Kuehne + Nagel International AG

Thank You, Sandra (ph). Good morning.

Good day. Good afternoon and good evening to all of you, and welcome to the Analyst Conference on the First Quarter 2022 results of Kuehne + Nagel International AG.

Our CFO, Markus Blanka-Graff and I welcome you to our today's call. And as always, let's get started on Slide 3 of slide deck that we have published early this morning.

The strong development of Quarter 3 and 4 last year has continued throughout the first quarter this year. We are roughly in line with the Q4 performance with our Quarter 1 performance.

While net turnover increased by 68% on the previous year and results more than doubled. This is clearly a confirmation of our strategy which is relevant for our customers and all the trade-ins we are in.

We closed the first quarter was a gross profit close to three billion exactly CHF 2.942 billion, a growth of 46% or 34% organically excluding any foreign exchange effects. We posted a strong increase in free cash flow from operations, you will hear more details on that from Markus later.

And we have increased our earnings per share versus previous year by CHF 3.88. Please follow me on the next slide with a short overview on the strong performance of the Kuehne + Nagel group, in the first quarter 2022.

We closed the first quarter with an EBIT, group EBIT of CHF 1.12 billion and a group conversion rate of 38%. In Sea Logistics, the chaotic and unpredictable markets continue until today and it’s ongoing.

At the end of the presentation, we will give some flavor on what we expect for the next couple of weeks or months. And we closed Sea Logistics was an EBIT of CHF 621 million, a continuation and a result of the high service intensity due to the challenging market environment.

Air Logistics posted an EBIT of CHF 425 million, with that of a strong volume increase and yield increase. The acquisition effect to the EBIT is CHF 130 million and we have a strong contribution both to volume and EBIT from acquisitions and also a strong contribution to EBIT from our KN stand-alone businesses.

Road Logistics posted an EBIT of CHF 30 million, volume growth in our networks, Europe, North America, a very solid and growing operations throughout the last three months or the first quarter. Contract Logistics had posted an EBITDA of 44 million Swiss francs and expansion of the service offering and pharma and e-commerce ongoingly, and a high capacity utilization also here you will get some details later on.

Most importantly, Contract Logistics, all the new projects were flawlessly implemented. And we have seen an expansion in our core industry in both Road Logistics and Contract Logistics, and that is part of the strategy that I alluded to in the beginning.

Some details on the business units, Sea Logistics and Air Logistics volume development, you will find on Slide 6. Sea Logistics, nominal a volume decrease of 4%-- minus 4% in the first quarter of 2022 or 8%-- minus 8% organic.

It's in line from our point of view with the market, which is contracting in the mid-single-digit range. At the moment, market that is deteriorating and reflecting a couple of effects that has been discussed earlier.

We have seen also the KNC explorer in the showing the peak of the disruption index in the middle of February, so in the middle of the first quarter this year. This has to stop until maybe two weeks ago and now it's increasing again.

But we can discuss this later on. We also on purpose have the continuation of the low yield erosion as we focus on strong growth in where it matters most in -- on the Trans-Pacific, on the Trans-Atlantic, partly on Intra-Asia, and LCL, and for all our services we see, our focus is on services that demand a high service degree and have the complexity which we are able to solve on behalf of our customers.

The carrier reliability remains extremely low, you have heard me saying this a couple of times. At the moment we are on a level of 30% to 35% on-time delivery.

I was already blaming a low quality when we were at 65% to 70% prior to the pandemic. But now it's really a very low reliability.

And our focus, all of our strategy in Sea Logistics is customer service, end-to-end reliability and visibility, and managing the cargo mix towards high yield in complex transports mainly. Air Logistics, volume growth of 33%, nominal organic growth 3% to 4%.

Our market growth is flattish, maybe 1% growth in the first quarter of 2022. We have seen double-digit growth in Pharma and Aerospace again.

And a clear -- clearly automotive lagging in the first quarter of 2022, a reflection of the manufacturing bottlenecks in the automotive industry. For example, this regards to chips.

Apex is continuing exceeding expectations, and with that I would like you to follow me on Slide 8 where we have the KPIs of the Sea Logistics business segment. A strong yield development that we have seen in quarters three and four is continuing in quarter one 2022, reflecting the favorable portfolio mix, blue-chip customers, small and medium-size enterprises, complex requirements, service orientation, refund LCL shipments, high service intensity.

A lot of manual work needs to be done, a lot of pressure on our operations in order to make shipments go through the network as seamless as possible. And we have a focus, as what I mentioned before, Trans-Pacific, Trans-Atlantic, LCL, and reefer and renewable energy where we see a lot of pick up and volume growth throughout the last couple of months.

The yield expansion more than compensated for sequential unit cost increase. And as mentioned, there's no relaxation at all in the very intensified workforce and work flow, that we see in our networks.

Even for the first quarter was at close to first quarter at CHF 621 million, a great performance of our operations in our Team's . On Slide 10, we see the Air Logistics KPIs, Unit KPIs.

Air Logistics a very strong performance. Organic years in the first quarter were up 26% sequentially versus 9% in quarter four, so we have catched up here.

All in years of CHF 142 per unit, per hundred kilo, down by 7% sequentially, as the OpEx using -- you see this clearly on that slide, normalized slightly versus the very exceptional fourth quarter 2022. Apex, and I mentioned that before, is clearly outperforming our expectations and our targets and that we have seen again, in the first quarter.

It's fun and a pleasure to have Apex, as part of our group. Organic unit costs are up 9% sequentially in quarter one versus quarter four and 15% year-over-year, clear effects of our digitalization and eTouch efforts, as the volume has organically been growing much, much faster than the unit cost development.

EBIT first quarter and Air Logistics CHF425 million. And the impact from acquisitions within those CHF425 million of CHF130 million from -- during the first quarter.

On Slide 12, you will see the details of Road Logistics. We have seen very strong volume growth in the core European network, a high demand for our digital solutions.

What we have seen in third and fourth quarter was continuing even growing further. The eTruck now visibility and Software as a Service solution is -- sees a very high demand.

And we have seen significant increase in volumes in domestic U.S. Having said that, we have seen a net turnover increase of 13% at the first quarter versus first quarter last year.

And a clear EBITDA improvement of 25% resulting into an EBIT and Road Logistics of CHF 30 million. The Road Logistics business continue demand and growth, and we will come to our outlook later that should not change too soon as from our today's perspective.

Contract Logistics, our first business units where we do a bit of a deep dive, during that presentation, today's presentation on Slide 14. Contract Logistics showed a very strong operational performance with an organic Quarter 1 net turnover growth of 8%.

Once again, centered on pharma and e-commerce, which contributed -- both contributed to 80% of all newly signed contracts. The growth of trade in Asia and North America is two times that of Europe.

And that's part of our strategy, the geographic focus and the interlink with our network development. Over 80% of the lease obligations are backed by customer contracts with nearly a 100% expiring beyond 2025.

So we have a very long and robust customer relationship here with the renewals clearly above 90% to 95%. And the idle space on an extremely low level at the moment of 2.1% versus 2.3% end of last year.

So the capacity of 10.2 million square meters, end of Quarter 1 2022 showed almost no idle space, just some basis. All of this resulted into an EBIT in the first quarter 2022 for Contract Logistics of CHF44 million, which is 16% above prior year.

And with that said, I am handing over to my colleague, Markus, to give you some details on the financial performance.

Thank you, Detlef. And ladies and gentlemen, welcome also from my side, and thank you for taking the time listen to us.

Indeed, it was an outstanding quarter virtually in relation to first quarter 2021, so from a year-over-year perspective. But it has also been a solid and strong continuation of our quarter 4 2021 performance.

Group conversion rate briefly commented on 38%, when you look onto the profit income statement here on page 16 of our presentation. When you look at it on an incremental basis, the incrementally conversion rate is 75% on a year-over-year basis.

Again, on the sequential, I think we have been -- we have seen well-performed and continuing the pace that we have started in the last quarter 2021. So CHF 700 million, roughly additional earnings before tax.

Also here, a bit of split into organic and inorganic growth, growth through acquisitions, and that is in all business units together is around CHF 175 million organic growth year-over-year, CHF 525. And third item I want to mention here is non-controlling interest.

You know, for many years, have never has been a large number, but now it becomes a relevant amount. And I would indicate statically forward, a number around CHF 50 million should be our run rate also for this income statement line items.

What has changed in the balance sheet, not much. And I think that's the good news.

Page 17 of our presentation, the three topics -- or the three items on the balance sheet, I always look at receivables, payables, and cash. You see from the starting point at the beginning of the year until now, trade receivables are remaining relatively stable around CHF 6.3 billion - CHF 6.4 billion.

At the same time, trade payables in the same range CHF 2.8 billion - CHF 2.9 billion. Cash increased around CHF 800 million from the starting point of the year, which leads me already to the interesting development on the cash -- the free cash flow, Page number 18.

And you will see -- I'm going to highlight that one line here, changes in working capital. You see here, in Q1 2022, we have the number CHF 41 million.

So what it actually means is we have been able to contain and to limit our working capital that we started with into the year at the same level. And operate the business with no further extension of working capital.

That translates in our world, of our balance sheet, and how it works. That basically the net profit after-tax is pretty much equivalent to the free cash flow generators.

So we generated another CHF 800 million additional profit another CHF 800 million has been in-flowing as a free cash flow. That results into the roughly CHF 1 million free cash flow in the first quarter.

Again, here my expectation would be going forward, that our networking capital as it stands today, and you can see that on this page number 19 is around CHF 2 billion should remain at that level until or unless the business is changing significantly. Page Number 19, I have referred to it.

When you compare the number, we have here working capital and entity of 4.6%, arguably that is a notch above our corridor that we have given ourselves until up 4.5%. I think for Q1 that is still tolerable, we have to see how it's going to develop in the future.

DSOs 52.6, so around 52% in range where we want to be DPO 58% same year. So basically no new sustainable business, sustainable receivables, payables .

That translates obviously, when we run the models and the analysis on Page number 20, Return on Capital Employed. You see here on one page all of this story that I told you we lost three minute.

You see that one slide, Return on Capital Employed increased around 220% to 230% on a reported level. And this -- at that level, continuing, it is remarkable and to a large extent, a sustainable performance.

With that current level of performance and our ongoing, ambitious, obviously, to keep it at that level, I'd hand back to Detlef to give you some perspective on current markets.

Thank you very much, Markus. Ladies and gentlemen, let me comment on market development.

But before I do so, let me also comment what we have read again this morning and some of the papers and media and so on. We are not giving any outlook at the moment, because it would be very much speculative of whatever outlook you would get from us.

We have a view and I can share that view, that for the time being, I'm talking this current quarter as we speak, there will be no major changes in consumer behavior nor in the volume trends that we have seen. All these and -- continues in the second semester of 2022, would be very speculative.

Our assumption is, no major additional disruption. So that's the assumption for our own planning, our own forecasting.

But whatever figure or whatever hint we would give you, we have the feeling it would be more speculative and we don't want to end up speculating about the future. We are driving our future, we plan as far as we can, and we react in a very agile manner on any changes that we experienced.

Having said that, let me comment on the market. You know that the global GDP growth consensus has decreased a couple of times at the moment.

It's expected to grow only by 3.5% globally. We see that inflationary pressures are clearly triggered by the war in Ukraine, mainly driven by the energy prices, the huge increase in energy prices.

We have seen a continuation of inefficient supply chains, which have led to network disruption and congestion, mainly an infrastructure topic centered around ports and airports, and sometimes also capacity availability not only in vessels, but also in trailers and truck drivers in certain markets are real weigh engineers. And we see a stabilization not happening at the moment, but no massive deterioration either.

While the overall stabilization, non talking second semester depends on the consumption patterns and the infrastructure investments that might figure. How are reacting or how are we addressing those topics?

I mentioned that very agile organization agility is something that is based on all our digital platforms and the talents of our logistics experts all over the world. We focus on high service quality and network reliability in the given circumstances.

Our investments are ongoing in sustainable logistics solutions. We forget a bit with the pandemic and war in Ukraine, that sustainability is the major topic of societies globally at the moment.

And we have to address it. We have to be active.

We have for reduce carbon footprint. Transport and logistics is good for only 8% of the global transport, sorry, the global carbon footprint.

But we can impact it, we can reduce it. And us in Kuehne + Nagel are working on this very actively, and has been continuing its work and activity swap the last couple of quarters.

We focus on profitability and the leverage of our acquired companies. We're very selective with acquisitions, as you know, wherever we conduct an acquisition, this is our focus.

And we accelerated and continue accelerating our digital transformation. And we have started already quarters three and four last year, but also this year, specifically with Air Logistics to harvest from our digital platforms and our news technologies that we have deployed throughout our networks.

With that said, I thank you for listening and I hand back to the Operator Sandra to open the Q&A session. Thank you.

Hi, good afternoon. I have a three questions.

First, what's your assessment on the lost of airfreight capacity from both the Ukraine war and the Chinese lock down? I know you've talked about it, but could you give us some numbers around how that differs per trade lane, maybe.

Second question on Apex, you mentioned that Q4 was an exceptional quarter and now yields are normalizing. Where does this different come from?

And how do you think that looks in the normalized world, especially on GP and OpEx per ton basis? And final question, certain shipping lines have been expanding more and more beyond shipping into Air, Road, Contract Logistics.

Is this going to increase competition by diluting GP yields? And if not, why not?

That's it for me. Thank you very much.

Thank you, Clementine and let me answer or let us answer your questions. First of all, air freight capacity, yes.

As the Russian as well as the Ukrainian territories cannot be flown over, there is an implicit reduction of available air freight capacity, because flying to NorthEast Asia especially Korea and others is effected by a longer travel time of 2-4 hours depending on where you go to. In total, approximately 30% of the Asia - Europe trade and vice versa is effected by this blockage of the territories.

In addition, Russian aircrafts cannot be used, and Ukrainian, but all this leads to the 30% that I've just mentioned. Quarter 4 and Apex, I'm not sure I understood right.

I think the run rate you have seen in Quarter 1 this year is the run-rate you could expect from Apex moving forward, but don't underestimate the seasonality of the business and the seasonality of that business is a Trans - Pac focus very much. And it's also Chinese New Year effect, which you see in February usually.

So that's the reason why the first quarter and the fourth quarter differ from our point of view. But the run rate in the performance of Apex has much changed at all.

And I mentioned that, I think in the call, explicitly, we are extremely happy and proud to have the Apex team as part of the Kuehne+Nagel Group. And also, that they over perform their budget, and their strong and ambitious targets.

Competition. I mean, this question is as old as forwarding and carrier.

So I would say it's not a new dimension. Is competition changing?

I think you have to look into the details and maybe towards three levels into those details. The carriers have always had a logistics apps, many of them.

By the way, you have carriers that have logistics apps as well. They have more or less leading roles in their certain national markets as well.

And it doesn't harm us. And whatever has happened so far in the carrier market has not changed the competitive situation, because we are talking to the same companies and competitors that have been bought and are owned by a different owner.

And we don't see any change, because the carrier business and the forwarding business is in two separate , which is the carriers, which is . So there is no change in the competitive landscape.

I think our focus is less on competition, but more on our customers and how we can serve our customers best in the current circumstances, and the transformation needs of our customers in the current market environment. I hope that answers your questions, Clementine.

It was very clear. Thank you very much.

Good afternoon, Detlef and Markus. Just three questions for me, please.

First of all, on Road Logistics. We've seen a few changes recently, bit have had a negative impact on European trucking capacity.

And I'm thinking of the introduction of the mobility package and then some Ukrainian drivers returning home and then a week or so ago, we saw Russian, Belarusian trucks having to cross back home the border. Could you maybe just talk about the extent to which you estimate those factors are having a negative impact on the overall industry capacity, please?

That's Question number 1. And then a couple on sea freight.

First of all, if we exclude Apex volumes were down by around 8.5% in Q1 year-on-year, could you maybe just talk about the drivers behind that change, in particular, the extent to which you think that reduction was driven by a softening of underlying demand relative to other issues such as the Chinese lockdowns, Russia effects, etc.? And then the final one, just a quick question on Chinese export specifically, could you just comment on the extent to which you're seeing Chinese export volumes down in recent weeks impacted by the lockdown restrictions?

Thank you.

Sure, Robert. Let me start answering.

Road and trucking capacity, we read and hear about that as well. At the moment, Kuehne + Nagel is not affected.

We have long-term partnerships with our trucking companies and other requirements, obligations, new legislation and rules, and so on, operating routes. And we don't see any topic here.

But the driver shortage in the market in general is very old. It's something that we had also pre -pandemic.

It was discussed very heavily, and it affected the British market very much directly after the Brexit. So from that point of view at the moment, yes, there is certain changes, but for our group and full truck and less truckload network in Europe, it has no significant -- or no impact at the moment.

Sea volume's down and what's driving this. I think you have a market that is down.

There were some first indications of the market, and I think it's four weeks too early because the carriers will post their results in the next couple of weeks, and we will see their expectation, but we will see a market that is maybe 7%, 8%, 10% down. And we are in line with the market growth organically.

You know that with the Apex acquisition effect we are down 4% only and the main driver of this is Chinese New Year in the first quarter. Don't forget it.

We had virtually no Chinese New Year last year from a volume perspective because there was a big demand after the pandemic and the opening up a year ago. But this year we had a seasonal effect due to Chinese New Year which is always a two weeks effect on average.

And yes, the lockdowns in China have their -- showed their effect, so it's a market effect and that leads to the third question, the Chinese exports. China is exporting and -- but it's less exports and it's more selective, and it depends on the production capacity more than the port capacity and trucking capacity.

We would expect at the moment and it's our guess that we see an export reduction in China of 15%. So that will be my answers to you question, Robert.

That's great, many thanks, Detlef.

You're welcome.

Yes. Thanks, Detlef and Markus for taking questions.

I got three. Firstly on the visibility in terms of volumes.

Given the -- as you mentioned, the production crack out of China is like down 50% on the export, all this has actually impacted your booking visibility across both air and sea today versus the start of Q1. Are you seeing like an four months -- four weeks visibility versus say, eight weeks that was there, like at the start of this year?

Secondly, on the Contract Logistics, what in fact, is trying the high utilization, do you think this tend to continue for the rest of the year or is there anything very specific that has actually driven this high utilization in Q1. And the third one are on free cash flow.

Given the strong start to the quarter to the year, what are their expectations for '22 compared to 2021? Is it fact to say at that free cash flow likely to be significantly about 2021 levels?

Hello, Sathish. Let me just answer the third one.

I think, as I said this during our presentation when we can assume that network and capital remains at the level that we currently see, I think your assumption should turn out the truth that our free cash flow generation will be significant year about last year. Particularly last year you may remember, already in the first quarter can continue into second and third quarter, we have put into the expansion of the network and capital quite some cash flow.

So that's why if that is not there, it stays the same. So, yes, the answer is I do expect a significant higher free cash flow.

Fine, let me answer then the other two -- your other two questions. Visibilities at not changed.

I mean, we can forecast demand and volume expectation, or volume demand and so on very much. And we are in close contact with all our customers.

So that has not changed. I think it's more what is the next wave of decisions the Chinese government gonna take, and how does it affect manufacturing.

And as long as we understand manufacturing, we can plan the volume, demand, and capacity requirements of our customers, which we do, it's a daily business, nothing spectacular. Contract Logistics, Aerospace clear answer.

I would expect the aerospace to be staying below 3% whether that is not 2.1%, 2.3% or 2.6%. It's not really material, but in aerospace 3% is cool, I have to say.

I've been in Contract Logistics before many years, and 3% is -- or below 3% is a very good figure. And we need a bit of Aerospace to breeze less volume, demand and spikes, and requirements of our customers.

And I think we're in a good shape with 2.1% to 2.5% percentage throughout the whole year.

Thank you.

Yes. Thanks, Detlef, thanks, Markus.

Sure.

Hi Detlef and Markus. On -- just going on back to China.

So you've seen the decline in Chinese export volumes, when -- whenever these restrictions ease, do you expect a surge in volumes and could that result in higher rates and yields? How do you see this coming -- following in the next couple of months, weeks, is my first question?

Secondly, Markus I think in the last earnings call you had said that you expected EBIT this year to exceed 2021, given the strong performance in the first quarter, how should we be thinking about EBIT this year? I know you don't give guidance, but just if you could give some indication on your thoughts.

And then I think I heard you say, Detlef, that you haven't seen any changes in customer behavior, just wanted to follow up on that. Can you draw any differences between what you're seeing in terms of customer demand in Europe versus the U.S.

and is any region weaker?

Sure, Muneeba. Thanks for your questions and I will answer and I will answer one and three, and I'm happy you asked Marcus for the EBITDA, which is great.

China declining volumes. We have maybe experienced all of us globally during the pandemic a lock down in Wuhan first and the Hubei province and then all over China and a revamp within weeks.

So we shouldn't underestimate the power of China and the reincarnation of the trade in China, it depends on production and manufacturing capacity, raw material imports. But we would see that being or getting back to whatever is normal within weeks, and I'm not exaggerating.

The impact on yields depends on the availability of vessel and container capacity, trucking capacity, but that's not our topic, it's more see -- until we see the export volumes coming in. And we need to see that happening.

We have end of April now. In three weeks -- sorry, in three months, we will have the winter and Christmas business to start, I'm not kidding.

For the Sea Logistics network and for this you need production up and running again. And I think that will be part of the focus activities of the Chinese government.

Therefore, declining volumes at the moment, we talked for the second week now. It's from our point of view at the moment, not concerning.

It depends on how long and how extended the lock down will continue, not only in Shanghai with 25 million people, but maybe also in Beijing or the greater region of Beijing. And we have a lot of manufacturing sites in the greater region, but not in Beijing as a city so it depends.

The customer behavior in details, and I think we said or gave some details when we posted our annual results 2021 couple of weeks ago, the topic is consumer behavior has changed already, while during the pandemic and I called it, home, garden, and individual sports at that time. Everybody was investing in refurbishing its home, bathroom, living room and so on, garden or terrace or whatever, balcony and individual sports.

We have seen so many sport shoes, pairs of sport shoes being shipped to the U.S. You almost have, I don't know, ten new pairs aboard over the last two years.

But that consumption has changed, there's a slight opening up after the pandemic. I'm talking already middle of quarter three, we have seen a consumption pattern skewed towards service industries again.

Restaurants, perishable business, high-end restaurants, and so on. And this is at the moment continuing.

So therefore that was my message at the moment. We don't see a big change.

The only topic is, will be purchasing power of the private households Stay as strong worldwide but especially in the U.S. and in Europe, to continue purchasing and consuming services and goods that are required to provide those services in order to drive a certain level of GDP growth.

We are talking about a GDP growth of 3.5%, ladies and gentlemen. No we are not talking about a depression, we're not talking about negative GDP growth.

And I think that's a very fair and reasonable assessment of the second semester at the moment, unless something more disruptive or more unpredictable, I hope that answers your questions.

So then, let me conclude, and with the details that you have just mentioned there from customer behavior on the continuation of challenges in the supply chain, and what's going to happen in the next couple of months that we have some limited visibility to. So I think with the good start that we have had in the first quarter and what we know on the second and one of the scenarios that we've work on, second-half, it seems feasible that the results for the full year is kind of the in line or above with what was the previous year.

Hi there. Thanks for taking the question.

I've got two, please. First one again is on the China congestion.

I guess that's sort of adding to disruption in the market. And disruptions tended to be things which have pushed up freight rates in recent quarters.

But if anything at the moment, this kind of disruption is maybe bringing them down. Could we just talk a little bit about why that difference of effect on freight rates is happening?

And the second question, this is again one that's come up from time-to-time. There's sort of been talk recently around the level of globalization.

We've got disruption in China and various geopolitical events. Have you got any more sort of updated thoughts on will the world continue to globalize or could that basically go into reverse and see supply chains become a bit more regional.

Thank you.

Okay. Let me start with the later question.

The greater globalization, we are living in a globalized world and you can't rewind that. But we will see -- we have given similar answers during the last 12, 18 months.

We see that for certain industries and certain customers in these industries, not in general, but for specific companies, second-sourcing, so not one supplier for at least three suppliers in the city of Wuhan, only by the second one maybe in Romania or Mexico. And increasing a minimum stock level from two days to five days or so has become an option and is -- has been implemented or is in implementation.

But we don't see a general trend of changing globalization. Not at all.

We see some shifts of certain goods moving from China, high carbon, low-margin goods being produced now in Vietnam rather than in China as part in the reflection of the Chinese five years plan and their focus on high-yielding technology savvy and sustainable production. We don't see any other trends at the moment.

With regards to congestion, may I be careful, I'm picky with wording here, there is no China congestion. We have a congestion at the moment in the largest port of the world, which is Shanghai Pudong.

We do not have a China congestion. We have trade ongoing.

And I said we have a volume reduction in the -- we assess, we don't know, a volume reduction in the market at the moment of 15% lower exports for the last weeks. So therefore, we will see here maybe a continuation for another week or so, and then we will see.

Yes, freight rates are slightly down, but we have to remind ourselves they are five times higher than pre-COVID. And if I may reiterate the message that has been part of my so to say, in the last call.

You should and we all have to assume significantly higher average freight rates in this decade than during the previous decades because there is a lot of investments to be taken into port infrastructure, into railway, road to the trucking infrastructure, digitalization, connectivity, data, connectivity of blah-blah-blah, airports and so on. And this will require investments and costs that have to be covered and they will be covered by the end consumer as always.

And sustainability. I mentioned that in our call, it's the top topic of society, and it will cost money and whatever politicians are telling us, it will not happen for nothing.

And we have to face it and we have to address it, and we have to tackle it. We do this in our organization.

But this will become a trend. So freight rates at the moment might be slightly lower, but freight rates, you will most likely not see freight rates at the level of 2018 or '19 this decade.

Thank you.

Yes. I got it.

Thanks very much.

Hi. Good afternoon.

Two questions for me, please. The first one is around the Sea fright rates and the jump into the CHF 900 per TEU.

Detlef, you kind of gave us a list of reasons for that happening. But I just wanted to if you could just break that down a bit to just help us out in terms of the moving component parts.

And what's actually driven that sequential, sort of, 20-plus-percent movement in Sea freight rates. And then on minority interest.

Markus really helpful because I'm definitely struggling on that figure. I just wondered, in terms of a CHF 50 million run rate, is that sort of -- I mean, I guess that that figure should be quite seasonal on a quarterly basis.

But is that sort of an average figure that we should be using for minority interest on Apex or is there some change potentially there in ownership. Thank you very much.

Hi, Andy, on the minority interest yes, there will be small changes going forward on the level of minority interest for sure. But CHF50 million that I think is a round about number that you could factor in on a quarterly basis.

So I don't expect that that to jump to 100 or to disappear, but that's why I gave some guidance on this because we usually didn't have any of that in the past. So a small variance yes, but I think as a guidance number, 50 is a good number.

On the sea freight rate, just for me to understand, heard you talk 900 do you mean margins or rates on this one?

So sorry, just the GP per TU, the

Yes so, clearly. I mean, that increase has many drivers and the most important driver is the value that we bring to customers by organizing through all what we've talked about the last 45 minutes, to actually bring that service level towards the customer and that has a price.

And you see that also on the cost per unit. It's not only the GP per unit that goes up, it's also the cost per unit going up.

There's so much more effort in it. But you will understand that we're providing details on what comes out of the service part, what comes out of the purchasing power, what comes out of trade mix, what comes out of product mix.

But these are the four major components that are in there. But as I said product mix, trade lane mix, and the service components are or the three on a more relevant parties to that development than what somebody from the outside could actually assume is the freight rates and distance time, I mean, freight rates level on absolute trips.

And if I may add, we have disruption in all courts globally, also in Europe in the meantime, we are seeing our explorer disruption indicator increasing again after the peak in February or end of February, where we have like 17 million container waiting days. We were on a low of maybe 6 million container waiting days a couple of weeks ago, two or three weeks ago.

And now we are back to 7.5 million, it's increasing day-by-day. We are working and living in a very competitive market environment, so customers always have a choice.

But, for them, it's most important that the cargo is shipped on time and letting them manage rather than saving whatever on the cost, or alternatively, flying rather than shipping them as container vessels. There are options, alternative options, but obviously our customers, given the strong service, especially in Sea and Air Logistics and also Road Logistics and Contract Logistics.

They choose to Kuehne + Nagel for good reasons. Thanks.

Can congestion of the disruption index and on the maintenance, maybe you could just help us in terms of an explanation. So I guess there was a pick up then.

Is it full just seasonality driven mainly and the pickup here is basically end of seasonality at pick up? What sort of just maybe this is the shape of what's happening in your disruption index, just in terms of the reasons.

Thank you.

We have to be careful not to give a disruption indicator lesson now, Andy, but we monitor each and every port-less disruption globally. We have visibility that computes 250 million to 300 million data points every day to come to that indicator.

And we see that the congestion or this disruption is increasing in all ports. While you didn't really wait in front of the port of Hamburg like three weeks ago at the moment, you have to wait 7-14 days.

So there is a certain disruption and this is dependent on a flaw in the network that is -- has two or three bottlenecks. And one obviously, is the largest port globally, which is the port of Shanghai or the Shanghai area, it's more than one port.

And previously it was coming down mainly because of seasonality? Is that the big driver, do you think just easing up the congestion from the February take?

That's how I would rate it, but maybe --

My message is increasing its 50% or 45% higher than three weeks ago. So it's increasing again.

And the reduction we have seen previous years that we have additional shifts and more automation, especially additional shifts in the West Coast ports and East Coast ports in the U.S. The main bottlenecks started was the West Coast ports LA and Long Beach a year-ago, bit longer than a year ago.

So that's add some different input.

Okay. Thank you very much.

You're welcome.

Yes. Good afternoon.

Thank you for taking my questions. I also had three.

Just firstly, when you assess the market over the past two years of the pandemic, do you identify any significant market share shifts between let's say yourselves, the digital freight forwarders, the smaller freight forwarders, and the asset owners that are of note, or would you say pretty much the market has been stable and it's been driven by industry wide changes. So that's one.

The second question is, sorry to get back to the China lockdowns. I guess on your comments of 50% reduction in volumes near-term, is your expectation then that should those lockdowns be lifted, this volume basically comes back or is there a risk that demand is destructed because basically some of these products are no longer in need the longer these lockdowns are in effect.

And then finally, just a question on succession planning. Clearly, Stefan Paul will take over in three months.

Can you just give us an update on how the transition is going and an update on that please? Thank you.

Sure. Market share changes, I think we have clearly gained market share and Air Logistics and we have mentioned that over the last couple of quarterly calls, both through organic growth, as well as through acquisition, mainly Apex.

We have maintained our market share in Sea Logistics and to be honest market share in Sea Logistics is not the topic. The topic is more finding the right customer mix and getting access to capacity.

Also, your question related to digital forwarders and smaller answer on forwarder. There is no digital forwarder, it's about making physical transports happen.

It's important to have goods and whatever you call digital forwarder might be a nice booking platform. At the end of the day, it's about executing shipments, and here we are clearly market leader.

There is small major shift at the moment, although market share is not our focus. At the moment we focus on different topics.

The China volume I can't touch what sort of goods are in the containers waiting at the Chinese ports or somewhere else in the world. But to be honest, we have seen that during the pandemic and I would assume we see a similar pattern.

This volume will come back, it will spike, and the consumption still is robust. It has shifted it's structure, that was the message before, more skewed towards services and related goods -- service-related goods.

Simply, sharpened scissors for a hairstylist, things like that. It has not changed with regards to growing and the growth expectations still is 3.5%.

So that's our assumption moving forward. In succession planning, we will have a hand over session due to the end of this call and when we post the semi-annual results for the first semester 2022, which will be on July 25, if I'm not mistaken.

And there, I will hand over to Stefan. Stefan as being part of the management for nine years plus, so he is well aware of all the details of all strategies and the team is a superb choice and you will see a seamless continuation, but he will be a new person and he has maybe different ideas, hopefully as different ideas and different focus topics.

But he has to speak to you and give him a chance to get into the saddle. And most likely will talk to you then in more detail during the quarter 3 call in October.

Thank you.

Thank you very much.

You're welcome.

Hello and thank you for taking my question. I guess there's 1.5 question left and already I apologize for have feeling like octogenarian here.

But then could you just repeat the reduction in export from export capacitor, X production from China. Is it 50, five zero or 15, one five.

One five.

One five. Okay.

Thank you.

the question, right?

That was the half question. The other question relates to the U.S.

trucking market, and there were quite a lot of reports recently that the spot freight rates in U.S. trucking were -- let's say were crashing quite hard.

And some commentators think that this is like, first the ultimate sign that the U.S. consumer is drawing back quite materially.

Do you agree with the assessment or do you see something else going on in the U.S. spot trucking market?

That's the real question. Thank you.

So Mark, you asked that question to Markus, let me answer it. The U.S.

trucking market is very difficult short haul. So all the short truck movements from a port to a terminal, which is like 30, 40 miles away, that's bottleneck and you have to secure capacity and we have proven suppliers and long-lasting relationships and so on, but the long-haul trucking is not affected and truck drivers enjoy crossing the country -- the continent, so to say, and be on the road for one or two days.

So that is not the bottleneck. For the long haul, you also have solutions and we're strong and inter-modal as you know, in the U.S.

so that is not affected. The opposite, you see it's more increasing, especially given the -- at that time it has eased up a bit the Visa price for the fuel prices in all markets, but especially also in the U.S.

So the short haul is a topic, and if you didn't secure capacity and have improvement relationship with trucking companies, that might be causing delays or problems for one of the others.

Alright. Yes.

You said that there's no China congestion, just in Shanghai. Does that also mean that you can reorganize flows from Shanghai to other ports.

If that is the question, yes, we do. And that's happening.

Okay, thank you very much.

Thank you. Good afternoon, gentlemen.

Just two questions left for me both related to the sea freight yield. Basically, you mentioned those different factors that influence and drive the yield.

Now, we've had disruption obviously for several quarters and still we are significantly up in terms of the sea freight yield still. And my question is, is there any reason why the figure that we've seen beyond CHF 900 shouldn't go further up in coming quarters.

And conversely, the other question would be, is there -- what part of the yield that you are generating is really sustainable and comes from underlying improvements, from digitalization, from things that will basically stay also after these disruptions ease.

Michael, its Markus. So I think I can answer the first question.

Is there any reason why the margin per ton should further go up? I would answer, I don't see a reason why it should go down again.

It's always hard to predict something that is gonna change even upwards in the future. But what I'm more comfortable with saying that our GP margins per TEU at least for can remain the very same level.

The second question is around the productivity efficiency part. This is where, we of course have continued to our digitalization, our eTouch initiatives or around that.

Every single element that we can save on the execution of the shipment is a 100% sustainable because whatever we are going to automate or abandon in the best place is never going to come back as manual work. So we hope that once the situation that we're in right now, that everybody works a little bit on emergency mode to make shipments happen If that eases up slightly than more execution pieces will even benefit from the automation.

But whatever we do here is going to be sustainable for the rest of the time we are using the same execution patterns. And that is a 3% to 5% conversion ratio.

So leave the GP per toy out for moment. The improvement in conversion rate of 3% to 5% is what we are driving towards.

Okay. Very good, excellent.

Thank you very much, well done.

Thank you.

Thank you and thank you for the opportunity. I have three questions if I may.

Firstly, can you share an update on the U.S. West Coast labor union negotiation with the port owner.

We have seen a trend of capacity shifting to the East Coast, perhaps expecting some chaos in the summer. Do you echo that view or this time it could be different?

Secondly, just with respect to the global demand and as you rightly pointed out in your presentation that it's grinding lower at this point of time, the world GDP is hovering around 3% to 3.5%, but whatever is the number that we take off from the global trade growth forecast because of Russia and Ukraine situation. But the fact that first-quarter, it started on a tough note, primarily because of the higher base we entered into the second quarter where China's export is down double-digit.

Does it pretty much put us into a situation where the -- this year's peak season artificially, even if it may, will look stronger even if we are entering into a flattish trade growth in 2022? And lastly, with your cash flow, assuming that there is no last ticket, M&A around the corner, how shall we think about deployment of that capital between growth balance sheet and shareholder?

Thank you.

So let me answer the first two questions and then maybe let's go through how to deploy capital best. The West Coast situation is much calmer than what we experienced five years ago.

Everybody seems to prepare and tries to get into a good negotiation structure, but that doesn't mean that we will not see shut downs of the ports or strikes happening eventually. Hopefully not, clearly not, but let's see.

We had solutions in place during the big West Coast strike five years ago, or a bit more than five years ago, with goals with the Panama Canal, as well as more calls to the West Coast of U.S. and a combination of sea and air.

So you ship it to Dubai and then you fly, so to say, the last mile, which is a bit of an exaggeration, into the respective airports of the U.S. We will find the solution.

But, if people, as everybody is aware there is a need to have efficient ports, very low product of ports at the West Coast. I think there's a good chance that this year we will see a rather moderate environment for the negotiations.

Global demand, and that's the reason we don't give outlooks, that's speculation. We all don't know.

Nobody knows. I would be very surprised if somebody knew then they have to invest into the respective areas where they see growth and margin.

But we see those refund 5% GDP growth. We see more demand for service-related, goods transport, which is great.

It's a different structure of goods in our networks. Which we believe is healthy and sustainable.

And we have no indication that that should not continue in the second semester. We have to strike from the war in Ukraine.

people are desperate to travel, to enjoy a holiday again, to enjoy a big rock concert or whatever it is, to meet other people after two years and more of lock downs. And that will drive consumption.

And maybe you can't spend $5,000 for your travel because you have to pay the energy bill offered extra, but then you spend $4,000. And that is the behavior we expect to happen in the second semester, whether that is the truth or a rather accurate forecast of how demand is evolving throughout this year.

We don't know, but that's our view and our assumption and therefore, I'm happy to share it.

And on the last question in cash flow again. I think my first priority is always to generate the cash flow first, then of course historically, we have been very prudent in terms of where we put our money in terms of M&A.

But if there is nothing assuming your question was leading to that. Also historically, we have been very clear, excess cash in the balance sheet will find it's way back to the shareholders.

Ultimately, that decision, as you know, lies with the AGM and make proposals from .

Perfect. That's very, very clear and helpful.

Thank you and have a lovely day.

You too. Thanks.

Then ladies and gentlemen, thanks for joining in. As you heard over the last one plus hour, Kuehne+Nagel deployed strategy and stayed on course, not only in 2020/2021, but also in the last quarter of -- the last quarter, first quarter of 2022.

And performed strongly in all business units in all geographies. And that is maybe also worth mentioning, all trade-ins and geographies are doing very well.

Thus far in the current year, the business outlook has been favorable, while geopolitical tensions and ongoing supply chain disruptions generated certain uncertainty. I think we have covered that uncertainty in the call.

We're not too concerned. We are a company that is agile, has the right network and people and expertise and energy to solve the problems on behalf of our customers.

We are here to solve challenges and complexity on behalf of our customers. And with this said, we are looking forward to talking to you on July 25th in order to give you a flavor of the second quarter, the first semester in total in 2022, and the short outlook of the second semester 2022.

Thanks for joining. Stay healthy, and we talk again in three months.

Bye-bye.