Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the Q1 2024 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 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcasting. At this time, it's my pleasure to hand over to Mr. Stefan Paul, CEO of Kühne Nagel. Please go ahead.

Thank you very much, Sandra. Good afternoon and welcome to the presentation of Kühne Nagel's first quarter 2024 financial results. I am CEO Stefan Paul and I'm joined as always on the call today by our CFO, Markus Blanka Graf. Let's go into the first quarter earnings. The Kühne Nagel Group achieved a Q1 EBIT result in line with our expectations. This result was stable relative to the reported Q4 result of Swiss francs 375 million, which excluded a redundancy charge of 53 million. Our ongoing focus on yield management and cost control offset the typical seasonal downtick of cargo volumes from Q4 to Q1. We achieved modest volume growth in our two largest business units, building on the somewhat improved volume trend of late 2023. During our last earnings conference call, you may recall that we undertook redundancy measures in Q4 and said we had additional cost control measures already underway in Q1. This was a direct reference to the recently announced organizational streamlining which will centralize general management and speed up our decision making processes. We anticipate related savings of approximately Swiss francs 100 million per year, comparable to the redundancy program announced with year end results. The associated charge in Q2 should be roughly half this amount and we expect the full run rate savings to emerge over the coming quarters. Lastly, historical free cash conversion in Q1 is usually low and sometimes negative. The result in Q1 2024 reflects the unexpectedly sharp rise in sea freight rates, a pressure which is not likely to extend beyond Q1. Markus will have more on this topic to come a bit later. Let's move into the Sea Freight Business Unit, page number three. As always, left the volume in toys, GP per toy and EBIT per toy always, of course, in SwissRanks. Sea Logistics achieved EBIT of SwissRanks' 197 million in Q1, which was a 36 million improvement on the result of Q4. To last year, this result includes a currency headwind of around 3% or 10 million Swiss francs. Effective yield management, Drover Stark, sequential increase in GP per toy of plus 17% from Q4 to Q1. This improvement more than compensated for seasonally lower sequential volumes of minus 9%. This also accounted for about 80% of the EBIT improvement with a balance from an absolute operating cost reduction of 2%. Headline volume growth in Q1 was 1.5% year-on-year or roughly 5% on an organic basis, excluding the effects of discontinued commodity volumes in Q4. We view our market share as roughly stable with estimated market volume growth of 2% to 4% year over year. The sharp rise in freight rates triggered by the situation in the Red Sea resulted in a relatively small uplift to yields in March. We expect some additional uplift in early to mid Q2, but no further effects after mid-year. Next is page number four, air logistics. tons, GP per 100 kilo and EBIT per 100 kilo in Swiss francs. Air Logistics delivered Q1 EBIT of 94 million Swiss francs or 14 million lower than the operational result for Q4. Our intensified prioritization of yield management resulted in a stable overall outcome in Q1 relative to Q4. This prioritization will persist and we expect further improvement ahead. Headline volume growth was at 3.4% year-on-year, revealing modest acceleration. Organic volume growth of 0.8% tipped into positive territory, aided by mid-single-digit perishable growth. In the hard cargo segment, excluding e-commerce, we believe our market share is stable. Note that we are serving the growing Chinese e-commerce export volumes, but with less exposure relative to the broader market. Revisiting the situation in the Red Sea, you may recall that we had not witnessed a material uplift in sea air at the start of the year. Since then, we have seen some additional demand growth, but of a relatively small base. Next is road logistics on page five. Road logistics EBIT for Q1 was 30 million Swiss francs. Shipment volumes remained under pressure in Q1 at minus 6% year-on-year, but broadly unchanged, excluding day count effects. This is a slight moderation of the Q4 result of minus 9%. Yield and mix effects mitigated volume pressure once again, resulting in a more modest GP decline of 3% year-on-year, excluding currency effects. The Q1 result also reflects the first-time consolidation of Ferro Group results since February. The acquisition of Ferro addressed a key strategic initiative to expand our customs footprint. Ferro is a long-established specialist cross-border North America trade, A market where custom solutions are cornerstone of successful sales efforts. We expect to close the recently announced acquisition of Cityzone Express in Q2. As a reminder, this is a Malaysia-based provider of cross-border road services spanning their home market, Vietnam, and Thailand. Next is contract logistics on page number six. Contract logistics generated another strong EBIT result of 55 million Swiss francs in Q1, matching the record result of Q4 and comparable to the Q1 result of 53 million last year, excluding a real estate gain. Market share expanded once again in key healthcare and e-commerce segments, categories which continue to dominate the sales pipeline. Our ongoing focus on efficiency resulted in a modest year-on-year increase in the recurring conversion rate. Please note that the major adidas distribution facility in Northern Italy, designed and operated by Kühne Nagel to serve Southern Europe for this client, is now operational. Let's move on On to page number seven, roadmap 2026 and update for the quarter. And before turning over to Markus, let's review some key developments with respect to this roadmap 2026 strategy. With respect to the cornerstone KNX, actions are underway to make meaningful improvements guided by the insights from the customer and employee survey conducted in the second half of last year. These actions market important steps to improve our customer service offering and our attractiveness as an employer. Additionally, as I touched upon earlier, the recently announced streamlining of our organizational structure will bring us closer to our customers and improve the speed of our decision-making process. In terms of market potential, I already referenced key recent acquisitions in road addressing geographic coverage ambitions in Asia, as well as expansion of our customs brokerage capabilities. We also made further advances in key verticals such as healthcare and renewables. Our shift from on-prem to cloud-based hosting of our in-house business application is on track while we continue to explore the potential for AI to drive new efficiencies. Lastly, We expand our service offering in road to include tangible emission reductions and avoidance solution and also made progress with respect to our social impact initiatives. With this, I would like to hand over to Markus now to talk more about the financial KPIs.

Thank you, Stefan, and good afternoon, everyone. Thank you for your interest in Cuninagel and taking the time today for our first quarter 2024 results. Just as a quick recap, as Stefan has outlined, we continue to see an environment of demand for global logistics services that remains overall subdued and we don't expect a material change to this situation. In such periods of a potential volatility, we focus on our highly flexible asset-light business model combined with an entrepreneurial spirit. Our current priority, hence, is on cost control. with several significant actions initiated in the fourth quarter 2023 and intensified in 2024 to ensure a further reduction of unit cost. This reflects both a reduction of absolute cost and per unit cost with stable to increasing sequential volumes in CNF rates. Moving on to the income statement. the PML remained below the same quarter in 2023. But we shall recall that the first quarter last year still enjoyed some positive spillover effects from 2022. Looking at the quarters sequentially, we can see a solid operational conversion rate of 18% supported by active FTE resource management. The combined sea and air freight conversion rate was 33% in the first quarter. For reference, the full year 2019, sea and air freight conversion rate was 28% excluding walls. Not to forget, headwinds coming from currencies increased with an impact of around 4% or 102 million Swiss franc equivalent at gross profit level, and around 3% or 19 million on earnings before tax. Moving on to working capital, one of the topics that has been on the agenda for the last couple of quarters, it increased due to the unexpected sharp rise of sea freight rates triggered from the situation in the Red Sea, as Stefan has outlined already in his opening. I anticipate stable networking capital for the next quarters to come. DSO have expanded against the end of last year and also against the same time last year. Days of purchase outstandings, DPO, on the other hand, have increased to a similar extent so that the spread between the DSO and DPO stands now at stable 12 days. Network and capital intensity increased by the close of March with a result of 4.1% versus 3% for 2023. The absolute level of 990 million Swiss francs is there with almost 100 million greater than it was a year ago. I will come back to this fact in a minute. Let's continue with cash and free cash flow. The pressure on the network and capital, which was discussed, arising from the sharp rise in Z-freight rates is clearly evident in the Q1 free cash flow result. This, along with some other factors, amplified seasonal effects, which typically result in a lower free cash flow conversion in the first quarter of the year. For a better illustration, let me move on to the next slide, which is a new slide. starting some more information on the cash conversion. The first quarter is usually not marked by the high-end free cash flow conversion, as it follows the peak demand season for Sea Logistics, our largest business unit. On that slide, you can actually see the average free cash flow conversion rate over the last over the last years between 2010 and 2020, so a 10 years look back on the Q1 cash conversions. A look back at this decade leading up to the pandemic points to an average first quarter free cash flow conversion of just under 20%. Excluding the effect of the recent sharp rise in sea freight rates and some other factors detailed on this slide, the Red Sea impact the non-core capex in the amount of 55 million Swiss francs earlier last collection day that we had in March due to the timing of Easter and initiated in the fourth quarter 2023, but cash effective in the first quarter 2024, some of the redundancy payments. We experienced also As mentioned briefly, a curtailed collections due to the timing of Easter and some material cash outflows linked to the redundancy charge as mentioned in the fourth quarter. With these few comments, I would like to end our standard presentation with some key takeaways. As Stefan mentioned, there is a silver lining on the horizon positive volume development to be continued, intensified cost measures on Kuninago's side, streamlining of the organizational structure as announced in the first week of April, strengthening of the customer proximity, active yield and customer portfolio management, which all results into a confirmation on our focus on the roadmap 2026 initiatives. So in closing, volume trends showed some improvements in the first quarter amid challenging market conditions. Nonetheless, market demand overalls and yields remained subdued. In this environment, we remain relentlessly focused on cost management, And this is evidenced most recently by the additional measures that we have taken in the first quarter to further reduce costs. These actions will yield incremental benefits continuing in the second quarter and of course, beyond that point. With these commentary, I would like to conclude the standard presentation and I would ask Sandra to open up for Q and A.

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 while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and 1 at this time. Our first question comes from Alex Irving from Bernstein. Please go ahead.

Hi, good afternoon, gentlemen. Hope all is well. My first question is on volumes, please. So global data on air freight and sea freight volumes is suggesting total market growth in around the highest in the digits year over year. Your number is in the lowest in the digits, but you also said that your market share is stable. If you could please help us to understand where the difference lies. My second question is on the regional management structures. So following that closure, just a little bit more information here. What is the civic role of the managers who are being eliminated? And why are you confident that you're able to eliminate those roles without impairing your ability to control the business, please?

Thank you. Hello, Alex. It's Marcus. I'll take the first one. Good question on that market data, by the way. I'm not sure where the high... the high single-digit market volume. We think we have been growing in line with market, but, of course, we are trading off, if you like, high-yielding business for volume increase. So I think, or we believe, based on our market data, that we have been in line with market and certainly expanding on the high-yielding volumes.

Hi, Alex. Stefan speaking. Good to have you. I will answer the question on the regional management structure and give you a little bit more insights, basically, beyond the press release, which you have seen. So, first of all, we had roughly 700, FTE 700 people in the regional structure, five regions. Reporting into the regional management, we have currently, or we have currently between 55 and 60 national or cluster managers. These 55, 60 cluster managers will now report into the management board directly, into five of us, four colleagues in the business units, C, Air, Road and Contract Logistics, and to myself, four of them. So that's the new structure. And What it requires is, of course, that the national managers take an even larger and wider responsibility, especially on, and that's not new, on CX and EX, so on the customer front, customer-facing activities, and on the employee side, and as I said, repeating myself, they will report now, or they already report into the board members, and that will ensure that in a volatile market, we can execute our decisions much faster than in the past because we have now a direct connection into the country organizations, vice versa. So that's the major change on the structure which we have put into place beginning of or on April 8th.

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

Good afternoon and thank you for taking my question. If I could just go back to your comments on CEGP per TEU. So you mentioned there was a benefit from Red Sea towards the end of the quarter in March. Can you help us understand kind of how much of the performance in the first quarter was your focus on yield versus kind of benefit from the Red Sea. And as you talk about 2Q, what's your visibility on that? And why do you think that there's no Red Sea benefit beyond 2Q? And just then on your medium-term targets, where are you in terms of meeting your 2026 EBIT targets? I think in the last conference call, you had said that the volume performance was below your expectations. Has that changed in any way? Thank you.

I'm Uwe Stephan speaking. Let me tackle the first question, the CEGP per toy. What was the share coming from Red Sea? It's rather limited in March. It's between 5 and 10 million on EBIT level. in March, nothing in general February. And then why do we believe there is no contribution from Red Sea beyond Q2? So we believe that the situation from a rate perspective is going to normalize end or back end of the second quarter. But of course, we do not have the crystal ball. That is our expectation looking into the market right now. The only thing what I would like to add here from a volume perspective, what we expect as well in the Q2 is a significant, no, a remaining positive uptick in terms of the volume is concerned coming in from Q1. We believe that Q2 from a volume is stronger than the first quarter and Year-on-year, there should be expected a between 2% and 5% volume growth in the second quarter versus 2023.

Then Munirahat Marcus. On the midterm 2026, I think I can reiterate what we mentioned recently, that we believe the quality of the P&L, so the improvement in conversion rate, the focus on the customer excellence part, the expansion of the markets and also what Stefan alluded to on his roadmap slide on the digital ecosystem. I think we can deliver all that. I think where we struggle right now is the market growth that we had assumed at a different level than what it shows right now and what we can expect for the next quarter or so to come, but also let's not forget we have, if you like, already missed the first year of growth, which was last year, which we had in our plans at a different level. So is it impossible to achieve the growth rates that we have put out during our capital markets day? I think impossible is a strong word, but it's very unlikely that's going to happen. So again, the quality of the P&L, the improvements on conversion rate, everything else is going to happen the way we had communicated. Just the size and the growth that we have been able to gain from the market is not there as we speak.

Thank you. If I could clarify your comment on 2Q volumes, the 2% to 5% So the 1.5 that you did in Q1, we should think of that year-on-year would be better by 2% to 5% in 2Q?

Yeah, that is the right interpretation. So what I said, let me repeat it. The volume growth year-on-year Q2 is expected to land between 2% and 5% in the second quarter.

Thank you.

The next question comes from Satish Sivakumar from Citi. Please go ahead.

Thank you. I've got two questions here. Just on that volume comments, how much of the visibility you have today in terms of from your customers both across R and C? And then just moving on to the LCL volume mix, can you just give us an update? What is the LCL volume mix today and how it has actually progressed in the last six months Thank you.

So in terms of the outlook from customers, basically twofold. In Seafreight, we have a rather good insight into the bookings for the next four to five weeks, at least the pre-bookings, basically. For the next two weeks, we are absolutely clear on what will be booked. And then, as I said, four to six weeks, we have a rather good indication from the customers. Air freight is a little bit different, right? Because there is a lot of spot business, so the visibility into the next six or seven weeks is less pronounced than in sea freight.

On the volume mix, Satish, I think we're continuing to expand our shares on the high-yielding business. I think not every quarter is... is due for an update on the numbers. It's a slow moving process, given the large number of customers that we have. We're moving into the right direction. Is there anything that I would call out as being a step change in the mix? No, not as of yet. And I think we and we shall give you further information as we have promised on a yearly basis because then you really see the progress also in meaningful steps rather than in smaller movements.

Can I have a quick follow-up on the demand visibility in sea freight? And how does it actually compare into Europe and into North America? Like, where do you see more longer booking versus

You mean the longer or shorter contract?

Yes, longer. Yeah, that you see like visibility slightly better or is it just consistent across all regions, right? When you say four to six weeks of visibility in C3.

Yeah, that is pretty much across all the geographies. Let's not forget still the old truth holds up that the vast majority of businesses are concluded in North America and Europe. And from that perspective, the visibility is still there. So it's not depending on the geography. It's really across the globe in a very homogeneous way. Thank you. Thank you.

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

Good afternoon. A couple of questions for me please. The first one is around free cash flow. Obviously lots of moving parts. Marcus, is it possible to give any sort of range on free cash flow outcomes or conversion rate for the full year? I think your company consensus is about, well, pre this morning's results was just under 1.3 billion. That's obviously quite a big deviation this morning and you printed $970 million last year. So I know there are things like probably more redundancy payments coming through. So can you help us a little bit in terms of free cash flow? And then in terms of the charge to be taken of $50 million, is there any sort of split of that by division, please, and whether all of that will flow into Q2? Thank you.

Sure, Andy. Thanks for the question. I think free cash flow, very good observation. Yes, there will be cash outflows for redundancies. And I combined the answer for the two questions. I think the range of around 50 million cost at that point in time is likely. Everything, whatever we're going to execute and announce and inform everybody is going to be during quarter two. So similar to the quarter four, we will also disclose in some level of detail. From an allocation point of view, I would guess the majority will be in the sea and air freight arena and a smaller part will be in contract logistics and road. For the full year cash flow, I would still believe that because the logic of the business model has not changed, we should run at a free cash flow conversion rate at around 90%. Then when we are discounting some of the redundancy payments that are happening during the year, I would think we should still have 85 to 90% or 80 to 90% as a target for our free cash flow. Nothing unforeseen is going to happen. I think I'm comfortable with saying that that's also going to be the reality at the year end.

Right. The next question comes from then Togo Jensen from Carnegie Investment Bank. Please go ahead.

Yes, thank you for taking my question here. Maybe if you can give an update on the NEOM project in Saudi Arabia. I know you are involved on the renewable side. How does that business impact you and how will any potential delays impact you in the future? Thank you.

Hi, Dan. I will take that, Stefan. As I outlined a couple of times last year already, we are not involved directly, and you said that quite rightly, so with NEOM project. So what we execute is shipments based on supplier decision base. So we are currently executing a large wind project from China into NEOM. It's a turnkey project, and we have a couple of others where we bid on currently. So for us, it's purely supplier-related. And I've seen as well that there was an announcement recently on a delay or less, basically, investments into the line, but that has no impact on us as we are not directly involved into the NEOM activities. We are only focusing on supplier-based turnkey projects mainly in the sea freight and project area and not directly involved on the ground.

Understood, thanks very much.

The next question comes from Marco Limite from Barclays. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. I've got two. So the first one is on the GPTU in the sea freight. Whether you feel like the 500 mark, it's let's say the new sustainable level. I guess you were mentioning there was a bit of tailwind in March from Red Sea. So maybe something coming from that drops off, but you feel like 500 million is a ballpark right number going forward. And whether volume growth or stronger volume growth in the second half of the year, but already in the second quarter, it somehow dilutes that number. So if volume growth is a tailwind or a headwind basically to your yields. And the second question is on conversion ratios, which were very strong in sea freight, but in air freight sounded a bit softer. What is driving that and whether structurally you see big differences in your path forward to get to your targets in sea freight versus air freight? Thank you.

Hi, Marco, Stefan. GP per toy, it's not 500 million, it's 500 Swiss francs per toy. And this is what we have as well. Yes, of course. Communicated as an ambition as well during the Capital Market Day last year on March 1st. So we are happy that we have demonstrated that we have the can-do attitude and that we have reached again the 500 mark. We believe, and this is what we always said, is there will be some quarters above and below. Second quarter will be in the high 400, close to 500 range. We don't believe that there is a significant negative trend to be expected, but with more volumes and significant more volume coming in in the second quarter, as we see the bookings currently arising, it might be that there is a little bit lower GP trend per toy to be expected. But it remains our ambition, and we'll do everything on the product mix and on the focus with our customers to really demonstrate that we deliver as promised around the 500 range. So no big deviation to be expected.

And then maybe on the air freight side, on the conversion rate, I think, Siegfried, you have seen yourself very healthy levels. On an air freight side, I think we should expect further developments further improvements on the yield, but in a moderate pace and at the same time with some cost benefits with higher volume and most certainly stable or actually declining cost structure. Having said that, I think the important thing to understand is how does the market currently look like? And really when you do the three things, you know, components of the market that is currently driving the volume growth and also some of the capacity restraints. It's hard cargo that is currently missing. It's perishable that is stable and is basically growing. And you have e-commerce that is really the driver for everything we talk in air freight. And I think at that point in time, we also have to see what is the profitability around that e-commerce business and how eager we are to operate that business or rather focus on higher yielding businesses in the hard cargo. So I think what you should expect going forward is focus on hard cargo, better yielding, lower cost structure, and then... I think air freight is also going to take off into the right direction again. So nothing miracle around it. It's just focus on the right strategy.

Thank you very much.

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

Good day, everyone. Two questions. First of all, it's a follow-up question of what Marcus just said. In e-commerce, as a driver in air freight, I think we didn't speak enough about this topic today. So can you elaborate also the momentum that you really see there with Chinese companies? e-commerce giants boosting the volumes there. And can you also give us a bit more flash to the bone there in relation to the profitability that you achieve in this industry or in this segment as some market reports are also showing to us is that these big players also potentially even pay more or attractive prices to save the capacities for their big plans to bring volumes to Europe and the U.S. And then the second question is more on also your measures that you mentioned this morning, for example, the temperature-controlled area in New York, adding in air logistics some more possibilities to you. And besides this, also the inauguration of the new U.S. contract logistics facility in New Jersey. So can you just give us there a bit more maybe granularity about the significance of those measures to the overall volume capacities or volume growth potential. I know there are some details about square meters, but that's not so helpful. Thank you.

So I was – maybe we should have a side discussion on the reports, basically, because I'm not aware that any of these players – are paying any single penny too much or any premium, right? So that is not what we see. But from a volume perspective, John Markle, they still basically have huge demands and mainly they focus on direct carrier connections. Your question was as well, what is the utilization? How much do we carry for e-commerce and the two giants in particular? As we said, I think during the Q4 call, We are leveraging our subsidiary Apex in particular for that kind. Legacy is not pretty much involved. And it's less than 20%, below 20% of the capacity offered by Apex into the marketplace, which is focusing on e-commerce. But again, I need to reiterate, the yield coming from e-commerce is significantly lower than for standard hard cargo.

I think on the temperature control and also some other locations that we are continuously improving, it's not so much the size that really is of biggest relevance. It's the network and the completion of network positions around the globe with the right certifications in place, with the right accreditations in place. So temperature control is one of the distinguishing features, I wanted to say, for the transportation. So it's the availability of a certified network rather than how big the individual locations are. On New Jersey, I think was your question, the New Jersey facility is already up and running, and it's a hub for fashion and luxury brands And we are using that also for all kinds of cross-border movements. So it's interesting that you picked up on these two, but yeah, these are the context around these two.

The next question comes from Michael Furth from Fontobel, please go ahead.

Yes. Hi, everyone. Good morning. Just two for me. Also, the cost per unit development in F rate, can you just explain why it increased so much versus the third quarter and the fourth quarter? And the fourth quarter included some one-offs there. what are the dynamics in quarter to quarter in these OPEX and how should we look at that going forward? That's the first question. And then the second question is just maybe clarification or follow up on what was just asked. Your right of use assets increased quite substantially in the quarter. And I was just wondering if that relates to those warehouses you just mentioned or if there are other effects in there. Thank you. Hi Michael, it's Marcus.

So right-of-use assets, rather clear impact from one large operation. I think Stefan mentioned that South European distribution center that we opened in Northern Italy, in Mantua. And that is a massive site with a very long lease period that obviously has an impact of the right-of-use assets. At the same time, the contractual liability. So if you look at the balance sheet, this is actually the move that's happening. That site went operational in the first quarter. Hence, from an accounting perspective, that is what happened.

Let me tackle the question on the air freight unit cost, right? So the air freight unit cost in the first quarter is 69 per 100 kilo. And if you look at the fourth quarter, fourth quarter was – positively influenced by two one-offs. One was the APEX one-off and the other one was a negative one, which was the accrual for the redundancies. And this together, we're at roughly 20 million, right? So the operational number was 20 million higher in overall for air freight in the fourth quarter. That's the reason why the comparison needs to be taken into account minus the one-off, and then you have the real number, right, which is then 6% below the fourth quarter if you take these two into account. So 6% net reduction of cost per unit between Q4 and Q1.

Okay, that's clear. Thank you. Thank you.

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

Good afternoon. I ask my two questions now. The first one is if you can add some color on the exit yields in sea and air by the end of the first quarter. And the second question is staying with sea yields. And if you look a little bit further out, so by the end of the year, most likely there's an additional sea freight volume becoming eventually available. Do you think you can sort of offset the potential pressure that's coming out of that one overall and then on rates that you can offset that one with yield management measures there? That would be my two questions. Many thanks.

Yeah, Sebastian, I take the first one. The exit on the first quarter in March, so what I can confirm is that the highest yield per unit in the first quarter in both air and sea was definitely in March. Yield in air was above the 82 and yield as well in sea was above the 502. So the strongest yield came definitely in March months.

And, of course, the yield fee freight, until the end of the year, I wish I would know it precisely. But I think from my perspective, we should be looking at a sound number between the 450 and the 500 mark. So maybe some quarters looking at the volume development, maybe a bit below the 500 mark. But I think we should be somewhere in that range.

Got it. And if I may squeeze one small one in, the non-core capex, the $55 million, can you elaborate a little bit on that one? What was there behind?

There were investments into projects in the area of sustainability, so that's something that creates for us a platform to further invest on the ESG agenda.

Many thanks.

Thank you.

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

Yes, good afternoon. Thank you for taking my questions. Both two on the yield side. The first is on the C yield and the increase in the first quarter. Markus, we've previously been having discussions about how you source your capacity, whether you're long, short, or completely back-to-back. I would assume that the strong increase maybe is caused by you being a little bit long and how you source your capacity. if I'm right in that thesis, I mean, how will that affect the yield? I mean, I know you've been giving guidance for Q2, but all else equal, is rates going to decline going forward? I mean, how can you keep it in around the 500 levels? That will be my first one.

Okay, we take it step by step, or you want to ask your second question at the same time?

No, no, step by step, sorry.

Okay, Lars. Good to talk to you. So, I think I'm going to disappoint you now because on the capacity side, we currently run on a very high-level sport market. So it's really not anything that is the 500-speed strength GP per toy level. It's really not driven through the procurement strategy. It's far more driven by really our focus on high-yielding business versus in the past running with some of the commodity business. So, yes, there is an impact, but that impact from a procurement is not significant in the first quarter. So going forward, I think we will see how the market develops, and I think we keep our procurement strategy, certainly for the future, rather close to our chest. But the main movements going forward is always move into the, or develop into the right customer portfolio mix, rather than thinking about how we disclose or not disclose our procurement strategy.

That's clear. And I suspected that you will give me an answer, which was probably along those lines. So which brings me to the second point. which is that the long-term guidance around the 500s, if we assume that over time yields have been sort of steadily declining, I think that's more or less evolution in this industry. What kind of change in mix will that require for you to keep that margin sort of stable? And maybe you can indicate how much is SME today and what it will be or what it will take to be in the future to keep it around the 500 level.

I think we have... I think we have disclosed some of the SME shares in our last call on the full year result. Again, I mentioned today, don't expect that mix is shifting on a weekly basis or even monthly basis. This is a long journey. It is connected with our customer experience, with our customer experience commitment, and it is clearly connected towards also the digitalized and more efficient execution on lower yielding business. So it's a whole mix of what we wanna do. And we have been very mindful when we created on the Capital Markets Day that aspiration of 500 Swiss francs GP per toy. And these are the drivers that we think we are mostly under control of those. So we get the customer experience right. We get the customer stickiness and the tenure of customer contracts extended. We create a good portfolio towards high-yielding business. Most of that is in our control. Most of that is, I think, on the long term relevant for us. Thank you so much. Welcome, Lars.

The last question for today's call comes from Uday Channapukupar from TD Cohen. Please go ahead.

Hi, thanks. This is Uday for Jason Seidel. I guess just sticking on the CGP in the second half, you mentioned no Red Sea impact after midyear and expecting normalization. I guess at the same time, some reports had ocean capacity up 9% for the year. Does the 450 to 500 mark for 2H assume the effect of those capacity as like, do you have any visibility there? And the impact on GDP per toy in the second half, and I guess, just quickly for my follow up on China, the US transit, did you did you or are you seeing any shift in ship or demand for moves to the US West Coast versus versus the US East Coast?

I would I it's, it's, it's Marcus. So for If I understand you correctly, your question goes into, is there a negative or potential negative impact on GPU per toy through the incoming additional capacity in the second half 2024, right? That's right, yeah. Thank you. So I think overall in the market, that might actually still, that might be true. But I come back also to what I said to Lars is, our market share is still a single-digit market share, and we can clearly choose how we operate within that market. And with our focus on the higher-yielding business, there is enough higher-yielding business to be won out there. I would say if additional capacity comes in and rates will come under pressure, that might even open an opportunity for us that we will have a lower buying versus our selling. So we might actually have an opportunity to create more GP. So I would be rather optimistic, at least in that dimension of the market. Choose the right customers where we can really make additional GP through additional services with the right customer experience. capacity might actually be an opportunity for us.

I will tackle the China question to the US. And the question was, do we see a shift from east to west? Yes, we see double digit shift from east to west coast currently from the inbound from Asia to the US. And the reason is labor disruption risks and Red Sea disruption. So there's a clear shift to be seen already.

All right, great. Thank you.

All right. I think from our side, we are at the end of our session today. Thank you very much all for joining the call, and I wish you a good day from Shindelegi.

Thank you very much, and good day.

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