Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the Half Year 2024 Results Conference Call and Live Webcast. I am Sandra, the Chorus 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. 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, and good afternoon and welcome to the presentation of Kühne Nagel's half-year 2024 financial results. I'm CEO Stefan Paul, and I'm once again joined by our CFO, Markus Blanka Graf, sitting next to me. Let's go into the half year 2020. For figures, page number two. Focusing on the most recent quarter, the Kühne-Nagel Group achieved a Q2 EBIT result of Swiss francs 402 million, which fulfilled our expectations to improve on the Q1 result of Swiss francs 376 million. The Q EBIT result was This ranks 419 million, excluding non-recurring costs associated with the streamlining of our organizational structure, which we announced in early April and concluded in the quarter. Driving this positive result was a meaningful, seasonal volume uplift in Q2 versus Q1, combined with our ongoing focus on yield management. Unit cost improvement in Core C logistics, and air logistics operations also contributed to the stronger result. Underlying operation costs were relatively stable, with accumulating cost savings from the measures taken in Q4 offset by inflationary effects. With respect to cost saving and inflation, We currently estimate a net positive annualized EBIT effect of up to $100 million once cost savings are fully realized by the end of this year, early 2025. Pre-cash conversion in our business is seasonally lower in the first half than in the second, with Q2 typically stronger than Q1. This was also the pattern in the first half 2024. However, we experienced expanded networking capital over the entire period from the sharp rise of sea freight rates and stronger trade volumes from Q1 to Q2. Markus will expand upon these points in a few minutes. Lastly, we expect stronger group profits in the second half relative to the first. Several factors give us this confidence. First, our visibility into stronger sea freight yields at least to the end of Q3 alongside modest volume development. And second, an expectation for an air freight peak season in Q4. And finally, our ongoing yield and cost management efforts. Let's do a deep dive into Seafreight page number three. On the left, as always, volume in TU, GP per TU in Swiss francs and EBIT per TU. Sealogistics achieved EBIT of Swiss francs 200 million in Q2 or 206 million, excluding restructuring costs. This compares to Swiss francs 295 million last year and 107 in Q1 2024. The sequential EBIT development reflected a cross-profit increase of 2% with volumes plus 9 and yields minus 7, along with roughly flat underlying operating costs. The volume uplift from Q1 to Q2 reflects normal seasonality as well as the pull forward of some peak season demand. However, this strength is not reflected in our year-on-year volume development of minus 1% in Q2 or underlying plus 2%, which excludes the low-yielding commodity volumes we stopped serving only in Q4 of last year against an estimated market growth of 3% to 5%. Turning to costs, recurring OPEX was roughly flat year-on-year at $308 million, or 6% lower than a year ago. This translated into unit cost reduction of 8% quarter-on-quarter and 5% year-on-year. Lastly, cross-profit and EBIT in Q2 did not include any material effects of Red Sea disruption compared to the roughly 10 million recorded in Q1. However, we do expect the ongoing disruption in the east-west trades to drive a sizable yield increase in Q3, which may extend further into Q4. This is one of the factors underpinning our expectation of stronger group profitability in the second half of this year. Next is air logistics on page 4. tons GP per 100 and then EBIT per 100, always in Swiss francs. Our air logistics delivered EBIT of Swiss francs 160 million in Q2 or 122 million, excluding restructuring costs. This compares to 139 million last year and 94 in Q1 2024. The sequential EBIT development reflected a solid plus 10% cross-profit increase with volumes plus 5 and yields plus 4, partially offside by an increase of underlying operational costs. The volume uplift from Q1 to Q2 was centered in APEX, fully participating in the e-commerce market boom. There was no apparent spillover from the sea freight market due to red sea disruption. Air logistics volume grew 7% year-on-year in Q2 with organic volume growth of 5% year-on-year and in line with our market growth estimate. Recurring operating expenses ticked up 3% in Q2 versus Q1 due to inflationary pressure as the bulk of annual wage increases takes effect every April. This speaks to a modestly slower accumulation of cost measures, savings relative to what we have seen in sea logistics. Underlying costs were at Swiss Tranks 308 and slightly lower than last year. Even so, volume growth resulted in unit cost reduction of 2% Q&Q and 6% year-on-year. Looking ahead, we are well positioned to capitalize on any further market recovery and are cautiously optimistic that the second half will include a noticeable air freight peak season. Next is road logistics, page number five of the presentation. Our road logistics business unit had an EBIT in Q4 of 36 million. or 39 million excluding restructuring costs. This compares to 41 million last year and 30 million in Q1 2024. Shipment volumes returned to growth in Q2 up to 6% year-on-year versus favorable comms. This compares to flat growth in Q1 on a day count adjusted basis. We believe our volume growth broadly mirrored the market in Q2. However, GP growth excluding currency effects of 4% year-on-year did not match this pace, implying some price mixed pressure. This speaks to soft demand in our core European and North American markets. Looking ahead, please keep in mind that Q3 is the seasonally weakest quarter for Roth because of the phasing of summer holidays in Europe. Lastly, please note that our already announced acquisition of Malaysia-based City Zone Express is now expected to close in Q3, slightly later than originally anticipated due to delay in regulatory approval. City Zone Express will strengthen Kununagel's cross-border road services in Malaysia, Vietnam and Thailand. Contract Logistics, page 67. Contract logistics generated another solid EBIT result of SWIFT's 50 million in Q2 or SWIFT's 52 million excluding restructuring costs. This compares to 48 million a year ago and 55 million in Q1. Cross-profit growth excluding currency effects accelerated to 8% year-on-year in Q2. This reflects in part the ramp-up of the major Adidas distribution facility in Italy, which serves exclusively the distribution and e-commerce need of Southern Europe. Please note that this Adidas project is expected to reach the planned full run rate contribution by Q1 2025. Market share expanded once again in key healthcare and e-commerce segments, as mentioned a couple of times already, categories which continue to dominate our sales pipeline. Lastly, the conversion rate of 6% in Q2 was stable on a year-over-year basis. Before turning it over to Markus, page number 7, let's review some key developments over the past quarter with respect to our roadmap 2026 strategy. In Q2, we made further progress in establishing a key pillar of our C-Logistics SME strategy with the additional rollout of new customer care locations. These sites play a key role in enhancing service quality with the aim of reducing our churn rate in this key customer segment. Turning to market potential, the quarter saw the launch of three major e-commerce fulfillment centers across three continents. including the Adidas facility in Northern Italy that I just mentioned. We also initiated a new offering facilitating the faster turnaround of temperature control sea freight containers for healthcare customers. On the technology front, we improved our ability to exploit our data and continue to identify a test genii use case or use cases. Lastly, I'd like to emphasize the importance of our recent organizational streamlining and the relevance of this move to our roadmap efforts. We now have a direct line from management board to our country organizations with positive implications for the service quality, responsiveness, as well as efficiency.

With this, I hand over to Markus. Thank you, Stefan, and good afternoon, everyone. Thank you for your interest in Kuna and Margot and taking the time today for the half-year 2024 results. As Stefan has outlined, we continue to see an environment of demand for global logistics services that is slowly improving. In such periods of continuous potential volatility, we usually focus on our highly flexible asset-light business model. Our current priority is on cost control with determination of the regional structure in the second quarter 2024 to ensure a further reduction of cost. This reflects both a reduction of absolute costs and per unit costs with expected stable to increasing sequential volumes in C and F. Let's start with the income statement. Q2 has been sequentially stronger than Q1 2024, even more so when considering restructuring costs of 17 million in the second quarter. We expect a further improvement on our performance on conversion rates based on the EBIT level of 402 million and the underlying business performance of EBIT 419 million. Whilst the P&L remained below the same period of the first six months in 2023, we recall that the first half year 2023 still enjoyed some positive effects from 2022. Looking at the quarter sequentially, again, we can see a solid operational conversion rate improving of 18 or 19%, excluding the restructuring cost, supported by active resource management, the combined sea and air freight conversion rate was 34% in the second quarter. For reference, the full year 2019 sea and air freight conversion rate was 28%. Headwinds from currency had a negative impact of around 3%. which translates into 121 million at gross profit level and around 2% negatively or 24 million on earnings before tax. Working capital, page number 10, was on the top and remains on the top of our agenda. is increased due to significant rise of sea freight rates triggered from the ongoing disruption in Red Sea. From here on, I anticipate stable networking capital for the next quarters to come. DSL have expanded against the end of the last year and also slightly against the same period last year. DPO, on the other hand, have decreased. which reduced the spread between DSO and DPO to now nine days. Networking capital intensity increased by the close of June with a result of 4% versus a record low of 2.8% for 2023, but improved marginally from March 2024. The absolute level is thus almost 300 million greater than it was a year ago. I will come back to that fact in a minute. Continuing with cash and free cash flow generation, as mentioned, the pressure on network and capital arising from the continuous rise in sea freight rates during the second quarter is also evident in the Q2 free cash flow results. In absolute terms, we are satisfied with the net working capital as it has increased only a little over the value from the first quarter 2024. Expanding on the free cash flow generation, the Q2 results reflected free cash flow conversion of approximately 38% relative always to net income before minority. This compares to an average of nearly 70% for second quarters in the decade prior to the pandemic. Relative to other quarters, just for your own reference, Q2 is historically the second weakest quarter after Q1. Q3 is the strongest, followed by Q4, with average historical conversion rates of about 140%. While the Q2 performance marks an improvement on Q1, the largest single driver of the gap versus the historic average is the expansion of our core networking capital, accounting for about 40% of the difference. That is directly linked to the further escalation of sea freight rates in the second quarter due to the ongoing sea disruption, as I mentioned before. Let's focus on efficiency. In air freight, on the eTouch update, we see a positive conversion rate of 340 base points, which represents a value of approximately 3%, whereas on the sea freight side, we see an improvement of 120 base points. on the end of June 2024. Just to remind ourselves how we derive these numbers, Obviously, we look at man-hour savings. They do continue to accelerate, as you can compare probably to our last disclosures for the full year 2023. So, sea freight has improved from 100 base points at the year end to 120, and as mentioned before, on the air freight side, from 300 to 340. In closing, Key takeaways, volume trends showed some improvement in Q2 amid challenging market conditions in seaframe, growth in line with the market in airframe, and margin improvements for both network businesses. In this environment, we remain focused on cost management, And this is evidenced most recently by additional measures taken in the second quarter to further reduce costs. All of these actions will yield incremental benefits. Thank you, everyone. And I will now hand over to Sandra for the Q&A session.