Kuehne + Nagel International AG

Good morning, good day, good afternoon, and good evening to all of you, and welcome to the analyst conference call on the full year 2021 results of Kühne & Nagel International AG. Our CFO, Markus Blanka Graf, and I welcome you from Switzerland. We prepared an analyst presentation, but given the current situation, I would like to make a short statement before we go into the details of last year's performance. Russia's acts of war in Ukraine has shaken the world deeply. As a company operating in more than 100 countries, employing people of different nationalities and actively fostering cultural diversity, our values are based on mutual respect, trust and democracy. We believe in the principles of the United Nations and a peaceful resolution of conflict amongst nations to secure a sustainable future for all. Our thoughts are with the people of Ukraine, our colleagues and their families. Thank you for listening. And now we get started with the analyst presentation. And as always, we get started on slide three. The year 2021 has been another remarkable year. Our net turnover increased by almost 50% organically, while the results more than doubled. This is an extension of the strong trend that we have seen from the start of the year 2021. A confirmation and an acceleration of our strategy and the deployment of the strategic programs in all business and functional units. The key figures you see here, we have achieved almost 9.9 billion Swiss francs in gross profit, which is up 32% versus previous year or organically 28%. We have generated a free cash flow of 1.79 billion Swiss francs, an increase of 23% versus previous year and 73% from a pure business operational point of view. And we have generated earnings per share of 16.92 Swiss francs, which is up factor 1.5 versus previous year. Please follow me on slide four, details on the group and some of the highlights of the business units. The EBIT of the group has landed, so to say, or has generated 2.946 billion Swiss francs with a conversion rate of almost 30%. If you see the sequential increase of the conversion rate, quarter one, 21.3%, quarter two, 26.2%, quarter three, 31%, and quarter four, 37.1%, you see that we got more and more traction with our programs and that the volume increase as well as the automation and technology impacted our business very fruitfully. C-Logistics generated an EBIT of 1.5 billion Swiss francs with a very high service intensity still ongoing and a positive effect from the product mix. We will share some more details later, but I can tell you already now. that the chaotic market situation is continuing all through 2021, but also until virtually today. Air logistics, strong volume and yield increase both from acquisitions as well as K and standalone. And an excellent collaboration with our colleagues from Apex. They contributed or acquisitions contributed, the majority is Apex, to an EBIT of 442 million Swiss francs in 2021. It's great to see, and I said so in the last call by chance, but it's great to see the entrepreneurial spirit of our colleagues at Apex. It's a very synergetic approach. And I will tell you some more details when we come to the air logistics business unit. Road logistics, an EBIT of 94 million Swiss francs. Volume growth, strong volume growth in Europe, also domestically and cross-border. High demand for digital solutions. A very solid operation and our digital solutions really are a game changer in this segment. And contract logistics posted an EBIT of 156 million Swiss francs. which is mainly due to a stronger margin post restructuring, as well as a strong organic growth centered around pharma and e-commerce fulfillment. On the spot, operational quality in all sites and a flawless implementation of many new projects last year show that this business is growing and is performing extremely well after the restructure. Having said that, now let's look into the details of the business units and please follow me on slide six. See volume growth nominal 2% last year and organic growth of minus 3% last year. But if you look into the strong volume growth where it matters, it's on the Transpac as well as on Europe, North America, so Transatlantic, we see double digit growth on both trade lanes. We have a very hot topic in the market that is also impacting the volume development, which is the sustained and expanding service intensity. The chaotic sea freight markets demand a lot of manual interference and optimization in order to get the shipments moving as flawless as possible. The market has shown a growth of 6%. If you exclude our cargo mix shift, where we have moved away from low-margin businesses like forestry programs, pulp and paper, recycling material, and the like, we would have seen an organic growth of most likely 3%, 4%. The market situation with port closures, congestions, equipment and driver shortages, rail congestion, natural disasters and the like are ongoing. And most likely this will take longer to get resolved, given the same demand that we see in the market. um our focus is on customer service and cargo mix and uh the making the shipments move as flawless as possible air logistics versus a market growth of 15 we boosted our growth significantly also partly from a modal shift from sea freight to air freight and we have seen an organic growth of 1.8 times market of the KN business, the KN standalone business. And together with the acquisition impact from Apex and SalmoSped, we have seen a growth of almost 60% volume in our networks. The focus is, as we said in the last quarter recalls, on pharma, aerospace, e-commerce, perishables, and for the trans-Pacific, also automotive and consumer electronics. We have not seen any change in long-haul packs capacity, therefore, the belly capacity, therefore, our focus is on producing charters, block space, which are expanding and long-term charters, like what we have posted a couple of weeks ago. On slide eight, we can enter the KPIs, the key performance indicators for sea logistics. You see that we have seen a strong yield development reflecting both what I've said before the favorable portfolio mix mainly focusing on blue chip customers and small and medium-sized enterprises and the goals in high yielding market segment especially those that require a high service intensity plus the geographic focus on Transpac and Transatlantic renewable energy and also LCL shipments. The yield expansion is more than compensated, has more than compensated for the sequential unit cost increase and we don't see any relaxation for the intensified workload that we experience in the market and with our at the moment to make and I said this already two or three times, the shipments move as smooth as possible. EBIT full year at 1.5 billion, which is significantly higher than the previous year. And you have seen that we got a lot of momentum in this development in the quarter quarter for 2021. On slide 10, you will see the KPIs and the details of the air logistics market. An excellent and strong performance also here. Like in sea logistics, we have seen organic yield increase in quarter four of plus 9% versus the third quarter. we have seen organic cost development rather stable that is also contributable to our etouch initiatives which we will give some flavor on later on and the also the reflection of higher share of digital platform business that we will that we have installed and incentivized for our customers. The APEX yields are reflecting the tagged capacities and the volume growth is to the focus of APEX on the Trans-Pacific. And we also see clear evidence already from our joint procurement activities. So procurement synergies with Apex. EBIT full year 1.167 billion Swiss francs and out of which almost 50%. generated in the last quarter in an extremely tight and hot market where we have faced also here all or we have done efforts to offer the best service quality that was possible in the given market environment. The next business unit I would like to refer to in more detail is road logistics on slide 12. Road logistics gained significant momentum in 2021 and the momentum sequentially increased quarter by quarter. A strong volume grows in core European markets, especially domestic networks. I mentioned that initially, but also we see first signs of driver and capacity shortages in the fourth, maybe partly at the end of the third quarter. And a high demand for digital solutions, our visibility tools, our software as a service solutions, as well as our customs platform. EBIT full year ended or were at 94 million Swiss francs, which is 52% above prior, out of which a quarter was almost generated in quarter four last year. And last but not least, contract logistics, organic growth. I mentioned that centered around pharma and e-commerce. And the details of the performance you will see on slide 14. A very strong operational performance, organic quarter four net turnover growth of more than 10%, which led to an organic growth for the fiscal year of 7%, which is almost on market. Market, I think, was 5% to 6%. We had a bit of a tailwind from the UK divestiture on EBIT level, but at the end of the day, the operational performance was extremely strong in contract logistics. And the trade in Asia and North America is two times the trade of Europe. And that's important because our geographic split was always intended to balance our portfolio and contract logistics projects more. The drivers are, I repeat myself, pharma, healthcare, e-commerce. all with double digit growth and this is continuing and we see a huge momentum that has been generated in contract logistics with an EBIT for the full year 2021 at 156 million Swiss francs, which is 95% above prior year and 42 million in quarter four alone, which is 50% above prior year. And having said so, the details of the business units, I'm happy to hand over to Marcus to give you some more input and insights into the financial figures.

Thank you, Detlef. Ladies and gentlemen, welcome also from my side. I think one can say it was a remarkably successful year. And let me start on the income statement, slide number 16. Busy slide as always at year end, obviously eight quarters and each individual year to date numbers on it. Let me just highlight two or three numbers on it. Increase of gross profit by 2.4 billion, ABHDA nearly doubled and earnings before tax nearly tripled. I think a simple summary of that year, that's what I said already, I think was remarkably successful. Net earnings increase over the year, 1.2 billion. You can see two more noticeable components that I wanted to mention. Uh, 1, that is quite extraordinary as well. I think it did not happen since many years. I would have to check how many, but the exchange rate difference to the Forex difference. for once has not been negative against us. So the translation impact has been relatively neutral. That certainly we have to consider also for the result. And as a result and as a consequence of the APEX deal with partners group, we have the first time since a long period, non-controlling interest line, which is in the year 2021 with 123 million. The vast majority of that is related to the partners group participation. Let me continue on a short reconciliation on income statement in terms of organic and operational performance. We have already made some comments around the acquisition that that is an accelerator and has given us a very significant contribution to our profitability. Nonetheless, Also, from a pure organic growth perspective, the Cundinamarca organization has increased by 124% the EBIT, which translates into nearly 1.3 billion for the year 2021. Of course, balance sheet, something that reflects that development as well. We have an expansion of the balance sheet of nearly 5 billion francs or a bit more even than 50% of previous year. So 30th of December 2020 total balance sheet. Where is that coming from? three major components, one trade receivable, an increase of 3 billion out of the five, then the goodwill increase from the acquisition apex, roughly 1 billion. And the rest is basically smaller items. And of course, balance that has increased for another 700 million on a year over year basis. On the liability side for sure, similar picture, trade payables increase for around 1Billion as well as accruals for trade payables increase of around 1Billion and the difference majorly in the equity. Important for all of us and one of the significant KPIs we look at obviously cash and cash and free cash flow. I'm already on page number 19 of the presentation. Let me start on the right side with the graphical picture of the last three years cash flow free cash flow generation, you can see the pattern is very consistent. So I think we have repeatedly reported around this, that the seasonality is very similar and just the numbers have increased quite significantly. On the left side, a reflection of what I just said in In numbers, operational cash flow increased by nearly 1.8 billion. Where did it go to? We had investment obviously into the Apex acquisition of around 1 billion and changes in working capital. I want to mention that specifically we have 800 million, nearly 900 million put into working capital. I will explain that in a minute, but that is the big picture summary of cash and free cash flow generation. Page number 20, you see here the networking capital. I just mentioned the increase from a cash flow perspective, from a networking capital perspective. It is even on a 1.5 billion number that we have expanded our networking capital. a number that should make us think, especially me as the CFO, what are we doing? But when you look into where it's coming from, I feel more comfortable that we have a good control of what's happening because when you look at the DSOs, So the numbers of days of sales outstanding, meaning our terms with customers, so the days when customers settle their invoices, we have hardly any movement, actually, if so, to the better. So our days of sales outstanding is at 49.2. That translates for me, obviously, similar risk profile, same number of days outstanding, just on a much bigger sales ledger. And where the variance come from is from the base of purchase outstanding. So, the, and that is the time when we pay our suppliers and that is mainly driven through change in our business model in air freight. that a lot of the capacity we currently purchase is not on a standard airline contract for belly capacity, which you all know was usually cleared through IATA CAAS payment, but is much more on the charter basis, which has very little payment terms, if at all, if it's not a prepayment arrangement altogether. But that is something that is driven through the change in the business model. And at the same time, it is at our discretion, if you like, to manage these payment terms with suppliers. So from that perspective, looks like a big number and is a big number, but I think for the right reasons. Page number 21. return on capital employed. When I first looked at the slide, it looked a bit goofy to me, but that is the reality what the numbers say. I think again here, I would look at the light blue, so the lower line of the graph, which is indeed the return on capital employed. It's certainly a top mark. You remember some of my comments in the past. I said around the 70% mark should be our standard performance, if you like. Here, I think we have to rethink with the increased profitability and efficiency if we would give a new guidance, if you like, what is our standard return on capital employed. But it's not everything about rates and margins. Obviously, volume is one of the major drivers in the success of last year. Detlef has mentioned it already through the business units. Don't want to I don't want to repeat most of it, but you can see here on the sea logistics side As as mentioned influenced by by capacity and product mix on the air logistics side I think a good split between the organic and the acquisition growth and for road logistics and contract logistics both above the market Looking forward more and more importance will be on the efficiency of our operation. And that is a synonym for us, for our eTouch initiatives in operation. So talking volume, as I did before, talking volume does also mean talking efficiency. And slide number 23 is really a recap on what is eTouch and how does it work? This pictogram is nothing else than a way of simplifying and highlighting what we try to do. In simple words, you can read the text on the left side, but it is standardization, then sequencing of the task, then centralizing some of the tasks and ultimately automating the processes. That's really what it is all about. Sounds very simple, but I think you appreciate that our processes might be very complex to begin with. And over the last 24 months, maybe even also changing quite frequently based on the rather challenging environment we're working. Why do we do that? Cost control for sure is one of the reasons, but over the last couple of years, we have also realized that preserving more time of our operators for service related matters. So to the benefit of customer service and customer care is really what matters more in that context. So we try to free up that time and dedicate it to quality and customer service. Small snapshot. How does that look like as an example in the air freight perspective? Page number 24, a snapshot, as I say, is not a comprehensive reporting on all the eTouch initiatives. We picked a couple of milestones activity in the air freight operation, customer quotation, documentation, invoicing. What you see in the first column is the number of hours saved in thousand. Just to give you a bit of a context of this, when we look into the first one, 360,000 man hours saved. If you translate that into full-time equivalents, with a work hour of eight hours a day and 220 days a year, that would represent approximately 200 to 220 FTEs. So the overall saving of 1.275 million man hours would approximately represent 750 FTEs. And that translates in the operation air freight into an improvement of conversion rate of around 1.8, so say 2%. Is that what we have put out as our target? Not yet. You may remember we said we want to improve conversion rate at around 3% for C as well as air freight. We're on the way getting there. The. Operational framework today obviously is far away from a standard normal routine job. I think the fewest job we currently have are routine jobs. But nevertheless, looking forward, automation standardization, what I mentioned beforehand, is the key for efficient operation. All of that is a matter of technology and I think technological competence. And when we flip to the next page, which talks about technology and innovation, three main items, it means in simple terms, what do we provide? forward looking information to our customers. So real time data in a proper data quality with a certain predictive visibility. So this is forward looking. That's what we do for the customer. The second part is How do we free up time for the customers? So how do I free up time from my operation to dedicate that to customers automation with a certain usage of artificial intelligence? Also here, I'm being very transparent. Artificial intelligence is something we use. Don't want to say experiment, but it's still an area where I think we can do more and we will do more and last but not least, I think very important in our. in our modern way of thinking and service customers is the easiness of doing business. So be easy, be simple, plug and play. We're all used to download an application and start enjoying it. And exactly like that, the Feeding Noggle applications for our customers are designed to do. So now we talked about what's in it for the customer, what's in it for efficiency. Last slide for me, if I may, was in it for the shareholder. And I think page number 26 is quite an impressive proof of that. Two lines about it. The proposal to the AGM is going to be a 10 Swiss franc dividend per share. That represents around 59% of net profit after tax payout ratio, which is exactly in the range that we have always indicated and represents just slightly above 3.5% yield based on the average price of the year 2021. With that message, I would like to hand back for Detlef on a topic that is also at the heart of our operation and strategy.

It is, and now it's on me to talk about what's in it for the environment. And despite all the market dynamics, supply chain disruptions, capacity and labor shortages, and so on and so forth, we focus on transitioning to a global zero carbon future. And it has a couple of dimensions. One is the scope one and two emissions, our own emissions, so to say, where we focus many initiatives to reduce them as much as we can. and the science-based targets that we are offering to our customers with data-driven insights design and optimization of supply chain solutions alternative transport modes as well as low carbon fuels such as saf and we are driving a transition to a zero carbon business model. And we support our customers in doing so. And we have many customers that have signed up and committed to the science-based targets initiative, SBTI as well. We have done a lot of, or we have pushed forward a lot of initiatives last year, but some of the highlights, I really, they are close to my heart. We have promoted the first world's first power to liquid production of synthetics. sustainable aviation fuel SAF. We have reduced the carbon footprint by 70% for one of our customers by just shifting the supply chain from truck to railways. We have installed Luxembourg's biggest photovoltaic installation on the roof of our content site in Luxembourg. And we are already last year have been using 78% of our own energy consumption based on renewable energy. We have a lot of plans to continue that journey to a low carbon business model and we see high demand and interest from customer partner and to make use of that, that approach. Having said that, let us give a short outlook to 2022 markets. We see GDP growth expectations still of 4.3%, but we also have a lot, not a lot, but we have significant geopolitical uncertainties. The macroeconomic effects of thus are not known yet. The inefficient supply chains with network disruption and congestion will continue. There's no sign of relief, not from today's perspective. And we see stabilization at the moment, not even with the consumption patterns. Consumption is going on and we will see infrastructure investments that we will have to... foster in order to optimize global supply chains. That was the market perspective. We continue with a very agile, high service quality and network reliability. This will put high demand on our great colleagues that are close to our customers and that do their utmost to have on-time deliveries in all shipments that we channel through our networks. We will continue our investments in sustainable logistics solutions as well as into digital solutions, digital platforms, and we will focus on the profitability, but more important, leveraging the companies we have acquired in our network and for the benefit of our customers. And the digital transformation is in full swing. You have seen with eTouch the first benefits out of that. We aim for more and we will continue driving hard to achieve our targets. With that, I thank you for listening so far and I hand back to Alice for the Q&A session.