Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the Q1 2021 results conference call and live webcast. I am Alice, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Detlef Tretzer, CEO of CuneiNagel. Please go ahead, sir.

Thanks, Alice. Good morning, good day, good afternoon, and good evening to all of you, and welcome to the analyst conference on the first quarter 2021 results of CuneiNagel International AG. Our CFO, Markus Blanka, and I welcome you from sunny Switzerland. We published our first quarter 2021 results and the respective slide deck early this morning. And as always, let's get started on slide three. We have seen a very strong demand for our transport and logistics services in the first quarter 2021 and thus have started the year strongly with an increase of net turnover of 22.8%. with an increase of gross profit purely from organic growth of 16.9% and an increase of earnings per share of 130.4% versus previous year. The free cash flow slightly decreased by 7.1% compared to previous year, while in last year's figures we have shown proceeds from a sale of real estate. Let's continue on slide four with some details, slide overview on the group and the business units. The quarter one EBIT resulted at 431 million Swiss francs, which were up 134.2%. Result from pure operational strengths in all four business units. There were no one-offs recorded in the first quarter 2021. with a group conversion rate of 23%, marking an all-time high, we have to say. Sea logistics, EBIT closed at 206 million Swiss francs, very strong operational performance with an increase in service intensity versus an almost chaotic sea freight market. For sure, we will go into more details later on. Air logistics closed the first quarter with an EBIT of 163 million Swiss francs, Strong volume and yield performance in the first quarter led to that result. A very solid operational performance in road logistics led to an EBIT of 24 million Swiss francs, while the European volumes are recovering and continue to grow. Contract logistics closed the first quarter with an EBIT of 38 million Swiss francs. We are back to organic growth on market level. And as expected, the restructuring is bearing fruit. More details now on the business units. And please follow me on slide six. Here you see the sea and air logistics volumes. Let me start with sea logistics first. The KN sea logistics volume is up 2% versus previous year's quarter one. Although exports of commodities like forest, agricultural and recycling product paper, for example, ex-US and Europe were down 20%, a result of the high rates in the market, which could not be bared by those shippers. Focus of KN has been on serving our top customers with a high service intensity. Our LCL, less container load volumes, were up 26%. and the Trans-Pacific Asia to US volumes were up more than 35%. US and partly Europe imports were booming, which were a result obviously of the government stimulus programs. And the market situation is unchanged. We have equipment shortages, we have carrier capacity shortages, and we have a very low port productivity. driven by the pandemic. All those parameters are staying intact, so to say, and we believe that the market situation remains unchanged for the next couple of months. Let's continue with air logistics volumes. First time after two years, we returned to a robust growth with a volume growth of 16.4%. This was mainly driven by automotive, pharma, and high tech, and with a very strong tonnage trend also continuing, while general cargo and especially perishables underperformed. Also here, strong Asia exports, transparent Europe here to mention, and the situation in the capacity supply, the long haul packs, belly capacity is still depressed. while the current depends on dedicated freighters on block space agreement and charters continues. And after the volume overview for sea and air logistics, let's continue with some unit KPIs for sea logistics on slide eight. The strong year that you have seen in quarter one reflects both. a favorable portfolio development small and medium-sized enterprises and no commodity in our mix virtually no commodity delivering second effect delivering an intensified and premium service to meet the exceedingly high customer demand versus a constrained market situation and i said it before a rather chaotic market very difficult to predict so our Intensity also increased. More demanding services require additional cost, additional manpower, additional expertise, and thus leading into a high EBIT per TU, which is 50 to 60 francs per TU higher than the usual guidance that we give for the per TU EBIT that we expect in a normal market environment. The air logistics unit KPIs, slide 10, those to compare with our operational air logistics figures. So it's no one of reported in those KPIs for previous quarters. I'm not talking about quarter one, 2021. This quarter, the last quarter, we delivered a small degree of yield and EBIT per unit normalization. So you'll see that we have a stable, maybe more predictable market environment. Stable unit costs, including first effects of our eTouch initiatives, and we have reported in our last call in more detail on this, and we'll do so in our call on the semi-annual result for 2021. in summer this year and anticipating a much greater degree of stability in the air yields and EBIT per unit. That's for the moment our outlook for this market segment. There's little changes in demand mix and capacity situation, which also drives a more stable but still high market situation. We go through to slide 12, our third business unit, road logistics. And we mentioned that on the previous slide, European cross-border businesses recovering and the demand of domestic transports in Europe started to grow again. And in a nutshell, we could say a weak start, especially in Europe, and especially the Brexit situation, the first four weeks or maybe six weeks, and a very strong finish deliver a satisfactory result. The continuation of our shipment recovery in Europe, but at lighter average weight of shipments, which we mentioned already in our last call driving productivity strain, especially with European in the European road logistics business. North America remains still weak. And we have seen that the rollout of our e-track platform started also successfully in Europe and in other markets. So we see huge booking increases on that platform, not only last quarter, but continuing also in this quarter. The EBIT for the first quarter 2021 at 24 million, which is 41.2% above prior year, purely operational, purely organic, no special effect included in those figures. And then let's move on to contract logistics, our fourth business unit. And we mentioned that also in our press announcement, back to organic and the restructuring bearing fruit. And we have seen, although we grow on market level, especially in the pharma and healthcare sector, as well in e-commerce fulfillment, market share gains throughout the last quarter. EBIT rises significantly thanks to the restructuring, fully concluded and accomplished, and a return to deliberate organic top-line growth. Strong momentum gained in pharma, healthcare, and e-commerce fulfillment. And we repeatedly mentioned that because these are leverage areas, as we call them, which bear fruits across the other business units as well. We have reported an EBIT for the first quarter of 38 million Swiss francs. which is 16 million above prior year, excluding divestment impacts, a pure organic improvement, which shows the strong operational development of contract logistics. Let me summarize. Our group marks a strong start to 2021. Still, the majority of our white color stuff is working mobile or from home so we shouldn't underestimate the situation it's almost two-thirds of the people that are still not in a normal business environment there's only one country globally where we have a normal business environment pre-pandemic which is greater china um And I would like to state once more a heartfelt thank you to all our colleagues worldwide for serving our customers excellently versus the many market challenges and daily challenges we all have to face. Great job. Thank you very much. And now I have the honor and pleasure to hand over to Markus, who will lead you through the key financial figures.

Thank you, Detlef. Also, ladies and gentlemen, welcome from my side. I start on number 16, income statement. And indeed, it's a very strong quarter. We can report in absolute terms and also in relative terms to last year, of course. I have to say, I will keep presentation short. It's easier to talk to good numbers, obviously, than anything else. Anyway, a little bit into the details of the development in the first quarter. I want to point out two specific numbers. The first number, the gross profit increase on the nominal side, 141 million. If you look through the divestment impact of our contract logistics customer portfolio in the UK, which we closed in January 2021, you have actually a growth of 16.9% on the gross profit line, which translates into roughly 285 million Swiss francs. Jumping down to the line of EBT, earnings before tax, so the incremental 285 million gross profit have resulted in around 248 million EBT. Two effects, yes, air freight and sea freight, of course, delivering extremely strong results. On the other side, also, the effect out of the deconsolidation where one may say we have exchanged a business that has a lower conversion rate with additional business in CNF rate that has higher conversion rates. Brings me to the second point I want to point out, conversion rate. You can see here our conversion rate of 21.3% for the group. This relates and compares to our target of 16% for the year 2022. So now, of course, one could say that was an easy target. You know, you have reached it already now. I just want to make sure we understand this also correctly. This was a very strong quarter. We started off in 2021. For sure, the money that has been done in that quarter will not disappear, but I would be careful in just extending 21.3% over the year 2021. Moving on to the balance sheet, page number 17, three topics. One more technical information you still see here in December 31st, the asset held for sale and the associated liabilities in the extended 400 million. That, of course, after the consolidation in January has disappeared. Secondly, you see a huge increase in trade receivables from 3.4 billion at the year end to 4.1 billion at the end of the first quarter. Function of, and we may talk about it in the Q&A session then, it's a function of additional volume and, of course, significantly higher rates for sea and air freight cargo. Last but not least, cash and cash equivalents, yes, 1.8 billion on the balance sheet. you're well aware that we are in the process of closing with our acquisition in Asia with Apex. There we will need a certain liquidity out of this bucket. And as well, the next liquidity reduction that we will see is the dividend payment in 2021. Which leads me straight into the cash flow statement, page number 18, free cash flow. Two items that I would like to pick out here. This is changes in working capital, 291 million. I come back to what I said on the trade receivables. Yes, there is a huge increase in volume and rates. That is pushing up the working capital requirement. And we will see that also on the statement for the net working capital intensity, we have a slight increase in DSPs of around one day, which leads as well into some of the increases of the changes in working capital. Second, I wanna point out the free cash flow for the first quarter is here reported for the year 2021 with 145 million compared to 156 last year. Just want to mention that in last year's numbers, we have a cash inflow from disposal of real estate of 164 million, which in broad terms, you could say, The first quarter last year was, with exception of the real estate inflow, a flat quarter, whereas this year we have created 145 million. Moving on swiftly to working capital, page number 19. comparing year over year, end of March 2020 and end of March 2021. And it is quite amazing that we work on the same net working capital in absolute terms, around 900 million. that we need for the working capital requirements. So, same level of networking capital and double the profitability. So, that's certainly a recipe that all of us like and all of us are striving for. Going further down on the lines on the DSO, what I referred to previously, a slight slippage in the DSO, 1.2 days, which certainly has also contributed to what I said before in the changes in working capital. So, overall, we have a picture of strong operational performance, stable networking capital, and some benefits from the divestment of assets that we sent in the UK, which you can summarize and you can visually very easily see on the page number 20. Return on capital employed has absolutely topped here at around 90%. Also here, I don't want to be the one that issues disclaimers too many times, but I think my calculations, and I repeat what I said also in the past, the technical return on capital employed rate for the balance sheet is around the 70%. Of course, when we have huge improvement in profitability, this moves upwards. But I think that is the 90% number is a number that we should remember as one of the top end of our expectations. With that brief run through the numbers, I would hand back to Daniel.

Thanks, Markus. Let us conclude on slide 21 with the current perspectives. The emergence of the pandemic last year triggered a high degree of uncertainty, which persists to this day. As a consequence, we largely suspended the usually quarterly outlook of KN and market volume growth. But what we can do and will share are our perspectives on current market trends and the positioning of the Kühne Nagel Group. And this is what you find on this slide here. Let me start with market first. As said before, this is another year, 2021 is another year that is impacted by the pandemic. Uncertainty is to persist. The economic activity and trade volume, though, we see rebounding. We see signs of macroeconomic recovery, especially in Asia, partly North America and Europe. And we see a clear consequence or direct link of the share of vaccination of the population and the economic rebound. The consumption patterns and supply chains likely to undergo further change. I think we have to look at this in a differentiated way. Let me start with consumption patterns. Last year, at the same time, we saw a sharp rise of demand for essential goods and goods in the areas like consumer electronics, furnishing, home and garden improvements, and so on. We see signs of this consumption shifting to the service industry, entertainment industry, and travel industry, most likely with the highest impact in the semester this year. also directly related to the share of vaccinated people in society. The shift in supply chains, I think, are also very decisive and will lead us into the second semester. We have seen a higher demand for e-commerce fulfillment activities throughout the last 12 months. leading to smaller shipment sizes and increased safety stocks, partly sourcing supply parts, especially for production from two distinct locations. And we see this trend ongoing at least for this year. What is König & Lager's position? How do we face this unpredictable market? We are dealing with overcoming capacity constraints to provide reliable and quality services, which is most important, visibility, transparency, most important for our customers. We provide value with solutions and technology solutions. I don't need to remind you, we mentioned that a couple of times today, our pharma solutions, pharma healthcare solutions, our e-commerce fulfillment solutions, but also our solutions for the automotive sector, battery chain, also for the aerospace or airline industry with regards to interior chain, the change of the equipment reflecting demand. This is based on our technology platforms. I would like to mention a few. We have more, obviously, as you all know. CXplorer, KN eTruck now, which I mentioned in road logistics, and MyKN, our online portal for all our customers. And we believe that KN remains well positioned and is ready to intensify the services for its customers and supports the shifting of supply chains. Kühne & Nagel marks a strong start to 2021. And this year remains challenging and unpredictable, though. But we are committed to our proven strategy of providing reliable, high-quality services to our customers. And it's about our logistics experts, our technology platforms, and our agility. And despite that unsecurity and unpredictability, we look forward into 2021 with a positive outlook. Thank you very much. And now we are open for Q&A.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only hands who are asking a question. Anyone who has a question or a comment may press star and one at this time. The first question comes from the line of Daniel Ruska with Bernstein Research. Please go ahead.

Daniel Ruska, Bernstein Research, Bernstein Research, Bernstein Research, Bernstein Research, Bernstein Research, Bernstein Research, Bernstein Research, Bernstein Research, Bernstein Research, You commented on the current demand mix and services shift, especially in VC business. If we weren't seeing the current disruptions in the market, to kind of fast forward two, three years from now, do you think there will be an underlying shift in mix or services that support sustainably higher GP units in the upcoming year? Secondly, again, on the disruption, you said AIR would see a more stable development, and Marcus then said, we should not expect group conversion rates at 22% for all of 2021. How are you thinking about the developments in sea logistics then for the rest of the year, maybe more tactically and anything the exit rates from Q1 can inform about Q2 or maybe even Q3 this year. And then lastly, given the notable absence of the guidance slide today, could you just tell us if you're reevaluating your midterm goals, where are you in the process with your board and the discussions And when do you think you'll be able to share an update with the market?

Thanks. Daniel, thank you for your questions. I'm happy to answer them. Let me start with the guidance slide. We believe we gave a guidance slide, which was the last slide that I referred to. But what you're missing is figures. And it's absolutely impossible to give a percentage figure to growth or conversion rate at the moment. With regards to the development of sea logistics, we see no major change in the next one, maybe two quarters. And if rates go back to a normal level, I'm not talking about the extremely low level we got used to four or five years ago, then we might see also forest pollution. We might also see other commodities, pipe and paper, recycling material, agricultural products coming back to the network. But it's really depending on the rates. For air logistics, we don't see any change in the capacity side for the next quarters to come. because the market very much would need belly capacity in order to drive the overall rates a bit down. So I think we all have to get used to higher rates in principle, while in the past we were spoiled by extremely low rates in some markets.

Any thoughts? underlying shift kind of in the mix from the pandemic has changed kind of on a longer term view in terms of the services you're selling?

Yeah, Daniel, we have seen a lot of discussions on nearshoring, less globalization of supply chains and so on. We don't see this. We see some industries building up a higher minimum stock level, which exceeds in two or three days. And we have for sure seen what I said, a second source which comes out of a different geography and not relying on one geography or even one city for all your key supplies. What we for sure have seen, and that will not change, and that will even increase in the maybe years to come, is e-commerce. So our purchasing behavior has significantly changed, and we all, collectively, all end consumers. got used to a very easy just click and buy and get shipped process. And that will remain and that will also further increase. So the shift from retail to e-commerce most likely will continue whether at that speed that we have seen the last 18 months or 12 months or 15 months or at a lower speed, but it will continue.

So maybe I pick up on the conversion rate question and the midterm targets. So conversion rate, I think we should try to do a bit of expectation management here. I think it was a very strong quarter. As Detlef said, we have a good feeling about the second quarter, but the uncertainty remains. So that's why I'm just trying to prevent that models are being just multiplied times four and then we get to a number which might not be Secondly, and a very quick question, what are the mid-term goals? Is there an update to this? I think our strategy has extended and our goals have extended until the year 2022, and I think we will come within Due course, we will come with a new set of targets, which I think you can understand today we will not disclose, but I'm pretty sure until the end of 2021, there will be such communication.

That's helpful. Thanks, Martin.

Thank you.

The next question comes from the line of Satish Sivakumar with Citi. Please go ahead.

Thank you. Thanks, gentlemen. I've got three questions. Firstly, on volume trends in sea and air segment, if you could shed some light around the demand trends that you have seen across the trade lanes, especially, say, in Trans-Pacific and Asia to Europe, which is actually surprised to the upside as we went into Q1. And then, secondly, on your comment regarding the performance of road logistics in North America, Actually, what are the challenges affecting this segment, given the strong consumption in the U.S. market? And third one, around the lower commodity products, right? So do you expect to see some volume catch up in this segment as and when the rates normalizes, or they've already been shipped through other modes like, say, road and rail products?

Thanks for your questions. The volume trend that you have seen for both sea and air logistics, we do not expect to change significantly in the next one or two quarters. Specifically, Trans-Pacific and Asia exports to Europe or the high demand for imports in Europe as well as in North America, will continue. The Trans-Pacific is strong and with the port congestion, some of the volumes are automatically transferred to air logistics. So the consumption drives the volume growth in both sea and air freight. Your question regarding road logistics, I think there is a demand there and we don't have a problem with the demand. Our topic is the production costs at the moment, congestion, truck drivers, safety of truck drivers. The market is very specific, as you know, while intermodal doesn't cope with the speed and reliability of our customers. So, trucking is the solution often. And we see in the way of organising this a challenge at the moment, specifically in the US. I'm not talking Canada or Mexico, which all belong to our North American region. Your question regarding commodities and when will they be back, I think it's a clear function of rates. And there are products, if you see the beetle wood in Europe, which you have partly in Canada as well, that can bear high transport costs. And once the costs will come back, maybe to a level that we have seen pre-pandemic, those commodities might come back. I'm not too optimistic that this will happen too soon, because at the moment, if you look into the market equilibrium and market rates and how long it takes install additional both vessels as well as containers into the market. This will not change too soon. So most of those producers will find either other markets that they ship to and then as you rightly said via train or via truck or they have to go more local in their in their demand, in their supplies. At the moment, we don't see commodities coming back to both sea and air logistics markets soon.

Okay, yeah, thanks a lot. That's very helpful.

My pleasure.

The next question comes from the line of Neil Glynn with Credit Suisse. Please go ahead.

Good afternoon, everybody. I hope you're well, and congratulations on such a very strong quarter. Just a couple of questions, first of all, on shipper reactions to the congestion that's been ever present for quite a long time now. I'm just interested in, first of all, have you seen a meaningful uptick in cross-selling across your portfolio through the pandemic? I know, Detlef, you mentioned pharma and healthcare touching multiple business units, but Would you describe what you're seeing as resembling any kind of a step change, or is it more just continued evolution of your business development? Then the second question, also aimed in that direction, given such congestion, it makes me wonder whether there are opportunities for new products focusing on things like supply chain visibility to help shippers out. From your perspectives, would you describe the pipeline of new product, new technological product development as consistent with the last few years, or is this an opportunity given how cash flow generated the business is to really go harder in that direction? And then a final question, more housekeeping, but on the road logistics side, I noticed that in the first quarter, expenses stepped up 12% quarter on quarter, whereas usually that's around 2% or 3% historically, comparing the first quarter and the fourth quarter. Is there something going on there in terms of extra headcount or anything funny in the comp, or could you help me understand that big step up in expenses in road logistics?

Okay. So, Neil, thanks for your questions. Let me start with shipper reaction. We have products in the market that for sure were much more demanded than in the past. I remember that we spoke about sea and air products in the past. or train and air or train services in the past, both picked up significantly, especially sea and air, going into the final mile or final country distribution via air freight helped a lot. But I would say it's an evolutionary topic because at the end of the day, it's always about cost per unit and also CO2 per unit that our shippers look at. But if you have a congested market, or if you see that congestion will not be resolved too soon, you have to react. Our sea and air volume has grown, but we will not disclose. We will not disclose here. the baseline, but by factor 10 in the first quarter. That is clearly a reflection of the market situation. The congestion and supply chain visibility for sure is a topic and we feel well positioned to serve our customers. We have updated our CXplorer platform and we mentioned CXplorer a couple of times in the past. And we have updated that platform with an alert function, so to say, if for your shipment something potentially is going to happen, you will get an alert function. And we have tested this already when we went into the Suez Canal situation by chance. I mean, we didn't have the Suez Canal, obviously, to test that. that module of our Sea Explorer, but it works well and we have highest visibility. We know exactly where each and every shipment, each and every container, including the associated goods or article numbers in the containers are positioned right now as we speak. But your question is right. We have accelerated five digital projects earlier this year, or by the way, end of last year, which we will deploy by end of this. We are moving fast into deploying five projects. platforms or solutions, which includes also the next generation if you want for visibility. And that is what we are really focused on. At the same time, we see a high degree of registration on our platforms. Even more than at the beginning of the pandemic, maybe everybody was still in a shock situation. And we have the highest growth rate ever on onboarding of new accounts to our MyKN platform, which is the entry point to all our operating system for our customers. Your road logistics question, and I think I mentioned that already when we gave the annual result 2020, during the annual result 2020 conference, road logistics is impacted by lower shipment size. So, while the volume as such maybe remains stable, the average weight and thus the average GP per volume is lower. result of e-commerce and our way of ordering and maybe different stock level keeping. And we see higher production costs per shipment in road logistics. I hope that answers your question.

It was actually the expense line below gross profit. I can follow up with Chris or Marcus offline anyway.

I do have it for you. So the road logistics expenses, I think, yes, they are below the GP line. This is ours. So there is two factors or three factors. In road logistics, we have a good part euro-denominated costs. So the euro appreciated around 2%. That is a factor. The second factor is smaller than this, but still noticeable in the first quarter. At the back end, the first quarter in March 2020, there was basically a lot of volumes stopping very abruptly. And we had already at that point in time a few subsidies going into the P&L for around half a month. And last but not least, we have increased indeed our FTE for the Brexit services that we have built. So that's a slight increase in FTEs overall, but these three components pretty much make that percentage. Great. Thank you both. You're welcome. You're welcome.

The next question comes from the line of Muneeba Kayani with Bank of America. Please go ahead.

Good afternoon. Could you talk a little bit about APEX maybe? There wasn't much mention of that in the release today. Any indication of how growth at APEX has been this year so far given what you've seen with your kind of main air business. And then secondly, how should we be thinking about dividends for 2021 if earnings are very strong? Should we still continue to think about it and pay out ratio terms or on absolute levels? I realize you don't have a dividend policy, but just kind of if you could give us a steer on how to think about dividends in a very potentially very strong year. And then could you give an indication on where you think yields and EBIT per unit would normalize to in A and C, please? Thank you.

Hi, Moniba, it's Markus. Let me pick up the first one on APEX. You know that we are continuing to stay within the signing and closing period, so my indications are going to be pure indications, nothing better than that. The apex activities are very much around the Trans-Pacific trade lanes and Trans-Pacific trade lanes generally in the first quarter have done pretty well. I would believe that that is also true then for a business that is predominantly operating in this trade lane. Second question on the dividends. I think dividends, we have been very clear and vocal around why the dividend level is at that level where we are. We are proposing this year a 68% payout ratio towards, we are proposing it towards the General Assembly. That translates into four Swiss franc and 50. I think, as it stands today, I cannot identify any reason why this unwritten policy, admittedly, should change in the near future. I think we have had a very good quarter. But having a very good quarter, as you know, I think a little bit of the history with Kuhn & Nagel, having a good quarter doesn't mean necessarily we're going to rewrite the dividend policy. So I would stay on that course. I would believe that the company is going to stay on the course that has been put in place. Yields. That's really the $1 million question. What is the sustainable yield level going forward? I think it's very clear. We do have elevated gross profit levels right now. They are justified. We do a lot more, as Detlef said, on service intensity than we did maybe two years ago. There is hardly any shipment that you would consider as a standard routine job. So there are challenges that we try to resolve for our customers. It starts with getting the space and ends up with actually managing the changes in the supply chain. So there's a lot of that being done. I think that has been very clear also. There might not be a lot of change to that situation in the foreseeable future. Quite some uncertainty going at the back end of 2021. How it's going to look further on a midterm basis, that's really, really for us not to see right now. So I would be cautiously optimistic for 2021 that an elevated level will stay, at least for the next quarter, and maybe some small pressure on the margins in the second half of this year. But further than that, I think it's going to be very difficult to forecast.

Thank you.

Thanks, Monika.

The next question comes from the line of Christian Obst with Baader Bank. Please go ahead.

Yes, thank you, and all the best to Switzerland. First, on the targets 2021, is it right that the closing of the apex deal is some kind of a precondition before you will go out with some further long-term or mid-term guidance? This is the first question. The second one is on road logistics and your implementation of your KNX works there. Saying you implement that in Asia, then you're going to Russia, you're going to Australia. What are the plans going forward and what is the current share which you manage over these platforms according to the total share of road? And then the last question is concerning CO2 free transport. You have some kind of interesting activities there in place. Can you give us an update on demand there, and is there a higher pricing tag for that? Thank you.

Thanks, Christian. Let me answer your questions. You are on the spot. We will comment on APEX once the closing has happened. We have a look into the current trading and can then also review our overall target setting for the years to come. And as Markus said before, clearly by end of this year, early next year, we will have this revision done and then we'll share the new set maybe of targets that we are all committed to. At the moment, it's not possible because we cannot even talk to the apex colleagues. Road logistics, I assume, Christian, you're talking about e-truck now or digital platform for road? Yeah, sorry. We have a clear rollout plan. where we see in markets where we have either no road logistics business or no clear brokerage business, where this platform, this purely digital platform gets a lot of attraction. We have a rollout plan that is geared to the number of bookings that we want to generate via this platform. And so far, we feel very comfortable that our extremely tough targets will be met because it's a bit of a blockbuster. But please forgive me, we do not give any details on the number of bookings or shipments, but it will eventually, in a couple of years, be a significant element of our road logistics service offering to the market. And CO2, Christian, I don't know how much time you have, but this is one of our core topics for our strategy. Because we believe that, first of all, the transport logistics industry and we as one of the bigger players in the market have not only a responsibility, but we also have a chance to offer solutions that matter for our customers and thus change the CO2 emission of transports. And we have a suite of activities running, more than 300 activities only internally in our organization. And we see a lot of buy-in of our customers. Usually, we do not or cannot reveal names. It's a bit like pharma customers. Out of 300 pharma OAMs, we can mention one or two sometimes, but not in general. And it's the same with our CO2. We have... A couple of activities running. One is identify. First of all, have transparency on the CO2 emission per shipment. That is not sounds easy and standard, but it's not. And you have to have a lot of details of your systems and what you transport in order to do it. a proper assessment. Secondly, avoid by changing supply chain, by optimizing supply chain, by consolidation, shifting from one mode to the other, whatever it is, by avoiding ports, certain ports of certain airports and so on. Thirdly, it's reduce. So whatever you are doing and can't change and avoid, try to optimize it. Use alternative fuel. SAF we have introduced. Biodiesel we have introduced. Biofuel we have introduced. And we offer this on the same routing to our customers. And then the last one is compensate, which is a conclusion of the three effects before if you can't fully offset by just reducing the price. the the co2 emission we are dedicated to it we have tools for it we have tools and platforms that show this during the booking process even to our customers and we all have a choice our customers have a choice we have a choice and each and every consumer has a choice and we believe that this will be increasing the demand for these transports will be increasing Now, Christian, I stop because otherwise you get a bit of a lecture of Kirin Nagel's environmental and sustainability strategy, which is for sure not the purpose of this call.

That's okay, but I have two additional questions to these items. Can you give us an idea of how profitability differs between e-truck now and on a standard road logistics business? And the second one is CO2. Do you see that there is any change in demand pattern towards these kind of products or is that minimal so far at least?

So change in demand pattern, I think it's increasing. We continued with our strategy, also our sustainability strategy through last year, even throughout the pandemic. We worked on a lot of initiatives and continue to work on them. And we see more and more demand coming, especially from those industries that direct to the end consumer. And there is a change. There's at least a change in consciousness and whether that then will eventually change the demand, we will see. But we believe it is. And we are as a first mover very close to those customers. Secondly, your question regarding profitability. Yes, we know, Christian, but we do not share those details. We will not share those details. It's a different solution, which requires, which is a more automated approach, systems driven approach, which obviously has less, you know, logistics expert doing in the process or require less logistics expert to win in the process. If the shipper, our customer, stays in the standards of that platform, whenever there's demand to talk to a logistics expert from our organization, it's a different animal. And I think it's working quite well that in a very low-touch environment, automated platform environment, we see a lot of automated bookings and matches of supply and demand.

Okay, thank you very much and all the best.

Thanks, Christian.

The next question comes from the line of Alexei Dogani with Barclays. Please go ahead.

Good afternoon. Thanks for taking my questions. I also had three. Just firstly on the conversion ratio for the group, obviously at 21.3%. I think in your commentary you mentioned that there have been some portfolio mix changes benefiting the ratio? Could you kind of single them out a little bit to understand how much of that 21.3 could be more structural rather than benefiting from current capacity disruptions? And then secondly, on just sea freight, Clearly, you know, the market remains very tight given kind of the disruption we've seen and also the Suez Canal adding to that. You're 50 to 60 Swiss franc per T. You talked about being on a normal level at the moment. What needs to happen for that to kind of fall away? And do you see movement on that front or is it still very kind of... elevated the level of disruption. And then finally, just on air cargo, would you be willing to comment that kind of the March growth rate, because my understanding is that March saw quite a steep acceleration in volume. And in terms of your capacity outlook, you talk about kind of stability and we wouldn't expect sort of the belly capacity to return, but do you feel that the dedicated freighters would potentially be able to replace the belly capacity lost medium term? Thank you.

Hi Alex, it's Marcus. So I take the first question on the conversion rate for the group and the methodology around it, we have been always emphasizing that our target also of the 16% was assuming a stable mix in business units because you're entirely right when business units with Naturally, higher conversion rates grow faster than the conversion rate goes up and mathematically the other way around as well. So whatever the reported 21% now are in terms of composition, my understanding and also my calculation are showing that we have been nearly neutral in terms of the mix effect of the business units for that 21% conversion rate. And what I said previously was, as I mentioned, more of a precautionary statement that we are not looking into just an extension or a replication of the numbers on a four-quarter basis as we have seen on the first quarter basis. But again, we will come back to you until the year end 2021 with most likely a little bit more detailed set of targets than what we have done in the past in terms of conversion rates.

Alex, let me answer then the other two questions. See logistics, any movements? I mean, the Trans-Pacific is the market at the moment. We are able to find capacity in the market. We grew more than 30%. I mentioned that. And we don't see any sign of change at the moment. As mentioned, the consumption pattern is changing. This requires change. other sortiments, other consumption or products consumed in the westerly markets. And this will drive the demand for sea logistics capacity on the Trans-Pacific, but also towards Asia, towards Europe. Air, your air question is a different one. I mean, we have seen increase in freighter capacity and demand for freighters or main deck as we call this during the pandemic because belly is not existent but the capacity in the market will never be able to fully compensate the miss or the lack of belly capacity and it requires a return passenger flights eventually to have a similar market offering as we had pre pandemic in the market the next one or two quarters will be strong and we mentioned that and that will not change but eventually we will see passenger schedules coming back to the market, people traveling again and a slight increase in belly capacity. I'm talking intercontinental flights. There's only one market that we know has a constant supply of belly capacity at the moment that is domestic China. The only market where you have more or less, I wouldn't say a normal situation, but a regular supply of belly capacity. With regards to March increases that you mentioned before, March is always a very strong month. I mean, it's a typical March pattern. It's nothing specific to this March versus the previous year's March.

All right, understood. Thank you very much.

Thank you. Thank you.

The next question comes from the line of Sam Bland with JP Morgan. Please go ahead.

Hi there. Thanks. I've got two questions, please. The first one is on, you know, we've heard a lot about how high service intensity is helping the unit margins. I just wonder what that's doing to your rollout of the eTouch platform. I guess eTouch is sort of the opposite in that it relies on automating a lot of things. How's the rollout going given this high service intensity? And the other one was on, you talked about kind of lack of commodity volume helping the sea freight unit margin. commodity type volumes come back, should we think about that as a net positive because you've got higher volume or actually it's more a negative because it kind of implies that freight rates and therefore unit margins will be lower at that point in the future? Thanks.

Yeah, let me answer your questions. First of all, service intensity, you're right. I mean, eTouch is a fully, the ideal eTouch shipment is fully automated with a conversion rate exceeding 80, 90%. In theory, it's 100% conversion rate because the incremental shipment doesn't attract any additional. But at the moment, we are in deployment of eTouch. So some of the processes are fully automated, but not the total shipment flow as such. Therefore, we benefit from eTouch and we have given some details on how we have progressed in eTouch, especially in air freight, air logistics during our last call. But we have no end-to-end eTouch shipment that would be jeopardized by the current market situation. We do not see any changes in that respect for the next couple of quarters. With regards to to lack of commodity in the mix, you're right. The commodity will come back eventually if the rates normalize. We do not expect this in the next couple of quarters, but they will have a contribution. They will have a positive EBIT effect. And that is what we always said when we said if you compare our mix the bigs of other suppliers, we had always some areas where we had a high degree of commodity shipments, but contributing on a positive EBIT. And the mixed effect is, at the end of the day, helping us at the moment in the unit figures, but it will help us also to go back to a normal EBIT per toy figure in, I don't know, whatever quarters to come.

Okay, thank you. You're welcome.

Today's last question comes from the line of Mr. Michael Furth with Fontobo. Please go ahead, sir.

Yes, thank you. Good afternoon, gentlemen. Just two questions from my side is, can you comment on vaccine logistics trends and anything related to the pandemic and any changes you observed let's say, over the last three months and how that would affect your business and your expectations. And the second question is, you talked about market share gains in e-commerce, and I was just wondering if you can share any indications of what sort of market growth in e-commerce you've seen and how your growth compares to that. Thank you.

Right. Vaccine logistics. First quarter this year, 2021, we have shift 50 million vials, vaccine COVID-19 vials worldwide. And we see this demand increasing significantly for the second quarter. So factor five, six, seven, we will see based on the production outcome output, nothing else. But it's a typical shipment, which we have done before. We were in vaccine shipments also previous years. Our pharma and healthcare sector has been active in this sector. The big difference is that the world requires billions of those vaccines at the moment, and that this needs to be orchestrated, especially from a production point of view. At the moment, we don't see any major constraints or any bottleneck or any any restrictions other than production output. The second question regards market share gains in e-commerce. We for sure showed or have seen a growth in e-commerce fulfillment, especially in contract logistics of 25, 30%. while we assume the market has grown slightly below that figure, maybe 15 to 20%, because the biggest growth was seen in e-commerce fulfillment in the second quarter last year. Therefore, we said we have gained market share, but it's one of the growth drivers still in our e-commerce fulfillment business, in our contract logistics business.

Thank you, very helpful. Thanks and well done. Thank you.

We have a last question coming from the line of Andy Chu with DB. Please go ahead.

Thank you. Good afternoon. Just one question from me, please. In terms of the GP per unit per toy, what's actually changed? Because I guess over the last 12 months, it's been relatively stable. within a few Swiss francs. We know that freight rates are at record highs. We know there's a shortage of capacity. We know there's a shift away from commodities and that you're focusing on sort of higher value add. So what's actually happened in this quarter, let's say versus say Q4, that your GP per toy has jumped into sort of 400 Swiss francs. Is it something in the organization, you're better at selling, what's actually changed? Because I'm sort of struggling to sort of, as the market probably is in terms of trying to forecast that number for Q1 and obviously going forward. Thank you.

And the two effects that we try to explain. One effect is increasing demand versus a very scarce supply side. both equipment containers as well as vessel capacity. So there's a bottleneck and we are able to find that space and containers for our customers. And secondly, that's the mix effect. So the per toy gross profit of a paper and pipe shipment, a forestry shipment is significantly lower with a positive EBIT contribution, but significantly lower than our average of 300 plus Swiss francs per toy. If this volume is totally excluded in a quarter because we don't ship it anymore, customers cannot afford this price level in the market at the moment. this directly ends in the overall higher GP per toy. So the mixed effect for sure has a significant impact on the 440 Swiss francs per toy that we have shown in quarter one this year.

But forgive me, hasn't that been the case for a number of quarters now? You said obviously that the commodities that come out, they need to fall to sort of pre-COVID levels, but freight rates are obviously falling. up four or five times what they have been so I'm still struggling but you're saying that this is the quarter where a lot of that mix affecting commodities really made a big difference because I would have thought that trend has continued that we've talked about over the last 12 months has been a mixed positive mix impact yeah

No, it's not for the last 12 months. We have been more rigid to accept also cargo while we had scarce capacity to fill and our high yielding and high long-lasting customers to serve, we were forced to be much more selective. While in the past, and if you look back, even the last quarter, 2020, has shown already this effect. We had an increase in yield already there. But market rates and the rates per container on certain trade lanes exceeding price levels that we have never seen before really happened since the beginning of this year. So this effect is really isolated or can be isolated to this year, quarter one. So it's both. It's the mixed effect, which got even actively, more actively managed by ourselves quarter one this year, as well as a supply side, a capacity side, which is extremely strange.

So for example, how much is commodities of your volume wise then in Q4? I think you were sort of alluding to that's probably much disappeared. So what's the percentage sort of shift place?

We usually do not disclose those details and we will not go down that. It was more significant at the moment is mediocre.

Okay, great. Thank you very much.

You're welcome, Andy.

That was the last question for today. Gentlemen, back to you for any closing remarks.

Thanks, ladies and gentlemen, for joining our analysts call on the quarter one results for 2021 of Kühnenhagel International AG. As we have stated, Kühne & Nagel marks a strong start to 2021 and 2021 remains challenging and unpredictable. And we are committed to our proven strategy of providing reliable, high quality services to our customers. And it's all about our logistics experts, our technology, our platforms, as well as our agility. And having said so, we thank you for joining and we look forward to talking to you again in about three months when we talk about the semi-annual results. Thanks. Bye-bye and take care.

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