Kuehne + Nagel International AG

Thank you very much, Sandra. Good afternoon, and welcome to the presentation of Kuehne+Nagel’s nine months 2024 financial results.

I'm CEO Stefan Paul, and I'm joined by our CFO, Markus Blanka-Graff. Before I go into the details, please, I apologize, my voice, I catched a little bit of a cold.

I will speak a bit slower in order to ensure that everybody will understand what I'm going to say. Let's move to the nine-months results, the overview.

In Q3, Kuehne+Nagel achieved a sequential improvement in group EBIT and the first year-over-year quarterly increase in two years. We earned a group EBIT of CHF 455 million with non-recurring items.

Sequential earnings expansion in Q3 was driven by volume growth, effective yield management and Contract Logistics market share gains. Our ongoing cost control efforts resulted in a further sequential reduction of unit costs in Sea Logistics, while Air Logistics units cost were stable.

With respect to cost saving measures taken in Q4 last year and Q2 this year, we continue to see emerging benefits that we expect to realize fully by year end or early in 2025. As we have noted in recent quarters, these savings are mitigated by inflationary pressures and now also by the effect of volume growth and additional investments in service quality.

In terms of free cash conversion, the second half is typically much stronger in our business than the first half and usually strongest in Q4. Our year-to-date performance in 2024 reflects this trend, but working capital expansion softened the effect on absolute conversion.

This was primarily due to growing freight volumes and especially the sharp rise in sea freight rates, which appear to have peaked in Q3. Per usual, Markus will expand on this topic in a few minutes.

Lastly, the return to profit growth in Q3 was broadly in line with our expectations, but with diminished prospects for this year peak seasons relative to our views at mid-year. This is due in large part to frontloading of cargo demand, which persisted through the middle of Q3, a development with implications for both the sea freight and air freight markets.

Frontloading was a reaction by supply chain disruption sparked by the rerouting away from the Red Sea, potential fallout from port strike actions in the US and geopolitical uncertainties. These uncertainties persist with US election now in focus and its potential impact on trade policy.

That said, Kuehne+Nagel has a long-established track record of successfully navigating challenging market conditions. We remain focused on the execution of our strategy, with progress in Q3 across multiple fronts, including improvement of SME service levels, additional sea freight portfolio management, migration of our core TMS to the cloud, and the closing of our bolt-on Road Logistics acquisition in Asia.

Looking back at the nine months, we have delivered on the right-sizing workforce, streamlining the management structure, and refocusing the salesforce. This has created a solid platform from which to accelerate growth in the quarters to come.

Let's move to Sea Logistics. As always, volume in TEU, GP, and EBIT per TEU in Swiss francs.

Sea Logistics EBIT grew sequentially and year-on-year in Q3 to CHF 256 million. This compares to an underlying result of CHF 206 million in Q2 and CHF 236 million in Q3 last year.

The sequential EBIT increase of 24% reflected a gross profit increase of 7% with volumes plus 2% and yields plus 5%, along with reduction of operating costs. As I mentioned, we took another step towards improving our volume mix in Q3 with a deselection of additional low-yielding business from a single customer who accounted for about 140,000 TEU of volume in 2023.

Adjusting for this decision and the volume from the two other accounts we stopped serving in Q4 last year, our underlying volume growth was just under 2% year-on-year in Q3 versus estimated market growth of 3% to 5%. This change and especially the late recognition of Red Sea effects contributed to a sequential yield expansion in Q3.

Turning to cost. Recurring OpEx declined by 5% quarter-on-quarter to CHF 292 million, and declined by 3% year-over-year.

This translated into unit cost reduction of 7% sequentially and 1% year-on-year. We anticipate a small step up cost into Q4 as we continue to invest in our service offering and pursue higher yielding volumes, which also entails higher costs.

This includes additional customer care locations in second-tier cities. We have now opened 37 since late 2022 with three new locations in Q3 alone.

This all resulted in an increase of conversion rate to 47% in Q3 from 40% in Q2, which also marks an improvement from 44% in Q3 last year. Shifting to current trading.

It is clear that yields improved over the course of Q3 but they did not top out as high as we expected. Given the earlier than expected conclusion to the peak season which also breaks long on this.

Let’s move to Air Logistics, the volume in tons. On the left hand side GP in 100 kg, and the EBIT/100kg, always in Swiss francs.

The Air Logistics EBIT results for Q3 of CHF 120 million is roughly comparable to the underlying Q2 results CHF 122 million. This compares to CHF 136 million a year ago.

Modest sequential gross profit growth of 1% on the back of volume growth and stable yields was more than offset by a 2% increase of OpEx which translated into flat unit cost. Apex drove the volume uplift from Q2 to Q3 with all other volumes flat.

From a year-over-year perspective, perishables and Apex showed strongest growth. Spillover from the sea freight market due to Red Sea disruption appeared to be minimal.

Air Logistics volume grew 7% year-on-year in Q3, or by 5% on an organic basis. We view our growth as in line with our reference markets.

The net effect on yields was neutral, as higher growth in the lower-yielding perishable segment offset stronger yields in other areas of the portfolio. As for costs, Q3 saw a plus 2% Q-on-Q rise in OpEx to CHF 340 million.

On a year-over-year basis, costs were up by 4% relative to the average quarterly OpEx in the second half last year. The sequential rise of overall OpEx reflects the stronger performance from Apex, which is in part seasonal.

This all resulted in a conversion rate in Q3 that was stable relative to Q2 at 28%, but lower than last year Q3 result of 33%. Here as well, looking at current trading, we see a muted peak season this year in Q4, with most likely modest low single-digit percentage volume growth on both sequential and year-over-year basis.

Again, the contrasts with our more bullish expectation at mid-year. This partially reflects the extent of front-loading earlier in the year, the reduced potential emergency demand as sea freight disruption has eased, and the actual demand in some key segments, such as the German auto sector, which fell short of expectations.

That said, we aim to deliver higher growth in the quarters to come. Let's move to Road Logistics.

Road Logistics EBIT for Q3 was CHF 22 million versus a recurring CHF 39 million result in Q2. This compares to CHF 26 million last year.

Shipment volume grew 8% year-on-year in Q3, up from 6% year-on-year in Q2. On an organic basis, Q3 volumes were closer to flat.

Gross-profit remained roughly flat year-on-year in Q3, reflecting soft conditions in our core markets, notably, Germany and France. Overall, the net result was relatively weak EBIT contribution for Q3 during the slowest seasonal quarter for Road Logistics.

Please note that the City Zone Express acquisition closed in Q3, consistent with our most recent communication. As a reminder, City Zone Express will strengthen Kuehne + Nagel’s cross-border road service in Malaysia, Vietnam, and Thailand.

Next is Contract Logistics, a highlight for this quarter. Contract Logistics once again generated solid EBIT growth in Q3, even increased to CHF 57 million, versus a recurring result of CHF 52 million in Q2, and CHF 48 million in the year-ago quarter.

Gross-profit growth, excluding currency effects, accelerated further to plus 10% year-on-year in Q3, up from 8% year-on-year in Q2. This reflects in part the ramp-up of the major Adidas distribution facility in Italy, we spoke about that in Mantova, a site which will fully fulfill all of the company's distribution and e-commerce needs for Southern Europe.

As previously indicated, the Adidas project is expected to reach the planned full run rate contribution by the first quarter 2025. Market share expanded once again in key healthcare e-commerce segments, categories which continue to drive the site's pipeline.

The conversion rate of 6% in Q3 was stable, in both quarter-to-quarter and year-over-year basis. Before turning it over to Markus, let's review some key developments over the past quarter with respect to our Roadmap 2026 strategy.

In Q3, we addressed the market potential pillar of our strategy with a further extension of our Contract Logistics footprint in e-commerce and healthcare. As mentioned a few minutes ago, we also closed our Road Logistics acquisition in Asia.

If we look at our technology efforts in the digital ecosystem, we reached an important milestone in Q3 with a successful first wave of migration of our in-house Transport Management System, TMS, to the cloud. This is a critical prerequisite to boosting our ability and ability to leverage our data and continue to identify and test Gen-AI use cases.

Also, our offering to help customers decarbonize their supply chains is gaining further traction in the areas of Air and Road Logistics. With this, I will hand over to Markus.

Thank you, Stefan, and good afternoon, everyone. Thank you for your interest in Kuehne + Nagel and taking the time today for the nine-month 2024 results.

As Stefan has outlined, and before we turn the page, we can report sequential improvement in group EBIT and a year-over-year quarterly increase as well. We have achieved this result in a market environment characterized by the ongoing Red Sea situation, short-term disruption from East Coast strikes in the US, and some severe weather conditions in Asia at the end of Q3.

Hence, we continue to focus on our highly flexible, asset-light business model. Our current priority is on cost control with the elimination of the regional structure in the second quarter 2024, which resulted in a reduction of absolute cost and unit cost.

As always, let's start with the income statement. Q3 has been sequentially stronger than Q2 2024 and Q1 2024, even more so when considering restructuring costs of CHF 17 million in the second quarter.

For 2025, we expect a further improvement in our performance on group conversion rate. Looking at the three quarters in 2024 sequentially, we can see solid operational conversion rates of 18% and 19%, now nearly 21% excluding restructuring costs, supported by active workforce management.

The combined sea and air freight conversion rate was 38% in the third quarter. For reference, the full year 2019 sea and air freight conversion rate was 28%.

Headwinds coming from currencies had a negative impact in translation of around 3% or CHF 121 million at gross profit level and around 2% or CHF 36 million on EBIT level. Working capital increased due to the significant rise of sea freight rates triggered by the sustained higher rate levels on Far East westbound trade lane and a recent surge in air freight charter activities from Apex operation in transpac.

Looking forward, I anticipate stable network capital for the fourth quarter with some relief into Q1 2025. DSO have expanded only slightly against previous periods.

DPO, on the other hand, have decreased significantly, mainly due to the increase in air freight charter activities, which reduced the spread between DSO and DPO to now 4.8 less. Net working capital intensity increased by the close of September with a result of 4.3% versus 3.3% for 2023.

The absolute level in Swiss francs is thus more than CHF 400 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, the pressure on net working capital we just discussed is also evident in the third quarter free cash flow result, but with a better free cash generation than in any of the previous quarters in 2024. In absolute terms, we are satisfied that the free cash flow generation improved to about CHF 300 million in the third quarter.

Looking more closely at free cash generation, the third quarter result reflected free cash flow conversion of 85% to net income before minorities, this compares to 38% in the second. As a reminder, and relative to other quarters, the third quarter is historically the second strongest after fourth quarter.

The historic annual average is in the range of 90% to 100% free cash flow conversion. The quarterly performance year-to-date does fit the historic pattern, but with a more muted overall development due to the pressure of net working capital expansion, as I alluded previously.

As sea freight rates appear to have peaked in Q3 and assuming further moderation ahead, we anticipate an eventual reversal of these net working capital outflows over the coming quarters. In summary, our key takeaways.

We are positioned for a greater profitable volume growth in a low growth market environment. We assume that Red Sea effects have peaked in the third quarter 2024.

We have right sized our cost base and progressed further on our key strategic initiatives, customer mix, service mix and technology. We will provide more details around our plans in conjunction with Roadmap 2026 with the publication of the full year results.

Looking back at the nine-month, we have delivered on the right sizing workforce, streamlining the management structure and refocusing the sales force. This has created a solid platform from which to accelerate growth in the quarters to come.

With this, I would like to thank you for your attention and hand back to operator Sandra to open the Q&A session.

Hi, good afternoon, gentlemen. Two for me, please.

First on volumes, looking at industry data, commentary across the sector, Sea appears to be growing about 6%, Air double digits. Does that match your assessment of the markets?

And if so, what's behind the share losses and how do you plan to reverse that? Second question is around cost reduction actions from earlier in the year.

We had some headcount reductions back in Q1 and since then your volume performance has been lagging peers. With the benefit of hindsight, were those reductions the right move and will they be reversed?

Thank you.

Hi Alex, Stefan speaking. Let me take the first one, the volume.

So our take is sea freight volumes are growing between 4% and 5% and air freight is growing as well around 5%. I think the difference comes overall from the e-commerce share, which is, as we all know, outside of our remit, at least in the Kuehne + Nagel legacy, we only provide service for the e-commerce companies out of China with Apex.

So that's the reason why our numbers and I talked about addressable market rate, is a little bit different. So the second part of the question was how do we address that, right?

And that is, for me, pretty clear. We have done a macro set as well.

We have done our homework in 2024, so we right-sized our workforce, pretty much so in the Q4. Last year, we did the restructuring with the new governance model.

Now all the MDs are reporting directly to the management board. We have three sales channels.

One is the global account. The other one is new, is the national accounts.

National accounts are the mid-sized accounts, the hidden champions, reporting directly into the NMs and to the managing directors. They are fully accountable for that.

And last but not least, then the very important sales channel, SME, which is in particular for sea freight and road logistics. So what we are going to do now is, and we have started that journey already, is we will focus more on organic growth, leveraging our new structure and pushing our organization even more to customer focus set up.

And I'm rather confident that we can share again in the next quarters to come. So we revitalize our focus on growth after we have done our homework in 2024, pretty much so.

And Alex, on the cost reduction, I think there's two chapters to the cost reduction. The first one is right sizing the workforce.

We have done that. And I think we are exactly where we want to be in the light of also renovating or changing some components in the customer portfolio.

So I think we continue to change customer portfolio, customer mix towards our desired ratios. And for that, that workforce is in the right size.

And not to forget, we continue to harvest on productivity impact, so continuous automation and digitalization. The second chapter on the workforce was the structural change in the organization structure.

That obviously is an absolute sustainable cost reduction. It's never going to come back.

And that is something we will benefit from now on.

Thank you very much.

Yeah, thanks for taking my questions. I got two questions here.

Maybe firstly on the SME, increasing the workforce on the SME side to cater to that mark, that customer segment. If you could just help us understand where we are, do you think you've got the right mix of SMEs spread across the regions that would probably bring volume growth as we go into next year?

And because that's obviously, you're probably going to get better operating leverage with the same headcount as you invested in that segment now. And just on that operating leverage, so given you optimized your cost and right-sized the workforce, what is the like average volume growth you could still do without seeing an increase in the cost?

And then the second one in terms of portfolio rationalization, are we kind of done with the optimizing your, let's say, prices as the volume mix within your customer portfolio? And is it mainly done on the sea?

What about in air freight? Do you see a scope as you go into next year?

Thank you.

Hello Satish, its Markus. I think you're a little magician, I have to say.

It's like eight questions disguised in two, but we're going to try to address this. So SME, I take the operational leverage in context with the customer exchanges.

You're absolutely right. Different customer sectors like SME customers require obviously higher efforts, but that was exactly what we wanted to do.

And when you remember back into our Roadmap ambitions, the SME numbers are certainly where we want to be more present and be able to provide more services to the customer. Hence, we have started our journey by opening what we call customer care centers in the sea freight SME segment that grows.

Currently, I won’t disclose the number, but it's a double digit growth number that we see on that segment. It’s customer proximity and not only proximity as understanding the requirements and the needs of the customer, but indeed also a geographic proximity.

It's something that matters. We have opened a total of 37 customer care locations over the last eight quarters and to accommodate that initiative.

So operating leverage goes in combination with what is our service offering towards the customers. I think we focus pure operating leverage far more on the efficiency gains through automation, through streamlining of operation.

This is where we put our money, if you like, to become more efficient.

Okay, Markus, thank you very much. Then there is the question around the customer portfolio and the cleaning up of the customer portfolio left over.

Let me take this one. So this is an ongoing effort overall, right?

So you are never done with this, but the big part is but in sea freight we have basically handed over three major customers, commoditized customers, towards the market. And it depends always on the rate development of the situation where we are in, right?

If we don't generate a certain yield, we will have a discussion with the customers, right, whether they are large, medium-sized or small. We always try to optimize our portfolio.

But overall, if I look at it from a current perspective into the commoditized or normal key account business, I would say for the time being, we are done. But again, iterating what I said, this is an ongoing effort in all business units, in all network business units, whether it be tech, road, sea or air, we always look into the different portfolios and the different profitability of the customer segments.

Hi, thank you for taking my questions. Just following up around kind of the growth focus that you've talked about, and what actually, what steps are you taking at this point to kind of accelerate the growth from what you've been doing over the last kind of year or two around cutting costs and kind of ending these cust -- the portfolio rationalization.

And then secondly, we saw that Amazon has announced air cargo for third parties and has a quote from Apex on its website. Can you explain to us how Apex is working with Amazon Air Cargo?

Yeah, Muneeba thank you very much. I take the second question, the Amazon question first.

So what Apex is doing, and I have to say we are absolutely satisfied with the service offered by the Amazon Air, because it's the Amazon Air, it's the domestic fleet of Amazon, roughly 60, 70 aircrafts in the domestic market. We inject in Honolulu our e-commerce business into the Amazon aircraft or air fleet business, and we leverage them for a distribution within the US marketplace.

But that is used for e-commerce, but that is as well used for standard hard cargo from the Apex perspective. So this is a perfect fit.

On one hand side, we utilize the return flights for Amazon out of Honolulu, and on the other side, we have a direct connection into the different hubs of Amazon Air in the US marketplace. So overall, I would call it a win-win situation.

On the growth focus, what are the steps? So what do we do different, if you like?

And I think it's always a bit of a difficult question, what do we do different? Let me say positively what we focus on, and let me start maybe on some of the highlights of the third quarter as well.

Let's take, for instance, Contract Logistics. Contract Logistics growth is steady over many, many quarters and continues to perform and improve performance also on the profitability basis.

So how do we do that? They have increased their hit rates on the tenders, so they win more tenders.

The implementation is flawless, and we have a much higher customer proximity, what I said before, understanding the customer business. And when I talk about it in the Contract Logistics area, it's not much different in the network businesses.

Customer proximity is something that has changed our approach, where we clearly focus on our sales channels that start with global accounts, key accounts, where they have an entire, I would say, team and dedicated staff that is available to them. By the second level, then on national accounts, the most important customers on the national level that we address on a very personal level, right, and change our service offering towards them.

And last but not least, of course, there are the specialists in the business units that are addressing specific needs on the vast majority of our customer base. So it's really a focused approach with clear roles and responsibilities around the sales and a force, including and maybe anticipating one of your questions, including changes in the remuneration and incentive or incentivization, if that's an English word, of the sales force.

So I think we have really changed the way how that works and really made a very sound and round package to be successful.

Thanks.

Hey, thank you for taking my question. Maybe the first one on GP or yields in sea freight.

I believe in summer, in August, for example, you were still quite enthusiastic about the yield outlook for ocean freight. And then September, not so much anymore.

And that implies that probably the exit rate or the September yield in ocean was quite bad. Maybe you can elaborate a bit on what exactly changed or how bad September really was in terms of yields.

And the second question would be on unit costs. I guess this was last year, third quarter.

Unit costs in air are kind of up 10%, that was 10%, so to say, while in sea it's basically flat after all the cost cuts and against inflationary pressure. And maybe you can elaborate on the building blocks by air and sea unit costs differ so much or the development differs so much from last year.

Thank you.

Sure, Mark. Sorry, it's Markus.

So from a gross-profit perspective, let me just clarify one thing. We have not communicated that September or exit GP per TEU would have been bad.

So if that is out in the market, I think that is inaccurate information. And as you know, we never disclose on a monthly basis what are the GP levels.

But going back to your point, I think we have been optimistic on the GP per TEU development. And I think we were looking for a gross-profit in Swiss franc north of 500 million for the TEU.

And we exit on a blended three-month, so on a quarterly basis with, I think, CHF 490 million. And now we can argue if CHF 490 million or CHF 500 million is a big difference.

I would just tell you also one thing, that currency development hasn't really been in our favor. So a lot of that has to do with US dollar headwinds.

At the same time, I think we had seen on the back end of the third quarter some irritations, I wouldn't call them disruptions, but irritations from the short term strike that obviously nobody has known that it was a short-term strike at the beginning. And also some of the severe weather conditions that we had at the back end of the third quarter.

So I think it's a more academic conversation if CHF 490 million or CHF 500 million is the right number, or was an achievement or not. I think we are happy with where we sit currently.

Not to forget, we continue to change our customer portfolio. Unit cost, I think, is a good observation.

Our unit cost reduction on the sea freight side is very much self-driven. Cost reductions, the measures that I have been talking about before, have taken their positive impact.

On the air freight side, I think we also have to consider that there's a bit of a consolidation effect on the unit cost per se. There is Morgan Cargo that came into the mix compared to last year.

And as you know, Morgan Cargo with a perishable portfolio would put a bit more pressure on the cost base than what it has contribution on the gross profit base. But that's a conversation we have on a regular basis.

I think we're committed. We're absolutely clear and committed to the perishable business.

And that's just one of the mathematical effects of it.

Thank you.

Oh, good afternoon. And actually, it's Alexia Dogani from J.P.

Morgan. Thanks for taking my question.

Firstly, could you comment a little bit on how the value-added services share of your GP has evolved during the pandemic and now, and whether you just see more resilient kind of GP fees, if you like, at the value-added services end? And then, secondly, you helpfully talked about the 4Q air freight volume expectations and the fact that you don't expect peak season.

Can you just also comment on sea freight? And then, more broadly, for 2025, do you see any headwinds for global trade should kind of protectionist measures put in place?

And just any comment around that. That would be very helpful.

Thank you.

I take the first question at the volume, at the value-added services. And this is basically almost unchanged.

So, we said already two years ago, 60% is outside of the port. Port is coming from, so to say, value-added services.

And as we speak, as more complex the world is becoming, I think with the terrorist structures, value-added services are slightly increasing, especially on the customs clearance front, on the non-related freight customs and the freight customs clearance front, and on any other activities, whether it's multi-fulfillment, last mile, e-commerce activities. So, basically, we see that the share of value-added services is slightly increasing rather than decreasing.

I think for the second question of the volume expectations, I think maybe I can answer the 2025 question first. I think your question was broader in context of the macroeconomics.

Is there an increase in volume based on the macroeconomics in a way? I think we have to accept also, looking forward, that trade volume growth will be at best in line with GDP growth.

I think we have to look into that mechanic in such a way that we consider on-shoring regionalization, to a certain extent, as one of the trends or as two of the trends that are continuing to impact the absolute trade volumes. So, as such, our models, our base cases are usually using a one-to-one at best relationship in the GDP growth.

That also should give us some indication for 2025, of course. I don't have any indication right now that that should be different for the year to come.

For the fourth quarter, I think sea freight was your more specific question around that. I think seasonally the fourth quarter is not as strong as the third quarter in the sea freight business.

And at the same time, we have a couple of rollover cargo that spilled over into the fourth quarter and we may have an effect because Chinese New Year is quite early next year. I think it's at the end of January 2025.

So, that could lead to a certain compression of orders already in the fourth quarter that wouldn't normally happen maybe a bit later. But this is speculation, I think, and it's going to only marginally change the overall picture.

I think the prevailing seasonality Q4, a little bit lighter than Q3, should be still the case.

Thank you.

Hi, thanks. This is Uday on for Jason Seidl.

So, just I guess on the Sea, starting with impressive step up in the Sea conversion rate, obviously, in the third quarter. I think it's well above your 40% target over here.

I'm just trying to understand, do you think you can hold that conversion rate above target even as these Red Sea tailwinds taper off, going forward? And then secondly, you mentioned refocusing the salesforce, shedding of low-yield customers.

I guess, how much more runway do you think you have from this point in managing that book of business? Do you think you can accelerate that rationalization as we move out of the peak season?

How should we think about that? Thank you.

I will talk about the salesforce first, and then, Markus, maybe we'll cover the first question. So, salesforce, basically, right?

As I said, we have three pillars, the key accounts, our 380 global accounts, the national accounts, the hidden champion, and the SME customer portfolio, predominantly in sea freight and in Road Logistics. So, what we have done now is for every, basically, customer channel, we have a so-called liaison officer in the business units, and that's new for us as well, right?

So, we dedicate people in the business units towards the sales organization in order to ensure that we always price ourselves right at the very beginning. Because normally, you have, in our business, in our industry, you have sometimes the case that you go into an RFQ, and then in the first round, you do not come up with the appropriate pricing, because either tender management or pricing is not aligned with the business unit or vice versa with sales.

And this is something which we have done completely new this year. So, we are pretty sure that in terms of the reaction time and the accuracy of how do we position ourselves in front of customers, when it comes to pricing and service and product accuracy, we are much better than ever before.

And that's the reason why we are rather confident that we can leverage that new setup for the better, and we see better growth in the years to come, or in the quarters to come as well, in the years to come. So, the connectivity and the connection between our salesforce and the business unit, I would call it a second to none, if you compare that to the past decades.

And that makes me so confident. And we see already the first results, which are encouraging.

So, that's what we do different in terms of clearly articulating different sales channels, and in particular, creating a much closer bond from the very beginning between the pricing teams and the business units and the salesforce.

And Uday, maybe on the conversion rate, yes, indeed, we are above the 40%. And it's our clear aim and our clear commitment that we maintain basically throughout business cycles between 35% and 45% conversion rate.

We do the right things. We invest into efficiency.

We invest into automation. We improve customer portfolio.

We extend our opportunities to generate GP on each single TEU. So, I think we do a whole portfolio and a whole array of actions that will support to maintain that conversion rate.

The fact that we are on that particular KPI ahead of our Roadmap ambitions is only something that I can say, this is the current market and operational efficiency that we see. And as I said, we do the right thing to prolongate and extend that for a new normal level.

Great. Thank you for the time.

Thank you.

Hi, good afternoon. Thanks for taking my question.

My first question is on sea freight. So, you have said that in air freight, you think you are growing broadly in line with your addressable market, but in sea freight, you are losing market share a little bit.

So, can you just talk through your expectations for Q4? I think comps become easier.

And what are your expectations in terms of volume growth or under or over performance versus market into next year? The second question, a bit of a follow-up to what has been already asked, but could you discuss a little bit what you expect in terms of normalization of yields if there is any normalization in Q4 and ’25 as well, given that spot rates, especially in sea freight, will still keep going down, sorry, most likely.

And the third question is a bit of a housekeeping question. How much of cost tailwinds did we have in Q3 from your restructuring program?

How much are we expecting in Q4 and Q1? Thank you.

So, first of all, I will tackle the question about market share and growth expectation. You can imagine that we have discussed it intensively within the management team in the last couple of weeks.

So, what is pretty clear for us is for 2025, the minimum expectation for us as a company is that we grow with the market or even higher. Piggybacking on what I said before, we've done our homework.

We have streamlined the organization. We are ready to tackle now and the consolidation of the market will help as well in certain areas, everywhere, but in certain areas.

So, again, minimum market or even higher, that's our expectation and the message into the organization.

And I take the normalization of the housekeeping. The housekeeping maybe is the easiest one, although I think we have it also in our documentation.

In the third quarter, there was zero impact from the restructuring. And we expect also for the fourth quarter at maximum a minimal impact.

So, our restructuring is done. Our right-sizing is done.

We should not expect any material impact from that in the fourth quarter anymore. Normalization, that is one of the difficult words, I think, over the last years.

And I would like to say that we have now built a leaner, faster reacting, and much closer to the customer operating organization that we can much better benefit or much better play, if you like, on market developments, even on volatility. We are going to be much faster in reacting.

And I think much better in harvesting out of movements in the markets and opportunities in the markets. So, hence, I believe what we have said also in our Capital Markets Day, conversion rate ambitions are maintained and sustained.

We want to have a 40% conversion rate sea and air. And we certainly want to work on our targets, CHF 200 EBIT per TEU and 35-ish on 100 kilogram on the air freight.

Some of it will be stronger supported by the market. Some of it will not.

But I think we have laid a good foundation to achieve.

Thank you. And if I can speak one more very quickly.

Given the down year over year and --

Marco, my apologies. We said, please, to ask only two questions.

And I think --

Okay. Sorry.

Okay. All right.

Thank you.

All right.

Thank you.

Yeah. Good afternoon, Stefan and Markus.

Two from me, please. Firstly, on sea freight, I know the GP per container in Q3 was below what you expected a few months ago.

But nonetheless, it did provide another good example of a course during which the GP per container showed a positive correlation with freight rates. Could you maybe just provide some color on what share of sea freight gross profit you estimate is influenced by fluctuating in container shipping freight rates and what share of gross profit doesn't have any exposure?

So that's the first question. Second question on the dividend.

That's the DSV so.

Yeah, second question on the dividend. If we look at the ordinary dividend last year and don't include the special, the cost was around CHF 980 million.

If we look at free cash flow this year, it's been CHF 330 odd million during the first nine months. So presumably the full year, we're not going to get anywhere close to CHF 980 million.

Equally, if I apply a 60% to 70% payout ratio to what is likely for 2024 net income, we won't be getting anywhere close to CHF 980 million, either. So both of those observations suggest a reduction in the ordinary dividend.

But if I look at consensus, the Street is looking for a dividend of about CHF 8, which is basically in line versus the CHF 8.2 ordinary paid last year. So I appreciate it may be too early to comment in any detail, but could you maybe just provide some color on whether you think the consensus estimate for the dividend looks reasonable?

Thank you.

So the first question was on the share basically, and I answered the question, I think already it's a 60/40 split. So 60 on value and 40 on the portfolio.

Okay, so clear. I think on the dividends also, Rob, I appreciate your question.

And I think there is some consideration in the market as well. I think your math stacks up approximately, I would say.

I would hope that our free cash flow conversion is at the yearend somewhere closer to a number where we feel comfortable with financing or having enough liquidity for the dividend payout. But as you said, it's too early to say really.

It's in the discretion of the supervisory board to make a proposal to the AGM to the shareholders. And that will happen as usual in May when we have our Annual General Meeting.

I think we should stick to our historic reality, payout ratios, as we said. And as you mentioned yourself, historically, that is something we should consider.

I'm not in a position currently to comment on the estimations or expectations of the financial market.

Okay, all clear. Thank you.

Good afternoon, everyone. Two questions from my side.

First one is on your air business. And there, according to market observations, we see higher rates now between Middle East and North America, also partially indicating a very strong momentum in sea air solutions.

And I wanted to ask if this is positively affecting your air profitability. And if you can also go then, therefore, into the direction of the originally targeted CHF 90 per 100 kilo for the fourth quarter is that still achievable in your view?

And the second question is on the cash flow statement there on the dividend to minorities. Usually, or last year, you had the CHF 173 million dividend to minorities in the third quarter.

That didn't happen now in the third quarter. And I expect it, therefore, in the fourth quarter.

Should we consider something similar in the same magnitude or something meaningfully smaller now? Thank you.

Hi, Gian-Marco. I'll take the second one quickly.

Yes, it's going to happen. And it's going to be a bit lower, I would say.

And I say that with a bit of a bigger note, if you like, because that is also a reflection on the performance of Apex. It's going to be somewhere in that area, but a bit lower.

Okay, and Gian-Marco, Stefan, I take the first question on sea and air. Yes, sea and air is picking up.

But in relative terms, from a size perspective, this is not, in all honesty, moving the needle for a business unit, right? First answer.

The second, even if it's double-digit, right, and it's growing significantly. But overall, in the big scheme of everything, it's not significant movement.

So the second question was the CHF 90 yield. Even if the fourth quarter will be the strongest in terms of volume and rates are concerned, I would not anticipate that we will reach the CHF 90 in the fourth quarter this year because if you look at the profitability currently, the cap is too large currently.

Thank you.

It will be better, right? It will be raised, but it will not reach the CHF 90 there.

Hi. My question is more regarding a near-term outlook with potential US East Coast labor union negotiations with the port operators going in mid-Jan, early Chinese New Year, alliance reshuffle.

Do you think that increased volatility would have freight forwarders with respect to protecting GP TEU, or for that matter, with respect to air cargo, with the increased growth coming from e-commerce? Is there [indiscernible] at some point of time where we'll look at it and probably it is volume at the expense of yield?

Thank you.

Hi, Jain. I think it's an interesting question.

You can never predict rates, right? It's one of the most difficult things that you can do.

Picking up some of your questions around e-commerce, e-commerce rates will depend very much on what is the demand. At the same time, it will have an impact if the minimalist regulations are going to be put in place prior to Chinese New Year or not.

That's the first answer to it, and I cannot tell if that's going to happen or not. Secondly, I think it's going to be a question around, is there disruptions in sea freight?

We will never be able to tell the future of the sea freight side. If there is disruption, as what also Stefan said before, then air freight becomes the logical alternative, obviously, to mitigate some of these topics.

But again, from a freight forwarding perspective, I think whatever change or volatility is in the market, you can always take as an opportunity for us to keep cargo rolling, to keep actually the goods in flow, and that usually requires additional services, additional effort and service intensity that we need to provide, and that comes usually at cost. How exactly it's going to look like, I really don't know.

Thanks, lovely, got it. Thank you so much, and have a good day.

Good afternoon, Stefan and Markus, a couple of questions, please. The first one is just around Apex and the put option of, I think there's a 24.9% stake outstanding.

Just wondered what your latest thoughts are there, please. And then on the sea freight business, what percentage of your business is now sort of commodity business?

And I appreciate, Stefan, you're done at the moment in terms of where you are with your customer mix, but from whatever percentage you give us in commodities, what do you think is the sort of the right balance of percentage exposure to commodities? Thank you.

Let me answer the first -- let me answer the second question, the commodity. I wouldn't say that we have any commodity anymore in the sea freight business, right?

So we only distinguish between the key accounts, the larger accounts and the small and medium sized enterprises and then manage business. But pure commodities, right, which we have carried out maybe five or six years ago or 10 years ago, whether it was [trash], whether it was paper, whether it was pulp.

So all these kind of stuff we don't carry anymore. So it's completely excluded in our portfolio.

And on the put option.

But in terms of maybe now, in terms of sort of lower margin business, maybe not quite the commodity paper and packaging, but sort of what I would say, lower margin business, is there an opportunity there across those three segments to kind of realign longer term? I guess there's always an opportunity, but what's the potential there, please?

Okay, good. I misunderstood that.

Of course, there's always a potential, there's always an opportunity, right? So the lower business, the lower yielding business or the lower margin business, I would say is maybe overall 20%, 30% of the total portfolio where we can always improve the situation depending on the marketplace and where we are.

And I would say this is more on the high side. Most probably it's more and more the 20% range.

It's not a big number. But there is still room to maneuver in terms of low yielding versus the blue anchor like where we have SMEs, mid-sized customers, where we have a much higher yield.

So there is room to maneuver in the area of, I would say, let's say 20% or so.

So let me take it quick, put option. Obviously, we have a very fruitful and very successful cooperation with partners group.

I think Apex is performing very well, also compared against the original business cases. I have no visibility what is in the thinking of partners group, but from what I feel and how we cooperate, I would say this is something that pays off for all parties involved.

Thank you very much.

Thank you.

Okay, thank you very much.

Thank you very much for listening. And apologize again for my voice, not so [indiscernible].