Kuehne + Nagel International AG

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00:41 Thanks, Alice. Good morning, good day, good afternoon and good evening.

Welcome to the analyst conference on the nine months twenty twenty one results of Kuehne + Nagel International. Our CFO, Markus Blanka and I welcome you from, as always, sunny Switzerland.

And also, as always, let’s get started on the slide three of the slide deck that we have published this morning. 01:08 Q3, the third quarter twenty twenty one has been remarkable quarter.

Results more than doubled versus previous year, and it is an extension of what we have seen in quarter one and two already this year. And it is a confirmation as well as an acceleration of our strategy and its deployment.

01:33 On slide three we have published some of the KPIs. So, our net turnover increased to twenty one point eight billion Swiss francs, which alludes to an increase of forty seven percent.

Gross profit increased by twenty five percent to six point nine billion Swiss francs. Free cash flow missed the one billion by one million, so ninety nine million Swiss francs, an increase of twenty three percent nominal versus previous year and the earnings per share were at ten point nine four Swiss francs, increase of one hundred and twenty eight percent versus previous year, with an organic EPS growth of one hundred six percent.

02:24 Please follow me on the next slide, which is slide four, some highlights of the third quarter and the year to date development. The third quarter is another excellent quarter as we have stated before.

And the group nine months EBIT concluded at one point eight two five billion Swiss francs, up one hundred and thirty one percent. Let me also draw attention or focus your attention on the conversion rate.

Short conversion rate year to date, nine months of twenty six point six percent. In quarter one, we started with twenty one point three percent, quarter two came towards twenty six point two percent conversion rate and we concluded the third quarter with a conversion rate of thirty one percent.

03:14 Outstanding performance in Sea Logistics in a very chaotic market environment, which I will explain or give some details later throughout the presentation. A very strong performance, a high service intensity is continuing and our colleagues, especially in sea freights are all over the place to make the shipments of our customers work.

03:40 Air Logistics a very strong performance with an EBIT of six forty five million Swiss francs for the first nine months. A strong volume and yield performance in that period, and we have fully consolidated Apex.

And let me also state, we have an excellent collaboration with the colleagues from Apex, and this is based on an almost identical entrepreneurial spirit, and there's a seamless interaction with the team of Apex, which we all enjoy. 04:12 Both logistics, EBIT of seventy five million Swiss francs for the first nine months, a very strong volume especially in the third quarter in Europe.

And a high demand for digital solutions was a very solid operational performance despite all the headwind that we experienced with driver shortages in the market, equipment shortages and so. 04:37 And contract logistics continued its growth, especially in pharma very successfully and concluded the first nine months with an EBIT of one hundred and fourteen million Swiss francs.

04:50 Please follow me on slide six where we give some details on the volume development in Sea Logistics and Air Logistics. I will start with Sea Logistics.

We have a volume progress of minus two percent in the third quarter and Apex adjusted of minus four percent. Our organic development on purpose, I should say is minus nine percent or we like, like one hundred thousand TEU, which is exactly the low yield in cargo, the commodities that we have mentioned and described before.

05:25 Forest products ex-Europe, agricultural products ex-USA, which are not running in our networks at the moment, as we like capacity as there is a huge leg of capacity. We focus and we see a strong focus on where it matters most on the Transpac, Asia exports to North America, especially U.S.

We see a mid-range double digit volume increase, significant increase. And Europe through North America and partly South America, we see a solid double digit volume increase on those trades.

06:02 Especially with cargo of its customer demand that requires solutioning and expertise from our Sea Logistics team. I mentioned that before, we have a chaotic market environment and that is going to continue, and I know you will come up with this one billion dollar question when does it end?

There's no end inside at the moment. We it might last until Chinese or Lunar New Year next year, but we would expect this can continue even longer than six or twelve months.

There no sign of relief. 06:41 And as I mentioned in some of the press interviews recently, this is a bullwhip effect we experience, and it's getting worse at the moment, and we should expect this to become worse or to get worse in the next couple of months.

06:57 What is the current market situation? We have ports with historically low productivity and I checked back half an hour ago or forty five minutes ago, on the West Coast, U.S.

we have one hundred vessels waiting to enter a port, average waiting time most likely is fourteen fifteen days. We have rail ramps that are congested, rail terminals that are congested, track our shortage in the U.S., in UK and partly no available to do the shortfall transport.

07:33 We focus, we stay focused on our customers. We stay focused on our customers demand and the cargo mix.

And the key to success remains sustained and expanding service intensity, so it's a service industry as we speak and access to capacity wherever possible and shift solutions with both modes of transport integrated in order to bypass congested ports. 08:04 The Air Logistics, volume development totally different and maybe also a reflection of the congested and tight chaotic Sea Freight markets.

The base of organic growth and market share gains is still high. But it's slightly moderated from Q2 to Q3 from forty six percent growth to twenty nine percent growth organically.

08:28 We have a strong development in all , especially pharma aerospace, general cargo, eCommerce, and also perishables. We see this trend also unbroken and do not expect a major change even beyond the next three, four months.

And we still have no significant additional capacity in the long haul tax value capacity. There are flights, intercontinental flights, but they are , so to say with regards to the demand for belly capacity.

So, we produce with charters and block space agreement we have mentioned before in our previous calls and that is expanding, that development is expanding. 09:22 Please follow me on slide eight, some details on the Sea Logistics KPI.

We have seen a strong yield development especially in the fourth – in the third quarter, reflecting both the favorable portfolio mix, which is very important factor in that yield per unit development. We do not have any commodities, no forest report, ag recycling material and so on in our cargo mix at the moment and Sea Logistics or very low volumes.

And we concentrate on small and medium sized enterprises and blue chip customers which drive this favorable product mix and we grow in the high year or high yielding segments with High service intensity on purpose. 10:12 As I said in the mid-range double-digit on the Transpac, for example, which is Transpac and TransAtlantic from a geographic point of view, but which is also less container loans, LCL business, very strong, great performance, great projects, renewable energy is in the focus here, and we have stated some of the wins, customer wins where we were able to do so in the recent press announcement.

10:39 And this development is also unbroken and ongoing. The yield expansion more than for the sequential unit cost increase, which is also shown here.

And at the moment, we see no relaxation of the intense workflow our organization as we have to produce a seamless supply chain more or less men leave as a lot of person interference of our Sea Logistics and come later to this Air Logistics experts. This pressure, our development is also unbroken and expected to auto continues throughout the next couple of months.

11:24 Ebit is for the first nine months, was at ninety hundred and ninety billion Swiss francs which is two twenty six percent of our previous year and Q3 saw tier acceleration of that trend that we have already posted when we had our Q1 and Q2 calls. Conversion rate year to date nine months, fifty two point three percent versus twenty eight – yeah twenty nine percent previous year.

And I think that's also a clear sign that we produce, continue to produce with a lot of manual interference, but also using our automation and platforms wisely in order to make the shipments flow happen on behalf of our . 12:14 Next, details on logistics you will find on slide ten.

Sorry, Slide twelve. And logistics KPIs we have delivered a small degree of yield and EBIT normalization in airfreight over the last couple of quarters.

In the figures that we show without Apex, you will see that we have a stable organic yield at ninety four, ninety five Swiss francs per one hundred kilo and stable organic unit cost at around fifty seven Swiss francs per hundred kilo. 12:57 Apex, and I mentioned that in the beginning is continuing to exceed expectations, both in yield and EBIT development.

They are outperforming market and also in the volume growth and the way they do business and the way we do business is really complementary and it’s super cool and pleasant collaboration amongst the two organizations. 13:20 We have closed another small acquisition company called Salmosped, have a guess what they do, a Norwegian perishables freight forwarder we closed at September one, twenty twenty one; annual turn over last year, million Swiss francs.

And last year, twenty twenty, they handled sixty three thousand tons. So, we welcome them also a very interesting business and they are supplementing our existing KN perishable network, which has been built on more than seventy stations around the globe, and as you know, we are one of the leaders if not the leader in perishable worldwide.

14:05 Conversion rate, the first nine months at forty one point two percent versus thirty percent in twenty twenty. Please follow me to road logistics next slide, strong volume growth in European network, not only domestic, but also cross border, and that volume growth has been accelerating.

Typically, the third quarter is due to the summer vacation in Europe, a quarter that shows maybe less growth or less development. 14:35 We haven't seen that effect at all this summer, especially in the markets of UK, France, or Germany, which is very encouraging.

And we see a high demand and still growing demand for digital solutions like eTrucknow or Easy Customs Solutions. So, Road Logistics does very well.

Has gained market, significant momentum in the second and third quarter. And if you have a look on slide twelve, you will see the KPIs in the quarter over quarter comparison.

15:08 So strong volume growth and especially the networks that I mentioned before. First stance of a driver capacity shortages, but they can be overcome our platform solutions.

We have the market visibility. We have the partnership agreements with the trucking organizations, and we see a high demand for digital solutions for both for visibility reasons, but also access to capacity reasons and we deploy eTrucknow right as a software as a service solution, which is more as a plug and play for our customers and enjoys a lot of new customers or enjoyed a lot of new customers during the last quarter.

15:54 EBIT for the first time months twenty twenty one at seventy five million Swiss francs, ninety seven percent above prior year and that is a trend that has been ongoing since the last two quarters. Great performance, strong organization and a cool spirit in Road Logistics.

16:14 And then, please have a look on slide fourteen Contract Logistics, a strong organic growth in net turnover, especially in the areas of pharma and e-commerce, we posted a six percent excluding foreign exchange effects growth in those two sectors. A solid Q3 performance that grows across all geographies.

That may be important for you is the trading in Asia, in both Asia and North America is twice as much as in Europe. So, we grow much faster outside of Europe, which maybe gives also a signal to market maturity and market developments outside of Europe.

17:04 Cost management programs that have been initiated six, nine months ago have been completely ruled out to all seven hundred sites. And we start to see benefits from those programs as well.

That's the routine optimization of the process flows in houses. And Contract Logistics is a key contributor to improve KN group ROCE, which will be explained in detail by Markus.

But before I hand over, please allow me to give a short summary of our business performance for the first time months of the KN Group. 17:43 So, we posted another remarkable quarter and that is true for the entire KN Group.

All countries, all business units, all areas and segments contributed to this success for quarter three. That all the key figures, key KPIs that we use for steering the business have improved, and even volume developments and sea freight happen on purpose because we concentrate on what matters us most for our customers, as I stated before.

18:14 We have still approximately forty five percent of our white color stuff in working mobile mode. So, the pandemic, I have mentioned this a couple of times, the pandemic is ongoing.

Has gone away. And before it becomes endemic, we will see another quarters to come which will be difficult to predict and anticipate.

And at this stage, I do this loud and clear, I would really state a heartfelt thank you to all our KN colleagues worldwide for their customer service, their persistence and perseverance they really drive the middle and result the spirit, this KN spirit that makes this company unique. Our customers would have seen more problems that's for sure.

19:06 And now we come to the key financial figures and I'm happy to hand over to our CFO Markus.

19:13 Thank you, Detlef, and welcome from my side to all ladies and gentlemen and all participants to this call. Indeed, it was an excellent and as Detlef mentioned remarkable quarter.

I'm starting on page number sixteen on the income statement. And want to highlight a few numbers on that page.

Results again accelerated with incremental gross profit over the first nine months of one three five billion of which six hundred seventy eight million in the third quarter. 19:51 Looking further down into the income statement on the EBIT line, there was forty first nine month, a billion forty three million more earnings before tax, of which four twenty two in the third quarter.

So, a further acceleration of results improvement. Conversion rate, something we have mentioned frequently today.

Conversion rates incremental in during the third quarter was in excess of sixty percent. And I want to use the opportunity here to clarify also some news or some pieces of information that have been published today in the morning around the conversion rate of the group, that I was quoted in some of the papers being between twenty percent, and twenty five percent conversion rate for the group in twenty twenty one.

That is not correct. 20:51 I was quoted or correctly, I should have been quoted in a sustainable conversion rate is for the group between twenty and twenty five percent.

For the fourth quarter twenty twenty one and obviously, also for the full year twenty one this number is going to be in excess of twenty five percent just to clarify and to use this opportunity because I think it has created a bit of irritation. 21:20 Let me finish this page with two more technical notes.

The first one on the foreign exchange, column on the very right of the page. I think it has been a long time ago that I can talk about the foreign exchange impact that is neglectable.

Think over the last couple of years we have always seen negative impact. So, I think we have to keep that in mind.

Exchange rate impact currently on a very, very low level. 21:54 Secondly, and you see that also in the footnote that we have added to the slide, we have closed the sale of our stake of twenty four point nine percent in Apex to Partners Group in August twelve, and that explains the increase which you certainly have noticed on the noncontrolling interest line in the third quarter, the so-called NCI, noncontrolling interest to approximately twenty million on a quarterly basis.

22:30 Given the performance of Apex at the current stage, and for your information, I would expect that number to be relatively stable in the fourth quarter. The next page leads us of course into balance sheet and also on balance sheet, we have some impact from the sale of the equity stake and the acquisition of Apex.

Before that, page number seventeen of the presentation, major deviations or changes in the numbers on obviously goodwill other intangible assets, we have added approximately one point one billion goodwill between December thirty one and September thirty, at the same time around one hundred sixty million on intangible assets. 23:27 On the right side of the balance sheet, you will see on the current liabilities and increase of around one point three billion of which a good part is what you can see down here, the recognition of redemption liabilities for the good option out of the transactions with Apex and Partners Group.

23:52 Second topic, and let's go back to what I called the most important position on the balance sheet, which is the cash position, cash position of around one point six billion, one five nine two exactly as you can see here. Leading straight into Page eighteen and the reconciliation and bridge of the cash and free cash flow generation.

24:20 Most of our improvement in the cash flow comes out of operational cash flow. With nine hundred ninety six million more operational cash flow as we have mentioned before, and is mainly fueled from operations.

Where did we put it and I’d be very transparent here, changes in working capital have absorbed around five hundred million of that additional operational cash flow. 24:48 Partially, it was, I called it burnt in the working capital, but both from organic development, as well as from the Apex acquisition.

Why, because on the organic side, as everybody can appreciate, we have high rates sea freight in airfreight rates, we have volume growth and also we have with Apex, a different business model in terms of greater reliance on charters that usually do not enjoy the same payment terms as we would have for regular airfreight capacity. 25:27 Going back to the overall bridge, cash flow from investing activities, this is just from an explanatory note, the one billion flow that you see here is the majority, the outflow from the acquisition of Apex.

At the same time, we see three lines further down on the so called, others, cash flow from financing activities you see an inflow of more than two ninety million, which is the net amount of what the inflow came, the sale of the equity stake to Partners Group. Again, more on the explanatory side, you will find a full detailed explanation on our convinced statements for the first nine months in the notes, nine and ten.

26:19 Right side of page three, cash flow trajectory you see here the triple nine that we have in year to date September, and I am very confident that the trajectory for the rest of the year so fourth quarter will be very similar to the ones over the last couple of years as you can see here on the slide. Because, we have seen what I would call the maximum expansion into working capital.

26:52 Page number nineteen, the working capital as mentioned organically impacted from higher rates and volume growth and from the business model of Apex. We have and just for reference purposes, the numbers for networking capital in the second quarter was one billion three hundred and fifty.

So, today, we have one – on the thirtieth of September not today. On the thirty of September, we have recorded one point seven billion.

So, I believe we have added another three fifty million over the third quarter to networking capital, for the reasons that I have mentioned before. 27:35 DSO DPOs remained relatively stable compared to the second quarter.

And to give you some flavor what Apex in the same categories of KPIs would deliver, DSOs for Apex are between forty and fifty days, DPO are between ten and fifteen. That is what I mentioned before, it is different business dynamics.

28:04 numbers, back to the graphs and next page number twenty. Return on capital employed, and I would like to start with an apology for misleading you on the last quarter conference call that we had because quarter two was certainly a quarter at the top end of expectations.

28:31 Obviously, Q3 was even better than that but this is how difficult I think it is under the current market conditions to actually make prediction that would hold truth. However, with the performance that we have now in the third quarter and I tried again, it's the quarter, at the top end of our expectations, it really shows again the potential of the group's, operational and financial strength.

But as Detlef said before the most interesting question, for sure, remains what are the current and future perspectives of the market? And with that question, I do hand back to Detlef.

29:18 Thank you, Markus. Before I answer this question, let me talk about our internal situation at the moment.

We have put a claim into the organization as of second quarter last year, which was or which is still staying on course. And staying on course meant, we deployed our strategy, we accelerate where we can and we stay on course with all our activities, especially customers facing technology oriented.

And our strategy has been clearly confirmed, and the implementation continues to accelerate. 29:58 What are the areas we focusing on?

We are focusing on industry solutions and within the industry solutions on key customers and their transformational needs. We focus on technology digital platforms and eTouch to drive both customer facing efficiencies as well as internal efficiencies, and our colleagues and experts because it's a people's industry, it’s the service industry and these are three focus areas.

They are part of our strategy, which we have presented in more detail, and we never gave up implementing driving this forward. And I think we start to harvest from this situation or from this approach.

30:43 The main question is the market and how does the markets develop further? We have mentioned that on different occasions at the moment, we see a continuation of the private consumption and the demand for goods, which remains very strong.

This is also what we have stated on Slide twenty one. And the current market situation and capacity constraints are also expected to persist longer or beyond Lunar New Year twenty twenty two.

31:16 And I said this before, most likely or as from two today's perspective, we do not see a major change during the next six to twelve months. And whatever is changing will not be a radical change, but a gradual hopefully normalization.

But for the time being, we expect Bullwhip effect, I repeat myself, we expect an even worsening of the market situation and capacity and that is unfortunately what we see at the moment, especially at the West Coast in the U.S. 31:54 Our strategy approach, we are successfully meeting high on service level requirements of our customers and we focus on those.

So, we are extremely selective with our growth and where do we grow? And I mentioned Transpac before LCL is in less container load business and so on.

And we continue providing solutions for the different industries, pharma and e-commerce and focusing on deploying our technology because this was clearly a pandemic effect that the buy-in and the onboarding on our technology solutions, our customer platforms eTrucknow, SeaExplorer, myKN has been exceptionally high and this trend is ongoing and unbroken. 32:45 With this statement, I thank you for the attention so far.

I'm sure we have some questions in the pipeline and for this I hand over to our facilitator, Alice.

33:29 Good afternoon Detlef and Markus and thank you was always for the presentation today. Three questions from me, please.

First of all, on ocean freight volumes, they were down by nine percent in Q3 excluding Apec as you mentioned. When you talk about low yielding cargo not running in the network are present, is that primarily because it's just uneconomic to transport low yielding cargo with rates as high as they are or is it more because you can only obtain a finite amount of capacity from the container shipping lines and therefore you understandably allocate that capacity to the high yielding cargo?

So, that's the first question. Second question on the gross profit per TEU.

It's now obviously more than double the level seen prior to the pandemic. Could you maybe just comment on the extent to which the markup element has risen in recent quarters as opposed to the value added element?

And then the final question on supply chain disruptions. We all know that the U.S.

Ports have seen severe disruption for several months now. And you just said that you think that will get worse.

But could you maybe provide us with an update on what you're seeing at the main European Ports? Recent news flow suggest congestion has worsened quite significantly over the past month or two, is that consistent with what you're seeing?

Thank you.

34:55 Absolutely. Thanks for your questions.

Let me start with the latter question. Ports are congested, I should say around the – but the severest congestion is at the U.S.

West Coast right now, while East Coast ports are doing marketing with shipping lines to reroute transport or vessels because they still have capacity. We still like a forty seven days a week service in some of those ports despite political statements.

It's not happening. And we have the high seasonal in the U.S.

with Thanksgiving coming up soon and Christmas season and so on. 35:42 So, it is not only a U.S.

topic, but it's very hot, so to say in the U.S. At the moment, we have around seven hundred forty vessels, somewhere waiting in front of ports around the globe, which is like twelve, thirteen percent of the global vessel capacity.

So, this is a topic which is also relevant for European ports. And especially those ports that are not automated or only automated to a very low degree.

And that could be my answer to your third question. Low yielding cargo in Sea Logistics networks, yes, I fully agree.

It's both. It's uneconomic for the shipper.

Unless you have increased your prices for forestry products or recycling material already, and those prices can be high spot rates. This is a cargo typically running on a spot rate basis.

36:47 And it's a capacity because not all those goods would be shipped and would be waiting in some of the export ports. And therefore, we are more selective in accepting those cargo or this cargo.

And GP per TEU, I'm not aware of any markup we have. If you see our increase in GP per TEU, it's mediocre compared to the spot rate increase so by the carriers.

Yeah. And they are reflection extra works in order to handle those goods.

So, it's not, I'm not aware of any market that you've alluded to? Thank you.

37:30 Can I maybe just ask one quick follow-up question. Just going back to the first point on the ocean freight volumes, are you starting to see any signs that container shipping lines is skewing capacity towards their own controlled volumes as opposed to the forward is, is that an issue?

37:48 This is something that's happening in the market for years, back and forth, I don't see any significant trend or shift in trend. And also, here, whoever controls the volume, more important is that you control the terminal or the infrastructure on port side and that's the bottleneck.

And then the inbound and outbound flows both on trucks as well as on railways we have seen a huge disruption also there. 38:17 So, the – so to say the market share of the carrier control versus forwarder control business has not shifted significantly over the last years.

38:33 Oh, very clear. Thank you.

38:34 Thank you.

38:44 Yeah, good afternoon Detlef and Markus. Thanks for the presentation.

I also have three questions here. Firstly, production cut in China, are you seeing any impact on export out of China?

And especially as we go into the Chinese New Year, what are your shippers are actually talking about of the offsets some of the potential output drop there? Secondly on the trucking shortage in the Europe and the U.S.

how does it actually impacted your ability to do to buy capacity? Do you have any dedicated charter or a block space segment agreement similar to the air freight in the tracking market?

And when you expect things to normalize here, i.e., is it sea freight should see first normalization then you see a trucking or which one should – actually as a lead indicator? And then the third one, obviously, given the surge on the freight rates, looks like the named accounts or the big customers have got some priority over SMEs and what are you actually seeing within your client portfolios, SME versus the big named accounts?

39:57 Right. Hello Sathish, let me answer your question.

The production shift in China, I think is ongoing for, is it five years or so. Yeah.

Maybe we should reflect the last, but one five year plan of China which ended last year, and then the new one, it was clearly stated that China will concentrate on high value production, mainly for the domestic market and selectively for exports, and they want to bring imports and exports GDP related to imports and exports in equilibrium, which would mean that they have to bridge the gap of two point five percent GDP, which is obviously, which reflects them both, less exports and more imports to state this. And we have seen this.

It's not a new trend. 40:50 Our development in other Asian markets like Vietnam, Indonesia, Myanmar, even partly India or Singapore, Malaysia, reflected that trend over the last years.

And I think we are not seeing an Ad Hoc development here but a gradual shift. And the domestic Chinese market is so huge that this capacity that is freed up, so to say will be serving the domestic Chinese market.

No major change. Trucking shortage is both.

We have a trucking or trucker shortage in many markets based on industry that was never and primarily in the focus. And the container trucker shortage will remain that's all here.

41:42 We have long term agreements with our partners even throughout the pandemic, by the way. And therefore, we don't experience that to certain extent, but whatever is spot causes additional problems.

And that is maybe then also referring or leading to the answer to your third question because last decade to say this frankly, our customers have shifted from longer mid-term contracts to short-term contracts and spot. 42:14 It was normal two, three years or four years ago that a logistics, head of logistics of a productional trading company put forty thousand TEU to be shipped next months on the spot market and would have placed them within forty eight hours.

This is impossible. So, we see more long term contracts, but this is also true for SME customers.

So, those that are really suffering are those customers that ship goods that have a very low value per good or article. And that have a very low value for a container and then have not provided for a volume or capacity with a long-term or mid-term contract, but try to create those on the spot market, which is, if you ask me almost impossible.

43:03 So that would be my answer, but it's not related to named accounts and those mechanisms, it is more what is your sourcing strategy, and what is your capacity demand and have you sourced long term for the capacity or are you trying to play the spot market, which obviously brought a lot of surprises to some customers. Thank you.

43:25 Thank you. Just a quick follow-up actually.

Sorry, I should have made it a bit more clear, production cut, so, also sort of think the power cut in Chinese production facilities. So, do you see any impact of that power cut?

43:41 Sathish, I'm not sure I understand the question. I'm not aware of any problems in Chinese production facilities, if that was the question.

I think I stated everything regarding China. It's based on the second five year plan that has focused on renewable energy, sustainable production and high margin or high value products as such, mainly serving the domestic market and that's the trend that we have seen over the last years and that is driving us in supply chains.

44:19 Okay. Thank you.

That's very clear.

44:22 Thank you.

44:32 Hi, good afternoon and thank you for taking the questions. Three for me, please.

First of all, on capital allocation, your net debt isn't far off turning negative at this point, how would you prefer to use these surplus liquidity, so the M and A increase in payout, anything else that comes to mind? And then kind of secondly, and related to the topic of M and A, you've mentioned before that you'd like to be doing some more deals?

Any thoughts on the type of target will be most appealing either size, verticals, niches? If anything, you've learned Apex deal that would kind of change your approach on M&A deals going forward?

And then third and finally, could you please talk a bit about your medium term plan as markets normalize? Do I have it right that you are hoping to achieve with higher yield in pre-pandemic by maybe focusing bit more on the cargo mix?

And if so, why is that the right strategy with eTouch also being rolled? With eTouch not increase the operating leverage, does that make sense to you for as much volume as possible?

Could you help me to understand that, please as well? Thank you.

45:32 Alright, Alex. It’s Markus.

I'm going to take your first two question on capital allocation and M and A deals. So, capital allocation for me to first almost focus is always create enough cash.

So, we need to focus on the cash generation of the business. This is foremost and utmost importance.

Later on, on capital allocation, where you know, we do not have written down fixed dividend policy, but you know from a historic pattern and also what we communicate over the quarterly calls, that we have a certain payout ratio that we are targeting and that also the supervisory board usually makes the proposal to the AGM. 46:26 So cash generation and remain asset light, you know, as much and as enthusiastic as possible, you know and certainly Detlef and myself and every leader of the business units, we are very much focused on the asset light model that we are maintaining at KN.

And that for me is first to . And of course, M&A plays a role in that.

We have always said our M and A strategy is bolt on acquisitions and I would even use Salmosped as a very small acquisition, but very typical for the way how we develop. 47:15 It's very specialized, very niche at that point in time, but it is extremely available knowhow that we get with that kind of acquisition.

And then we leverage the knowhow, the expertise through our larger network. Of course, not every acquisition is that of – of that rather smaller size acquisition, some of them are larger size acquisitions, but from a type perspective, very similar.

And that that is one part of our M and A strategy. 47:52 The other part is Asia.

And I think we have been very vocal around it and we have also been very successful with the Apex acquisition in our footprint development in Asia. And I think we can expect that we are continuing that part in Asia.

Is it going to be another Apex? Most likely not.

We are not buying two times the same thing, but obviously, there is going to be other focus areas that is going to increase and solidify our footprint in Asia even further.

48:30 And let me answer then, Detlef speaking, your third question, Alex, cargo mix. Why would we not take all cargo that contributes a positive EBIT per unit, if we can operate them and in an efficient way?

And that is the strategy of eTouch. eTouch is automation across the whole shipment flow, but it will create benefits to complex and high-end high-yield cargo, but also to the commoditized Cargo and if you reflect, we believe that and fully eTouch shipment will create a conversion rate of sixty or even ninety or in theory a hundred percent incremental.

And we will capture these volumes if there's enough space in the market. And if the contribution of these shipments is positive.

49:24 If you look only to the total figure or the average figure not the total figure, sorry, the average figure, you will not, you might see a reduction in yield per TEU or per ton per hundred kilo or EBIT per ton of 100 kilo or per TEU, but the contribution is positive. It will create cash inflow and EBIT inflow, and that is what we will focus on.

But as we have seen in the last month or as we have shown in the last months, it's a plug-in and plug-out, we can steer it. We can control it.

50:01 And that's the current – it's a reflection of the current market situation where the goods cannot bare the transport costs at the moment and the capacity is geared more towards the higher yielding or more complex solutions.

50:22 Very clear. Thank you very much.

50:24 Thank you.

50:36 Thank you for the call. The first question is around, you mentioned some of the Ports will start working twenty four seven, they haven't yet.

Do you think that once the Port of starts working twenty four, seven, will it start to ease the congestion and will it be meaningful? Then secondly, on the airfreight side, now that the U.S.

will be opening from November onwards and transatlantic passenger flying should increase. How do you see that impacting the global airfreight market?

And then if you could please comment on dividends given the strong cash flows and how we should think about that for this year? Thank you.

51:26 Thanks for your questions Muneeba, and let me answer them. So, Ports of L.A.

twenty four, seven, yes, is highly needed and we are desperately waiting for it, and it will gradually influence the bottlenecks, but it's not the only story, and it's not the only bottleneck, but it would be highly needed, but that's what I mentioned before. It will be – might create or may be a starting point for a gradual improvement.

But it's not only the port. 51:58 It's the in-bound and out-bound floors of the containers.

It's the railway terminals even in Chicago and in Detroit, which were closed down for a week or so in order to sort the containers in the terminal. So, it's more.

It's a very complex approach, but with the twenty four seven operations, it would signal that gradually this can improve. At the moment, we have some ports that are working twenty four hours a day at the West Coast and some aren’t.

So, that's maybe the big difference. 52:35 Belly on the Transatlantic, yes, first of all, I'm flying to the U.S.

on early November again. So, it's great to see that we see a bit of normalization, but the volume that we expect coming from belly on the Transatlantic only will be in high demand, but will not be serving much of the market needs at the moment.

So, it's not a big change. It's not a big, it will not have a big impact.

And our expectation or the expectation of our colleagues in the air logistics community especially is that we will not see a belly capacity of sizable offering of a sizeable offering kicking in before twenty twenty four. 53:24 We need regular flights between the continents again, passenger flights, and if you remember, we had fifty flights alone from the West Coast U.S.

per day to Europe. We see that coming back.

It will take some. By the way, the holiday season is over.

So, it will be more of the relatives and business travelers that we will see in those flights that might be possible as of November eight from Europe to the U.S. and vice versa.

53:59 And dividends is the last question. I think, I mentioned something before already on the questions from Alex.

I think I would believe a good reference point would be payout ratio over last year. As you know, we never give guidance to that, but I think it's a good reference point to .

54:27 Thank you.

54:28 Thank you.

54:40 Hi there. I've got, so two questions please on the same topic.

First one is, if we look at the sea unit margins, I guess have been particularly strong across the group. Can we just kind of unpack that and talk a little bit about what's driving into such high levels in particular, how much of it is mix kind of away from lower margin driving your commodity volume whatever else versus sort of other impacts?

And the second part of the question is, yes, has there been any sort of time lag benefit between when you bought capacity and when you've sold it? So, for example, where you able to buy capacity three, six months ago at lower rates and you can now sell at spot market, is that sort of time lag effect having much big impact on unit margins at all?

Thank you.

55:28 Let me start with a latter question. That is not our business model.

We buy and sell so to say in your wording, at the same time. We do not provide capacity and then wait for customers to come and make use of that capacity.

Really not. Whatever we do is in direct junction and interaction with a customer always.

55:51 The sea units margin is a reflection of the market situation at the moment. Nothing else.

And it's reflected in higher operating which we mentioned before. And maybe here, it takes some time before you see that on a unit basis to really, but we have, this is the main driver and nothing else.

56:17 Okay. I'll leave it there.

Thank you.

56:19 Alright. Thank you.

56:29 Yes, good morning. Two questions from my side.

Going back to the GP per unit margins, but not in sea and air. I was wondering what explains really the stability of the unit margins or the yield and air freight versus the sort of chaos we see in sea, if you could help us understand that?

And the second question is, in practice, how do you manage yours or how do you circumvent the congestion problem in sea freight for your customers? And how do you really manage to get the goods from A to B in a reasonable time with the current chaos going on in the ports?

Thank you.

57:16 Michael, let me answer your questions. First off all, what is driving the stability in air logistics, it's our own flight operation.

We have our own production or own flight operation that's driving the stability if you want. And we have not the high demand that we saw in quarter two especially last year, where had all the PPE, you know the Personal Protection Equipment that needed to be shipped to Europe or somewhere in the world like overnight, and the heat is out of the market, although, the market is still very hot.

Now, it's a market which sees a high demand we can grow our volumes. 57:54 Sorry.

We base our own flight operation as or business based, all solutions are based on the own flight operation, which gives a certain stability. The second question?

58:07 The first question was the gross profit per ton and air freight and why the stable.

58:12 I think that was my answer.

58:14 Okay. The second was to sea freight, how do…

58:17 How do we manage to get the containers through? A lot of manual interference.

A lot of organizations interference was authorities with railway companies, with trucking companies, a lot of guess work, unfortunately, I have to say when does the container really leave the port or is able to enter a port or terminal? And that is why we say it's a high demand for the expertise and the skills of our forwarding, sea freight forwarding experts at the moment.

So, you can't automate this process flow at all.

58:56 But you still have, sorry, as a follow-up, you still have a very high visibility on the global goods flow through your systems, is that correct? Because you want to …

59:04 Has not changed and you can anticipate even bottlenecks, but then you have to – I’ll give you an example, if you see that at the moment, we are piling up all the vessels that are waiting to enter the West Coast ports in the U.S. increasing.

It was a record last night of more than a hundred vessels waiting to enter the other West Coast Port at one night, imagine, one hundred vessels, and we can see this. 59:33 We can anticipate this.

And then we can give our customers different signals. We can ask them to unload their cargo in a port prior to the West Coast and then fly cargo.

So, the sea air combination, we can urge in combination with the carriers, reroute vessels even which we did partly during this Suez Canal when the Ever Given was sitting the wrongly anchored in the middle of the Suez Canal and those are solutions we are trying to initiate and drive for our customers. And the rest is real individual customized activities to make the container flow as much as possible.

Thanks, Michael.

60:23 Thanks a Lot. Well done.

60:25 Can I just address to the audience, still have a number of people in the queue. Can I please ask you, since we're a bit limited on time today that you would focus on one question each please?

Thank you.

60:48 Good afternoon and congratulations on the great results. Then just one question, maybe on Apex, it seems that the volume development quarter over quarter for the second quarter was pretty weak for Apex and costs per unit were pretty high.

Could you elaborate a bit why this maybe all six and on what was the co-loading development in Apex?

61:20 So, okay. So, you're addressing this sequential development of Apex volume right, Q2 to Q3.

Is that right?

61:29 Yes.

61:30 Okay. Good.

Yeah. So, talking about air freight, I think the growth rates in both had been still quite solid, but obviously in Q2, Q3, we still have a bit of a misalignment of the first consolidation, which of the volume was in which of the quarters.

So, there is a bit of often affect that certainly Detlef can then give you more details to that. But I can say that the growth, the absolute growth in both port has been very similar.

So, it's more of a reporting topic rather than other business topic.

62:09 Okay. Thank you.

62:21 Yes. Thank you for taking my question.

I just wanted to ask you, what's your view terms kind of medium term volume growth in relation to your comments around Cargo mix and the low yield goods? I mean, do you think there's any reason to believe that this don't ever return because structurally we go to a higher rate environment, mid-term?

Thanks.

62:49 I would not concur with your statement. I think we will see more of the commodity cargo entering the market again because eventually the customers of those goods are willing to pay higher rates.

It will drive a certain price increase of those goods, not of the transport costs, but we will see this kicking in again. At the moment as the market is so congested, only urgent commoditized cargo will find its way into the network.

But we are a company that still is pushing to grow volumes in all areas, all its business units and has clearly stated and that has unchanged for outperform market, market growth rates. But at the moment, in the current Sea Logistics environment, we have put this target on hold for generating higher yields and higher EBIT’s per TEU as mentioned before.

Thank you.

63:54 Thank you.

64:05 Hello and good afternoon. I have just one question on Sea Logistics, it’s with regard to the M and A impact there.

If I am calculating correctly the gross profit margin on the incremental business, it was quite pronounced, is that specific factor because of the consolidation or is that something which we could think of could go on there going forward or how should we put that into context?

64:28 Gross profit margin per incremental TEU is a reflection of the current market situation, which we described throughout the last hour.

64:38 Yeah. But I mean, the conversion rate is like sixty eight percent on the sort of increment gross profit versus incremental EBIT, what is the ?

64:48 The current market situation, sorry, Sebastian, it's a reflection of the current market situation because we only onboard cargo where we have a high service demand where we are able to fulfill the customer expectation. And that is exactly reflecting – is reflected in the conversion rate.

65:08 Got it. Many thanks.

65:09 Sure.

65:22 Hi. Good afternoon.

Then one question for me. I guess, given that the supply bottlenecks are getting worse and not better, what concerns you in terms of pressure pumps points on the cost side that could squeeze the margins and drive profit lower?

I do understand the third quarter is a special situation, but I'm just on the cost side, where, what is your main concern for the next few quarters?

65:53 On the cost side, our main concern is that our eTouch solutions and automation can be fully deployed because this would mean that our human being or the personal interference is decreasing. So, the more markets stabilize, and we are anticipating, as I said, worsening, but we can anticipate it at the moment, maybe better than three months ago or two months ago.

We can drive productivity through technology. We need our experts to interfere with customers and suppliers and to interact with them.

So, therefore at the moment, I would say it's more driving our automation to become even more effective in the current market environment. Thank you.

66:46 Thank you.

66:56 Thank you, Alice, and thanks ladies and gentlemen for joining in for the nine months analyst call of Kuehne + Nagel International AG and our performance throughout the last three quarters. And you saw that we have performed very strongly, but twenty twenty one remains unpredictable and challenging, but we find ways and we find solutions for our customers.

67:23 We remain committed to our proven strategies, staying on course I mentioned before, and the strategy includes providing reliable high quality technology supported and data driven services to our customers. And a selection of where we want to grow as at mid-double-digit growth on the Transpacific with a clear focus on those that really matter up for our customers.

67:52 It is all about our logistics experts that is also reflecting some of the last questions that we had, our technology platforms and our agility to adapt and find solutions to the market situation. We thank you for joining us, have a nice year and I'm sure we will talk again in early March next year to see how the year has closed – the year twenty twenty one has closed.

Thank you and bye-bye from Kuehne + Nagel.