Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the Half Year 2023 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 1 on your telephone. In the interest of time, please limit yourself to two questions only. For operator assistance, please press star and 0. 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 very much, Sandra. Good afternoon and welcome to the presentation of Kühne Nagel's first half 2023 financial results. I'm Group CEO Stefan Paul and I'm joined on the call today by our Group CFO, Markus Blanke-Graf. Let's move into page two, half year results and the highlights. The financial results for the first half of 2023 were marked by accelerated cost management against a backdrop of declining demand for logistics services. As we all know, the declines are relative to an extraordinary comparison period of 2022. EBIT for the first half would have been the strongest in history, excluding the pandemic years 2021 and 2022. Net turnover in Swiss francs was 12.7 billion, cross-profit 4.6 billion and EBIT at 1.1 billion. Over the first half, the focus on cost control intensified and was most visible in Q2. This marks yet another example of our well-established ability to adjust our variable cost base to the market environment. An ability we have demonstrated through many economic cycles and periods of economic volatility. Following our strategy, yield management efforts supported the financial results in both Q1 and Q2. More on positive mix development later in this presentation. Page three, the highlights on C-logistics, volume, GP, EBIT and the variance. Over the first half, C-logistics generated an EBIT of 639 million. Cost measures intensified in Q2 as unit costs declined by 13% year over year and by 14% versus Q1. In Q2, our volume trend improved to flat year-on-year versus the broader market decline of 4-5%. The market share gains were strongest in the Trans-Pacific trade lane. The current data does not indicate a robust peak season this year. But we do believe that we may be near an infection point with a potential to return to a positive year-on-year volume growth versus easier comes in H2. A critical point that I would like to emphasize is that our market share gains were not won on the expense of yield or mixed development. SME, so small and medium-sized enterprise volumes, expanded by 9% year-on-year in the first half. bringing the share of SME volume in the sea logistics portfolio to approximately now 50% of total. Our monthly yields over the course of the second quarter were roughly stable. Under such circumstances, it is fair to expect continued cost discipline in the second half in order to deliver further unit cost improvement. At the same time, we believe the second half will bring further normalization with average yields in the upper 400s. Next page, page number four, air logistics, tons, volume, GP in 100 and EBIT 100 and underneath the variance. Air logistics delivered EBIT of 293 million during the first half of 2023. As was the case for sea logistics, cost management was a central focus as unit costs declined by 9% year over year and by 10% versus the first quarter. In Q2, our volume trend improved slightly. The year-on-year decline of 15% was broadly in line with the market. With easier comparison on the horizon for the second half, We believe year-on-year volume declines may moderate to a high single-digit decline over near-term with a potential for return to growth before year-end. In terms of mix, we experienced low double-digit growth in perishables and more than doubling of volume of small base in the semiconductor, semiconductor segment, a strategic focus of our roadmap 2026. This partially offsets softer demand in general cargo, high-tech and healthcare. Monthly yields over the course of the second quarter showed modest variation. In light of the volume outlook for the second half, we anticipate average yields to set around plus 90 per 100 kilo in Swiss francs. Next page, page number five, road logistics. Road logistics EBIT of 93 million is the highest ever achieved for a first half of the year. Our overall order volume was stable year-on-year over the first half of 2023. This corresponds to 5% cross-profit growth in the first half, excluding any currency effects. The conversion rate in Q2 was the strongest ever in the second quarter. Expect, of course, for the last year's Q2 result. The outcome is a credit to continued high-end utilization of our network, our yield management, and the benefit from an ongoing rollout of our proprietary road log TMS system, which is now rolled out in 43 countries, with six added over the first half of 2023. Page number six, contract logistics. As we saw in road, contract logistics also delivered the strongest ever first half EBIT. The result was 110 million or SwissRank's 101 million, excluding a real estate gain in Q1. Cross-profit grew by 9% in the first half, excluding currency effects. We believe our market share expands during the period thanks to further inroads in healthcare and e-commerce. We continue to observe faster growth in these specific verticals than in many others. It's important to flag that we saw evidence of destocking over the course of the first half this year. Utilization of warehouse space or our own operational capability remained at a high level. Next is page number seven, roadmap 2026. I'm pleased to provide a short update on our roadmap 2026 progress achieved in Q2 in the last quarter. Earlier, I touched upon key achievements, which was the consistent expansion of a share of C-Logistics SME, small and medium-sized enterprise volumes through the first half. We also expanded our SME-focused e-commerce capabilities. We were talking about that during the Capital Markets Day. In selected markets were the first customers onboarded for new integrated offerings, combining multi-user fulfillment centers, cross-order and last mile capabilities. We also advanced our strategic trade and efforts with a major commercial event for Japanese and Korean customers. Beginning of this month, we visited both countries. This would not have been possible without the hiring of experienced native-speaking sales colleagues in recent quarters, which we positioned around the globe. In air logistics, we made progress on two fronts. First, we won a sizable semiconductor contract, which includes SAF power transports. The Semicon contract was not the only ESG-related success, by the way. We also rolled out real-time scope 1 and 2 dashboards in 800 car and facilities and concluded the purchase of 6 million liters of stuff from AIG Cargo. With this, let me hand over to Markus, please.

Thank you, Stefan, and good afternoon, everyone. Thank you for your interest in Kuninaga and taking the time today. As Stefan has outlined, we aim to secure a new sustainable level of profitability against the backdrop of a normalization in supply chain conditions in sea and air logistics. One element is our focus on cost control that intensified during the first six months of 2023. As a company, we have been managing through countless economic cycles and periods of unforeseen volatility. I credit to our highly flexible assets light business model combined with the legendary entrepreneurial spirit. Cost actions taken since the start of the year. culminated in a much more visible reduction of unit costs in the second quarter. This reflects both a reduction of absolute cost with stable to increasing sequential volumes in sea and air freight. Contra Logistics and Rogue Logistics, as we have heard, continue to further increase their profitability levels in quite volatile market dynamics. Let's start for me, page number nine, with the income statement. And as expected, we can see negative developments in nearly every P&L line compared to last year. But what matters is the absolute performance with earnings before tax of 549 million Swiss francs in the second quarter or roughly 1.1 billion Swiss francs in the first six months. Let's remind ourselves that could have been a full year result in any year before the pandemic. Gross profit margin continued to outperform 2022, confirming some early successes in our strategy to focus on higher yielding business. We see a solid conversion rate of 24.4% for the group, also supported by diligent FTE resource management. There were no reported non-recurring impacts in the second quarter. In the prior year, just for reference, we had had a negative earnings before interest and tax impact of 28 million out of the exit from Russia. Headwinds are consistently coming from currency and they have even increased with a negative impact of around 4%, equaling 230 million at the gross profit level and around 3% or the equal of 59 million on earnings before tax. In the second quarter, the group minorities, preempting a question of yours, that result suggests a loss from APEX, which is not correct. That was impacted from a large withholding tax impact from the intra-group dividends that APEX has provided towards Clean International. The total minorities result operationally would have been comparable to the first quarter. Reading through the P&L, I want to give you also some update on the air freight initiatives on eTouch. Page number 10. As a brief reminder, and you have seen that slide repeatedly in the past. As a brief reminder, let me summarize the impact of eTouch, which uses integrated technology to standardize and centralize processes. Repetitive work processes are digitized. automated or shifted into global service centers with the aim to expand customer-facing capacities to provide greater efficiencies and extraordinary service experience. Let's look at the numbers then. Next page, page number 11. We have saved 1.7 million staff hours with a positive effect of approximately 2.6 percentage points on the air freight conversion rate. But not only have we continued the improvements in the well-known categories that you have seen, we have also now made initial progress in the carrier and supplier communication category for the first time. This exemplifies the continuous effort to widen the scope for our eTouch processes. Coming back to The working capital development, page number 12. Working capital currently at 741 million Swiss francs. One of the topics that has been on our agenda for the last couple of quarters was quickly contracting due to the reduction of receivables and contract assets. Receivables predominantly have reduced as a function of lower rates. accessorial charges and lower volumes in the network businesses, sea and air freight. Looking forward, I anticipate stable networking capital for the next quarters to come. have expanded slightly against the beginning of the year, less so against the same time last year. DPO 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 DSO and DPO has increased to 12.7 days. Next page on cash and free cash flow generation, page number 13. Clearly, quarter two free cash flow is low and well below the expectations and the consensus. Two elements that drove this. Elements for good reason and well explained, I think. Relatively large cash bonus payments linked to record profitability in 2022. on the one side good news record profitability on the other side for sure from a cash flow perspective that was linked to larger bonus payments and in addition to that lesser so good news i would call it higher tax payments and dividend withholding tax in the quarter the relative measure of the networking capital as reported on the page, is based on the narrow selection of working capital items in the cash flow statement. So our net working capital intensity improved, as we have seen on the previous page, to 2.8% at the end of quarter two from 3% at the close of Q1. I want to emphasize with that explanation that the operational networking capital, so the management DPOs, DSOs, so receivables, payables, remains extremely robust and has actually improved over the past quarter. It is not the contributor to the weaker than expected free cash flow generation, but what I explained is to be looked at into the bonus payments and the tax payments. With these comments, I'm on page number 14, I would like to end our presentation for today with a couple of key takeaways. For the quarter, a solid Q2 result. Cost controls showed the first results. Volume development is as expected. Our active yield and portfolio management continues, and as Stefan has alluded to, the Roadmap 2026 initiatives are well underway. With this short presentation, I want to thank you, and I would like to open the line now for the Q&A session. Over to Sandra, please.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on the touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets when asking a question. In the interest of time, please limit yourselves to two questions only. Anyone with a question may press star and 1 at this time. The first question comes from Sam Land from JP Morgan. Please go ahead.

Thanks for taking the question. I have two, please. The first one is you mentioned the sort of yield focus now. I suppose if we look at the results, you're probably doing quite well on market share, but maybe there's a little bit of undershooting maybe on the yield versus what I think certainly I expected. I think there were some external expectations as well. Is the yield focus unchanged from what it was before, or have you possibly decided to focus a little bit more on volume? for the time being. And the second question is we've heard elsewhere that there's this sort of shipments versus volume dynamic. Is that also the case at Kununaga where you have more LCL or you have smaller weight per shipment and that sort of increasing the unit margins as that goes on? Those are two questions. Thank you.

same things um first on the yield focus no the yield focus is unchanged um as said during the capital markets day and even before last year we have a clear expectation on the yield and this is unchanged and we fully focus on on the execution of our roadmap and as as i said on on higher yields versus the pre-pandemic that's the first statement the second one is what you see as well is that the order count the shipment orders has less declines than the volume such. So in Seafreight, for instance, our orders are single digit down and not double digit. And what we see as well is the shipment size has as well gone down a little bit. So it's less in terms of order versus or more orders than volume decline. And same as well here. We see that here. the number, the shipment's volume, the tonnage of the shipment is going down. Yeah, we see the same.

And is it just a function of what the market is doing, or is it more sort of deliberate Kuninagel strategy?

No, this is market-driven. This is market-driven.

Understood. Okay, thank you.

You're welcome.

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

Good afternoon, Stephan and Marcus. Two questions, please. So firstly, just on your cost cutting during 2Q, how should we be thinking about your costs into the second half and into peak season as volumes pick up, both on a unit cost basis and kind of an absolute cost basis? And then secondly, on SME gains during the quarter, This seems a bit earlier than you were probably expecting at the time of the CMD. So if you can talk a little bit more about kind of your progress on more SME on the C side, and is this a market-driven move, or is this your strategy which is benefiting here? Thank you.

Hello, Moniba. How are you doing? So I would take the first question on the cost. I think we don't usually use the word cost cutting. What we do is we adapt our cost base towards the volumes and the market conditions. I think that is what I would like to emphasize first. And I think that goes also for the next couple of quarters. I think it's important when we look into the volume development, And there is always a management into both directions, into both vectors. You know, the one is the yield focus and of course the other into the volume development. And I think you have to have a balanced growth and you have to work, and that's what we do, we have to work with the knowledgeable, with the right people on the customer experience. That is what we are doing. On the air side, more specifically also for you, I think on the air side, the cost will remain on a flat-ish level. On the sea freight side, I think we will see further reductions going into the year.

I take the SME question. Yes, you're absolutely right. We mentioned that during Capital Markets Day, but what we have done is even before at the end of Q3, beginning of Q4 2022, we started already to hire new additional fuel sales people, so hunting forces. We have in the meanwhile, similar to the first quarter, a little bit more than 100 new fuel sales reps hired for the group. of which 70% roughly are in C logistics, and they get a lot of traction currently in the marketplace. We are more than happy with this, and this resulted in the 9% increase in SME and a very balanced portfolio now between key accounts and SME.

Thank you. If I could just follow up, Marcus, on your comment on R&C costs. Was that absolute or unit cost?

That is unit cost I'm talking about. Of course, when we have a massive increase in volume, then the unit cost may come down, but I'm careful on the volume predictions here.

And may I add to the SME topic, right? So we have seen market gain shares in Asia, Europe and Transpac, and this is mainly driven by this initiative.

Thank you.

The next question comes from Siva Kumar Satish from Citi. Please go ahead.

Thanks for taking my questions. I got two questions here. So firstly, given the free cash flow impact that we had in Q2, obviously it's one-off thing. How should we think about the dividend for the full year? Would it be like, say, where the consensus is around, say, 10 Swiss franc, or would it be more geared towards last year's number? And secondly, on the market share gains, is there any specific verticals that you're actually gaining market share versus the peers? Yeah, any color on that would be helpful. And also, it's very trans-Pacific oriented. It looks like that's how you're getting more market share. Any color on that helpful. Thank you.

Hello, Satish. So I take the question basically on the dividends. Yes, you're right on the free cash flow. I think this quarter was extraordinarily impacted. Looking at the balance sheet, I think the company can solidly look forward towards a good level of dividends. I think that remains still at the entire discretion of the AGM. But I would suggest looking at the balance sheet and see, hopefully, until the end of the year, continuous good performance of the company with, let's say, a reasonable macroeconomic background. I think we should look at a fairly decent dividend outlook.

So let me reflect on the market share gains. As I stated, SME, we do not focus pretty much on any vertical. SME is more commoditized hunting focus, right, with higher yields. But what we can say is that, and we shared this already, that we get a lot of traction in the renewable energy sector, one hand. And we see that in particular in air freight, we gain more and more traction. customers in the Semicon industry, which is rather new for us, right? So OEMs in the Semicon industry, which as well shows traction or has shown traction in the last couple of months this year.

Thank you. Just to follow up on the dividend. So it should be like, say, are you comfortable with the consequences today in terms of, like, say, maintaining it there, or do you see increasing the payout ratio so that you get a slightly better outcome?

I think the current dividend policy that is unwritten, but we usually historically, when you tie that back, is somewhere between 50% and 60%. I think that would be most likely at the lower end of what we would be looking at.

Yeah. Thanks, Michael. Thanks for that. Thank you very much.

Okay. The next question comes from Robert Johnson from BNP Paribas. Please go ahead.

Good afternoon, gentlemen, and thank you for the presentation. First question on the GP per container. If I heard correctly, you said that the GP per TU is expected to be in the upper 400 range in H2. If that's the case, could you maybe just provide some colour on the trajectory by quarter? So, for example, do you expect the GP per tees go down to the upper 400s in Q3 and then stay there in Q4, or is it more a case of a step down in Q3 followed by another step down in Q4? And then the second question on the GP per tonne, we've now seen that metric fall for six consecutive quarters on my counting. Are you You talked about the yield, I think, declining further in H2 to a level at around 900, if I heard correctly. If that's the case, should we expect the GP per tonne to stabilise at around that level, or could it potentially ease further going into 2024? Thank you.

So let me take the GP per toy question first. So we expect Q3 and Q4 rather similar from a yield perspective, maybe Q4 a little bit up versus Q3 based on everything what we see and based on the discussions we have with our partners. In the high 400 range, yes, close to 500, maybe slightly above, but this is the range where we expect the yields to come in in Q3 and Q4, paired with a slightly, slightly improvement of volumes on the sea freight side.

Right, air freight, the GP per ton, I think we currently see that when I look into the quarterly trajectory, so look into the month of the quarter, that you're right, we have seen consistent slide of the GP number. But when I look within the quarters into the months, so what are the exit rates, then I would expect that we would see air yield to stabilize at that level that we are now. So that is high 90s. I mean, if it's going to be like, I don't know, 95ers, that's still good. But I think that is somewhere where I would expect stable yield going forward.

Just to clarify, Mark, you said... mid-900s rather than around 900. Is that correct? Yeah.

That is right.

Right.

I'm using 100 kilos, but you're right, mid-900s. Yeah. Okay. Sure. Thank you. Thank you.

The next question comes from Alexia Dugani from Barclays. Please go ahead. Ms. Dugani, your line is open. Sorry, can you hear me?

Yes.

Yes, okay. Good afternoon. Thank you for taking my question. Basically, I have two questions. Just firstly on the unit cost evolution, can you just explain a little bit the movement between total costs in H1 being down year over year versus FTE numbers being up? I mean, what kind of drove – the discrepancy between the two. And then secondly, would you offer us a little bit of a comment around current consensus expectations and the evolution for next year? Are you comfortable with what the market is expecting or do you see anything different? Thanks.

Hi, Alexia. So let me take both questions. I think, let me start at the consensus. I think you will understand that we don't give an outlook and we don't confirm consensus. I think we give a lot of details around how the business develops and I think there is a good mix of experts out there that build their models around the consensus. So, no comment from my side on this one. First question on the unit cost evolution. Let me just ask you, when you look at total cost down and FTE up, are you looking at total company or what are you comparing with?

Yeah, the total company for the group level in H1, expenses versus number of emplacements.

Right. So we have two very distinct differences in the business model of contract logistics and the business model of the network model. So contract logistics grows with an increase of FTE. So more locations, more people, more business. And that's what we actually like when the profitability is within our thresholds, which is this. When you look at contract logistics, it has performed extremely well over the first six months. So from that perspective, adding FTEs is actually a good thing. From the network business perspective, from the air and sea freight perspective, we obviously adapt our FTEs towards the workload we have. That can be volumes, that can be orders. And that is where we have reduced FTEs in air freight and sea freight, and hence also adjusted the cost base. So I think that's... That's not a paradox in itself. It's country logistic growth with FTE at cost. Air freight and sea freight adapts to efficiency and to the right cost base. And there we have reduced FTE alongside or even in excess to what our volume development was.

Thank you, that's helpful. And can I just ask a different one then, because my first one was unsuccessful. I guess when you talk about Q2 relative to pre-pandemic years, are you suggesting that you feel there is no pandemic overhang still in the Q2 performance? Because that's slightly how I interpret it, but maybe incorrectly.

Well, overhang you would have to look into, is there still disruption in the supply chains? And I would, at least for a large stretch of the second quarter, I would say there was no more disruptions in a supply chain anymore. Hence, we should talk about a normal supply chain situation. And I think that would be a fair assessment. Yeah. Fully concur with this.

All right. Thank you very much.

Thanks, Alex. Yeah.

The next question comes from Jane Parash from HSBC. Please go ahead.

Hi. Thank you. I'm Parash from HSBC Hong Kong. I have two questions. First, can you share what are you seeing from your customers with respect to 2023 peak season, both in terms of sea cargo as well as air cargo. And my second question is with respect to yield normalization going into the second half of this year or 2024, is it the change of mix? Is it the higher underlying freight rate? If you can just remind us what are some of the key drivers that will ensure that your normalized yield will settle at about close to 50% higher than pre-pandemic level. Thank you.

So let me take the peak season and the question, what do we hear from our customers? And unfortunately for us, there will be no real peak season. There is no peak season to be expected in 2023. So there are no signals neither on air nor sea, at least not for the time being. So we have to be very cautious on that. And that was reflected as well in Markus' comment on our cost efficiency and the focus on our cost position. The yield normalization is pretty much, as we shared a couple of times already, we focus on higher yielding business, whether it's healthcare, whether it's the new Semicron, whether it's the renewable energy, where we need to come up with complex or with solutions on complex questions. And then last but not least, which is a very important puzzle piece, and we talked about it a couple of minutes ago, is the focus on SME customers, on small and medium-sized enterprises, 100 toy, 200 toy, a couple of hundred shipments in air freight, whereas air freight is less dependent, of course, on SME. But in road and in sea freight, it's definitely the focus on SME customers, which will help us. to maintain the yield at a significant higher level versus the pre-pandemic phase.

Lovely. Thank you so much.

The next question comes from Andy Chu from DB. Please go ahead.

Good afternoon, Stefan and Markus. A couple of questions, please, maybe one each. The first numbers question is around C-unit costs. Is it possible to give us a flavour sort of more quantitatively in terms of where that goes in the second half? I guess sea unit costs fell by 14% quarter on quarter, so is it possible to give us an indication of where that may go in the second half? And then secondly, in terms of the change of leadership at the sea division with Otto Schacht, kind of stepping down after a long time. Could you just talk to us a little bit about, explain what Michael Oldwell will bring to the business and changes from that leadership? Thank you.

You're welcome, Andy. I will take the cost for Tori question. So I think we're now in the second quarter and the level of 297. And you may recall that we said we want to have somewhere a cost base around the 300. I think when I look through the volume development over the quarter, volumes have consistently improved throughout the second quarter. So I would expect that with further effects on cost, adaption and efficiency, we will most likely stay below the 300 and improve a little bit further than what we see right now. Somewhere between the 250 and the 300, I think, should somewhere be the run rate for, or the best rate, call it the best rate, until the end of the year.

I take the leadership question. So with Michael, we have now brought the next generation of leadership into the organization, into the management board of Kühne Nagel. Michael currently is focusing on the products, reporting into Autoschaft. And in particular, he is managing our field sales unit in Seafed as well. And by adding 9% of volume the last couple of months, he has already increased confirmed that he has the can-do attitude. So what you can expect from him is two things, pretty much customer focus. This is in line with our roadmap 2026, a very good understanding of processes as well as when it comes to our digital ecosystem. And I will believe he will be able to bring this business unit to the next level of profits and volume.

Brilliant. Thank you very much.

The next question comes from Tomias from Wernstein. Please go ahead.

Hello. Thanks very much for taking my question. I have two on yield, please. It looks like the shift to high yielding volumes, especially to SMEs, is very successful. I was just wondering, since you implemented the new strategy, what have you learned and any particular insights on that? Also, perhaps on are you able to bind those clients for the longer term? or is it going to sort of go back to what you've had before? And then maybe the second one, given your great results this quarter and previous quarters, we were just wondering whether the next quarter is then to mid-2024 will be substantially above your 2026 conversion target rate of about 40% in RNC, something maybe you could give a bit more color around.

Thank you. So let me start with the yield question over with the learnings while we started to roll out our strategy, our roadmap 2026. What we already said a couple of times is that we need to really come up with the highest quality, the best, the highest trust in this industry from our customers. And this has to do with the execution power and to create the extraordinary moments and the customer experience, which is second to none. And this is what we are aiming for. And that is something which what we learned the last couple of years with the different with a different focus and the customer experience, which is second to none, as mentioned before, you can maintain your SME customer base much longer. And these customers are overall, not only the SMEs, are willing to accept higher price levels. And that's the reason why we put so much emphasis on the kind X, the CX, the customer experience, the employee experience, in order to deliver exactly what we said, higher yields for the company moving forward.

Second question, conversion rate. Yeah, indeed, we are at least in sea freight above our 35 to 40% target 2026. In the air freight, you see we are in excess of 30%. I think the conversion rate will get towards the 35% level also in the year 2024. So I think, and we should continue to monitor that, obviously, the current level of around 50% in sea freight, I would expect that we see a bit of pressure on this. versus in the air freight, I would expect that we could improve from that 30% level. That was also in our models when we worked on the roadmap 2026 that we will have We will have periods where we are on the lower end of the expectation versus the upper end. But in total, I think we should expect for 2024 somewhere in the range of 35% to 40% already. Then the question obviously is fair. If that's already then there, so what's then to come for 2026? But let's get there first and then talk about the 2026 targets.

Awesome, thank you. Maybe just a quick follow-up regarding Stefan's answer. Stefan, is it large corporate volumes missing, or is it real growth in SMEs, the 9% you mentioned earlier?

No, it's real growth. So, of course, it's real growth in SME. And what is missing is the commoditized volumes. And that was deliberately stated already a couple of months ago. We will give up the focus on the low-yielding business like trash or timber or what have you, right? So that is missing, of course. Okay. Thank you.

The next question comes from Gianmarco Vero from ZKB. Please go ahead.

Thank you, everyone. Good day. First question for me is stockpiling. In the last update, you mentioned that you see stockpiling coming more and more to an end in March with some uptick then also in contract logistics. Can you maybe give us some more visibility there? What do you see currently in the market? We also heard this morning from a competitor that there might be some also stocking in again now in the third quarter of this year. So that's the first question. And then the second question is also the number of your SME customers. Again, in the first quarter, you mentioned that they increased by around 10%. So now we just discussed 9%. Can I understand that this is now the increase in the second quarter or for the first half year that you increased the number of small, mid-sized clients by 9%? Thank you.

I take the second question first. Maybe this was a misunderstanding. So we have grown volume with SME customers by 9%. It's not the number of customers overall. We have roughly 450 customers overall in the company, and we measure the volume growth with either key accounts or with SMEs, and the number 9% is the growth of volume with SME accounts in the Seafreight business unit.

Hi, John Marcus. Marcus, on the stock, I think rightfully you have mentioned the first quarter as a starting point with high stock levels. We have certainly seen some evidence of destocking. because, I mean, the evidence is a conclusive evidence, if you like, because we are seeing inbound orders down and outbound up. So clearly we see that destocking evidence. The key question is, and I'm being very, very blunt to you, we don't know when the restocking is going to start again. The only thing we surely know is The later customers will restock, the higher there is a risk that restocking is going to run into higher cost supply chain solutions. So be it air freight or express services or anything like that. So I think, as anybody else, I think I cannot give you the exact point in time other than saying, yes, we have evidences of destocking and we see a certain stabilization now, but we will see if there is any rush restocking coming in the future. That we don't know.

Very clear. Thank you, Stefan and Markus. Thank you.

The next question comes from Sebastian Vogel from UBS. Please go ahead.

Hello and good afternoon. There's just one left on my side. It's related to APEX, and Markus, you mentioned some special factors. If you take those aside, if you look there on the current profitability levels of APEX, how does it sort of compare with the underlying business case when you bought this business?

We usually don't disclose that information. What I said is that when we eliminate the one-offs, then we would look at a very similar performance as in the first quarter. I would be vague enough in saying that APEX has completely fulfilled the business case expectations and continues to go in line with that at the current level.

Got it. Many thanks. Thank you.

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

Yeah. Good afternoon. Thank you for taking my question. It's right in the volume. So I think Stefan, you said there will be no peak season in Nile Sea nor air, if I understood you correctly. So I know you're not guiding for the full year, but most other companies have been at least in their guidance for the full year, those that provide that. I've been assuming a gradual pickup also. You've been talking a little bit about destocking and maybe also now when the restoring will start again. So maybe a few words on what you expect in terms of volumes for the second half here.

As I said, so a real peak season for me is a 10%, 15% growth during the peak or even more. And this is definitely not to be expected. I would really take him by surprise if this is going to happen, right? Talking to many customers on a regular basis. So from a Seaframe perspective, as I said, repeating myself, I think... Air freight will see somehow the same demand from a customer perspective, from a demand perspective, as we have seen now in Q2. I think this is a realistic level moving forward before it picks up again, most probably beginning of next year. We don't expect it this year. In sea freight, it's a little bit different. In sea freight, we see already that there might be a little bit of an uptake in the third and particularly in the fourth. So this is how we see it, right? So if you compare like for like the Q4 in air freight, maybe let me add that one. Due to the fact that the last quarter in 2022 was already a bit weaker, the comparison will be much more in favor this year. But overall, again, there is no peak to be expected.

Okay. All right. Thank you very much.

Sandra, are you there? Do we still have questions in the queue?

Hello?

I think we have lost our operator. Hello, Sandra, are you still there?

No. Hello? Hello?

Okay, I think we have lost our operator. Thank you for joining the call today, and we will close it at that point in time.

Sorry, this is the operator speaking.

Okay.

We have a question from Mr. Nikolaus Mauder from Kepler Shiver. Please go ahead.

Thanks for giving me the chance. I hope, Markus, it's still okay to ask the question.

Oh, absolutely. We didn't hear anything.

Well, I wasn't aware that that was my turn. Two quick ones. So, throughout the call, you mentioned yield stability throughout the second quarter months. So, with volumes likely stabilizing or actually improving on a year-on-year basis, what triggers the normalization in H2? Can you perhaps provide some color here? And secondly, if I interpret this nice organic growth breakdown that you provide in your details, It seems like you trimmed some loss-making activities in Q2, especially in contract logistics. Can you perhaps share what they were? Thank you.

Maybe I take the second one. We didn't trim any loss-making activities and contract logistics. What we did, and we started that already a couple of quarters ago, we increased our expectation on the EBIT numbers. So we have an internal guideline, commercial policy. What is the minimum expectation we have on certain contracts? And we have increased that by two percentage points. And this is what you see now coming more and more in. stable growth on healthcare and e-commerce, and on the other side, a much better profitability versus the past.

So, and I think on the first one, yield normalization, I think We never used normalization in the context of the yield. I think for us it was normalization in the context of the supply chain execution and if there's still some disruption out there. And I think that was my comment that in the fourth quarter and also and also on the fourth quarter last year and the first quarter this year there were still some residual challenges in the supply chain that was still leading to some extra effort and certainly to some extra profitability. Then through the first quarter into the second quarter we have seen a situation of freight rates especially in the sea freight coming down very quickly and as you know when when when rates fall very quickly there is always a certain element of uh of lag into into uh into the customer pricing which is which is supporting us so from that perspective i said the the second quarter was normal because this disruption in a supply chain was not there anymore. So I would expect that a situation like in the second quarter to continue into the third and the fourth with everything we have said today, maybe simplistically summarizing, continuing our efforts in shaping our customer portfolio towards SME and higher customer experience at the same time with a focus on balanced growth. I think that's something that is kind of, and I'm thankful for your question at that point in time. I think that's something that we can leave here and take as a summary of what we have done in the first six months. Okay, very good.

Thank you.

Thank you, Nicolas.

This was the last question for today.

Okay. Thank you very much. Thank you. Everybody on the call, thank you for taking the time and see you in or hear you in next quarter on the third quarter call in October.

Thank you very much for my side as well and have a good summer.