Kuehne + Nagel International AG

Markus Blanka-Graff - CFO Detlef Trefzger - CEO

David Ross - Stifel Nicolaus Douglas Hayes - Morgan Stanley Stephen Furlong - Davy Research Damian Brewer - Royal Bank of Canada Chris Combe - JPMorgan Tobias Sittig - MainFirst Torsten Wyss - UBS Michael Foeth - Bank Vontobel Patrick Jnglin - Kepler Cheuvreux Dan Togo Jensen - Handelsbanken Capital Markets David Campbell - Thompson, Davis, & Co Finn Petersen - Danske Bank

Many thanks, Andrea. Good morning, good day, good afternoon, ladies and gentlemen, from sunny Schindellegi, and welcome to our Q1 2015 analyst conference of Kuehne & Nagel International AG.

I am here together with Markus, and we will guide you through the presentation and overview of our business progress in the first quarter. I will start with the details on the business units, the usual set-up and then we will go into financial performance presented by Markus.

And we will finish with a short outlook for 2015 and then with Q&A. Let's get started, and I would like you to look at slide four.

Q1 net turnover slightly reduced versus Q1 2014, mainly due to foreign exchange impact as you can see in constant currency and volatile rates and a general trend to lower rate. In constant currencies, net turnover up 5.9%, gross profit up 5.1%, and we will elaborate on that and the EBIT, and constant currency up 7.4% totally eaten up by foreign exchange effects.

On slide five, we have shown you, in a different way than the past calls, the volume developments. You will see the seafreight volumes have stagnated at around 890,000 TEU for the quarter-one and the average volumes have increased to 304,000 tons in Q1 2015.

And we have shown in the little boxes at the bottom of those graphs, the GP per TEU and the GP 100 kilo development. And you see that the GP per TEU has significantly increased by 2.2% to CHF364 from CHF356 per TEU.

And in constant currency, that would have even resulted into CHF383 per TEU. The volume is down by 6,000 TEU, and I will comment on that in more detail when we go through seafreight.

On the same slide, right bottom, you see the tonnage development and the gross profit per 100 kilo. And also here, strong growth 19,000 tons and the gross profit per 100 kilo going down from CHF77 to CHF73 per 100 TEU, also here a constant currency would apply and would lead to a almost constant gross profit per 100 kilo.

Let's move on to slide six. EBIT’s for business unit.

The EBIT as said before in constant currency has increased by 7.4%, totally offset by foreign exchange. All three network business units, seafreight, airfreight, overland, has improved both in absolute terms and constant currencies versus previous year.

While contract logistics has decreased, both in constant currencies and in absolute figures. The reason for that will be detailed when we speak about contract logistics in a couple of minutes.

You also see the average exchange rates applied on the bottom of that slide. Let's go to the business unit, and I start with seafreight.

Turnover and gross profit, before currency, has improved by 10%, respectively 7.6%, partly offset by foreign exchange rates but have improved also in absolute terms by 1.6% of gross profit and 4.2% in turnover. At the same time, the EBIT was slightly reduced but the -- the EBIT has improved to 2.2% and the conversion rate has been improved as well.

We have seen a little bit of a slower volume, 6,000 TEUs less than previous year's quarter, and the reason for that we have in our press conference but I would like to allude to those reasons as well. The Asia-Europe volumes were down significantly and also China-Europe exports were down significantly.

Furthermore, we have made a clear statement in Q3, in our Q3 call that we would go for profitable growth only and thus have stop doing business in the second semester 2014 with two or three major accounts where the margin from our point of view has not been sustainable. Those two developments led to a stagnating volume development versus the market, I will come back to that later on that was 1% or 2%.

If you look into China, and there has been some press announcements yesterday, March export, foreign exchange for China has been down 15%. So, we are reflecting, in a way, a market situation here.

We are also reflecting a market situation, ladies and gentlemen, with regards to North America trades. We are up double-digit, both on the transpacific, trans-pac to North America and on the North Atlantic.

Clearly, double-digit on both routes and we see a strong and solid growth in Intra-Asia. So from that point of view, our focus is on Asia-Europe exports and that has driven obviously by the extremely weak euro, not only versus the U.S.

dollar but also versus a RMB, or renminbi, that is, I think, more than one-third appreciated versus the euro, over the last six months. So that explains the situation in seafreight.

If we move-on, on slide eight, airfreight. We were applauding to airfreight the last year and we have all reasons to continue with that applaud because in airfreight everything went well.

Gross profit net terms increased EBIT performed extremely strong with 9.7% improvement, a stagnating turnover reflecting rate developments and an all-time high in conversion rate at 30.8%. So, we have seen growth and conversion rate improvement in airfreight.

And looking into different trade lanes, I have to say, I will not disclose details, as you know. But Asia, North America, clearly double-digit.

I didn’t say triple-digit, but clearly double digit. Asia-Europe strong, North America-Asia, very strong double-digit and the only market that we still see weak, not only in seafreight but also in airfreight, is South and Central America, reflecting the situation of some of the economies there.

In total, left bottom of the slide, 3,400 tons transported in Q1 2015, which is up 19,000 tons and a conversion rate improvement from 20.8% to 30.8% and relatively stable margin per 100 kilo improved versus Q4 2014. On slide nine, we have detailed the situation of overland.

We have a negative growth of 5.8% in net turnover and 1.8% in gross profit, and a EBIT development of 1 million more or one-third, technically speaking, more versus previous year. Let me explain the main effects are two.

We have divested the project business, as you all know, also from the year-end call 2014. And we have some reduced rates due to lower diesel prices or the diesel floater effect.

And the main reason for the negative variation is foreign exchange driven out of this weak Euro. In total, we are very happy that black quarter, the six black quarter for overland has been seen and that the EBIT to net turnover margin has been improve from 0.4% to 0.7%.

On slide 10, you see the details on contract logistics net turnover and gross profit down 1.1% respectively 2.2% an EBIT reduction of 27% versus previous year. And in total, we are very happy with our contract logistics business.

Net turnover and gross profit increases in constant currency. We are very dependent here on the euros, euro development.

While at the same time, we have one customer where we see volume reductions, different volume pattern and the necessity to go into price negotiations and we are building up resources for further organic growth that we have locked into our books already. And we are in many implementation phases at the moment with many projects.

The overall development reflects the high FX effect, foreign exchange effects, plus the situation with one customer in the UK and the build-up of resources for further organic growth. With that overview on the old Company and for business units, I would like to hand over to Markus who will give you more details on the financial figures.

Markus?

Thank you, Detlef. Also from my side a very warm welcome ladies and gentlemen to the Q1 2015 presentation of the Kuehne & Nagel.

I am on page number 12 of the information deck. And one of my most important highlights that I always want to refer to is the leverage effect of the Company.

The leverage effects and I pick any of the columns that you can see here on that slide that expresses itself either by the nominal value, gross profit down 35%, EBIT same level and earnings for the period up 3%. Or I look at in percentage at constant currencies 5% up gross profit and 9% up earnings for the period, so, as long as this leverage effect for the Group remains intact that is one of the biggest assets that stands for that business.

Negative foreign currency translation impact of approximately 7% to 7.5% throughout the entire profit and loss statement, we have referred to that earlier. For information purposes on the lower side of the slide, you can see the exchange rates applied throughout the financial statements.

Moving on to page 13 and I want to put a highlight on the EBIT margin to next turnover. We have announced financial targets going forward of that KPI reaching 5%.

We are currently on 4.6% and we remain confident that over certain period of time that will improved and reach to 5%. And operational cash flow, very strong 236 million for the first quarter 2015, remains a very healthy number.

And I am confident that that continues throughout the year 2015. On the CapEx side, you will see 44 million for the first quarter, which, if I extrapolate throughout the year, is a bit below the guidance that we currently have given on 228 million.

We are cautious and obviously clear on the guidance on CapEx expenses. Working capital target remains within the corridor of 3.5% to 4% on working capital intensity, which you will see on page 15 that we will have positive effect.

Moving on to the balance sheet, no big news on the balance sheet and that is good news. Biggest assets or trade receivables 2.5 billion no change in our quality the vast majority of these receivables being insured and/or Blue Chip investment grade customers, cash and cash equivalent based on this strong cash generation also in the first quarter 2015 currently at the level of CHF1.2 billion.

Leading into the cash flow quarter one page 15, which reflects again this high operational cash flow of 236 million, and here you can see the changes in working capital that this year have been majorly and substantially reduced, compares to the first quarter 2014 on this 38 million of cash went into receivable. As an effect of that, page 16 working capital developments.

You see the working capital intensity at 3.3%, up from December 2014, 3%, which is quite normal seasonality that during the year, we are at slightly higher working capital intensity than at the year-end position, however, still remaining under the guidance between 3.5% and 4%. Last but not least, for information completeness purposes, on page 17, the development of the main exchange rates versus the Swiss franc translation impact.

And most of you will be aware of the note 52 that we have put into our consolidated financial statements for the year 2014, which gives you a sensitivity and now this is in the context of currency relation with fixed issues rates that I have put here into the estimates 2015, which gives you again sensitivity view on what's happened if the exchange rate would change to the level that are written-down here and we would have an additional negative impact of 5 million for the first quarter. Again, these are sensitivity analysis numbers and not the exchange rates used for the consolidation.

With that more technical information and some view around the working capital and the leverage effect of the Company, I want to hand back to Detlef for the outlook 2015 in volume and margins.

Thanks Markus. Outlook 2015, volume development, let’s start with the Q1 figures.

Seafreights, we have seen a market maybe at 2% to 3% growth. We are not sure, at the moment, given the recent information we received from China.

And as you know, we stagnated or had a slightly reduced volume at 1%. Our estimate to give the right signal into the market and also to make sure we are not raising for unsustainable, low margin, low profit business, has been reduced from 4% to 5% market growth to 3% to 4%.

And we want to grow at market and maybe a bit better but not by all means and not with all -- only with the orientation profitable growth. Airfreight, no changes 3% to 4% Q1 market growth we grew at 7%.

Our volume, our estimate is still 4% to 5% market growth for 2015 and a 1.5 times market growth for Kuehne & Nagel. Overland, 1% to 3% market growth.

Technically, we grew from a net turnover also difficult to assess in Swiss francs minus 6% in euros this figure would have looked differently. And our estimate is we will grow at market in all our major peer markets.

Contract logistics 2% to 3% market growth. We grew at 7%.

Our ambition is to grow two-times market with the growth assumption of 3% to 4% for 2015. This is exactly confirmed looking into the remaining nine months of 2015.

And in total, I would like to close and conclude our presentation in total. As said in our conference call and presentations to the -- on the year end 2014 figures, we are extremely, or we remain very confident and positive about the year 2015 and our outlook for 2015 compared to where we stood a year ago, or two years ago, our outlook for the remaining nine months is the best of all three.

Thanks for listening so far. And I hand over back to Andrea to organize the Q&A.

Detlef, your last comment there about being more positive or optimistic about the rest of 2015 than the last couple of years. Can you just expand on that a little bit?

It seemed that the volumes were mixed in the quarter and the overall economic environment is not terrific right now. So what gives you the positive outlook that you're talking about?

We have two phenomena strong currency appreciation or devaluations, somehow influenced trade lanes. But as we are a global provide, we participate in all and we are shifting capacity and resources and focus accordingly, that our task.

And therefore, I think in total, GDP growth in, or global GDP growth, has not seen any set-back since we have met and spoken two months ago. And that is what drives our rather positive assessment of how the year 2015 can go.

But there will be a significant shift, obviously. The question is what has to suit our RMB and to China export.

But consumption is still existing and that’s for us is a very positive sign. So if -- to finish that, if the eurozone can't source anymore in China because it became too expensive relative to other sources, they will nevertheless continues with consumption.

That’s our assessment. That’s what we see.

And they will saw somewhere else. And we have to figure and see where that is and how we participate in it.

And then just a question on contract logistics. You mentioned some structural changes going on either in the market or with certain customers.

Could you elaborate on that comment?

I didn’t say the market. We have one customer in the UK more I'll not say, where we have -- the volume pattern is changing and our pricing model is like six-eight years old and it’s not reflecting the new volume pattern of that customer anymore.

And we are renegotiating and restructuring that business. That has a major -- it had a major impact first quarter.

Currency is a major impact. That is for us is a high focus in Europe and in the eurozone is a topic for contract logistics.

But we are growing fast. And as said, we have a lot of order in or we had a lot of order intake Q4.

And I think we said already six-to-eight weeks ago. And we are currently implementing many new projects.

And if you look into, we don’t show that, I think, but if you look into square meterage, our square meterage have increased. And also our idle space capacity has been significantly reduced.

So, we are implementing new business and that costs a certain resource, or that is resources that are affecting our costs here at the moment.

Three questions, please; first, just a follow-up on that contract logistics question previously. How soon do you think it will be before you see those costs start to roll off?

Is it a one quarter effect? Is it a one year effect?

I would assume latest Q4 this year we will see the effect.

And then my next question is on the cash flow side of things. Working capital intensity was very strong this quarter, or very good this quarter.

Is this something that's sustainable, or what caused it to be so good? And can it last into the -- for the rest of the year?

I think it's a very -- it's an uphill battle every day. We all know that working capital is something that you can never like to lose for a minute.

And we have been very successful, I think we’re managing under one-hand to collection and also would be way of payment terms agreement with customers. You know that we always had a high focus on payment terms with customers as well as we manage cash flow towards the suppliers in an efficient way.

So our negotiating power certainly has an effect to the DPOs as well. But do I remain confident that the level remains at 3.3%, I'm not going to make any promises around that.

But the corridor, 3.5% to 4%, is something that I am feeling confident we can keep.

So no structural changes in the market yet or anything like that?

No nothing of that change.

And then finally, just on airfreight. Can you give us a little bit more insight into what drove the margin expansion, the conversion ratio expansion?

Was it just better efficiencies or were there any other cost initiatives that took effect?

I was waiting for that question Douglas and my answer is clear, that’s the leverage effect of the airfreight of our network business. Once we see volume growth, and we have not increased any resources to cover that volume growth, it converts directly into higher conversion rates.

Do you think there's still room to go there?

We don’t make any forecasts, but we never rest and we always have plans as you know.

First of all on seafreight, I see where -- obviously, you've made the comment that you're going to grow at maybe at or around market levels, and you see market growing at 3% to 4% for this year. So I read from that with the growth being -- the volume being negative, your assumption is that we will resume back to fairly healthy volume growth over the next three quarters.

Is that -- just on the math, that's implying that, is that correct?

That is correct that is our assumption. But, let me Steve, but maybe on other trade lanes then in the year ago.

Got it. Understand.

And on the airfreight, I mean, remarkable as you say at 30.8% conversion rate. Isn't it like -- e-commerce too is like Freightcan, Freightnet and things like that.

Are they helping in that regard?

Freightnet has improved and is accelerating. Did it have significant effect on net conversion rates, I would say to a lesser extent.

But that’s exactly what I mean with leveraging effect with those e-commerce approaches, we can leverage our model even further.

Okay. And just finally, I know you mentioned it before but just slightly confused about one thing.

On contract logistics, you talked about one customer in the UK. I'm just surprised you used the term structural changes, price negotiations of customers in Western Europe, because it just got a lot of comment this morning as if there was something going on in the market that's different than before, basically, in contract logistics.

You might just clarify that, Detlef.

Yes I didn’t want in a public press announcement say UK. And then you can -- I can ask my 14-year old, one of boys then to find out who that is they if they do very smart.

But in analyst conference call, we are able to say it's only in the UK. We are talking about the UK.

I've got three questions as well, but maybe I'll give them all in one go, if possible. First of all, just on the ocean business.

Could you tell us a little bit more? Obviously, there's a sort of tactical shift to focusing on contribution rather than volume.

Is that -- how long do you see that tactical shift persisting and what would trigger a strategic shift back to volume within the ocean business? Secondly, just on technology and platform.

You've done the air business and someone else alluded to you've got over 100% incremental margin there. But even the ocean business gave you a 40%-plus incremental EBIT to GP margin.

How much further has the ocean business got to go in terms of matching levels of air IT productivity? And then very finally, the associates’ line looks like it did very well.

What was behind that, please?

The last one I didn’t get, Damian, the last question.

Just the associates' profits, it looked like it was up considerably. But I just want to understand why.

Okay, let's start with that one Markus.

Let me pick-up on the third one the associates line pick-up for the reason that we have to expose our, or we have divested from our joint venture as we have informed by the end of 2014. And these results, or let's say the contribution of that towards the partner, was always booked into that line, as per IFRS.

And since we have disposed of that through the joint venture, we don’t have to pay anymore.

Damian then I go back to your statement, tactical shift. And I have to contradict sharply it's not a tactical shift that is our strategy.

We are pursuing profitable growth and margin growth and we are not pursuing volume by all means. The reason for that is clear.

If you look into the market rates, Shanghai exports were at 1,600 and close to 3,000, prior to Chinese New Year. 1,600 early March and we are lower than 800 for 40-foot, by the way, container at the moment.

In such a market environment where you have no volume advantage really with carriers anymore because the ships are half empty. Why should we go for our volume, that’s ridiculous, and that is our strategy, our strategy is margin growth.

We grow margin. And it will not change and it will continue unless we see a stable rate environment and full ships again.

And we all hope that will happen next quarter. But it’s unrealistic, as you know.

IT leverage, I think IT leverage is one topic, as you have alluded. But it's more.

We have productivity. We focus on productivity improvements in all business units.

Standardization of processes, shared service centers, IT where we can, we are working on the next generation of sea and airfreight, but that is not participating or bringing benefit to the P&L, at the moment. As you all know, it will take another couple of years.

But what we see and it’s making us confident that the next step change of productivity improvement can be achieved. More details, we will not disclose.

And just to be clear, so basically, strategically, you wouldn't envisage returning to volume growth in ocean until line and load factors on a route specific basis look like they're beginning to pick up again?

Exactly.

I just had a question on the guidance of 3% to 4%. You mentioned your desire to communicate the correct signal, that you wouldn't chase unprofitable growth.

Does that mean you view the addressable market as growing at 3% to 4%? And then second, you talked about growing possibly in different trades.

How should we expect that to impact your gross profit mix per TEU as you shipped away perhaps from Asia to Europe?

We are not looking at an addressable market, we are looking at our market and we don’t separate the market. So that is market growth.

But we are addressing different customer segments or industries because margin in those industries are more interesting for us. I’d give you one example.

We had still significant forest product, forestry product, trees, lumber, and so on and recycling products in our portfolio until summer last year. We have moved away because there is a margin of $1, $2, $5 per container that is not sustainable business, especially not with the current rate of situation.

And therefore, to answer your question Chris, it's the total market and we address different segments. Will we achieve to outperform the market?

That you didn’t ask, but I can tell you, yes, we will try everything. But also the signal to you and everybody in the market is, we will not grow our business or volume in seafreight by all means.

That is how you should read the two boxes on the right side in seafreight for the estimate 2015.

Second question was, as you grow in other trades, I understand the cost basis is different so you have comparable EBIT per container. But how -- what kind of impact should we expect just from the shift in mix, gross profit per box and EBIT per box?

The mix is different, trade lane margins and TEU profitability is different. In total, our global coverage and the overall mix does not give any signal that our margin should be positively or negatively impacted by shifting to different trade bench.

And very last one. Looking at the first quarter, you assessed overland market growth at 1% to 3%.

How would you view your own organic rate of growth versus the minus six headline?

At market, we are at around 1%, I would say. Be careful the -- I mean that is really the figures in overland as well maybe as in contract logistics.

We are computing global market growth in either U.S. dollars or Swiss francs.

A lot of the overland market is influenced by the euro. So from a euro perspective, that might be a growth of 1% to 2% or to 3%.

But from a Swiss franc perspective, that might be flat or slightly negative. So, at the moment, I will say from a pure operational point of view, Chris, to answer your question, we are growing at market.

Two questions from me, please. Firstly, on the contract logistics side, is there any granularity that you can provide to what extent the reduced EBIT is from the cost build-up and to what extent it's from the adjustments that you make to the UK customer there?

And secondly, looking at the market, I think you've got an over-proportionate exposure in seafreight to the Asia to Europe lane, and that is likely to continue to be weak as long as the euro is so weak. So just trying to understand whether your assumption is that the market will normalize going forward or whether you think that you can accelerate growth in the other lanes to the extent that overall you outgrow the market there.

Tobias, to answer your latter question, it's both. Market will normalize to a certain extent and we will over and have over-proportionally captured market share in other lanes.

And your first question, we don’t disclose any details. But the majority is currency, clearly.

The currency effect has the major impact on our P&L and then it’s the UK customer that we’re in good negotiations with.

I wanted to go back to the question of airfreight profitability. When you said this is a leverage effect, looking at the total expenses in Q1, they have gone down, 7% in Swiss francs and 14% in U.S.

dollars. If you look it from the perspective total expenses per ton, I don't know if this is the right way to look it.

But it does look as if you did reduce the costs, at least per ton or is it a product mix change that happened? The same question goes to the -- basically that's the question.

Let's take it from there.

Torsten, we've seen gross profit per 100 kilo going down, from CHF77 or in to CHF73. But at the same time, over proportionally, the expenses going down from CHF55 to CHF50 that translates into a higher EBIT per 100 kilo of one Swiss franc or from CHF22 to CHF20 per 100 kilo.

And that is from our point of view the leverage effect it has, for sure also influenced both, the volume is driving, has an influence and also the currency.

And the GP per ton, so why has the GP per ton come down by 5%? It's even down slightly in organic terms.

It’s the market rate. We have -- also here the market rates are going down.

And then another question on contract logistics, just to be sure. Did you say the impact -- how long will you feel the impact of that UK customer into Q2/Q3?

I understood Q4 is going to be fine again. Is this is the right understanding?

I said we see the impact until Q4, but the question was reflecting the build-up of resources and the implementation of our new products.

Got you. I misunderstood.

I thought in Q4, you will have a positive impact of -- okay. So the next three quarters will be still difficult for contract logistics.

That is what, what I said, if that is your interpretation, I’ll not correct it, because I don’t give any forecast. But that is from what I said.

Two questions, the first one would be -- can you split out the divestment effect of that project business in overlands on first quarter if possible? I couldn't find it anywhere.

And then the second question relates to FX in seafreight, just that my understanding is right. It seems to be mostly dollar-denominated business in general.

And still you have a fairly sharp negative FX impact, even more than in airfreight. Although the dollar was actually up.

So, can you just explain the FX dynamics here in seafreight, please?

So Michael divestment over length, as I said, everything is negative in the P&L regarding net turnover and gross profit it’s directly related to the divestment of our project business. That is -- we disclose any further figures, but that’s what it is.

Your second question, the dollar-denominator for seafreight, we come back to a discussion I think we had two or three quarters ago. What you see here is not the margin on a seafreight container, it’s the margin on all services connected with transporting and managing the transport of the seafreight container.

Those ancillary services are not booked in U.S. dollar, but in the local currency, which is mainly, from our point of view, the euro in Europe, if it’s related to the euro trades.

Sure, got that. Okay, thanks a lot.

So all North American, European exports all ancillary services are charged in euro.

Just two questions left from my side, one related to the volume growth in local and in seafreight. Fully aware of your effort, and I want to appreciate that that you focus on the profitable growth.

However, what can we read into that in the medium term? Is it possible that you will be able to again outperform the underlying market growth, or will these efforts continue and you may just be able to grow in line with the market?

And second question with regards of the OpEx development in seafreights. Is it fair to say that you did not have, see any positive currency effects?

Because when I see your overall OpEx number it’s slightly up despite with lower volumes. Could we not have assumed that you should have benefited here as well from some positive currency effects?

Okay. Firstly to answer your first question, we are focusing not on volume.

And again as we have resumed already earlier today, once the ships are getting fuller and the rates are more sustainable, we will focus on volume again. But for sure, we will not allow the market to outperform us.

It's for sure that our ambition is to outperform the market. But will we outperform the market by 0.1 or 0.2 factor we will see.

Okay. Thank you.

What was the other?

The OpEx question, your OpEx in seafreight increased by 1 million, I would have assumed that you should also have seen their positive currency effects. Why is that number not down?

I think, I mean, if I can take your question, when we talk about 1 million on a total of 200 million that is within the nuance, let’s put it that way. I think we have the translation impact on the GP level but I don’t think we have talked about it with some other of your colleagues.

And we have talked about it that there is a pricing impact on the seafreight’s GP which is positive so a tailwind from the dollar pricing in the GP, but headwind on the translation. And let's not forget the costs remain in local currency because these are the operators that are there.

Nevertheless, I think the business model in direct comparison or the business model improvements in direct comparison to airfreight and seafreight, the airfreight has done the bigger steps forward as you can also see on the conversion rate. On the seafreight side, I think with the current set-up and I think Detlef has also spoken to that.

I think we are running a very good conversion rates currently. And that is it -- I don't want to say the age of it.

But it's not going to increase to 40% or 50%, it’s not going to happen.

Good afternoon. I'm Dan Togo here.

I'd like to get back to seafreight and the Asia-Europe trade. I understand that the rates and volumes have been weak due to weak demand from Europe.

But how are the carriers behaving in this market? Are they adjusting capacity to improve the balance going into Q2?

That's one thing. And are you able to compensate just somewhat on the backhaul trades, i.e.

volumes from Europe to Asia?

Dan, you should talk to the carriers. And you are sitting very close to one of them, at least.

We are -- carriers have not adjusted the capacity at the moment. March was a surprise.

China foreign trade in China was surprised to all market participants. And yes, we make use of wherever we can to feel space with backloads and round trips and everything.

But that is an unbalanced statement as you know. Although, Asia imports has increased and it has improved that will never compensate for the down trade in the exports from Asia to Europe.

It's just to understand your previously comment that you expect markets to normalize. If the currency situation does not normalize, it's difficult to see volumes Asia-Europe to picking up.

Yes. I didn't say it will normalize on all trade levels, I said the overall market growth will normalize again.

And what was my reasoning for that Dan, the reasoning is that consumption continues to be good, not only in Europe but also in North America and Indonesia. And therefore, the sources of the goods to be consumed might change.

But the overall trade will benefit from it. That was my message.

And then just one question on your targets for 2015, you have EBIT margin target of 5%. You are below that right now.

So, if you have 5% for 2015, meaning that you will need to exceed that 5% to reach an average of 5% in 2015. Is that correct?

No, Dan, it's not correct. Luckily enough Markus and I announced an EBIT margin target of 5% in September last year.

But we didn't state by when we are able to achieve it. There were some of your colleagues and maybe yourself that said easy done 0.3 this year, 0.3 next year and then they're there, what a boring target.

But obviously, that is also easy to happen and we argued in the Capital Markets Day that the net profit improvement to achieve those 5% growth is extremely high. So we're working on it.

We never said when we're going to achieve it. But our target remains.

We want to go or we want to achieve a 5% EBIT margin of the whole group.

Thank you very much for taking my question. You seem confident about the traffic, airfreight traffic in the Pacific.

But there was obviously some benefit from the West Coast dock disturbances in the first quarter. And China, as you mentioned, was down in March.

So where was the growth up? It wasn't China.

And where -- and what's going to happen when the dock strike disturbances are over?

David thanks for your question. I was almost sorrow didn't hear any question from you but now you are back on air and happy to have you in our conference call.

David, the growth was on all trades despite one and that is South and Central America. And if you talk about China, you also have a domestic China product.

You have a domestic intra-Asia product. So, in airfreight, we saw volume growth across the board despite the South and Central America trades.

So your trade growth in airfreight is sustainable, you think in the second quarter?

What we are saying is that we expect a stronger market than in the past two years, and you’ve seen that on slide 18. So, we expect the market of 4% to 5% growth.

And we will outperform the market with the sector of 1.5 times market and that is what we see. The market was negatively impacted by the few or lower imports to Europe.

So, therefore, the first quarter market growth was 3% to 4% rather than 4% to 5%. But in total, we saw strong airfreight volumes.

And the West Coast in the U.S. is on one-time a very specific topic on the other hand a lot of customers, especially in high-tech industry as you know, in the U.S., have come back to the initial wave airfreighted.

So the initial new stock, new products on stocks are airfreighted. And then the replenishment and so on is seafreighted.

And therefore we believe also North America with the strong consumption going on and the GDP growth in North America will remain a very significant and interesting airfreight market, independent of the West Coast topics in the harbors.

One question on the seafreight volumes. Could you elaborate of how we could split the volumes to the market development, the negative development in Asia-Europe, and how much is your refocus on the profitable customers?

No, we don't give any details on trade-lanes performances of Kuehene & Nagel.

Thank you.

But they were trade lanes where we're gaining market shares obviously.

Thanks, Andrea. And ladies and gentlemen, thanks for joining in for the Q1 call.

I am sure we will meet in between some of [Call-Ended Abruptly]