Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the Q&A Q1 2023 results conference call and live webcast. I am Sandra, the course call operator. I would like to remind you that all participants have been listened only mode and the conference has been 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 Stefan Pohl, CEO of Kühne Nagel. Please go ahead, sir.

Thank you very much. Good afternoon, everyone, and welcome to the presentation of our first quarter 2023 financial results. I'm Stefan Pohl, CEO of Kühne Nagel, and I'm joined here in Schindlerlegge by my colleague and group CFO, Markus Blankergraf. Together, we are happy to present our most recent financial results and to address your questions. Let's go into the first quarter results and the highlights. The results for the first quarter 2023 mark a solid start of the year. EBIT of 612 million would have been the strongest Q1 ever, if not for the last year's record performance. We achieved this solid start against the backdrop of reduced demand for logistic services, visible in the year-on-year declines versus an extraordinary 2022. This most recent result once again demonstrates our resilience and our ability to manage yield actively in volatile markets. We remain in a strong position to manage through uncertainty, relying on our long-standing experience, technological capabilities, and highly flexible business model. In parallel, our long-term strategy aims our front of mind, including an increased focus on yield management. I will revisit our strategy and our roadmap 2026 later in this presentation. Let's move into C-Logistics. yield management boost Q1 2023. Thanks to effective yield management, average cross profit per toy in the period broke with a recent trend. This also reflects our concerted efforts to pivot to high yielding volumes. And we stated that a couple of times during the Capital Markets Day recently. The first quarter average yield marks a 13% increase from the fourth quarter level and it's roughly double of the average of 2019. Volumes remained below the levels of last year, but month-to-month development in the first quarter resembled more normal seasonality, including a volume uptick in March. Against an estimated market development of minus seven to minus eight, we believe our market share expanded over the period. According to Datamine, we are the market leader in the Trans-Pacific for the first time ever. In combination with cost reductions, which partly compensated for inflationary pressures, sea logistics unit EBIT also improved sequentially with a conversion rate of 50% versus 46% in the fourth quarter and 64% in Q1 last year. Air logistics, yield normalization trend continues. As expected, and not a surprise, air logistics result in the first quarter reflects a weaker market demand trend. Particular, we have seen that on the Trans-Pacific routes. Our assessment is that 17% year-on-year decline in tonnage, broadly reflective of the market development with concentration in general cargo and high-tech. Pockets of relative strength include perishables in addition to aerospace. Combined with an incremental expansion of cargo capacity, overall average cross-profit declined 13% sequentially in the first quarter. As was the case in sea logistics, cost reductions partly offset inflationary pressures. The net result was a conversion rate of 32% in the first quarter compared to 40% in the fourth quarter and 52% in Q1 last year, 2022. Let's have a look into road logistics, record results driven by high network utilization. The road logistics result in the first quarter marks a new all-time high. The outcome is a credit to continued high end utilization of our network, along with relatively stable volume development, as well as a stringent yield management. And that was as well part of the Capital Markets Day discussion. Excluding currency headwinds, organic net turnover expanded by 2% and cross profit by 11 year on year. We view our market share as stable. The net result was an impressive EBIT of 52 million and a conversion rate of 15% versus 9% in prior year 2022. Contract logistics, strong performance with record EBIT. Contract logistics still stand out performance in the first quarter. Excluding currency headwinds, net turnover and cross-profit grew by 12% and 11% respectively. Idle space at the close of the quarter was below 2%. The EBIT in the first quarter was 602 million versus 4 million Swiss francs last year, including a 9 million profit from a sale of real estate in 2023. Reflecting a conversion rate of 7 or 6 versus 5% in the prior year. Now reflecting to the roadmap 2026, a quick update on Q1 2023 and what happened after the capital markets day. As I mentioned, our roadmap 2026 ambitions are front and center with numerous initiatives well underway. Our plan is to provide detailed progress reports annually. On a quarterly basis, we will provide brief updates on notable milestones. In the first instance, I'm happy to highlight that I personally had the chance to discuss our new strategy with thousands of colleagues and hundreds of customers as part of a global internally roadshow, which only recently did the last five weeks. I was almost on the road. traveling the globe. The strong positive response reaffirms our conviction in the direction we are pursuing. We have also nominated in the meanwhile a very experienced Kühne-Nagel colleague to lead the Kühne-Nagel experience effort. So the cornerstone KINX customer experience and employee experience. This function will report directly to me and be fully dedicated to this core element of our strategy. As of April 1st now, Sarah Kreienbuehl started as new member of the management board, responsible for human resources and ESG. I would also like to highlight an early success in our renewable energy growth area. As a reminder from the CMD, we see a huge opportunity for profitable growth in renewables and to build meaningful market share, much as we did the healthcare arena where we had no prior presence eight, nine years ago. With this, I would like to hand over to Markus.

Thank you, Stefan, and good afternoon, everyone. Thank you for your interest in Kühne & Nagel and taking the time today. I think it's important to mention that, as Stefan has outlined, we aim to secure a new sustainable level of profitability against the backdrop of the normalization in supply chain conditions in the sea and air freight logistics. Contract logistics and road logistics continue to further increase their profitability levels in quite volatile market dynamics. So let me come to the income statement. And as expected, I may say, we can see negative developments on nearly every P&L line compared to last year. But I think what matters is the absolute performance in the quarter with an earnings before tax of 628 million Swiss franc, a result that we haven't seen in any year before other than during the pandemics. The gross profit margin was even higher than in 2022, confirming some early successes in our strategy to focus on higher yielding businesses. We look at solid conversion rate of 25.6%, which is additionally supported by a diligent FGE resource management. The headwinds coming from currencies persist with a negative impact of around 3% on a gross profit level representing 92 million Swiss franc and on an earnings before tax level with roughly 2% or an equal to 22 million. Working capital, changes in working capital, one of the topics that has been on the agenda for the last couple of quarters already quickly contracting due to the reductions of receivables and contract assets together currently at around 5 billion swiss franc receivables to remind ourselves have reduced as a function of lower rates accessorial charges and of course lower volumes going forward i anticipate stable net working capital for the next quarters to come. Lower down on this slide, we see the DSOs. They have expended slightly against the beginning of the year, less so against the same time last year, though. DPOs, on the other hand, have increased quite significantly, mainly due to a reduction on our air freight charter contracts that usually don't offer any payment terms. As a result, the spread between the DSO and the DPO have increased to 11.5%. Last but not least, cash and free cash flow generation. I'm on page number 11 of the presentation. Q1 being traditionally a quarter of relative weaker cash flow and cash generation than the other quarters due to the business seasonality. 2023 we report 415 million Swiss franc free cash flow. It is 40% of last year's again, pretty much as expected, but three times as much as in 2020 or any year before. This and a strong cash flow generation in 2022 have increased our cash and cash equivalent position to around 4 billion at the end of March, 2023. I expect the business to continue to deliver a healthy cash flow in line with the trajectory of previous years. With these few comments, I would like to end the presentation on the Q1 2023 with a couple of key takeaways. Solid results in the first quarter against the known backdrop versus previous year. Volume declines. See an air freight as expected. offset to a large extent with an active yield management, cost control, and ultimately some of the 2026 roadmap initiatives contributing already to some success, but admittedly in a rather modest space. That would conclude our brief presentation of the Kühne & Nagel group result for the first quarter 2023. And we would open the line now for Q&As.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one 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 two. Participants are requested to use only hands if they're asking a question. Anyone with a question may press star and one at this time. The first question comes from Alex Irving from Bernstein. Please go ahead.

Hi, good afternoon, gentlemen. Hope all is well. Three from me, please. First, on volume trends through the rest of 2023, what are you currently seeing? What are you expecting as we go through Q2 in summer? Second, for your discussions with customers and employees since the 1st of March, what has common feedback been? And reflecting on that, what risks in execution are you most focused on managing over the next couple of years? And finally, you highlight that you see market share expanding in the period, even despite capacity constraints becoming less severe, which I might have expected would help smaller forwarders more. What do you think has caused your market share increase, please? Thank you.

Hi, Alex, Stefan. From a volume perspective, what we have seen and I alluded to that a couple of minutes ago when we talk about the sea freight market, for instance, right? January, February, we have seen a negative trend similar to Q4. March was the first months versus previous quarter 2022, where we have seen a little bit of an increase in volume. And on the question, how do we see the quarter from a volume perspective? We believe that from a volume perspective, sea freight will be rather similar, maybe slightly above the Q1 figure. And air freight remains a bit more difficult and we will not see a significant uptake in volumes. Both logistics remain very stable and there is no difference to be expected for Q2. Same goes for contract logistics. Then the second question was on customers and employees. I think we have seen with some of the customers with the international ones that the stockpiling basically came to an end. So we see, especially in the months of March, we have seen that Contra Glister 6 in particular had an order uptick for the first time this year, and this will most probably lead as well to restocking activity, helping the sea freight activities, the sea freight volumes as discussed before. So there is a certain confidence in the marketplace from some of our customers in some of the verticals, not overall. And as I said, I'm repeating myself, air freight will remain at most probably the same level as we have seen in Q1.

And the third one, if I understood correctly, it was hard to understand, Alex, I think your line was breaking up a bit, but it was about market share expansion, if I understood you correctly, and relative towards smaller competitors. So if that was the question, I think the answer is pretty much unchanged through the last years. I think this industry is developing into an area where especially digital capabilities and global reach with scalability when we add the customer experience and the service component to it is gonna drive consolidation of the industry, not necessarily because it is through M&A consolidation, but there will be requirements from customers or expectations more than requirements, expectations from customers where small and medium-sized providers may not be in the position to fulfill those anymore. So I think that's going to be a longer-term development that we will witness.

Thank you.

In the interest of time, please limit yourself to two questions only. The next question comes from Robert from BNP Body Power.

Please go ahead. Just two questions from me, please, then. First of all, in sea freight, the GP per T you expanded during Q1, as you showed in the presentation, and that was essentially a function of the freight cost per unit declining substantially, but the revenue per unit declining by less. So I guess people may look at that and conclude it's the classical countercyclical forwarding model at play whereby when rates go down, the GP per unit goes up. But at the same time, that wasn't the case during Q2 through to Q4 of last year when the freight cost per unit declined sequentially and the GP per unit declined as well. So just in that context, could you maybe provide some color on what was different about Q1 specifically in that respect? And the second question just on the outlook. Now, I appreciate you don't provide EBIT guidance, at least not for the current year. But on the Q3 results call, you spoke about the consensus expectation as of the time, which was 2.3 billion EBIT and commented you thought that was on the conservative side. Could you maybe just provide some color on latest thinking in that respect? Thank you.

So let me take the first question, Rob. And I think it is a, It is a known fact that I think over the last 24 months at least the traditional way of looking at the business model has been challenged in many ways. And I think the first message to you is the Q1 numbers I think have been supported by the traditional, call it at that point in time, mechanism that falling freight rates would benefit to a certain extent the GPU per unit. And I think it's an absolute fair and correct question. So why did it not happen in comparison to some of the other quarters, be it Q2 or Q4 last year? And the answer for last year, at least for Q4, very clearly is in Q4, there were still a couple of quite significant committed volume agreements with carriers in place. So some of that free movement of rates versus the carrier rates, so spot rates movements, we have not been able to take benefit from, if you like, versus the committed available space that we have covered, as you may remember, early or mid last year for customers that have asked us to do so. So, you see I think the major impact or the difference of the impact is last year we had volume contracts in place that in Q1 have all run out and Q1 was the more traditional, as I said before, spot rate mechanism in place.

Let me take the second question. Indeed, Rob, we don't give any corridor or guidance for the full year 2023. And the reason why I basically articulated myself in the third quarter, because there was so much uncertainty and we got so many questions after the pandemic, is the forwarding industry, in particular our company, moving back from a figured perspective too. 2019 level which I clearly denied and I reiterated that statement a couple of times the last couple of weeks and months. So overall with the Q1 figures now in we feel very confident and positive that the full year estimate will be in line with expectations.

Thank you very much.

The next question comes from Muniba Kayani from Bank of America. Please go ahead.

Thank you for taking my question. So just another one on the C yields. With the strong performance in the first quarter, how are you thinking about the normalization from here? I think at the capital markets today you'd mentioned kind of something like a 500 per TEU normal level. Do you think you still – is that still your expectation, and when do you think you'll get there? And then the second question on cost. So if I look at APEX per the EU on seeds, it was quite high in the first quarter, and so I wanted to understand what was driving that, why haven't you kind of cut costs yet, and when will it decline?

Thank you. Hi, Moniba. And so that is the thousand-dollar question or the million-dollar question, the normalization and the $500 GP per TU. Just to reiterate that, I think we have given a $500 GP per TU as a target within our roadmap 2026. So on that journey, I would say I would feel comfortable saying that in some quarters we might even be below that and in some quarters we might be above that. But I think the view of our business and very clearly our business means with a managed business mix from our side. So actively managed business mix with an actively managed yield is our target to reach or to stay at a $500 line. It's less so a question of normalization. And normalization is something that always needs a reference point. So for us, it's really like this is our target with our customer industry portfolio mix and an active yield management with all the cornerstones components that we have put out during the Capital Markets Day.

Let me take the second question, the cost OPEX per toy. Let me reiterate what we stated during the Capital Markets Day. We will lead with quality and we will become the most trusted supply chain partner in the industry. And that requires, as I said, a certain level of people. However, we have reduced in the first quarter overall, including temps, close to 2000 people. If necessary, we could potentially do more. But at the same time, particularly in two business units, in sea freight and in road freight, but mainly in sea freight, we have increased our sales force, our dedicated field sales force in sea freight significantly. So we have hired roughly in the fourth quarter, effectively, as new joiners, 100 new people around the globe in order to support our statement to focus more and more on SME customers. And these 100 people, part of the field sales sales force, are purely focusing on SME customers and not on the key accounts.

Thank you for that clarification. So then we should expect this kind of level to continue on a per-TEU basis?

It depends on the GP and on the volume uptick, right? So if the volume is going further up, as we have seen in March, then you are right, right? If there is a need, then we reduce.

Thank you.

The next question comes from Satish Sikongonar from Citigroup. Please go ahead.

Yeah, thanks again for taking my questions. So I got two questions. So just to touch upon that cost savings, obviously you said you've taken out 2000 FTE. Is it your own fixed employees or is it part of the variable model? And then where does account protection happen? Is it on the AF or contract logistics? And the second one is actually on the AF logistics. You violated that you see weakness in trans-Pacific markets. How much of it is actually related to APAC? Because given APAC actually has higher exposure to trans-Pacific, any color on or volumes are trended by markets would be helpful there. Yeah, thank you.

I take the first part of the question. So the 2,000 people were including TEMs. 30, 40% were Kühne-Nagel FTEs and the rest was temporary workers, right? So this is the flexibility we have at the 3PA. to cut cost more easily in the temp arena. But as I said, I'm reiterating my statement. If there is a sign that the volumes are weakening further in either or the other business unit, then we are able to cut even more. But currently we don't see that. The second part of the first question, you just repeat it because the line was not.

No, it's more about you. You took the EDCON. Is it in air logistics and... It's equal.

No, no, no. It's equal. It's equal in air and sea.

It's equal in air and sea. So the mean lead impacts air and sea. Yeah, thank you.

And on Transpac, I think the answer is twofold. On the one side, clearly Transpac is one of the largest and most active trades in the world. So even if there is weaknesses over a period of time, it always has a value to increase market share on Transpac. And let me say that from a sea freight perspective, we are now the number one on the Transpac business. So we have taken market share quite significantly. It has nothing to do with Apex. Apex's sea freight share is minimal. And you could argue, yeah, but hang on, Transpac right now has a rather lower margin expectation. True, but that trade, being one of the most relevant trades in the world, is going to change also the dynamics over the next couple of years. And then there's going to be a quite significant leverage to have a good market share in that. On the air freight side, and this certainly is where APEX is relevant, As we always said, APEX is very much focused on one trade, which is Transpac, is very much focused around two business models, the one around co-loading and the other one around the high-tech industry. Both of these combinations currently are not growing in a strong way on the Transpac trade. So they are over-proportionately, if you like, impacted than the overall Kuninago air freight business, which is far more balanced, obviously, than Apex, that is very much focused in that area. So, clear.

Thank you. Yeah, thanks, Marcus, and thanks to you.

The next question comes from Sam Bland from JP Morgan. Please go ahead.

Thanks for taking the question. I've got two, please. The first one, again, is actually on this C unit margin. I appreciate you talked about there's some sort of traditional windfall benefit from lower rates, but you did also say that there's some part of it which is from the customer mix and moving towards higher margin categories. So was there some sort of more repeatable benefit change in the mix of the business between Q4 and Q1 that caused that higher gross profit per unit. And the second one is on the dividend. I appreciate it's early in the year, but I think consensus has the dividend going from 14 to somewhere between 7 and 8. Obviously, we'll see how the rest of the year turns out on profitability, but might there be an opportunity to sort of smooth that dividend profile given the balance sheet? Thank you.

would like to give it a spin on on on c freight more from a from a year-on-year perspective rather than q4 to q1 so what we have seen and we said that this is going to happen what we have seen that we have increased the volume with sme customers by almost 10 percent so we are growing and that is uh significant with the efforts we are putting in with the additional sales force we have activated we are growing more now with the sme customers as planned and significant less with the low-yield business, with the commoditized business. And that will have an impact on the quarters to come.

And on the dividend, Sam, I think I have to say maybe we are a victim of the fact that we never give any written dividend policy. I can only say historically we would not get to that payout ratio that the 7 over 8 Swiss franc for 2023 would require, if you like. One should still think what we historically did. So our payout ratio historically was, let's say, between the 55 and the 65%. Ultimately, as you know, the decisions are with the supervisory board and the AGM. But it looks unlikely to me, you know, that for 2023, a number that you have mentioned is something that would fit into this historic pattern.

Understood. Thank you very much.

Thank you. The next question comes from Alexia Dugrani from Barclays. Please go ahead.

Yeah, thank you for taking my questions. Just firstly, on your drive of kind of increasing SMEs for your roadmap 2026, there's 100 salespeople. What are they incentivized on? And is there kind of some SME retention target that they get paid on? And then just secondly, on Stefan's opening remarks in the press release, he mentions macroeconomic environment remained extremely challenging at the start of 2023. Would you describe the environment at this point in time the same way? And if not, why not? Thanks.

So incentive for salespeople. So basically salespeople in our organization are, they have a fixed salary and then they have a bonus component as you normally have in sales, right? And it's purely on new revenues, on new customers and less on the retainer because we have, and I think Otto mentioned that during the capital markets day, we have CCLs, the customer care locations. which is close to our operational setup. And this is in our operations. And these CCL organization, these CCL people are responsible for the customer retention and salespeople are responsible and accountable for bringing in new business, new trade lines, new customers and new trade lines from existing customers. So they are purely incentivized when it comes to the bonus, right, on new business and less on a retainer. And that is how we drive the growth in SME. The second one was the challenging economic environment. And that was pretty much related to the volume decline we have seen since a couple of months now. In particular, in air freight, that was reflecting to the sentence. And I would reiterate, that's still the case.

Thank you, Stefan. And can I just ask on your comments about the retain, kind of the team that is responsible for kind of customer retention. My takeaway from the CMD is that you have historically been able to win SME business, but the challenge has been historically to retain and grow. So I guess I'm a little bit surprised that the 100 SME salespeople are there to win new business, but they hand it over. And so when they hand it over, how can you be confident that actually you retain this SME investment and keep it growing? I guess, can you then talk about what is the ECCL incentives to retain those SMEs? Because I thought that was a key tenant to the, you know, SME yield boost we expect for roadmap 2026. Yeah, you have both.

You have both you have you have the customer retention, right? And the impact on the erosion intervention, the number which is roughly 25%. And that's the reason why we came up with a cornerstone kind x the customer experience and the employee experience. And this cornerstone will help us to ensure that we have a lower customer erosion than in the previous years. And we mentioned as well that everybody here in this company who is bonus related a certain share on these cornerstones, so the CX and EX. So if you as a CCL person are reducing the customer churn, the customer erosion, you will automatically benefit in your bonus payout by a less customer erosion factor or number in the future. and the sme sales people they are clearly incentivized on bringing new volume additional volume with a higher yield into the company and that for me makes absolutely sense clear thanks for that the next question comes from marco verro from that kb please go ahead good day everyone thank you um

Congratulations for the strong results, Markus and Stefan. Two questions. One on the personal side, also a follow-up, and the second question is on your view on the inventories again. From a personal cost perspective, you mentioned now this 100 additional sales employees. Is it now the fact that your HR bottleneck to really also increase the volumes as necessary for your mid-term guidance. Is this now, this problem is solved? Do you have now enough workforce to really also go back to historic volume growth? And at the same time, you mentioned also that you might be able to further reduce your FTEs. For example, if we're now hitting a recession, can you elaborate about by how much you could further reduce the personal costs? And then the second question, is also on the macroeconomic environment. You mentioned that you see also the inventory levels to maybe being reduced again. Could that also be due to some also recession risks that most or some of your customers might face? And how do you assess this risk of the global trade and especially the volumes potentially declining now further in the second and third quarter? Thank you.

Good, Gianmarco. Good to hear you. So on the personal cost, I think, especially Seafreight, I mean, that is, I think, what you were also referring to. We have three drivers, more or less. And our costs go up because salespeople are being hired. Secondly, we have inflationary costs. I mean, everybody knows inflationary pressures there. And the third component is offsetting or partially offsetting the first two, which is the FTE reduction. So the efficiency gain. I think when we talk about, and you have addressed it, do we find the right people? Yes and no. We find the right people for the incentive of sales. Is every single new sales guy or is every single existing sales guy exactly the correct person in the correct place with the correct job description? Well, I think that is something that every organization has to assess on a permanent time. So yes, we are assessing that and we are trying our best that the employee as much as ourselves being in the right spot for the right job. The other side is the operational workforce. The operational workforce, I think that what you have referred to, was difficult to find over the last couple of quarters or over the last two years because the pandemic has changed people's access to the labour market. At the same time, have changed the way to work. And I think we have undertaken that journey to get back into a more standard operational execution pattern with what we mentioned in the capital markets day with operational care centers. We have high efficiency by bundling certain functions and processes. So from that perspective, I think, not only that we find more people in the market, I think we have also changed our way how we operate, and that is giving more opportunities to bring people into the organization. So from that perspective, I think we're more confident. Inventory levels, that is the other $1 million question. But yes, inventory levels had been very high at the beginning of the year. We do see some outflows or we have seen some outflows at the back end of the first quarter, which is good. I think that's good news. Is that already a sign for optimism for the second half? I don't know. It's certainly an indication. I think it's going to be interesting over the next two months to see how expectations go into the second half. And I think at that point in time, the next milestone, if you like, is going to be by the end of May, beginning of June. when longer term contracts are being negotiated also with carriers and customers, that will give us a view on what is the expectation for the second half. Right now, I can only say what we see is we started with high levels and we see a certain outflow right now. So that gives us careful indications.

Thank you. The potential cost cutting on the personal side.

The potential is as much as we need.

And let me step in. As I said 10 minutes ago, if there is a volume reduction, which we don't see at present, then we act immediately.

Thank you.

The next question comes from Lars Heindorf from Nordea. Please go ahead.

Yes, thank you for taking my question. A follow-up on the yields both in sea and air. Margos, I think you mentioned earlier that you had some committed contracts with carriers which affected you negatively in the fourth quarter, which has now been, as I understand, your correct path dissolved. So how will that play into the second quarter? I mean, do you still have less committed contracts there and And the trend that we have seen here with at least quarter-on-quarter improvement in sea freight, will that also then be applicable to the second quarter? And then a little bit about the same question basically in air freight, if you also have there, if you have committed contracts going forward on the capacity side, which will make you basically belong in the market or how you are positioned there. Thank you.

Sure, Lars. Good to hear you. The answer is pretty clear. A, we do not have any committed volumes anymore going into the year 2023. So that's not going to impact the profitability, neither way, positively or negatively. So it's just not there. In Q2, I do not see that benefit to extend for a simple reason, because I would expect that freight rates in Q2 will not continue to fall with the same speed as it did in Q1. So with the assumption that freight rates will remain at a stable level, that benefit, if you like, is going to dissolve or dilute quite significantly from a sea freight perspective.

And from an air freight... That's from a sea freight perspective, sorry.

Come again?

Sorry, that's from a Seafreight perspective, I assume.

Correct. Both of my statements were around Seafreight. On the Airfreight side, I think we are entirely in the spot market with the exception of our long-term charters with the two 747s that one operates for APEX, one operates for CAN. So both actually for Cayenne, but one under the brand of Apex, the other one for Cayenne brand. So these ones have committed customer contracts.

Okay, very clear. Thank you.

The next question comes from Michael from Fontobel. Please go ahead.

Yes, thank you. Thanks for taking my question. Two actually. The first one on networking capital, just a clarification. You mentioned you expect stable networking capital. Is that in absolute terms or in relative terms? And the second question is around road volumes. How come you can keep your road volumes so stable in an environment where CNF rate volumes are down? quite significantly. Can you just explain the mechanics there, where the demand comes from? Thank you.

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Okay, this is Michael. I'm not sure you got my questions. Laris? This is Michael.

Oh, Michael. No, sorry.

Yeah.

Then we didn't got your questions. Sorry.

Okay. okay so the first question was um on networking capital just to clarify if you expect stable networking capital in absolute or in relative terms and the second question is uh on road you seem to have very stable road volumes uh in an environment where c and f volumes are down quite sharply can you explain the mechanics there uh why why is it disconnected thank you

So on the networking capital, the comment clearly is on absolute terms. So we try to limit ourselves here on that 800 million level, give or take, which should carry us for the rest of the year.

And road? From my perspective, road, we have our... clear strategy the last couple of years and we are focusing in the US market on brokerage business and I think I mentioned it back in Q3 we have a pretty good product in the meanwhile due to the acquisition of retrans in 2015 on the brokerage and on a TLM the total logistics management and we leverage that for our air freight and sea freight customers and that's the reason in particular in the US why we see still a very stable development of our volumes, not connected to any sea freight or air freight inbound volumes. And same with our footprint in Asia and the Middle East Africa, where we have a clear growth plan. And Europe is very stable currently, and we do not see any volume reduction in Europe either. So that's the reason. It's decoupled from CFED and the FED, but that is a clear driver from our strategy, which we have started already quite some time ago.

Thank you.

The next question comes from Jane Parish from HSBC. Please go ahead. Mr. Parish, your line is open. You may ask your question. We will take the next question from Mr. Sebastian Pogel from UBS. Please go ahead.

Hello, good afternoon. Can you hear me? Yes, we can hear you. Perfect. Many thanks. The first question would be again on C-FRED and cross-profit PTU in US dollar. Given your sort of view for the remainder of the year, how low do you think it can go at some stage?

Okay, so, Sebastian, I think also here what I said beforehand prevails. It's possible that we probably go below the 500 line at a certain point in time in the quarters. I'm not sure when it's going to happen and how low it's going to be. Our clear target is that with mix management and yield management, we should not see that too often, let me put it that way. But can we exclude it? No. Are we gonna backdrop or drop back to maybe 300 like pre-pandemic times? I think the whole management board is working very diligently that that's not gonna happen anytime soon.

Got it. Many thanks. My second question would be on the minorities line. Do you think Q1 is a fair run rate or maybe a bit notch higher for the next couple of quarters for now?

I think the minority, very transparent, the minority is the minority out of the APEX ownership. And as I mentioned, APEX is specifically impacted over the Trans-Pacific weakness and also the air freight or the air market softness. So I would think that's not a representative run rate for the next quarters. We would expect that to be a higher number. I know it's a negative number in our P&L, but a higher number to go forward into the next quarters when that business it's going to pick up again.

Got it. Thanks. Sorry if I may squeeze in a quick follow-up to one of your first earlier questions. When you mentioned your confidence about the 2023 expectation and you said that you're sort of in line with what currency, what consensus currently has in mind, you mentioned you had like the 1.8 in mind in that regard? Just to be on the same page?

Yeah, that is a tricky one, right? And I don't say now, clearly, I don't say then take the first quarter four times, right? Then you have it, right? So that is not my message. My message overall is we are confident that we will deliver a decent number for the full year 2023. Got it.

Many thanks. That has been all my questions, Ben.

Thanks, Michael.

The next question comes from Patrick Creuset from Goldman Sachs. Please go ahead.

Hey, Stefan, Marcus. Congrats on a good first quarter. Just three questions from me. First, can you comment on how the gross margin, not the GP per TU, just the margin in C developed through the quarter, and then particularly how the margin exit rate looked versus the quarter average? Second, when you look at the air division, can you comment on GP per unit developments that you expect in the coming quarters versus Q1? And then last one, just a quick update on your M&A appetite. how the pipeline looks and where you'd focus. Thank you.

Hi, Patrick. So I think our message was to question her caller, but we make an exception for you. Cross margins in EFES, can you, in Seafreight, what exactly do you mean if you don't mean cross profits?

Just gross profit versus sales, just the margin, so not the GPT per TU in absolute terms. I think the average margin came out at 23% or so, Q4 you were at 15%. So just curious how, if you looked at it month by month, what the exit rate would look like in terms of the margin.

Well, I think that is a number that we can calculate, but we don't manage a margin versus a rate. because we make our gross profit margin certainly to an extent with the brokerage of the space, but much more is on the service capabilities, on the value add, and other components. So our gross profit margin, as you know, is not a percentage of the freight rate. So from that perspective, it's nothing we're even managing. I think from a GP per unit on an air freight basis, you were asking how it's going to look like into the next quarters. Well, I think we are in the first quarter on around 103 GP per 100 kilos. Can you hear us again? I can hear you. Okay, good. We are around 100 or 103 Swiss franc GP per 100 kilos. Given the soft market and let's say the careful outlook into Q2 from a volumes perspective, I would currently expect that we probably are staying somewhere around that 100 line, maybe below that slightly, and reach maybe the lowest point somewhere in the middle of the second quarter. If we were, and that is obviously speculation, but if we were right that the second half is going to be improving also on a volumes perspective, I would think that air freight will, as an early reaction to that, will also benefit from additional business in that area. On the M&A strategy, I think nothing has changed on this one. Clearly, bolt-on acquisitions, Asia is one of the Main target areas, e-commerce, pharma, so these are the themes that we are continuing to focus on. Also from a science perspective, maybe to anticipate some of the thoughts around in the call, from a science perspective, you have seen One of the largest deals we have ever done was the Apex deal. And I don't think we are talking that magnitude in our mind. We are talking smaller than that.

Great. Thanks for the bonus question. Can I just come back to the first one? If you don't want to talk about margin, we just look at the GP per TEU then. How does the exit rate from the quarter look compared to the quarter average? Can you comment on that?

No, I cannot.

All right. Thanks very much.

Thank you.

The next question comes from Niklas Maudel from Kepler Schubrö. Please go ahead.

Hi, good afternoon. First of two is coming back to road. Margin performance was quite impressive. Record in recent history, I think. And you mentioned that high network utilization is the main driver here. So what does the way forward look like? Will you add capacity due to perhaps some growth plans going forward or is this some sort of high watermark on the margin, and if volumes develop less strongly going forward, then the margin should also come down. That's the first question. The second one, we've seen Bolloré Logistics going to CMA, CGM slash CIVA, as perhaps another example of a carrier going after traditional blue-chip customers of Europe. Do you face more competition for them? And is this also part of the industry consolidation that we talked about earlier? that incentivizes you to go after SMEs? Thank you.

Let me take the first question. On the capacity side, on the volume side, coming back to everything outside of Europe. So road freight in Europe, outside of Europe, is a brokerage business. So we have a certain yield, we focus on yield and we can grow without adding any capacity from a cross-stock perspective as we have to look into from a European perspective. So in other words, the sky is the limit in the US and we only need to add a certain manpower in order to execute the orders, but there is no impact basically on the yield, on the GP if we grow significantly outside of Europe. And in Europe, we have a certain capacity with our crosstalk network. We have a couple of hundreds, right, for instance, 56 in France alone. And what you have to do and what we are doing currently is If the network comes to a certain capacity constraint, then we either increase the network or alternatively, you have products like FTL and LTL, not terminal-based LTL, where you can grow without adding any capacity. So that's for me not a big problem statement in terms of is the certain capacity reached and then we do not have the possibility to grow further. So I would decouple the yield. a question from a volume and growth opportunity point of view. So that is not a problem statement, especially not outside of Europe. From a Bolloré point of view, we have seen competition the last decades. And as I mentioned, I think I did that during the Capital Markets Day event, 50% of the volume is BCO volume with carriers directly and 50% is 3PL business and O2C business. And one thing is pretty clear, carriers will not enter in the SME business so much. They will focus pretty much with everything what they do on the BCOs rather than the SMEs. And that's the reason, not only that is the reason, but the reason is, that 1.8 times more profitability with the SME customers and that is the key driver and not what anybody of our competitors or aligner is doing with acquiring further in our space.

Okay, so thank you very much all of you for all the questions and whoever heard me singing is now aware of the fact that I'm better as a CFO than as a singer. And apologies for the breakup of the lines, and thank you for joining us for this quarterly update call of the Q&A group. Thank you very much, and bye-bye. Bye-bye. Thank you.

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