Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the Q1 2022 results conference call and live webcast. I am Sandra, 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 Trefzker, CEO of Kühne Nagel. Please go ahead, sir.

Thank you, Sandra. Good morning. Good day. Good afternoon and good evening to all of you. And welcome to the analyst conference on the first quarter 2022 results of Kühne Nagel International AG. Our CFO, Markus Blanka Graf, and I welcome you to our today's call. And as always, let's get started on slides. three of the slide deck that we have published early this morning. The strong development of quarter three and four last year has continued throughout the first quarter this year. We are roughly in line with the Q4 performance with our quarter one performance, while net turnover increased by 68% on the previous year and results more than doubled. This is clearly a confirmation of our strategy, which is relevant for our customers and all the trade lanes we are active in. We closed the first quarter with a gross profit close to 3 billion, exactly 2.942 billion Swiss francs, a growth of 46% or 34% organically excluding any foreign exchange effects. We posted a strong increase in free cash flow from operations. You will hear more details on that from Markus later. And we have increased our earnings per share versus previous year by 3.88 Swiss francs. Please follow me on the next slide with a short overview on the strong performance of the Kühne & Nagel Group in the first quarter 2022. We closed the first quarter with an EBIT, group EBIT of 1.12 billion Swiss francs and a group conversion rate of 38%. In sea logistics, the chaotic and unpredictable markets continue until today. It's ongoing. At the end of the presentation, we will give some flavor on what we expect for the next couple of weeks or months. And we closed sea logistics with an EBIT of 621 million Swiss francs a continuation and a result of the high service intensity due to the challenging market environment. Air Logistics posted an EBIT of 425 million Swiss francs, a result of a strong volume increase and yield increase. The acquisition effect to the EBIT is 130 million Swiss francs, and we have a strong contribution both to volume And EBIT from acquisitions and also a strong contribution to EBIT from our KN standalone business. Road Logistics posted an EBIT of 30 million Swiss francs. Volume grows in all networks, Europe, North America, and our platforms. I will come to this later on. And we have seen a very sound and growing operations throughout the last three months or the first quarter. Contract logistics posted an EBIT of 44 million Swiss francs and expansion of the service offering in pharma and e-commerce ongoingly and a high capacity utilization. Also here you will get some details later on. Most important in contract logistics, all the new projects were flawlessly implemented. And we have seen an expansion in our core industries in both road logistics and contract logistics. And that is part of the strategy that I alluded to in the beginning. Some details on the business unit sea logistics and air logistics volume development you will find on slide six. See logistics nominal volume decrease of 4% minus 4% in the first quarter 2022 or 8% minus 8% organic. It's in line. from our point of view with the market, which is contracting in the mid single digit range at the moment, a market that is deteriorating and reflecting a couple of effects that has been discussed earlier. We have seen also the KNC Explorer indicator showing the peak of the disruption index in the middle of February, so in the middle of the first quarter this year. This has eased up until maybe two weeks ago and now it's increasing again, but we can discuss this later on. We also on purpose have a continuation of the low yield erosion as we focus on strong growth in where it matters most on the Trans-Pacific, on the Transatlantic, partly on intra-Asia, RIFA and LCL. And for all our services, we see our focus is on services that demand a high service degree and have the complexity which we are able to solve on behalf of our customers. The carrier reliability remains extremely low. You have heard me saying this a couple of times. At the moment, we are on a level of 30 to 35% on-time delivery. I was already blaming a low quality when we were at 65, 70% prior to the pandemic. But now it's really a very, very low reliability. And our focus, part of our strategy in sea logistics is customer service, end-to-end reliability and visibility, and managing the cargo mix towards high yield and complex transports mainly. Air logistics. volume growth of 33% nominal, organic growth 3% to 4%, a market growth that is flattish, maybe 1% growth in the first quarter 2022. We have seen double-digit growth in pharma and aerospace again, and a clear increase clearly automotive lagging in the first quarter 2022, a reflection of the manufacturing bottlenecks in the automotive industry, for example, with regards to chips. APEX is continuing exceeding expectations. And with that, I would like you to follow me on slide eight, where we have the KPIs of the sea logistics business unit. A strong yield development that we have seen in quarters three and four is continuing in quarter one, 2022, reflecting the favorable portfolio mix, blue chip customers, small and medium sized enterprises, complex requirements, service orientation, reefer and LCL shipments, High service intensity, a lot of manual work needs to be done, a lot of pressure in our operations in order to make shipments go through the network as seamless as possible. And we have a focus, as what I mentioned before, Trans-Pacific, Transatlantic, LCL and REFA, and renewable energy, where we see a lot of pickup and volume growth throughout the last couple of months. The yield expansion more than compensated for sequential unit cost increase. And as mentioned, there's no relaxation at all in the very intensified workforce and workload that we see in our networks. Even for the first quarter was at or could be closed the first quarter at 621 million Swiss francs, a great performance of our operations and our teams throughout the world. On slide 10, we see the air logistics KPIs, unit KPIs. Air logistics, a very strong performance. Organic yields in the first quarter were up 26% sequentially versus 9% in quarter four. So we have catched up here. All in yields of 142 Swiss francs per unit. per 100 kilo down by 7% sequentially as the APEX yields, and you see this clearly on that slide, normalized slightly versus the very exceptional fourth quarter 2022. APEX, and I mentioned that before, is clearly outperforming our expectations and our targets and that we have seen again in the first quarter. It's fun and pleasure to have APEX as part of our group. Organic unit costs are up 9% sequentially in quarter one versus quarter four and 15% year over year. Clear effects of our digitalization and e-touch efforts as the volume has organically been growing much, much faster than the unit cost development. EBIT first quarter in air logistics, 425 million Swiss francs. and an impact from acquisitions within those 425 million of 130 million through strengths during the first quarter. On slide 12, you will see the details of road logistics. We have seen very strong volume growth in the core European network, a high demand for our digital solutions, What we have seen in third and fourth quarter was continuing even growing further. The e-truck now visibility and software as a service solution sees a very high demand. And we have seen a significant increase in volumes in domestic US. Having said that, we have seen a net turnover increase of 30% at the first quarter versus first quarter last year, and a clear EBIT improvement of 25%, resulting into an EBIT in road logistics of 30 million. The road logistics business sees continued demand and growth, and we will come to an outlook later that should not change too soon as from our today's perspective. Contract logistics are forced business units where we do a bit of a deep dive during that presentation, today's presentation on slide 14. Contract logistics showed a very strong operational performance with an organic quarter one net turnover growth of 8%. Once again, centered on pharma and e-commerce, which both contributed to 80% of all newly signed contracts. The growth of trade in Asia and North America is two times that of Europe, and that's part of our strategy, the geographic focus and the interlink with our network development. Over 80% of the lease obligations are backed by customer contracts with nearly 100% expiring beyond 2025. So we have a very long and robust customer relationship here with renewals clearly above 90-95%. And the idle space on an extremely low level at the moment of 2.1%. versus 2.3% end of last year. So the capacity of 10.2 million square meters end of quarter one 2022 showed almost no idle space, just some pallet places. All this resulted into an EBIT in the first quarter 2022 for contract logistics of 44 million Swiss francs, which is 16% above prior year. And with that said, I'm handing over to my colleague Markus to give you some details on the financial performance.

Thank you, Detlef, and ladies and gentlemen, welcome also from my side and thank you for taking the time listening to us. Indeed, it was an outstanding quarter, certainly in relation to first quarter 2021, so from a year-over-year perspective, but it has also been a solid and strong continuation of our quarter four 2021 performance. Group conversion rate, as Ned left briefly, commented on 38%. When you look onto the profit and loss income statement here on page 16 of our presentation, when you look at it on an incremental basis, the incremental conversion rate is 75% on a year over year basis. Again, on a sequential, I think we have been well performing and continuing the pace that we have started in the last quarter of 2021. So 700 million roughly additional earnings before tax. Also here a bit of split into organic and inorganic growth. Growth through acquisitions and that is in all business units together is around 175 million. Organic growth year over year 525. The third item I want to mention here is non-controlling interest. You know, for many years that never has been a large number, but now it becomes a relevant amount. And I would indicate that going forward, a number around 50 million should be our run rate also for this income statement line item. What has changed on the balance sheet? Not much. And I think that's the good news. Page 17 of our presentation, the three topics or the three items on the balance sheet I always look at, receivables, payables and cash. You see from the starting point at the beginning of the year, Until now, trade receivables are remaining relatively stable, around 6.3, 6.4 billion. At the same time, trade payables in the same range, 2.8, 2.9 billion. Cash increased around 800 million from the starting point of the year, which leads me already to the interesting development on the free cash flow, page number 18. And you will see, I want to highlight that one line here, changes in working capital. You see here in Q1 2022, we have the number of 41 million. So what it actually means is we have been able to contain and to limit our working capital that we started with into the year at the same level and operate the business with no further extension of working capital. And that translates in our world of our balance sheet and how it works, that basically the net profit after tax is pretty much equivalent to the free cash flow generated. So we generated another 800 million additional profit, another 800 million has been inflowing as a free cash flow. That results into the roughly 1 billion free cash flow in the first quarter. Again here, my expectation would be going forward that our networking capital as it stands today, and you can see that on this page number 19, is around 2 billion, should remain at that level until or unless the business is changing significantly. Page number 19, I referred to it. When you compare the number, we have here working capital intensity of 4.6%. Arguably, that is a notch above our corridor that we have given ourselves until up to 4.5%. I think for a Q1, that is still tolerable. We have to see how it's going to develop in future. DSOs, 52.6%, so around 52%. in range where we want to be, DPO 58%, same here. So basically no news, stable business, stable receivables, payables, it's the way to go. That translates obviously when we run the models and the analysis on page number 20, regenerative capital employed. You see here on one page all of the story that I have told you over the last three minutes, you see that on one slide, return capital employed increased around the 120 to 130% on a reported level and is at that level continuing. It is remarkable and to a large extent, a sustainable performance. With that current high level of performance and our ongoing ambitions, obviously, to keep it at that level, I hand back to Detlef to give you some perspective on current market developments.