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Deutsche Post AG
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Good morning, ladies and gentlemen. Welcome to the Deutsche Post AG conference call regarding the third quarter results of 2019. [Operator Instructions] Let me now turn the floor over to your host, Mr. Martin Ziegenbalg.
Hi, and good morning, everyone out there, to our Q3 2019 conference call. As said in the invitation, we have with us today, Melanie Kreis, Group CFO, who will take you through the presentation that I take you have in front of you. And let's go straight into the usual procedure. After the presentation, we will have time for Q&A. And with that, over to you, Melanie.
Yes. Thank you, Martin, and good morning, everyone. Thank you for joining us this morning for our third quarter call. Like in the past quarters, we have added our management comments directly into the slides, and we hope that this already explains most of what is to be said about our numbers. So I will again comment only on the major noteworthy elements, which would give us sufficient time at the end should there be any additional questions from your side. So turning to the highlights slide, Page 2. I think in a nutshell, it's fair to say that Q3 was a very good quarter. I think what is very important for me is that we really saw good execution and delivery on all our internal expectations. And on that basis, we are well on track towards our full year guidance. Obviously, as you all know, there is a lot of uncertainty out there on the political, on the global trade side. And I think just saying that it was a solid quarter which came in fully in line with our expectations, it's already a pleasing observation to start with. With regards to divisional performance, you will have seen that both P&P and Express showed expected acceleration in EBIT growth. That is what we had been anticipating for the second half of the year. Obviously, as our measures in the divisions continue to deliver, this is a development we were aiming for, and it's pleasing to see that it's now really also showing in the numbers. Last but certainly not least, the good EBIT performance came along with similar solid cash generation, so that we're also well on track to deliver on our full year guidance with regards to free cash flow. So much for the summary. Turning to Page 4 and a bit more detail on top line development. So despite the ongoing question marks on macro and politics, we saw again very solid organic revenue growth of nearly 4%. You can see that this even accelerated a bit, and that was mainly driven by the mail price increase in P&P, which we had been missing in the first half of the year. So you can see the good organic growth in P&P, 5.5%, also supported by 1 additional working day in the third quarter. Express also accelerated compared to what we saw in the first half of the year, while DGFF can, of course, not escape the generally weak market conditions in the air and ocean freight markets. P&P volume and revenue performance on Slide 5 reflects the implementation of the price increase on regulated mail, which came into effect on the 1st of July. This will naturally support our top and bottom line performance, not only in the third quarter but also in the next 3 quarters until it annualizes out next summer. I think what is important to mention is that mail volume decline in the third quarter remained in line with our long-term assumptions, the long-term 2% to 3% corridor. If you adjust for the working day effect, the decline was minus 2.4% [ indiscernible ] in the third quarter. And on the parcel side, we continue to see a very good combination of volume growth and price effects, and that drove revenue growth of nearly 10%. We often get the question, "Where is this parcel growth coming from? Is there an overdependency on a small number of customers?" We have shown this slide before, but I think it's important to reiterate now also for the first 9 months of 2019. As you can see on Page 6, our parcel growth in Germany is really based on a big customer portfolio. We see good growth in the top accounts, but we also see good growth from the mid-sized and small accounts. And overall, in the first 9 months of the year, we have been outgrowing the market. Turning to Page 7 and our Express business. Express continues to post very solid volume growth. And you can see that now in the third quarter, the revenue per day and the shipments per day are very close to each other. So the delta we saw in the first half of the year has really closed, which was what we had expected, given that our heavyweight measures annualized in the third quarter. We obviously get a number of questions on all the macro implications and what do we really see in the underlying trends in the Express volume development, which is why we have added a new page, Page 8, to give you a bit more flavor on that topic. I think my first important message on this page is that despite all the uncertainty and despite a bit of a reduction in the overall growth, we are still growing very healthily with 5.8% for the first 9 months of 2019. And we are convinced that this is really driven by us being, in the Express division, so very much focused on TDI, on our premium product, with outstanding quality and great customer centricity. That is really what is keeping us on track for Express overall. When you look at the individual contributions between B2B and B2C. On the B2B side, we do see a slowdown in growth. We are still growing on the B2B side, but it's now more in the low single-digit range compared to probably for the last 4 years more of a mid-single-digit range. And on the B2C side, we see 10%-plus growth, so a very healthy growth rate. You should also bear in mind that obviously, the base is significantly larger now than what it was 5 years ago. And as we have repeatedly said, on the B2C side, the key for us is to get the right growth rate but also with the right price. We could grow significantly faster, but I think we have found and continue to keep a very good balance between yield and volume growth. Turning to Global Forwarding, Freight on Slide 9. Obviously, particularly, the air freight markets are under pressure at the moment. No peak. You can see in our volumes that in the third quarter, air freight volumes were down 5%. I think the good news here is that both on air and ocean, we are developing now more in line with market, which was one of the aspirations we had for Global Forwarding for this year. Obviously, we didn't expect at the beginning of the year that the market would be so weak. But I think the good news is we are developing in line with markets. And the second good news is that, particularly on the air freight side, we have been able, despite the volume reduction to, generate more GP. That is also supported by a good development on the road freight side and in other products. And that was the basis for also delivering progress on the EBIT side, which I will come to in a minute. EBIT for the group, as you can see on Page 11, was, on a reported basis, up massively by EUR 566 million. But of course, in the third quarter of 2018, we had the restructuring charges in P&P. So if you take all the one-offs out, EBIT growth was at a very strong 23% in Q3 2019. I'll comment separately on P&P, DGFF and Supply Chain. So just a quick word on the other divisions, which I won't cover in detail. I think on the Express side, we are now back to normal territory. There's a heavyweight campaign [ running ] into clean year-over-year comparisons. Express is again translating volume growth into a very strong 11% EBIT growth as we're used to from Express from the past. DHL eCommerce Solutions, our smallest and youngest family member, has delivered a first positive EBIT number in the third quarter. So that's a milestone. The team is successfully improving the operating performance. There will be some more cost of change in the fourth quarter, so it may be again a bit negative in the fourth quarter. But overall, the whole development of eCommerce Solutions is fully in line, and in certain areas, even better than what we had planned for 2019. And on the Corporate Incubations side, as previously said, costs are ramping up in line with our minus EUR 500 million full year guidance for the segment Corporate Functions. On Page 12, we cover a topic we had previously flagged. We were expecting a positive pension plan revaluation effect in the third quarter. And as also previously flagged, that effect was fully offset by further restructuring costs. So on Page 12, we show you transparently what happened. We had EUR 106 million positive revaluation from the pension plan. The net positive impact on reported group EBIT was only EUR 10 million. As in P&P, where we had the biggest chunk of the EUR 106 million, EUR 90 million, those were completely offset by further restructuring measures, predominantly in extension of the early retirement program for civil servants in the indirect cost area. As shown on Page 13, P&P in the third quarter posted EUR 114 million EBIT improvement adjusted, of course, for all the one-offs. So you can see the clear momentum now developing. And this is a combination of benefits from all the targeted areas, overhead cost reductions, productivity improvements, but of course, also the price effects we had now in the third quarter. As we saw the first benefit from the letter price increase. Page 14 shows that based on the previously mentioned GP increase in Global Forwarding, despite all the macro stuff, our internal measures in forwarding and freight are delivering further improvements in our key indicators. So the GP-to-EBIT conversion rate is up to 16%, and on that basis, EBIT margin for DGF improved to 3.8%.Turning to Supply Chain on Page 15. We want to give you a quick status update on the 2019 one-offs also to help you with regard to your Q4 modeling. So first of all, in line with what we had previously announced for the full amount, you can expect the remaining cost of change of around EUR 30 million to be booked in the fourth quarter. There are 2 other effects you should bear in mind with regard to the fourth quarter: the first one is that in Q4 2018, we had EUR 42 million onetime charge pension topic from a U.K. court ruling; and we also had a very back-end loaded contribution from real estate projects in 2018. This is more evenly spread across the quarters in the current year. That brings me to our P&L on Page 16. So you can see the very pronounced year-over-year improvement in EBIT also due to the restructuring charges in Q3 2018. Taking those out, again, 23% EBIT growth in terms of clean operating numbers. We do have to pay more taxes because we have higher profits, and the tax rate is up, but we still see significant progress also on the net profit line. That takes me to a topic which is of huge importance to you but also to us, our cash flow statement. And you can see on Page 18 that in the third quarter, we were really able to translate the EBIT development into good OCF and also good free cash flow development. There are quite a lot of movements in our cash flow statement at the moment. I think the one point I want to mention is that now with the restructuring provisions being brought into a more concrete form, they move from the provisions line to liability lines in the working capital. So there is a bit of a movement between OCF before changes in working capital and working capital. I think the important number for me is that on the operating cash flow line, we're up almost EUR 450 million compared to Q3 2018. As you know, we are spending quite a bit on the CapEx side this year. But even taking that into consideration, free cash flow is also moving in the right direction. On a net basis, we're also in a good path to deliver on our free cash flow guidance for the current year. Yes. That already takes us to Page 20 and the guidance for 2019 and 2020. They are based on the very good quarter and all trends materializing the way we had expected. We see ourselves on a good path to deliver not only on 2019 but also on 2020. Our new 2020 guidance on Slide 21 was introduced just a couple of weeks ago at our Capital Markets Day. So not surprisingly, there's no change here either. But maybe, based on the conversations we had since the CMD, I just want to point out again that the EBIT guidance for 2020 is the minimum objective based on a cautious macro scenario. And on CapEx and free cash flow, I want to remind you that both numbers still include around EUR 800 million spending on the 777 re-fleeting. These 777 spendings will only impact the years 2020 and 2021. So obviously, with none of the 777 CapEx due in 2022, we will see a CapEx decrease and a significant free cash flow increase in 2022 versus the 2019 and 2020 levels. So a bit of a technical clarification. I think in terms of big picture, as mentioned before, the key driver for free cash flow improvement is OCF improvement really based on improving the operating performance in the divisions. And here, again, I think the third quarter saw us on a very good trajectory to do exactly that. So that already takes us to the wrap-up. Obviously, there is still high uncertainty in the market environment for many known reasons. What the third quarter showed was that we are able to deliver top line growth but also good EBIT momentum also in those uncertain times. And on that basis, we confirm our guidance and remain confident that we are on track to deliver significant EBIT and cash flow improvement to our shareholders in the years to come. And with that, I think it's over to you and your questions.
[Operator Instructions] The first question is from Tobias Sittig of MainFirst.
I've got 4, actually. Firstly, just on the tax rate. You've been applying 22% for the first 9 months, but you guide 19% to 22%. So should we just expect a corrective number in Q4 for our modeling there? Secondly, on forwarding, actually 2. Firstly, given what's happening in the competitive landscape, there should be some volumes up for grabs. In the kind of market you're in, you're just performing broadly in line with the market. Do you see at least a pipeline of you getting above-market growth in the volumes that you can get out there? And secondly, the key driver of gross profit on forwarding was actually the Other subsegment, value-added services, [ customers ] and stuff. Can you elaborate a little bit what's driving the relative outperformance to the pure-play forwarding in there and how we should look at that going forward? And lastly, on the Corporate Center incubation side. The revenue is in decline, which is a bit counterintuitive given that you ramp up the StreetScooter production and also your internal sales of the StreetScooter to P&P. So can you elaborate on the StreetScooter and what's happening there in terms of revenues and also whether the disposal plan for year-end is still in place?
Okay. Thank you, Tobias. So let me try to take them one by one. So I mean, first of all, on the tax rate, yes, you're right. Our guidance corridor is 19% to 22%, and we consciously left that a range now for the third quarter guidance. We are currently going through the year-end tax planning, and so obviously, there is some expectations that maybe we can get a bit better. But I think the range is still a very good indication to work with.In terms of volume growth in Global Forwarding, yes, I mean, obviously, on the market side -- I mean Tim said it at the Capital Markets Day, he has never seen such a development in air freight particularly. That was not what we were planning for. But it is good to see that despite the market conditions, we were able to now get back on track of this market, something we haven't seen for a long time. I think that is now the aspiration, to kind of like keep developing in line with this market and really making sure that we get good GP development out of it. In terms of GP Other, I think a very significant contribution to the good development in Other was actually from our industrial project operations, both big industrial projects, where you have quite a long lead time. So we were already, at the beginning of the year, quite optimistic that we would see a good development here. That has now really materialized and we also continue to expect some [ quality ] development. So in terms of the movements between -- on the revenue side in Corporate Functions, there were also some accounting topics here. I think the underlying question you asked was about StreetScooter and how that is going. So StreetScooter is developing according to plan. Every day, new StreetScooters are brought into operation also now in the fourth quarter. As we have said before, we are currently in a very relaxed and open way exploring what could be the right setup for StreetScooter going forward. StreetScooter continues and will continue to be a very important delivery vehicle provider for us. But it will -- of course, in terms of growth expectations from the StreetScooter team, it may make sense to bring partners onboard, which could fund a even stronger and faster [ expansion ] also of third-party sales in StreetScooter. That is what we're looking at, at the moment. Not in a hurry. I think with regard to the numbers for this year, StreetScooter is developing in line with expectations, and that is, of course, fully reflected also in our guidance.
Any further, Tobias?
No. I'm fine with that.
The next question is from Andy Chu of Deutsche Bank in London.
Just 3 questions for me, please, just both on P&P. When you bridge, as you pointed out in the presentation, the EUR 114 million improvement in P&P Deutschland, we can do the maths on the stamp price increase, which I think is roughly about EUR 75 million, which kind of implies that for the improvement in parcel volumes and pricing as well as the restructuring benefits, it kind of implies that there's not much restructuring benefit coming through in Q2. Is that correct? And then on the restructuring, and apologies if I've missed this, but the EUR 100 million, is that just headcount reduction?
So first of all, when you track the individual measures and how they are contributing, we do see good contributions from all of the measures. So on the indirect costs, on the overhead side, cost is really, in absolute terms, down year-over-year. We see productivity moving in the right direction. But of course, we also have significant cost inflation. We had a 3% wage increase last year. So in terms of final number, that is, of course, also offsetting the progress on the productivity side. And on the parcel side, as you will have seen, volumes were up 6.1%, revenue was up 9.9%. So we really see the average revenue per parcel going up. So all the P&P measures are contributing, but that, of course, in terms of ultimate bottom line impact, we also have those offsetting headwinds from cost inflation. On the restructuring, yes, so I mean like we had EUR 116 million in total. And EUR 90 million of that was with P&P. And the biggest chunk out of the EUR 90 million was sending more civil servants into early retirement. We also took some noncivil servants out. So the biggest chunk was actually a continuation of reducing the absolute headcount in the indirect [ cost ] area in P&P.
Could I just ask one last question on Express and in terms of trying to forecast from the outside the uplift? And obviously, you've bounced back to really strong double-digit growth in Express, which you've delivered for the last kind of decade apart from H1. Is that the right way to think about Express going forward, that this is kind of a double-digit type sort of growth business? Or -- I mean, I think, we as a market, I think, had sort of bounced back to sort of high single-digit growth. But also [ it's obviously ] quite hard to -- I'm not sure anybody had 11% in Q3. But maybe some thoughts around Express EBIT's growth.
Yes. So I think Express EBIT growth is back to where we are all used to it being and where it should be. I think with the volume growth -- revenue growth now around 5.5% to 6% making good leverage of the network, we do expect to see such a healthy increase in EBIT. And that -- and we have already in August said that this is what we expect from the Express colleagues for the second half of the year. And it's of course pleasing to see that they're really delivering this.
The next question is from Neil Glynn of Crédit Suisse.
If I could ask 3 quick ones, please. Just firstly, actually following on from Andy's question on Express. Just interested in terms of the labor intensity and how you think about it in an increasingly -- well, as B2C gains weight within the portfolio. I noticed that headcount grew only 3% in the third quarter year-on-year. Is that a timing effect? Or would you expect that growth in headcount to remain sub the top line growth level for a while? Then second question, with respect to DGF. I just wanted to understand, there was a year -- or a quarter-on-quarter decline in staff costs, but that was almost exactly matched by a quarter-on-quarter step-up in the other OpEx within the cost base within DGF. Are those 2 changes related? Or what is actually going on within OpEx to step up quarter-on-quarter? And then the final question. I wondered, you've obviously provided free cash flow guidance consistently through the year, but is it possible to give us some insight in terms of what the provision line and the restructuring costs flowing out might look like in the fourth quarter within your full year guidance?
Okay. So first of all, on headcount growth in Express, so obviously, we are aiming for some operational efficiencies. So expectation is that the headcount growth should be below the revenue growth. I think what we had as a challenge a couple of years ago in the early days of B2C on the last mile side, that has now become really a regular part of the business with our prenotification on deliveries and so on. We have really brought the last mile topic for B2C in a range where it's not out of sync with B2B so much. So I think overall, we should expect operational synergies and leverage also on the last mile side. On Global Forwarding, so there is no correlation. There's no accounting change stuff moving from the staff costs side to kind of like the other line. I think on staff costs, the forwarding colleagues have also been very strict, particularly on indirect costs. And of course, also with reduction in volumes, we see some adjustments in the workforce. I think that explains what is happening on the staff costs line. On the other OpEx side, I don't have a hard figure here. But we had quite a bit of FX impact in the cost lines. So that may be the OpEx reason, but...
And some costs related to the [ CargoWise ] rollout in [ Q3. ]
Okay. So nothing spectacular or noteworthy. It's kind of like more the normal stuff. And then in terms of free cash flow and what's -- that's all the restructuring due to the changes in provision line. Again, this is unfortunately a bit of a complicated topic because you have movements in the changes in provisions line, not only because the provisions are used up and [ lead ] to a cash-out, but also because you have reclassifications between changes in provisions and liabilities, which sit in the working capital. So we will probably work on making this whole topic for the full year transparent and also giving you some guidance on what to expect for 2020. But at the moment, I would try not to model too specifically on the changes in provision line, more on OCF overall.
The next question is from Daniel Roeska of Bernstein Research.
Two, if I may. Number one, maybe a little bit more philosophical on the outlook, right, where the increase into 2020, of course, follows your strategic plan of the EUR 5 billion. And after that, we're seeing kind of, as we discussed during the Capital Markets Day, a more sluggish outlook. And I think the question I'd like to try to get out of you is what would you need to see to change for you to become more optimistic? And are there kind of areas of hope within the business currently as we're seeing the businesses performing quite resiliently? Kind of what would be the area you'd be -- to be watching most closely to gain kind of a better, higher confidence on an improving outlook? And then secondly, on P&P, we talked about it a little bit, but could you comment on kind of price elasticity, volume movements you've been seeing since the increase of the pricing? Maybe also on the unregulated products, kind of how do we think of the price/volume trade-off in the different categories for 2020?
All right. So I think first of all, on this year's guidance, the EUR 5 billion for next year, the EUR 5.3 billion, maybe 2 elements. I think the first one, which was now nicely shown the third quarter, against the sluggish macro background, our self-help agenda is delivering year-over-year improvement. And this self-help agenda is really the core for the 2019 but also for the 2020 guidance. I think looking then beyond that towards 2022, we would -- in order to be significantly more positive, we would need to get a bit more macro tailwind than what we see at the moment, which is why we have already said the EUR 5.3 billion minimum is linked to a currently more cautious macro outlook in line with just what we see at the moment. In terms of price elasticity for P&P, first of all, on the parcel side, a year ago, we had said that we would rather go for stronger yield measures even if that would mean losing a bit of market share. What we have now seen in the first 9 months is that we have been quite successful in putting the price increases through. But at the same time, we have gained market share because competitors have also increased prices. So I think that has worked actually better than what we had anticipated. On the mail side, we now saw in the third quarter no acceleration of the volume decline. So working day adjusted, it was minus 2.4%. Obviously, that is something we now really have to watch for 2020. I think there are 2 factors to bear in mind for 2020. For the large customers, we had increased the rebates for the second half of '19. We will reduce the rebates on the 1st of Jan. That has been flagged and communicated, so our customers know what to plan for in their budgets. But of course, that has to be watched. Is that going to have an impact on the volume development? As a second more technical thing that we have to see how that plays out is that we had a court ruling on our Dialogue Marketing product, which has led to some changes in mass mailings. Where we also have to see what that will do to the volume side going forward. We don't think it's going to have a big impact on the revenue side, but it could have an impact on the volume. That's not for the fourth quarter. Those are both topics we are currently discussing as part of the planning process for 2020.
The next question is from David Kerstens of Jefferies.
Also a question on the relatively resilient mail volumes after the 10.6% stamp price increase. Were there any special factors to take into account? Or is there just no elasticity on this small [ user basket? ] Or might that be a delayed impact on volume from that 10.6% price increase? The second question on the parcel yield. I think came in somewhat stronger than expected towards the 4% mark. I think you had anticipated a weaker number versus Q2. Is this now the run rate that we should anticipate going forward for parcel price mix effects? And then finally, on DHL Express. What will be the full impact now that the heavyweight campaign has been completed? I understand you're now against easier comparatives versus Q3 '18. But what is now the [ exact ] impact of the heavyweight campaign on your profitability going forward? Should we expect a significant improvement in profitability from here going forward?
So first of all, on the mail volumes, there were no special effect, no big elections or whatever in the third quarter. So the relatively moderate decline is really linked to low elasticity, which, as I mentioned before, is also probably driven by the fact that for the very large tenders, we had adjusted the rebates. And so they didn't feel the effect yet. And I think on the small and mid-sized tenders, in the greater scheme of things, the letter price is probably also not the most relevant cost factor for those type of customers. In terms of parcel price, yes, it was now a bit stronger than what we had expected. I wouldn't make a trend out of it yet. Let's now see how we finish the year and then how the next round of price negotiations goes. Because, as already said last year, one of the important factors for us is to now get into a standard GPI practice like we had in Express for a long time. And I think next year, we will see how this more normalized price behavior on the parcel side is going to play out. In terms of effects of the heavyweight campaign in Express, I think what we now see in terms of it annualizing is, first of all, the effect on the top line. They -- given that those heavyweight shipments are heavy, and hence, have a lot of revenue per shipment, we had this discrepancy between shipment per day and revenue per day growth at the beginning of the year. And that gap has basically closed. So RPD is now again in line with SPD. The purpose of the heavyweight campaign, of course, was to free up capacity in the network, for example, on the flying side. And that is where we are now indeed seeing the benefits, and that is part of the operational leverage game, which allows us to translate a 5.5%, 6% revenue growth into the 11% EBIT growth we saw in the third quarter.
David?
Understood. Can I ask one quick follow-up on -- or an additional question on the P&P wage increase you had up - as of October 1. Is that -- is that the main reason why you keep your guidance unchanged at this stage after the better-than-expected third quarter performance?
Yes. So on the wage increase, so we had a 3% increase on the 1st of October last year. And this year, we had a 2.1% increase on the 1st of October. I think, obviously, we feel well prepared for the peak season. The team has been working on that since before the summer, also includes collaboration with significant customers. So we feel very well prepared. But the fourth quarter is a big logistical challenge for the colleagues out there in the field. I mean on an average workday, we have 5 million parcels in the network. Now on the peak days, it will go up to around about 11 million. And there are also things which we can't influence like weather conditions and so on. So whilst we feel very well prepared, it really first has to be delivered, which is why we decided to keep the P&P range -- guidance the way it is.
The next question is from Christian Obst of Baader Bank.
Yes. I have 2 questions. One is concerning the Express business. Can you give us some kind of an idea how the different regions are developing, in Europe, Asia and the U.S.? And can you give us an indication how is B2B and B2C moving in Europe, Asia and the U.S.? Is there a certain difference? And is there more in Asia B2C whatsoever? Can you give us some kind of a framework there?And then coming to DGFF. Volume is declining in air freight, and you already made some personnel adjustments. You talked about that. If volume is further going down, and what we can expect, at least in the first half of the next year, do you have to take more measures on the personnel side in -- on that side? And then coming to the pricing side, shippers and also on the airline side and also on the container side, capacity goes down a little bit or is not increasing going forward. We have the IMO impact, so we -- there might be some kind of price increases going forward. Can you give this to the customers? Or do you see some kind of a problem there when it comes to margin in DGFF coming to these price developments?
So first of all, on the regional split in Express. The good volume growth was actually supported by all regions. So in the third quarter, the strongest region was Europe. With a 7.6% volume growth there. This is clearly very much driven by B2C. The second strongest growth was in the Americas region with 6.1%, and Asia Pacific grew with 5.7%. So the big 3 regions all were on a relatively similar level with solid growth levels. The one region which may be looking a bit funny, and you can see all that in our statbook, is Middle East and Africa, where actually in the third quarter, we had a reduction in volume. But that was due to an extremely high base effect in the third quarter of 2018 and some specific B2C shippers where we decided, based on the profitability, we would rather not have that business. So that was more of a conscious decision. But I think I would say in summary, it's healthy growth from all divisions. And across all divisions, B2C is what is really driving growth. As mentioned before, B2B is more in the low single digits and that's true for all the regions. On the DGF volumes, yes, we keep a tight eye on costs, of course, in the current development and make adjustments when necessary. Of course, the prime focus is on making sure that we don't add costs. And that is what the team has been doing successfully now in '19 and which, should that be required, they will continue doing going forward. In terms of rates, yes, that's part of the game of a brokerage business, that if rates go up, you must be able to pass that on to your customers. Of course, you do have certain time delays. At the moment, we are benefiting from that on the air freight side because the buying rates has gone down quite significantly, and we still have a relatively sizable chunk of the customer portfolio on higher selling rates. Of course, we are preparing for the reversal of that situation. But I would say, again, that is nothing extraordinary but part of the game of being a forwarder.
Okay. Maybe one additional on Express B2C, especially in Asia. Do you think that you can catch up there also on the B2C business going forward? Or are the, I would say, the more local companies getting the chunk of the business? And you are also only growing in 5 percentage area.
I mean in Asia as well, we are focused on cross-border business. So what is, for example, happening in the Chinese domestic market, we're not in and for good reasons. And so we feel, also vis-à-vis competition, also for the intra-Asian cross-border business, extremely well positioned. And I think when you look at our footprint across Asia, it's really unparalleled, both compared to the other big integrators, but also to evolving Asian competitors, which still tend to be very focused on a very finite number of trade lanes.
[Operator Instructions] The next question is from Damian Brewer of the Royal Bank of Canada.
I've got 3 questions, please. First of all, can you just update us, particularly on the P&P business, on where you are in terms of the next 12 months on wage or labor agreements that need to be revisited and where we are on that process? Secondly, if you do the EUR 0.5 billion full year Corporate Center sort of EBIT cost and mail hits midrange of your numbers, it rather implies the DHL divisions would have to do 20%, 25% EBIT uplift in Q4 to make the upper end of the EUR 4.3 billion. Could you elaborate a little bit more on when you look at that range, and I'm sure you've revisited that many times, what has to happen to get to that higher end of the EUR 4.3 billion? And then very finally, I can't go without noticing that in Ken Allen's division is now producing profits. Are we now in a sustainable, profitable position in that division? Or is there anything one-off that helped the Q3 number?
Okay. So on the first question, P&P labor negotiations, so we just had the wage increase 2019 ticking in with 2.1%, which were implemented on the 1st of October. We have the next round of labor negotiations coming up in the spring. As you may have followed, we had some very important deals with the union this summer regarding the structure of those [ delivery ] entities, which caused the big tension in 2014, 2015. So I would say that the working relationship after the strike in 2015 has been really restored. And we now have a plain vanilla wage negotiation round coming up next spring. In terms of guidance and how to interpret it, so I mean, obviously, we have still maintained quite a wide range for the guidance. Given also the relevance the fourth quarter has for our group results overall, I would say that admittedly, the lower end of the range is probably a bit on the conservative side and would probably not be a great outcome if you would end at the very low end of the guidance range. I think on the [ upper ] side and what to expect from DHL, I think there are 2 developments you have to bear in mind, the first one is linked to your third question, eCom Solutions. Yes, we had a positive number in Q3, and that was clean. There was no one-off in there. There was actually still a bit of negative cost of change. So the real operating number was even better. So that's a big milestone. But they have brought forward a number of restructuring measures they want to take in the fourth quarter. So I actually expect the fourth quarter to be negative again for eCommerce Solutions, still better than last year underlying, but in terms of absolute contribution, negative. The second DHL division where fourth quarter is maybe not totally straightforward is Supply Chain. Where we have flagged we'll probably have another EUR 30 million of cost of change. Going in Q4 2018, we had the EUR 42 million pension topic from the U.K., and we had a very strong real estate contribution. So those 2 factors will probably lead to, at first glance, lower DHL EBIT increase year-over-year in the fourth quarter.
It's 2 answers for 3 questions. Good.
I try to be efficient. You always tell me that.
[Operator Instructions] The next question is from Tobias Sittig of MainFirst.
It's just a small follow-up. Looking at the peak season on parcels, I've seen that some of your competitors have introduced peak season surcharges, and DHL refrained from doing it. So do you have any views on how that will translate into your volume growth in the quarter? Will the clients then move away from other providers towards you because you don't do that?
Yes. So I think our philosophy is that we want to have more of an annual partnership-based approach with our customers. I think for us, the key, particularly with the very big customers, for preparing for the peak has been to agree with them on a process on getting the best possible volume forecast because what causes problems for us are unexpected peaks. And so for us, the most important thing dealing with -- are the big customers for the peak is having a very close collaboration on understanding what will come on what day and in which specific location. And on that basis, we feel well prepared for managing the peak.
Tobias, your question was answered, yes?
Not really, but I'll take it.
There are no further questions in the queue.
Okay. Well, then before we all go out and about, to see you on the road over the next couple of weeks, over to Melanie's closing remarks.
Yes. So as said on the first page, we're very pleased with the strong results in the third quarter. I think for me, one of the most pleasing elements was that there weren't many surprises. So all of the divisions really delivered in line with what we had targeted. And on that basis, we are confident that those divisional improvement agendas will continue to deliver also in the fourth quarter and going into 2020. We can't control the world around us, but I think the third quarter proved that also in the current environment, based on our self-help agenda, we can deliver good progress. And as mentioned also on the 1st of October, not only the finance organization but the wider team is extremely committed to making sure that this not only ends up in the accounting profit but also turns into good cash flow. And here, again, the third quarter was an encouraging step in the right direction. So on that basis, let's focus on bringing the year to an end. I think scarily enough, the next time we hear each other officially will be in 2020. I think it's too early to wish you a happy holidays, but yes, all the best for the final weeks in 2019. Thank you.