reason to believe that, that would happen to the same extent in Q2 again. So there would be some normalization.
Yes. I think just to add to that, I mean, when you think back to the Q1 '22, that was when the turmoil on many currencies really started. So the year-on-year comparison is different to the rest of the year. So when you think, for example, just about the evolution of the dollar in the course of last year, kind of like when it got down to parity and now the euro again. So directionally, I mean, it will be what it will be. But in terms of year-over-year comparisons for Express, it should directionally probably be more on the positive side. With regard to your B2C calculation, yes, I think the order of magnitude is correct. In Q1, the B2C volume decline was around 10%. And here as well, it got better in the course of the quarter. It's not -- and we looked at that very carefully because we lost any specific customers, but it was more down trading on some of the customers, which would attribute really to the general consumer reluctance in light of inflation and macro worries.
Understood. And on the fuel surcharge, I mean, I think the jet fuel price has been coming down for almost a year. Did fuel tailwinds or fuel surcharge tailwinds benefit previous quarters in the second half of last year and you just didn't -- it wasn't big enough to talk about it? Or does it not really help until Q1?
Yes. I think it now got material. I mean it was, first of all, wobbly in the course of last year where we had significant month-on-month and also between the quarters, and it was not kind of like as material as it was now in the first quarter.
Keep in mind that the 2-month time lag every other month, the surcharge is being adjusted and it very much depends on how that timing falls into the actual fuel cost fluctuation, whether that's going to play out short-term positive for short-term negative for us.
Because we buy at whatever is the rate day and on the surcharge, we have the 2 months' time lag. And depending on how that plays out, it can be and it was very volatile in '22.
Next question is from the line of Alexia Dogani with Barclays.
I have two questions, please. Just firstly, on the Post & Parcel division. I appreciate, obviously, the contribution to the group is diminishing. But could you talk a little bit more about the German retail sales environment. My understanding has been quite weak, yet you did organic flat parcel volumes. And then on the kind of negative mail decline continues at 6.5%. How do you see that recovering? So just firstly on that. And then secondly, could you update us on M&A and process that is ongoing and freight forwarding, which is closed home.
Okay. Thank you, Alex, for these two questions. So in terms of P&P, I think the quarter had a couple of specific effects, and we obviously have the broader story in terms of the structural changes in terms of mail being substituted by digital communication. We see some quarter-specific elements. We had the labor conflict that we settled with a wage deal for the next 2 years. But it was overall a bit more heated than usually. I think we are not an exception in that.
We also had that in other sectors, including the public sector in Germany. The unions given the inflation environment were more part from what was affordable and reasonable than in previous years. And there was some additional customer concern around that. We particularly think that some additional decline in our advertising mail might have been caused by that, that customers were just concerned whether it would arrive in time. whether the capacity would be there when it's needed. Now how big impact that is, we don't know. Also on the cost side, we clearly kept some more people to be more resilient in case such a permanent strike would have happened.
Now we had some warning strikes where that was helpful, but obviously, it didn't help cost in the first quarter. So there are some exceptional effects related to that. But surely, we need to particularly now look at the conditions the new postal law provides us. I think that is more important than the -- whether we have a percentage or two more or less volume trend that will somehow have to deal with that. We. Now need to see what are the -- really the framework we operate in Germany need to adjust accordingly. Those discussions are going on. There is no clear view that the government has formed on important items. So I think that is something we at least are waiting for to then make up our mind how we need to adjust in terms of the PP operating platform.
In terms of the M&A story close to home, I think you're referring to DB Schenker as part of Deutsche Bahn and that being a government-owned institution. I think we have commented on that what would be our general criteria to look at M&A, it's the three needs to make strategic sense. It needs to come at the right price and it needs to be easy to integrate, which is very important to us. We know that certain businesses, network business, in particular, physical networks are very difficult to integrate. So those criteria still absolutely apply. I think it's more important, this egg has been around for a while. The chicken has never really made it to the hedging phase. So let's see. Let's see how the process goes. And once the little chicken makes it to the surface, we'll have a look whether we like it or not along the three criteria, and then we'll see.
I think we've got Sathish next in line.
Am I live?
Yes, Sathish. You are now live.
Hello?
No, unfortunately, we came here Mr. Sivakumar and maybe we can continue with the next question. The next question is from the line of Andy Chu from Deutsche Bank.
Just two questions from me, please. The first one is around the sort of bridging year in your guidance on 2024 where there's sort of blank and I guess the fears in the market are around the shape of normalization and the macro backdrop. So just in terms of 2024, is 2023 going to be, in your view, as you said today, the trough year on your journey towards your 2025 guidance. And then on DHL Express, apologies if I've missed this. But in terms of the benefit from fuel and the negatives from FX, could you quantify that in euro medium term, please?
Yes. Andy, thanks for your two questions. So in terms of 2024. I think currently, we would expect 2023 to be the trough year. Normalization pans out a little bit differently by divisions. I think we've given some transparency on that, particularly as it relates to DGF where we now see this contraction in terms of revenue. So -- but we -- from today's perspective, at least, we would expect to see some uptick as we go to 2024. Obviously, not knowing whether there's going to be any macro events that geopolitical events that still could change that view. In terms of the benefits of fuel and FX, Melanie, you want to comment?
Yes. So I think if you kind of like look at kind of like the 3 year-over-year topics of fuel FX and let me add ESS as to a lesser extent in the I would have said the benefit we had in Q1 was in the high double-digit million order of magnitude.
So that's fuel effect net of the FX effect.
Next question is from the line of Johannes Braun from Stifel Europe.
Yes, only 2. First one would be specifically on the volume development in Ocean Freight. You showed 17% decline if FilePrant is excluded. I think it's quite a bit worse than the market and also your peers. So can you comment whether you're losing market share? Or is it due to a different regional footprint or any other reason? And then secondly, you mentioned the potential new post law in Germany in your speech. Can you just update us a little bit on the timing of this new postal law whether you think the change will be rather than a positive or a negative for you? And also, any early thoughts on a potential stamp price increase once the current regulatory period end.
Yes, so maybe I'll start with the first and then Tobias can talk about the postal law. So I think in this phase of the cycle, it's a delicate balance between holding on to a profitable customer businesses keeping up prices versus going for volume at lower rates. I think when you kind of like look at the balance lease truck on the ocean freight side, we really had a very good development on the profitability we talked earlier on about the fact that GP per TEU was actually up in compared to the fourth quarter. But of course, that then makes defending volumes a bit more challenging. So I think we were probably more on the profitability focus then on the keeping volume at any price focus, and that is what you see in comparison to competitors.
Yes. In terms of the postal law, so the timing has already shifted quite significantly from the original plans, which I think is very understandable, given the issues following the Russian aggression on Ukraine in terms of energy supply, where at least in terms of the ministry is the same ministry and to some extent, the same people in to deal with that. Now also in the revised schedule, there seems to be some need for further discussions. We would expect to see some more clarity by June, July in terms of revised cornerstones and what's really now going to happen.
The coalition parties had agreed in the coalition treaty to form the government that there should be more social aspects and also ecological aspects reflected in this reform. It is currently unclear how this would really look like. I think it's important to see this in the broader context, not only the stamp price, but really what the overall framework looks like. It is, I think, very clear that the stamp price, which is currently 36% below the European average, that there has to be a normalization also in that area, reflecting inflation.
But it also depends what service level is required of us. We currently deliberately are the universal service provider in the country as it relates to the postal universal service obligation across the country, and there are pretty specific requirements put upon that service when it comes to next day rate when it comes to the outlets that we have to have and so forth. So there just has to be a reasonable balance between what is demanded of that service and what the stamp price then it's going to be and we will look at that in balance. I think there is no clear indication yet in which direction this goes, and we have to wait and then afterwards, shape up our operations and cost structures according to what we see when it comes to those rules and requirements.
So we're finishing stretches here, three callers, I think, still left. Operator?
Next question is from Nikolas Mauder from Kepler.
Two questions remaining. First, staying with the postal law. I'm wondering whether there's a risk to the Post and Parcel Germany guidance if that post law is delayed by the usual political mechanism and compromise finding, have you factored any benefits into this year's guidance? And then connected to that, do you think that the generous wage agreement that you struck with Verdi will afford you some goodwill with regards to the reform?
And then secondly, on the one hand, we've seen the effects of the Chinese reopening, and we have discussed those. However, at the same time, we've seen a slowdown in the U.S., partially on the back of banking turmoil, has that affected your business already? And how do you expect that to play out for the rest of the year in that specific geography.
Okay. So on the postal law, there are no benefits in this year's guidance, we didn't expect this to have any impact. We need to go when it comes to the stamp price setting any way through quite complicated, separate process. So that will take some time. It is clear that the guidance needs an improvement in the run rate. I explained a little bit how we look at the first quarter and that we surely have to have some efforts there to look at cost in particular. But this has nothing to do this year with the postal law that's an operational effort that is separately goodwill in politics, you might have more experience with that than I have, but I seem to feel that memories are short. And goodwill is a bit something that might be as problematic and politics than having too much on the balance sheet.
So let's see how that comes out, but I think it's more now a discussion of facts what we can offer, what others can offer when it comes to the universal service obligation, and that will decide how this shapes up. In terms of the U.S., I think we alluded to it, it's hard to see trends currently. I don't think that we -- from the business we have in the U.S. would be able to really call out concerns about the macro environment. So we wouldn't want to comment on that specifically.
Our next question is from the line of Sumit Mehrotra from Societe General.
Yes. Good morning, everyone. So first one is on the project that has been as you've said, in the process of catching for a long while. Of the three criteria that we have for M&A, which one of those would you consider as a bit challenging for this particular project versus the others? I know whatever you can enlighten us would be great.
Secondly, for Melanie, what is the one or two biggest reasons why you would still have the lower end of the EBIT guidance of EUR 6 billion still intact? Even though we have seen some improvement, the second one. And thirdly, yes, I've seen a lot of elements about how Express pricing, et cetera, would look like? I have noted quite a few of the negative comments in terms of surcharges going away, lower rate shipments, down trading. So if you can give us some idea how to look at the pricing development this year, it would be great for Express.
Maybe I comment on one and two and then Melanie -- sorry, one and three and then Melanie adds on two and three. So I appreciate that you try to get more clarity on our stance. I can see problems in all three criteria, whether in the current macro environment, this stands on valuation of that business is something that we would consider reasonable. I think there are questions around that, that neither you nor I will be able to answer today because it depends on people that are not in this call. And certainly, we'll have great respect to integrate networks and integrate IT.
So we have not really started to work on that to form that view given that the ag seems to show some form of crack but there is no chicken visible yet. And we'll wait until we see that chicken and then we'll see whether we like it or not. On the surcharge for Express and us being negative on it, and I think that's not the way we look at that. I think the pricing ability. We are very happy with what we've seen in terms of stickiness in terms of the way it was applied, which is very important. Obviously, in the current environment to not endanger our customer relationships and volume. So we are, I think, happy with what we've seen in the first quarter and expect that trend to continue.
Just to add on that one, I mean, the number we gave for kind of like the average GPI in Express, we talked about 7.9%. And that, of course, varies a lot country by country. But if you say kind of like 7.9% was kind of like the GPI number, I know that a competitor of ours last week talked about stick rates north of 60%. So that's definitely also the order of magnitude seeing the core price increase on the 7.9% is coming through, is being implemented and is helping that is for us probably so much of a given that we didn't call it out so specifically, but more commented on the extraordinary moving parts. But you can really rest assured the fantastic pricing discipline we have had in Express for years and years that is still very much intact in '23.
And to your medium second question about the EBIT guidance at the lower end. Yes, I mean, obviously, looking at the Q1 performance, the EUR 6 billion seems more on the conservative side now I think what would you have to believe in them that based on a continued sluggish volume development further normalization in forwarding we would see a deterioration in forwarding profitability for the rest of the year, not much dynamic on the Express and e-com side. But yes, obviously, in light of the 1.6 million, it's probably now seems a safer, lower end of our guidance than maybe a couple of months ago.
Thank you, Sumit. And before we come to the last caller, we have Sathish giving it another try.
Yes, this is Sathish here from Citi. So I've got two questions here. Firstly, on the Express side, if you could like give color on the day per day decline. Is it redriven by B2B? And what are the verticals that are actually contributing there in terms of B2B weight per shipment decline? And then again, you said pricing is actually holding up very well within express. And any color like by market-wise, where you're actually seeing some underperformance in pricing. And the second one is on freight forwarding. Any color on what is your current exposure to the residual contracts on 2022 that you've signed with shippers that you're still seeing benefit coming through? What percentage of your volumes are still on those contracts?
Yes. So first of all, in terms of Express volume development and are there any sectors worth pointing out, I think in terms of particular sluggishness, it's probably retail and tech, what I would mention in Express as weak sectors in Q1. In terms of pricing by region is a region which is particularly problematic. No, I think we have a really strong core pricing discipline and that is really true across all regions.
On DGF, I think that's not so easy to answer because as you might know, in the contract variance in DGF in the forwarding space, generally, you have some customers where you have rate adjustment clauses, either through corridors or trigger points. You have different validities of contracts. Some customers run annual cycles, but others, particularly in volatile times, also go to 3 or 6 months. So I think the majority probably has cycled out by now. when it really comes to rates from last year, but it's a gradual process that is influenced by those different types of adjustment mechanisms and also changing customer behavior. We will surely are not surprised with what we see in terms of the GP and revenue development in the first quarter that's in line with our expectations given where we are in the cycle for forwarding. Excellent. Sathish?
If I could just follow up on the freight forwarding. Again, if you could give color on this vertical exposure where you're actually seeing much more prolonged softness in volumes versus, say, some of the verticals are actually doing well, like it can be like industrial type customers are outperforming versus the retail customers, specifically on freight forwarding?
Yes. Well, it's -- I mean take it with a grain of salt because we are one player in that market and obviously, our share is not as big as our shares in the express market. So we don't see the full spectrum that in any case. So with that having said that, I mean, we did see a significant weakness in tech that is not recent, but that we've already seen since a couple of months now. I think you've also heard it from these companies that in consumer electronics following the big demand during Covets a certain normalization.
So that's definitely a vertical that I would call out. where the recovery is yet to be seen. In other areas, when it comes to industrials, it is more patchy particularly out of China. I mentioned that we have seen a couple of strong weeks where industrial seem to rebound somewhat but it's just not consistent yet. And we do expect this to remain volatile in that market, at least for the second quarter. We'll then see whether building up to the peak, which in forwarding is a bit earlier, September, October, particularly when it comes to ocean freight, whether that then really leads to a more optimistic picture or we continue to see a year-on-year down. So I think that's what we can say at this point.
And apologies, again, for the earlier technical issue.
Well, good. Sathish, glad you made it. So before we come to the end of the call with Tobias closing remarks, we've got one final caller in our Q&A.
Our last question for today is from the line of Lars Heine from Nordea.
I only have one actual, which is a follow-up on the M&A questions earlier, and I understand that you have those three criterias but maybe a different angle to this M&A issue, if you call it that, could be competition authorities. I mean do you see any issues which -- in which that you may be successfully make it through those criteria and could maybe take over that the target? And then there will be some obstacles in terms of competition authority is not approving the deal.
So if it would could ever come to that point, we would not foresee big issues, but obviously, there might be some single countries where in certain subsectors, we might trigger certain thresholds that then would again require a more detailed view it's not obvious that, that would be material given the fragmentation of the forwarding space, generally. But again, there are certain countries where that could potentially be reached. I don't think that, that would be the biggest criteria on and the extensive use of conditional language indicates that we, again, need to see whether first the chicken ever sees the light and then whether we like the chicken and then we see how the authority looks at chicken one and chicken two together. So I hope that provides somewhat more clarity on how we look at this topic, which I do think brings me to the closing, if I may.
So thank you for your good questions and general interest in our company. I apologize that we could not really give you clarity on the macro trends. It's not just because we want to avoid the questions. But just that the picture indeed currently over the last weeks is a bit wobbly and inconsistent.
We are happy with the performance of the first quarter overall. I think particularly the DHL divisions have shown great resilience and the operational management in the countries are doing what we like them to do, taking care of things and making reasonable calls when it comes to resource levels and so forth. So that is, from our perspective, going well. We surely see some opportunities coming out of the current environment and also some challenges. We talked about the situation with Post and Parcel Germany. Obviously have to look how the context continues to develop and will adjust to that. So that's clearly on our agenda as well. But overall, confident that even in continued volatile environment, we can perform well, and we'll be able to execute along our strategic objectives as well to ensure that the business also has some growth momentum.
And with that, we're closing the call. Looking forward to see you over the next couple of weeks. And with that, have a great rest of the day. Thanks, everyone.
Thank you.
Ladies and gentlemen, the conference has now concluded, and you may disconnect. Thank you very much for joining, and have a pleasant day. Goodbye.