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.