Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the nine months 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 one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Detlef Tretzger, CEO of Kühne Nage. Please go ahead, sir.

Thanks, Alice. Good morning. Good day. Good afternoon and good evening. Welcome to the analyst conference on the nine months 2021 results of Kühne International. Our CFO, Markus Blanka, and I welcome you from, as always, sunny Switzerland. And also as always, let's get started on the slide three of the slide deck that we have published this morning. Q3, the third quarter 2021 has been a remarkable quarter. Results more than doubled versus previous year. And it is an extension of what we have seen in quarter one and two already this year. And it is a confirmation as well as an acceleration of our strategy and its deployment. On slide three, we have published some of the KPIs. So our net turnover increased to 21.8 billion Swiss francs, which alludes to an increase of 47%. Gross profit increased by 25% to 6.9 billion Swiss francs Free cash flow missed the 1 billion by 1 million, so 99 million Swiss francs, an increase of 23% nominal versus previous year. And the earnings per share were at 10.94 Swiss francs, increase of 128% versus previous year, with an organic EPS growth of 106%. Please follow me on the next slide, which is slide four. Some highlights of the third quarter and the year-to-date development. The third quarter is another excellent quarter, as we have stated before. And the group nine months EBIT concluded at 1.825 billion Swiss francs, up 131%. Let me also draw attention or focus your attention on the conversion rate. We showed a conversion rate year-to-date, nine months, of 26.6%. In quarter one, we started with 21.3%. Quarter two came to a 26.2% conversion rate, and we concluded the third quarter with a conversion rate of 31%. Outstanding performance in sea logistics in a very chaotic market environment, which I will explain or give some details later throughout the presentation. A very strong performance, a high service intensity is continuing, and our colleagues, especially in sea freights, are all over the place to make the shipments of our customers work. Air logistics, a very strong performance with an EBIT of 645 million Swiss francs for the first nine months, a strong volume and yield performance in that period. And we have fully consolidated APEX. And let me also state we have an excellent collaboration with the colleagues from APEX. And this is based on an almost identical entrepreneurial spirit. And there's a seamless interaction with the team of Apex, which we all enjoy. Road logistics, EBIT of 75 million Swiss francs for the first nine months, a very strong volume, especially in the third quarter in Europe. and high demand for digital solutions with a very solid operational performance despite all the headwind that we experienced with driver shortages in the market, equipment shortages and so on. And contract logistics continued its growth, especially in pharma and e-commerce very successfully and concluded the first nine months with an EBIT of 114 million Swiss francs. Please follow me on slide six, where we give some details on the volume development in sea logistics and air logistics. I will start with sea logistics. We have a volume progress of minus 2% in the third quarter and apex adjusted of minus 4%. Our organic development on purpose, I shall say is minus 9%, or we like like 100,000 TU. which is exactly the low yielding cargo, the commodities that we have mentioned and described before. Forest products, ex-Europe, agricultural products, ex-USA, which are not running in our networks at the moment as we lack capacity, as there's a huge lack of capacity. We focus and we see a strong focus on where it matters most on the trans-PEC, Asia exports to North America, especially U.S., we see a mid-range double-digit volume increase, a significant increase. And Europe to North America and partly South America, we see a solid double-digit volume increase on those trades, especially with cargo or with customer demand that requires solutioning and expertise from our sea logistics team. I mentioned that before, we have a chaotic market environment and that is going to continue. And I know you will come up with this $1 billion question, when does it end? There's no end in sight at the moment. It might last until Chinese or lunar new year next year, but we would expect this can continue even longer than six or 12 months. there's no sign of relief and as I mentioned in some of the press interviews recently this is a bullwhip effect we experience and it's getting worse at the moment and we should expect this to become worse or to get worse in the next couple of months. What is the chaotic market situation? We have ports with historically low productivity. And I checked like half an hour ago or 45 minutes ago on the West Coast US, we have in 100 vessels waiting to enter a port. Average waiting time most likely is 14, 15 days. We have rail ramps that are congested, rail terminals that are congested, trucker shortage in the US, in UK, and partly no chassis available to do the short haul transports. We focus, we stay focused on our customers. We stay focused on our customers' demand and the cargo mix. And the key to success remains sustained and expanding service intensity. So it's a service industry as we speak and access to capacity wherever possible and shifts and solutions with both modes of transports integrated in order to bypass congested ports. Air logistics, volume development, totally different, and maybe also a reflection of the congested and tight, chaotic sea freight markets. The pace of organic growth and market share gains is still high, but it's slightly moderated from Q2 to Q3, from 46% growth to 29% growth organically. We have a strong development in all segments, especially pharma, aerospace, general cargo, e-commerce and also perishables. We see this trend also unbroken and do not expect a major change even beyond the next three, four months. And we still have no significant additional capacity in the long haul packs, belly capacity. There are flights, intercontinental flights, but they are homeopathic, so to say, with regards to the demand for the belly capacity. So we produce with charters and block space agreement we have mentioned, before in our previous calls and that is expanding, that development is expanding. Please follow me on slide eight, some details on the sea logistics KPI. We have seen a strong yield development, especially in the third quarter, reflecting both the favorable portfolio mix, which is a very important factor in that yield per unit development. We do not have any commodities, no forestry products, recycling material and so on in our cargo mix at the moment in sea logistics or very low volumes. And we concentrate on small and medium sized enterprises and blue chip customers, which drive this favorable product mix. And we grow in the high yield or high yielding segments with high service incentives on purpose, as I said, in the mid-range double digit on the Transpac, for example. which is Transpac and Transatlantic from a geographic point of view, but which is also less container loads, LCL business, very strong, great performance, great projects, renewable energy is in the focus here. And we have stated some of the wins, customer wins, where we were able to do so in the recent press announcement. And this development is also unbroken and ongoing. The yield expansion more than compensate for the sequential unit cost increase, which is also shown here. And at the moment we see no relaxation of the intense workload, our organization, as we have to produce a seamless supply chain, more or less manually with a lot of personal interference of our sea logistics and come later to this air logistics experts. This pressure or this development is also unbroken and expected to a auto continues throughout the next couple of months. EBIT is for the first nine months was at 990. million Swiss francs, which is 226% above previous year. And Q3 saw a clear acceleration of that trend that we have already posted when we had all Q1 and Q2 calls. Conversion rate year-to-date nine months, 52.3% versus 29% previous year. And I think that's also a clear sign that we produce, continue to produce with a lot of manual interference, but also using our automation and platforms wisely in order to make the shipments flow happen on behalf of our customers. Next details on air logistics, you will find on slide 10, sorry, slide 12. And air logistics KPIs, we have delivered a small degree of yield and EBIT normalization in air freight over the last couple of quarters. In the figures that we show without APEX, you will see that we have a stable organic yield at 94, 95 Swiss francs per 100 kilo. and a stable organic unit cost at around 57 Swiss francs per 100 kilo. Apex and I mentioned that in the beginning is continuing to exceed expectations, both in yield and EBIT development, they are outperforming market and also in the volume growth and the way they do business and the way we do business is really complimentary and it's super cool and pleasant collaboration amongst the two organizations. We have closed another small acquisition, a company called Selmospet. Have a guess what they do. A Norwegian perishable freight forwarder. We closed that September 1st, 2021. Annual turnover last year, 18 million Swiss francs. And last year, 2020, they handled 63,000 tons. So we welcome them. Also a very interesting business. And they are supplementing our existing KN perishable network, which has been built on more than 70 stations around the globe. And as you know, we are one of the leaders, if not the leader, in perishable worldwide. Conversion rate the first nine months at 41.2% versus 30% in 2020. Please follow me to road logistics. Next slide. Strong volume growth in European network, not only domestic, but also cross border. and that volume growth has been accelerating. Typically, the third quarter is due to the summer vacation Europe, a quarter that shows maybe less growth or less development. We haven't seen that effect at all this summer, especially not in the big markets of UK, France or Germany, which is very encouraging. And we see a high demand and still growing demand for digital solutions like eTruck now or your easy customs solution. Road logistics does very well, has gained market significant momentum in the second and third quarter. And if you have a look on slide 12, you will see their KPIs in the quarter over quarter comparison. So strong volume growth and especially the networks that I mentioned before. First signs of driver capacity shortages, but they can be overcome with our platform solutions. We have the market visibility. We have the partnership agreements with the trucking organizations. And we see a high demand for digital technologies. for both for visibility reasons, but also access to capacity reasons. And we deploy eTrac now as a software as a service solution, which is more as a plug and play for our customers and enjoys a lot of new customers or enjoyed a lot of new customers during the last quarter. EBIT for the first nine months 2021 at 75 million Swiss francs, 97% above prior year and that is a trend that has been ongoing since the last two quarters. Great performance, strong organization and a cool spirit in boat logistics. And then please have a look on slide 14, contract logistics, a strong organic growth in net turnover, especially in the areas of pharma and e-commerce. We posted a 6% excluding foreign exchange effects growth in those two sectors. a solid Q3 performance and grows across all geographies. There may be important for you is that trading in Asia and both Asia and North America is twice as much as in Europe. So we grow much faster outside of Europe, which maybe gives also a signal to market maturity and market developments outside of Europe. Cost management programs that have been initiated six, nine months ago have been completely rolled out to all 700 sites. And we start to see benefits from those programs as well. That's the routine optimization of the process flow within warehouses. And contract logistics is a key contributor to improve KN Group Proceed, which will be explained in detail by Markus. But before I hand over, please allow me to give a short summary of our business performance. for the first nine months of the kn group so we posted another remarkable quarter and and that is true for the entire can group all countries all business units all areas and segments contributed to this successful quarter three We see that all the key figures, key KPIs that we use for steering the business have improved. And even volume developments in sea freight happen on purpose because we concentrate on what matters most for our customers, as I stated before. We have still approximately 45% of our white-collar staff in working mobile mode. So the pandemic, I have mentioned this a couple of times, the pandemic is ongoing, has gone away. And before it becomes endemic, we will see another quarters to come, which will be difficult to predict and to anticipate. And at this stage, I do this loud and clear. I would really state a heartfelt thank you. to all our KN colleagues worldwide for their outstanding customer service, their persistence and perseverance. They really drive the needle and without their spirit, this KN spirit that makes this company unique, our customers would have seen more problems, that's for sure. And now we come to the key financial figures and I'm happy to hand over to our CFO, Markus.

Thank you, Detlef, and welcome from my side to all ladies and gentlemen and all participants to this call. Indeed, it was an excellent and, as Detlef mentioned, remarkable quarter. I'm starting on page number 16 on the income statement and want to highlight a few numbers on that page. Results again accelerated with incremental cross-profit over the first nine months of 1.355 billion, of which 678 million in the third quarter. Looking further down into the income statement on the EBIT line, there was for the first nine months, a billion, 43 million more ET earnings before tax of which 422 in the third quarter. So a further acceleration of results improvement. Conversion rate, something we have mentioned frequently today, conversion rate incremental in the third quarter was in excess of 60%. And I want to use the opportunity here to clarify also some news or some pieces of information that had been published today in the morning around the conversion rate of the group that I was quoted in some of the papers being between 20 and 25% conversion rate for the group in 2021. That is not correct. I was quoted, or correctly I should have been quoted, a sustainable conversion rate is for the group between 20 and 25%. For the fourth quarter 2021 and obviously also for the full year 21, this number is going to be in excess of 25%. Just to clarify and to use this opportunity because I think it has created a bit of irritation. Let me finish this page with two more technical notes. The first one, on the foreign exchange column on the very right of the page. I think it has been a long time ago that I can talk about the foreign exchange impact that is neglectable. I think over the last couple of years, we have always seen a negative impact. So I think we have to keep that in mind, exchange rate impact currently on a very, very low level. Secondly, and you see that also in the footnote that we have added to the slide. We have closed the sale of our equity stake of 24.9% in APEX to Partners Group in August 12, and that explains the increase, which you certainly have noticed, on the non-controlling interest line in the third quarter, the so-called NCI, non-controlling interest, to approximately 20 million on a quarterly basis. Given the performance of APEX at the current stage and for your information, I would expect that number to be relatively stable in the fourth quarter. The next page leads us, of course, into the balance sheet and also on the balance sheet we have some impact from the sale of the equity stake and the acquisition of APEX. Before that, page number 17 of the presentation, major deviations or changes in the numbers on obviously Goodwill, other intangible assets. We have added approximately 1.1 billion Goodwill between December 31st and September 30th. at the same time around 160 million on intangible assets. On the right side of the balance sheet, you will see on the current liabilities an increase of around 1.3 billion, of which a good part is what you can see down here, the recognition of redemption liabilities, for the put option out of the transactions with Apex and Partners Group. Second topic, and let's go back to what I call the most important position on the balance sheet, which is the cash position. Cash position of around 1.6 billion, 1592, exactly as you can see it here, leading me straight into page 18 and the reconciliation entity bridge of the cash and free cash flow generation. Most of our improvement in the cash flow comes out of operational cash flow. We have 996 million more operational cash flow, as we have mentioned before, and it's mainly fueled from operations. Where did we put it? And I'll be very transparent here. Changes in working capital have absorbed around 500 million of that additional operational cash flow. Partially it was, I called it burned in the working capital, but both from organic development as far as well as from the apex acquisition. Why? Because on the organic side, as everybody can appreciate, we have high rates, sea freight and air freight rates, we have volume growth and also we have with APEX a different business model in terms of greater reliance on charters that usually do not enjoy the same payment terms as we would have for regular air freight capacity. Going back to the overall bridge, cash flow from investing activities, this is just from a Explanatory note, the 1 billion flow that you see here is the majority, the outflow from the acquisition of Apex. At the same time, you see three lines further down. on the so-called others cashflow from financing activities, you see an inflow of more than 290 million, which is the net amount of what the inflow came, the sale of the equity stake to Partners Group. Again, more on the explanatory side, you will find a full detail explanation on our condensed statements for the first nine months in the notes nine and 10. Right side of each free cash flow trajectory, you see here the triple nine that we have in year-to-date September. And I am very confident that the trajectory for the rest of the year, so fourth quarter, will be very similar to the ones over the last couple of years, as you can see here on the slide. Because we have seen what... I would call the maximal expansion in the working capital. Page number 19, the working capital, as mentioned, organically impacted from higher rates and volume growth and from the business model, Apex. We have And just for reference purposes, the numbers for networking capital in the second quarter was 1 billion 350. So today we have one on the 30th of September, not today, on the 30th of September, we have recorded 1.7 billion. So we have added another 350 million over the third quarter to networking capital for the reasons that I have mentioned before. DSO DPOs remained relatively stable compared to the second quarter. And if you some flavor what APACs in the same categories of KPIs would deliver, DSOs for APACs are between 40 and 50 days, DPO are between 10 and 15. That is what I mentioned before, it's different business dynamics. The numbers back to the graphs and next page, number 20, return on capital employed. And I would like to start with an apology for misleading you on the last quarter conference call that we had because I quarter two was certainly a quarter at the top end of expectations. obviously Q3 was even better than that, but this is how difficult I think it is under the current market conditions to actually make uh prediction that would uh that would hold truth however with uh the performance that we have now in the third quarter and i tried again it's the quarter at the top end of our expectations it really shows again the potential of the group's operational and financial strength but As Nedlev said before, the most interesting question for sure remains, what are the current and future perspectives of the market? And with that question, I do hand back to Nedlev.