Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the nine months 2022 results conference call and live webcast. I am Sandra, the course 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 Mr. Stefan Paul, CEO of Kühne & Nagel. Please go ahead, sir.

Thank you, Sandra. Good afternoon, ladies and gentlemen, and welcome to our nine-month 2022 analyst call. I'm here together with my CFO colleague, Markus Blanka Graf, and we are happy to present our results. Before we begin, we would like to highlight three topics. First, we have achieved record high nine-month results as communicated this morning. Let me take the opportunity to thank all business unit and functional colleagues for their great commitments during this year. Second, we have the flexibility and resilience at Kühne Nagel to adjust quickly while maintaining the strength of our core business, which is very important in these volatile times. Third, our focus remains on yield management and customer experience. We at Kühne Nagel, we are committed to create the best customer experience in our industry. Let's look into the figures. Page number three of the analyst presentation. The results for the first nine months of the year point to a strong organic top-line growth, with more of that growth converted to EBIT than in the previous year. This extends to the most recent quarter when EBIT grew by 17% versus the prior year and to a total of 924 million Swiss francs. The strength of these figures points to our resilience and ability to continue to provide an exceptional customer experience, I was just alluding to it, in volatile markets. We remain in a strong position to manage through future market dynamics, leveraging our long standard experience, technological capabilities. Yield management is and will continue to be a top priority. One of my key learnings from leading the road logistics business unit the last 10 years, and what I going to leverage for the group moving forward. Page number four, strong earnings growth in all business units you see on the left hand side group sea air logistics road and contract logistics as stated we have achieved strong results across all business units which is a reflection of our focus on yield management top line growth was boosted by increased yields and solid market share development we come to that on the next slide in more details In sea logistics, the average yield was 2.7 times that of the 2019 average and still 2.4 in Q3 alone. For air logistics, 1.7 for the nine months and 1.6 in Q3. A record nine months EBIT result of more than 3.1 billion Swiss francs marks a 71 increase year-on-year and reflects a conversion ratio of 36% for the first nine months versus 27 in the prior year. An increase of almost 10 percentage points on the conversion rate. Let's go into the business updates. And as usual, we start with the volume development. The upper graph is see the lower as always the air development. Sea freight volume in Q3 is down by 4.9% at Kühne-Nagel versus our market estimate of 6% to 7%. Air freight volumes in Q3 are down by 7% versus our estimate 8% to 10% decline. Overall, in both business units in sea and air, we were able to expand our market share during the third quarter accordingly. Let's go into the sea logistics, page number eight, where we see the details. Yield, cost per toy, and EBIT. What you see is our flexible business model continued to deliver reliable for sea logistics customers as congestions eased. We talked about it quite frequently during the last couple of weeks, but volatility persisted. Unit cross profits or yields remained at a high level in Q3, while the corresponding EBIT per toy was 4 times 7, the average for 19. This reflects a robust conversion rate of 58 in Seafreight in Q3. Looking into the future, we are focusing on yield management, market share optimization, which you have seen already in Q3, and cost reduction measures, which have kicked off already in the last couple of weeks. If we move to air logistics, page number 10 on the details, yield GP per 100 kilo, expenses and EBIT. Here the strengths of flexibility in our business model are equal versus air logistics. A key distinction is the resilience of yields over the period with relatively modest change quarter to quarter. This speaks to a closer matching of capacity to the demand environment. Unit EBIT in Q3 remains at 2.8 times that of 2019 and reflects a conversion rate of 46 in Q3. Here as well looking into the future, we are pretty much focusing on market share expansions and cost optimization. Now to road logistics, detail page 12. Road logistics delivered a record result over the first nine months of the year. In Q3 alone, 40 million Swiss francs of EBIT, reflected a conversion rate of 12.3%. This is a credit to active yield management and high-end utilization of networks across all regions. The US business showed particularly strong momentum, as did demand for digital solutions. For example, strong traction of the eTracNOW product in Asia, which we have launched approximately three years ago. The focus is on further scaling and leveraging of the U.S. platform, our brokerage model on domestic for existing air and sea customers, global expansion in customs standalone, and maintaining a high-end network density in Europe particular for the groupage business. Last but not least, contract logistics, detail on page number 14. As you can see from the graph, contract logistics delivered a very solid growth over the period and meaningful improvement in profitability. The Q3 result of 58 million Swiss francs revealed a best ever conversion rate of 7.1%. These results are a product of continuous systematic efforts to improve margins through portfolio optimization, combined with nearly full utilization of warehouse capacity, which is currently at around 99%. Our focus remains on high value creation for selected verticals. Remember, we were always talking in the past about healthcare and e-commerce. This remains. And a seamless implementation for all new customers and customer contracts. With this, I would like to hand over to Markus for more details on the financials.

Thank you, Stefan, and good afternoon, ladies and gentlemen. Thank you for, first of all, thank you for interest in Quintinago and taking the time today. As Stefan has outlined, this business unit results clearly demonstrate our capabilities and the long-standing resilience to respond to changes in market dynamics. In addition, and before I get into the details of the income statement, I would like to emphasize one thing, there's a very strong earnings results that indeed has translated again into a healthy free cash conversion and generation. So, but let's start with the income statement as usual, page number 16, and very clearly Q3 continues to outperform last year's numbers on nearly every P&L line, more gross profit, higher earnings before tax, outstanding incremental conversion rate. The group conversion rate to highlight one of the numbers was at 34% in the third quarter and 36% on a year-to-date basis. We have been able to maintain this conversion rate now at a very high level for more than three quarters. Brief look into greater details on the incremental development of GEP, one of the KPIs we monitor very closely. We can see a steady growth in GEP in absolute terms against even the tougher comps in Q3 2021. And when we look at this incremental gross profit development, You should notice the incremental gross profit to incremental EBIT ratio. This conversion ratio is in excess of 75%. So every incremental gross profit value translates to 75% into incremental EBIT. Something that we are aiming for also in the quarters to come. On the very right side of the schedule, you will identify some headwinds coming from currencies with negative impact of around 3.8% on the gross profit level. Represents approximately 264 million, so quite a significant number. And the same calculation, negative Forex impact on earnings before tax with around 3.1% equals 56 million. Operational efficiency, and when we talk about income statement, that immediately comes to our mind. On the side of operational efficiency and digitalization efforts, I just want to remind you of our eTouch project. I can report another improvement of the conversion rate in CNF rate. eTouch itself, is all about internal operational gains in efficiency with automation clearly as one of the main pillars. Now, we will talk about that probably during the Q&A session, but as operations in sea and air freight start, or we expect them to start becoming more plannable and foreseeable, eTouch will help optimize execution and therewith contribute more significant to the conversion rate. Every improvement we do on the eTouch side is permanent because then we have eliminated or automated or optimized a process or a task. So let's move to the balance sheet, page number 17 in the presentation. Balance sheet is extremely solid. As usual, the largest balance sheet items are trade receivables standing currently at around 6.4 billion Swiss franc and trade payables standing at around 2.9 billion Swiss franc. The balance sheet continues to provide the stable platform for all of our businesses and it is the backbone for our resilience. It's an important building block for our confidence, also in turbulent economic conditions. Another important factor, cash and free cash flow generation, page number 18. As you certainly have discovered in the presentation, we have strongly increased our cash and cash equivalent positions to around 2.9 billion, Ms. Frank, at the end of September. Additionally, we see a positive trend on the interest side, so that we do expect to generate some positive interest gains in the future. The business continues to deliver a healthy cash flow. Free cash flow at around 2.6 billion is on the same trajectory in line with the previous years. Some more details on the working capital development. Let's move on to page number 19, working capital. Changes in working capital, one of the topics that has been on the agenda for the last couple of quarters, and just to highlight that, have been driven by the increase of trade receivables and contract assets, together currently at around 7.3 billion Swiss franc. In the future, We anticipate stable networking capital that we currently utilize for running the business. Illustrating what I just said on the working capital, we have around 1.9 billion level of working capital unchanged over the last quarters to run the group. Comparing the DSO and DPO, so days of sales and days of purchase outstanding, You see very consistent levels between 54, 55 days on the DSOs, around 56 on the GPS. I do expect quite similar level also in the next quarter. Moving on to the return on capital employed development. Page number 20. Very nice graph, clearly. And we continue to focus on the trend in our return on capital employed, knowing that the current levels are a top range. In Q3, we managed another small increase and expect to stay at this level in the next quarter. With this comment, I would like to Hand back to Stefan for the slide of the current perspectives.