Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the full year 2024 results conference call and live webcast. I'm 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 one on your telephone. In the interest of time, please limit yourself to two questions only. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Pohl, CEO of Kühne Nagel. Please go ahead, sir.

Thank you very much, Sandra, and good afternoon and welcome to the presentation of Kühne Nagel's full year 2024 financial results. I'm Group CEO Stefan Pohl, and once again, I'm joined today by our Group CFO, Markus Blankergraf. Let's go into page number two, full year results. We delivered a solid financial result in 2024 as volumes improved in the second half of the year. Thanks to this uptrend and our ongoing effective cost management, we returned to a year-on-year EBIT growth in the second half. We also returned to a more typical high-end free cash conversion by the end of the year. In 2024, we fulfilled several strategic ambitions that have prepared us for continued improvement in 2025. We expanded our customs offering, streamlined our organizational structure, further pruned our C logistics portfolio, and seamlessly migrated our in-house operation system to the cloud. These achievements have put us in the position we envisioned at this time last year. To remind you, we shared our view that we could expand our share of recovering market by reviewing our customer portfolio, managing yields, and adjusting our cost base in the post-pandemic period. Page number three, Seafreight. Stage set for market share gains. Volume on the left side, GP per container unit in the middle, and EBIT per container unit on the right side. ZLogistics produced EBIT of 198 million in Q4, which is an underlying improvement of 23% year over year, excluding one of costs booked in the prior year. Overall volumes were down 1% for the year, but up 1%, excluding the effects of our choice, to begin deselecting unattractive volumes in Q4 2023. Looking at Q4 alone, organic headline volumes also declined by one year over year, but expanded by 4% excluding deselected volumes. This compares to estimated market growth of 3 to 4% in Q4 and marks an acceleration from 2% underlying growth in Q3. Average yields across the year were down by 10%. The yield in Q4 of Swiss francs 464 per TU was down 6% sequentially, but still up plus 8% year over year. Looking ahead, we remind you that the full year consolidation of our acquisition IMC will contribute positively to the average yield in 2025. Turning to OPEX, we reduced unit costs by 5% in 2024 with a bulk of the savings in the first nine months of the year. This followed the 10% reduction in 2023. In the most recent quarter, cost increased slightly, which sets the stage for faster growth in the quarters to come. Next is air logistics on page number four. Better yields and better volumes. Volumes on the left, GP per 100 kilo in Swiss francs in the middle and EBIT per 100 kilo in Swiss francs on the right. Air Logistics achieved Q4 EBIT of Swiss francs 148 million or underlying growth of 6% excluding one-off costs booked in the prior year. Total Cunanagel volumes grew by 6% in 2024 with 5% growth in Q4 alone. This compares to estimated market growth of 6-7% in Q4 or closer to 9% including all of e-commerce. Q4 volumes certainly exceeded the expectations we had back in the autumn. The additional volume boost came from APACs and perishables. From a sequential growth perspective, the 6% uplift from Q3 to Q4 was also supported by hard cargo volume. Yields declined by 5% all year over year, but surged in the second half. The yield in Q4 rose to Swiss francs 89 per 100 kilo, a gain of 8% sequentially and an 11% improvement on prior year levels. These increases reflect both positive mix and yield development in the quarter. Unit costs were broadly flat in 2024 after the 12% reduction in 2023. A modest reduction of car and legacy was offset by an increase at Apex, weighted to the seasonality stronger second half of the year. Let's move to page number five, road logistic. Persistent headwinds in key markets. Road logistics EBIT for Q4 was Swiss francs 10 million or nearly half the underlining result from the prior year, excluding one-off costs. Order volumes increased by 5% in 2024 and 8% in Q4 alone, fueled by the consolidation of customs broker Faro and road operator City Zone Express, which we acquired in 2024. Excluding acquisitions, volume declined by 3% year-over-year in 2024. In Q4, the decline was also 3% versus an estimated 5% drop for the broader market. The 5% decline of organic growth profit in Q4 reflects negative yield developments and capacity cost pressure. While organic costs also declined year over year, the net result was negative at EBIT with a corresponding contraction of the conversion rate. Page number six, contract logistics, adding another year of record high EBIT. Contract logistics delivered a new all-time high EBIT result of SwissRank 65 million in Q4, for an underlining gain of 18% year over year. Full year EBIT reached a record high of 227 million or 229 excluding one of costs. These improvements mark a continuation of the strong and consistent earning growth trend. Constant currency cross-profit growth of 7% for the full year and 5% in Q4 alone point to consistent market share gains. These remain centered in healthcare and e-commerce with a meaningful contribution from a ramp up of the Adidas facility in Northern Italy, which fulfills all of the company's omni-channel demand for Southern Europe. The conversion rate increased by nearly 100 basis points in Q4, supported by our continuous focus on process re-engineering and automation. This concludes my comments on the performance of the business units. Typically, I would now turn to a strategic strategy progress update before handing over to Markus. But today we ask for your patience until March 25th, when we will provide a progress update as well as insights regarding our future path at our Capital Markets Day. With that, Markus, I hand over to you.

Thank you, Stefan. And good afternoon, everyone. Thank you for your interest in Kunio Nagel and taking also the time today for the full year 2024 results. As Stefan outlined, we managed an upward trend of results in the second half through our ongoing effective cost management and returned to year-on-year EBIT growth. We also returned to a more typical high and free cash conversion by the end of the year. For both, I will give more details later on. The current business environment remains volatile with respect to consumer demand and geopolitical risk. But we have successfully managed through countless economic cycles and periods of unforeseen volatility. Coming to the income statement, and as mentioned before and clearly visible on the chart, We began 2024 with lower profitability than the year before and improved the performance continuously. This resulted in a Q4 2024 performance that is nearly 100 million CHF better than the year before. Despite this improvement, The overall results for 2024 remained roughly 10% below last year, excluding a currency headwind in excess of 2%. Looking at the four quarters individually, we can see a solid operational conversion rate of 18, 19, and 20%, excluding restructuring costs, supported by active FTE resource management. The combined sea and air freight conversion rate was 35% in Q4. As mentioned, currency headwinds in excess of 2% were evident, not only on the EBIT line, but also at the level of gross profit and earnings before tax in the amount of 211 million and 43 million Swiss franc, respectively. Working capital, on the top of our agenda as always, and it has increased compared to last year. This is due to the significant rise of sea freight rates triggered by the sustained higher rate levels on the Far East-Westbound trade lane and a recent surge in charter activities within APEC's Transpac operations. The 94 million increase that you can see on the schedule on the slide is solely related to the APEX charter activities that all flows in again rather quickly as it is linked to the charter activities. DSO contracted slightly since the end of Q3 and are stable relative to year end 2023. DPO, on the other hand, have decreased both quarterly and year-on-year, mainly due, as mentioned before, to the increase in charter activities, which has now reduced the spread between DSO and DPOs to a mere 3.7%. Cash and free cash flow, looking more closely at the cash generation. The Q4 results reflected free cash flow conversion of 94%, excluding the seasonal impact of Apex that I just mentioned. This would have been 124% and therewith much closer to the comparables pre-Apex acquisition. As I mentioned on this last slide, the only driver of sequential increase of networking capital from Q3 to Q4 is the seasonal and charter effect at APEX. While much improved, the Q4 cash conversion rate sits below the decade-long average preceding the pandemic, but still within the range of a more normal outcome. Looking forward, in the absence of very large freight rate spikes or increases of demand, we expect this trend of improved free cash flow generation to continue. Dividend proposal. The supervisory board has decided to propose a dividend distribution of CHF 8.25 per share to the annual general meeting on May 7, 2025. This reflects our healthy profitability, well-managed cash conversion, and our success in balancing current and future cash needs for adapting the workforce to the markets. This dividend also represents a stable payout ratio compared to previous years and a stable ordinary dividend in absolute value versus 2023. C-Logistics and eTouch. It is with regret nearly that I have to say that this is going to be the final update on eTouch. eTouch, our digitalization and automation program, which has been running now for several years with the aim of increasing operational efficiency. The eTouch methodology addresses all aspects of operational processes and we have selected only a few workflow areas for sea logistics and air logistics to demonstrate its relevance. Man-hour savings continue to accelerate as we expand the efficiency gains through the operational processes. This has resulted in a positive conversion rate impact of 130 bps, which represents more than 6 Swiss Franc operating costs per TU. Most of you, of course, are familiar with this topic. So let's have a look at the customer portfolio management in Seafright, an important effort where we have only recently started sharing related information. You may recall, these let's call them donut charts from last year's presentation of full year results we share these slides just to illustrate the steps taken to improve our customer portfolio and to highlight that retain a very diverse mix we've expanded our share of higher yielding sme business by investing in field sales improving proximity to customers and taking other measures to expand service quality and boost retention. Another step was to stop serving certain volumes which didn't produce an adequate return. These so-called deselected volumes accounted for 6% of our total volume in 2023 and 2% in 2024 as we exited these volumes. We're now pleased with the current footprint and only call out a couple of remaining categories within our portfolio with significantly lower than average yields. These segments include intra-Asia trade and waste products. Lastly, it's important to remember the effect of a weaker US dollar on our reported gross profits and yields in sea logistics, a sector where US dollar is the dominant functional currency. On the face of it, our average yield is about 50% greater than it was in 2019. On a constant currency basis, the gap would be even wider. Air logistics. We now turn to the eTouch efforts in air logistics, which was our initial testbed for automation. Proud that we can report further man-hour savings resulting in a positive conversion rate of 370 bps representing a value of 3 Swiss franc operating cost per 100 kilo. This was the 2026 target we set for ourselves at the 2023 Capital Markets Day. We have clearly progressed faster than anticipated, and this bodes well for our ongoing efforts in sea logistics, where the initiation of eTouch began more recently. With this report, we close our specific reporting on eTouch to the public. And of course, we will continue the process optimization and harvest the positive effects on an ongoing basis. Looking at the donut charts for air logistics, the intent is slightly different here in that we are primarily focused on highlighting the diversity of the portfolio with a central focus on perishables. As you know, the unit economics vary significantly from the rest of the air logistics portfolio and providing this split allows one to better assess our progress versus the broader market and our peers. One change that you may have noticed, we will no longer break out the contribution of APEX to air logistics, cross-profit or tonnage due to some competitive considerations and the amalgamation within the KN network routing. Let me summarize. Let's close with our prepared remarks with the key takeaways. The lead headline is that we returned to strong year-over-year earnings growth in Q4. Second, we are pleased to propose a dividend that implies a high-end payout ratio and that is in line with last year's distribution from retention. Next, our intensive homework in recent quarters has now positioned the group to grow faster than the market. Two important changes will support this growth. Firstly, we streamlined the organization to achieve closer proximity to customers and enable faster decision-making. Secondly, we completed some bolt-on acquisitions, which expanded our service offering and chip coverage. We look forward to elaborating on these points and more At our Capital Markets Day in three weeks, please note that an invitation and registration link was sent out early this morning. And of course, feel free to contact Chris or Andrea if you have any questions to the Capital Markets Day. Thank you for your attention. And I would now ask the operator to open the Q&A session. Thank you.