Kuehne + Nagel International AG (KNIN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the half year 2022 results conference call and live webcast. I'm Andre, the conference call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Detlef Trefzger, CEO of Kuehne + Nagel. Please go ahead, sir.

Good morning, good day, good afternoon and good evening to all of you, and welcome to the Analyst Conference Call on the Half Year 2022 Results of Kuehne + Nagel International AG. Our CFO, Markus Blanka, and I welcome you from sunny and beautiful Switzerland. As always, let's get started on Slide 3 of the slide deck that we have published earlier this morning. Based on the strong operational performance of all business units, we have recorded another record result in the quarter and also for the semiannual result 2022. We ended the quarter -- we ended the half year with a net turnover exceeding CHF 20 billion, a gross profit of almost CHF 5.9 billion and a strong -- a strong free cash flow with a network -- net working capital intensity in the bandwidth of our guidance range. All this resulted in earnings per share almost doubling with CHF 12 for the first 6 months, 2022. Please follow me on Slide 4 of the slide deck. The total EBIT of the group ended with CHF 2,195 million, more than a doubling versus previous year. This is the third consecutive quarter with a result clearly above CHF 1 billion in EBIT -- clearly above CHF 1 billion -- and a group conversion rate of 37%. EBIT in sea logistics reached CHF 1.2 billion, and we are facing persistent congestion at ports which require high service intensity. Air Logistics EBIT of CHF 826 million in the first 6 months of 2022. Route changes due to closed airspace in Russia and in the Ukraine, and the acquisition being accretive with an EBIT contribution of CHF 174 million. Road Logistics, a record half year, with an EBIT of CHF 80 million. The networks are operating at full capacity, especially in Europe and the high demand for digital solutions, which is even accelerating. And Contract Logistics with an EBIT of CHF 81 million, we are expanding our service offering for pharma and e-commerce logistics, and we have a very high capacity utilization. More details to come when we go through the business units. Please follow me on Slide 6 of the slide deck. And we start with the volumes in Sea and Air Logistics. Let me start with the Sea Logistics volume. The quarter 2 volumes in Sea Logistics nominal were 2% below previous year's quarter 2 or 4% organic versus the market that is assumed to have decreased by 5% -- and some trades, even by 10%. The disruption of vessels, ports, containers, trucks, railways is ongoing. We don't see a major change. The Sea Explorer disruption indicator increased last 2 days -- checking this morning -- to over 10 million container waiting days, and the trend is going upwards now for the last couple of days. We have seen a shift from the West to the East Coast in the U.S. -- Savannah and Houston ports are now congested -- and Europe, and we see that Kuehne + Nagel performs on market level and shifts for further volume growth depending on capacity availability, so now is the time to start growing again, depending on the availability of capacity with the carriers. Sea Logistics --- sorry, Air Logistics volumes growth of 3%, organic minus 7%, versus a market growth of minus 5% and a growth of still plus 2% in quarter 1. The comparison with quarter 2 2022 -- 2021 are a bit skewed because we have an Apex consolidation effect in there, which leads to a tougher comparison versus previous year. We were clearly hit by the Shanghai lockdowns in quarter 2, 2022, and only in June we faced a volume reduction in the market and within our networks of minus 19%. This is recovering now, and we see a strong trend towards growing volumes again. Our organic growth is robust. The Kuehne + Nagel legacy business is growing quite well on oil trades, and pharma and aerospace is up -- volumes are up with double-digit growth. The global capacity balancing might be interesting for you. At the moment, it's 65% roughly freighters, so main deck operations with our own chartered freighter network, and 35% belly. So belly is gradually coming back. Let's move on to the details on -- the KPIs on Sea Logistics. We have seen an extreme peak -- by the way, it's on Slide 8. Please follow me on Slide 8. We have seen an extreme peak of spot rates in the past, as you know, and this seems to be behind us, while rate levels will balance back on a level much higher than in 2019 and before. We believe that the balance of rate levels will be 2x to 3x pre pandemic. Yields remain high, especially as SME customers are constantly looking for solutions. We do not see any changes at the moment in that segment. KN secured the right capacity on the right trades, so we are safe with our capacity offering, and as mentioned before, we will for sure go for growth again as soon as we have idle capacity to offer to our customers. Our operational costs are high -- relatively high. We have to do a lot of manual interference and booking due to the disruption. Almost everything is manual. While we had, on average, 3 files per colleague per day in our network pre pandemic, at the moment we are on a level of about one file per day per colleague because, as I said, all the activities are manually driven. We believe that we can go back to normal as soon as possible, as soon as capacity offering and stability in production allows. And then we continue aiming for 5 files per day and colleague, which is part of our eTouch initiative in Sea Logistics. The conversion rate -- by the way, the bottleneck at the moment are logistics experts in the market. We are having a lot of vacant jobs, and we see that it's getting better month-over-month with our recruiting initiatives and with our industry becoming more and more attractive for especially young people that want to go into a cool industry. Conversion rate in Sea Logistics at 62.2% for the first half year, and I think that's, in total, a very solid performance with the EBIT -- I mentioned that before -- closing for the first 6 months 2022 at CHF 1.2 billion. Please follow me on Air Logistics, Slide 10. Average yield in Air Logistics is stabilizing at around CHF 140 per 100 kilo. Our operational unit costs are flattish, sequentially especially, and you will hear more about the eTouch effects in Air Logistics later on when Markus goes into the details of the financial figures. We have a stable unit EBIT of around CHF 70, especially in quarter 2, but we are stabilizing for the last 3 quarters around the CHF 70. And we have a conversion rate for the first 6 months of 51%, which is 9% higher than in 2021, same 6 months. This shows that the Apex effect and the Apex procurement synergies remain evident. Gross profit was CHF 1.6 billion for the first 6 months, 68% higher than previous year, and the EBIT was CHF 862 million -- sorry, CHF 826 million, more than doubled versus previous year. Please follow me on Slide 12 of the slide deck. Road Logistics is expanding its momentum. High-end utilization of core European network, a high demand for digital solutions -- we mentioned this a couple of times, but it's still growing, and the demand is increasing. It's [ eTruck ] now, software-as-a-service solution, and your easy custom solution, which gets a lot of traction with our customers and is growing, especially in the last 6 months. We have a very solid U.S. demand and a strong performance in the U.S., and we have a strong operational 14% conversion rate. For this business unit, this is a new record, and we can only congratulate the entire Road Logistics team. EBIT half year 2022 -- first half year -- closed at CHF 80 million, 48% above prior year and, as said, very strong performance. Please follow me on Slide 14 of the slide deck with the details on Contract Logistics. We saw an organic net turnover growth that surged to 14 -- plus 14% in the first -- in the second quarter, sorry. Growth once again centered around pharma and e-commerce. We see a very strong and unbroken growth trend in both segments. Our trade in Asia and North America is growing 2x and more than that of Europe, which is exactly the strategy that is in place in Contract Logistics, and over 80% of the lease obligations backed by customer contracts and nearly 100% of our obligations expiring beyond 2025. I'm deeply impressed by the idle space in Contract Logistics, which is significantly below 2%, so we are running with the optimum of utilization in our warehouses. Let me summarize the business unit overview before I hand over to Markus. We have posted another remarkable quarter -- quarter 2 -- for the entire KN world. The semiannual results more than doubled, and a result -- this is a -- clearly a result of our strong improvement and performance in all business units. Due to the ongoing disruption in the supply chains, we can leverage our automation and digital strength only very limited, which offers potential once we see more normalization or less disruptive elements in the market. My heartfelt -- and I mean it; heartfelt thank you -- to all our KN colleagues for providing an excellent customer service versus a market that is full of challenges and disruption. Thank you very much. And now we hand over -- I hand over to Markus, who will lead you through the key financial figures. Markus?

Thank you, Detlef, and also a very warm -- quite literally, very warm welcome from Switzerland to you all, ladies and gentlemen. Before I lead you to the numbers and the figures, I want to take a small special moment here, and a very personal moment, because it's the last analyst call that I will sit beside Detlef. And I want to thank him here, and I -- for all of you on the call for all the patience that he had with me and, I can say that frankly, also with some of you, and the questions and the topics that he was addressing in a very, very thorough way every time. Undoubtedly, I believe his candid and very authentic answers have driven the exceptional share development over the last years, and I think we should all be very well recognizing that. So thank you, Detlef, and good luck.

Thanks, Markus.

Back to the numbers. I said in the first quarter call that Q1 was an outstanding quarter, and I can say so is also Q2 -- quarter 2. The group conversion rate was 36% in quarter 2. It was 37% on a year-to-date basis, so looking at that, yes, there are nuances -- 38, 37, 36 -- but, from an overall perspective, the level is on an extremely high plateau which we have -- which we have reached. And again, looking into incremental development, something that is extremely important and, I think, also gives us a hint for the future: when you look incremental gross profit development over the first and the second quarter, leave alone the absolute number, but the conversion rate in each of the quarters – so incremental gross profit towards incremental EBIT -- is in excess of 70% -- 74%, 75% -- something that we should keep in mind when we then potentially talk about future quarters to come. Last but not least on this Page #16, let's be mindful about what's happening in currencies and other political, geopolitical environments and the impact on -- through currencies. We have, in quarter 2 year-to-date, an impact negatively of 2.9% on a gross profit level. That translates into CHF 124 million. And the same calculation on an EBT -- earnings before tax --- level, 2%, that equals CHF 21 million. So there are -- potentially, when we look forward into the next couple of quarters, that number will become an item on our P&L that gains on significance. Page #17, balance sheet, and I would title that balance sheet with "no news is good news". So extremely stable. The largest balance sheet items are at a high level and very well controlled. We have trade receivables around CHF 6.5 billion, trade payables around the CHF 3 billion. As you certainly have already discovered, our cash and cash equivalent is around CHF 2.2 billion, and that after we have paid out dividend at the amount of roughly CHF 1.2 billion. All that points into a healthy cash flow development, which on Page #18 you will also see. I think what we have seen on the balance sheet, you can see reflected also in our free cash flow development. The trajectory that we started in 2022, starting with around CHF 1 billion in the second quarter -- we're now on 1.7 billion. And when you look at the other years that were below here in the rather darker shade of blue, then I think there is confidence that that trajectory will be very similar to the previous years. Changes in working capital, just to highlight one more topic here on that slide. Changes in working capital in the first half year 2022 -- a reasonable CHF 54 million, given the total trade receivables that we have here with CHF 6.5 billion. I think one can say it's a stable net working capital that we currently utilize for running the business. Illustrating what I just said, Page #19, working capital. We are around CHF 1.9 billion working capital to run the group. And when you compare that again on the DSO/DPO level, so days of sales outstanding and days of payables outstanding, so you will see that, also compared to the first quarter, we are at a similar level. So we are between 52 and 53 days on DSOs, around the 57 on the DPOs, so our gap between these 2 is between 4 and 5 days, a level that I think also going forward is a level that I would expect for the next couple of quarters. Return on capital employed -- this slide that potentially had most of the changes, as you have probably noticed, Page #20. First of all, we have eliminated the second line that was showing the return on capital employed without and with acquisition, so the elimination of the acquisition, because the last significant acquisition that we have done is now fully consolidated for more than a year. So hence we are showing a return on capital employed for the entire group without separating these 2 effects anymore. And secondly, before being asked, we have over the last quarters -- in the segregation of the acquisition, we have made a small mistake, and you will see the numbers of the Q3 and Q4 have changed slightly on the return on capital employed. So we have corrected that, and I'm not shy of saying that that has been slightly miscalculated. And as every 6 months, I would like to show a little bit what's happening on the eTouch side. I think, just to remind ourselves, Page #21, what is eTouch all about and what's the context around that? I think you have -- or most of you are familiar with this slide, and it's just really to understand we talk internal operational gains in efficiency. Automation is one of the main topics, clearly understood that the more plannable and foreseeable execution becomes in sea and air freight, the more relevant the gains on automation will become. Nevertheless, even in situations as today or over the last couple of months, eTouch has already contributed quite significantly to the conversion rate. Page #22, and yes, we do the odd thing of counting man-hours, but that is something that is the only reliable way that we can actually look into if eTouch is effective in reducing man-hours and gaining productivity. So yes, we do that, and we can show that we have within our numbers an improvement of the conversion rate in air freight of nearly 1.8%, so it's 1.7%, out of the eTouch initiative only. So with all the significance that obviously other elements also have on the conversion rate, I think that is for me the most sustainable improvement of conversion rate. And when I said at the beginning that 3% would be our target, I think I feel fairly comfortable today that we are achieving a 5% target within a very short period of time. Why is that so important for us? Just to reiterate, every improvement we do on the eTouch side is forever, because any process that we have eliminated or automated, there is no one on earth who is going to go back and say, "Please let me do that process manually again", so obviously that is a gain that is going to be there forever. But we want to be prepared for the future. Clearly, automation and productivity and efficiency is something that we have. And market conditions may vary. I know we can all have different opinions about what the future's going to bring in the market. But we will maintain our performance because we are agile, we are very flexible and very variable in what our cost and business structure is. So with that, I would like to hand over back to Detlef and look into the current perspectives.

Thank you, Markus. Yes, ladies and gentlemen, the emergence of the pandemic in 2020, the war in Ukraine, the rising in energy prices causing inflationary pressures, triggered a high degree of unpredictability and uncertainty. We continue to anticipate strong and robust demand in all markets and business units and are relying on our agility and responsiveness. With prevalent uncertainty, we are confident that customers will continue to seek out for strong logistics partners like Kuehne + Nagel also in the second quarter 2022 in order to ensure the best possible solutions for supply chain and freight management that they can get. While the dynamic might change -- and Markus has just alluded to it -- KN, Kuehne + Nagel, will stay successful, leveraging its technology and digital capabilities. And also during the past years we have proven that -- we have proven that our technology savviness, our agility and strategy and M&A competence shows success and is relevant for our customers and for the respective markets. And with this, I thank you for listening. We are -- I'm handing back now to Andre. I'm handing back now to Andre to do the M&A and…

Q&A.

Q&A, you're right. M&A is something -- yes, Q&A. And then we will -- after the Q&A, we will introduce our incoming CEO to the audience. Andre, the floor is yours.

[Operator Instructions] The first question comes from the line of Alex Irving from Bernstein.

Three from me, please. So first of all, on demand trends, what's your current sense of the upcoming peak season on ocean and the demand -- the bookings you're seeing from your key customers? Is there any clear points of strength or softness? Second, on air, you call out ocean disruptions as rising, and we'd expect that to be supportive for earnings, but offset against that, of course, passenger capacity is returning to the market. How are you seeing the air freight balance evolve into the rest of the year, please? And then third, on ocean spot rates, you've seen those coming down. Are you currently renegotiating with the shipping lines, or are you sticking to your contracts to secure capacity here? How much of your capacity is contracted for the rest of the year, and are you long or short spot rates when you compare that to your customer contracts, please?

So Alex, let me answer question 1 and 3 together, if you don't mind, and then we can go to the air freight balance. Upcoming peak season -- yes, there will be a peak season. How much that will be a peak season to be seen. At the moment, we are confident that we have a rather robust structure for the next -- or during this quarter. Ocean spot rates: very rarely, we offer spot rates as a general solution to our customers. Usually, we have backed contracts -- customer contracts and capacity contracts -- and therefore the majority of our capacity. Spot rates is more for open shipments where a customer has not provided enough capacity with a named contract or named accounts contract and where we have to rely then on the spot solution. Air freight balance: at the moment, as I said, 65% freighter capacity, 35% belly. I don't see a major change in the next couple of months or quarters, for the reason that now is the peak season for passenger planes, even intercontinental, as the summer vacations are kicking in almost everywhere globally. But for the winter season, the belly capacity will be reduced, that's for sure. And still some of the major markets are not offering a free entry into the country, like China, which also limits the number of belly capacity into one of our strongest or most important markets. I hope that answered your questions.

The next question comes from the line of Sam Bland from JPMorgan.

I have 2, please. The first one is, I think in your remarks you said that you thought sea freight rates would level out in the future at 2x to 3x above pre-pandemic levels. I just want to make sure I heard that correctly. And what -- when you say sort of level out, what sort of time frame are we thinking here? Is this sort of in 6 or 12 months, or is it kind of level out more long term? And the second question is, where volume was down a little bit in Q2, do you think that's mostly driven by lower end demand or was somehow related to, for example, more supply-side things like Chinese lockdowns?

Right. Let me answer the latter question immediately. We have a supply bottleneck or problem at the moment, and that is, for example, also caused due to Shanghai lockdowns. And I think that is the characteristic of our market at the moment, or has been for the last, I don't know, 12, 18 months. We do not have a demand bottleneck, not yet. We are rather less responsive to customers or new customers where we do not have a direct capacity that we could offer them -- capacity available that we could offer them. Sea freight, yes, you partly heard that correct, but I said so in also the last calls that, pre-pandemic, we -- the decade pre pandemic, our freight rates, especially in Sea Logistics or sea freight, were rather or historically low. And my scenario, or our scenario, is that for this decade, on average -- it doesn't happen tomorrow, it doesn't happen next year -- those contracted rates will be significantly higher than what we experienced in the previous decade. And the factor is 2x to 3x higher. That shows -- also show a reflection of the infrastructure investments that need to be done into cohorts, railways, truck, bridges, whatsoever -- containers -- the connectivity investments into data connectivity, technology interfaces with the sea freight business, the sea freight business with the other businesses and the shippers. All this is reflected in that factor 2x to 3x. But it will take time, and it is more an outlook for the next or the current decade than -- on average than for the next 2 or 3 years. I hope that answered your question.

The next question comes from the line of Sathish Sivakumar from Citi.

I've got 3 questions here. So firstly, on the labor market, Detlef, you mentioned that you're seeing a very tight one in terms of recruiting logistics specialists. So what is your typical turnover in a normal year, and how does it actually compare today? And is the tightness that you're seeing is more specific to any particular region or a particular market? Secondly, on the road network, so given the tight network capacity that we have seen in Q2, how should one think about going into Q3? Because historically, it is a seasonally low quarter. Would you expect a similar performance in terms of volumes as you go into Q3, or it will be like a normal seasonality? And the last one is actually on the air freight. If you could actually give some color on how Apex performed versus the Kuehne Nagel stand-alone on [ GP ] per kilos, that will be helpful.

Let me answer the first 2 questions. Unwanted attrition: our industry has shown in the last 2, 2.5 years that we are providing essential services to societies and have become into the spotlight of many other industries for the competence, the agility, the expertise of the logistics specialists. And therefore it became attractive to hire more of those capabilities into other industries which were rather low in their demand before. At the same time, our industry has become very attractive because a lot of people saw, during the last 2.5 years, what a fast-speed and important industry transport and logistics is worldwide. And all this leads to a shift, so I don't think numbers or regions will help you to answer that question. We see that we have a new demand becoming attractive for our colleagues in other industries, and we see that we all of a sudden are becoming an attractive industry for industries like the apparel or fashion industry, which was never looking at transport and logistics as a potential employer before. And that's maybe the shift that we go through at the moment. And that leads to this movement or this shift to scarcity of experts, especially, as I mentioned before, Sathish, with the productivity of only one file per colleague per day versus 3 files per colleague day normally. We have a high demand -- much higher demand on people here. Road -- quarter 3 performance, as always, I think there's a seasonality, especially in Europe, especially in August, and that will not significantly change. At least, no signal or sign that this should change. And we believe that this will be a rather normal quarter versus the previous year quarter 3 performance in Road Logistics.

So Sathish, let me take the Apex performance question. You know we have segregated the impact on volumes and profitability over the last quarters, and the roles after a year, we stopped doing this because -- not because we become more transparent, but the business is more and more getting interwoven with our businesses. So it becomes increasingly difficult to segregate and point specifically to some profit. But what I can say is certainly for the second quarter is that it is pretty much -- the performance of Apex is pretty much in line on the GP per 100 kilo basis -- pretty much in line with what we had shown in the previous quarters. Variances on this number are below the 5% range.

The next question comes from the line of Robert Joynson from BNP Paribas Exane.

I have 3 questions, if I may. So first of all, on the demand outlook, just to follow up on one of the previous questions, we all know that some of the large U.S. retailers have recently reported excessive inventories. Could you maybe just comment on whether you're seeing any notable difference with respect to the demand outlook from the large retailers versus small or medium-sized retailers? And then second question on the balance sheet. I guess the way things are going, I imagine that the cash and equivalents could be close to maybe CHF 4 billion by year-end, which compares with a number of the other hundred millions prior to the pandemic. In that context, how do you think about the cash balance going forward? You don't have any significant debt or pension liabilities to pay down, so could you maybe think about a special dividend or potentially share buybacks in that context? And then the final question, just on the Road EBIT, I know it doesn't make a huge difference to the group EBIT at the moment, but it really was super strong in Q2. Can you maybe just comment on the extent that was being driven by market-wide issues such as driver shortages or other capacity shortages as opposed to Kuehne + Nagel-specific issues?

Let me start with the demand outlook. We read what is communicated in many and various presses. We have a different notion here. While the larger retailers became cautious due to the supply chain disruption and have increased their inventory levels, we don't see a major difference because small and medium-sized accounts all of a sudden start to build up their inventory as well. So we are -- we see a positive outlook with small- and medium-sized enterprises and our outlook in total as we are not responsive to a lot of the demand or many of the customers that are in contact with us at the moment. Given the scarce capacity, I think we are not as alerted or concerned than what is to be seen in the press. We also see that inventory levels are a security belt for the retailers to be able to provide services and goods, obviously, to their customer base in autumn and winter, especially as brand owners are gaining market share. So it will be maybe also a shift in the balance of power, especially in the e-commerce market, that is driving this inventory buildup in some of the markets. Balance sheet, I think the best person to talk to is Markus.

So I think I share your expectation and your view until the year-end. It's going to be -- it's going to be a high number on the cash balance. I think what it tells us, a, that the cash generation of the business is a very healthy one, and that also in the future we are being mindful of what we do with it on an M&A side. So here again I think we reiterated that our strategy was clear. It's always a question of the right target at the right price, and I think, at least over the last couple of quarters, the price dimension was not really where it should be. And you are seeing in the overall M&A market there was -- also now when interest rates have increased, there was a significant slowdown in activities. So assuming that is going to happen also in the future, you're right. I think we only have historical evidence. Then, when excess cash is building up on our balance sheet, we are we are willing and executing on dividend payments. Share buyback is something that has never been close to our heart, and I think I have no indication so far that that should be different.

Road EBIT, I don't see any major changes to the performance that we have seen so far.

The next question comes from the line of Muneeba Kayani from Bank of America.

I just wanted to touch on what you're hearing about the ILWU union negotiations on the West Coast, and do you think that that could result in disruption over the next couple of months? And then, on your dedicated freighter capacity in air, what percent of volumes are on dedicated freighter for you right now, and how do you think about that mix going forward? And then you mentioned -- I think you said on sea you use contracted volumes. How does that work in air, and are you exposed more to spot rates on the air side?

Let me start with the -- let me start with the latter one. We have a mixture of long-, mid-term, short-term spot rates in our portfolios, both with Sea Logistics and Air Logistics. I think in Air Logistics -- and that was your question -- you have seen that we have our own charter planes now that will come into service in autumn, so this is a normal procedure that, for a certain capacity, we run our own standard infrastructure, so to say chartered, not owned, and for the rest we go to the relevant markets. Always back to the customer contract, no? We do not offer capacity without customer contracts. The second question, Muneeba, or your first question is unions. At the moment, it's rather quiet. Negotiations are still going on. But our belief is that we come to terms. The situation is totally different to what we experienced, I think it was, 6 or 7 years ago. At the moment, it looks like they will come to terms, let's put it this way. And we shouldn't make up a problem that is not yet a problem, yes? And I think that's, for me, the biggest -- we have enough disruption and topics to solve. And as I mentioned -- I don't know whether you were participating in the call already then -- the Sea Explorer shows that the bottlenecks in the ports have moved from the West Coast U.S. to the East Coast. We have no union activity going on at the moment on the East Coast. It's Houston/Savannah where we have a lot of backlog of vessels waiting to enter the port. So it's something that is -- will not -- at the moment, it's not a big concern for us.

The next question comes from the line of Alexia Dogani from Barclays.

3 questions, please. Just firstly, on the quarterly performance, clearly it is a strong performance in the historical context. But should we see it as marking the turn of this disruption cycle, as it is the first quarter where we've seen quarterly decline? And if not, do you think that -- because of the disruption index indications, do you think things firm up from here? That's my first question. My second question, which kind of relates to it, is about growth and volume growth or activity. I think in your comments you talked about growth will resume when capacity becomes available again. When do you think that is, and should we expect volume declines until this disruption clears? And then, just finally on Contract Logistics, why wasn't the margin stronger, given the revenue growth that you delivered in Q2?

So Alexia, let me answer the turn of disruption cycle. We don't see a turn at the moment. We don't see an escalation, and no worsening, but we don't see a turn as well. And all the developments will not happen all of a sudden, they will happen over quarters and maybe years. At the moment, there's no major change. We are where we were almost a quarter ago from -- with regards to disruption. Growth, yes, growth will resume as soon as capacity is available again. And we are holding back, as you know, and that has been part of our strategy, but the market growth is also negative, as you saw in our presentation, and we are still capturing indirectly market share, which is our target, but I believe we will not see a major increase in capacity offering for the next, most likely, 6 to 12 months, nobody knows. And everything would be speculation, but we are ready to grow again. We are changing mind, and we are looking for customers, especially in the SME sector again, where we can start offering capacity and solutions. And Contract Logistics, I'm not sure I got the question, because Contract Logistics performed very well in the last quarter. We always have some seasonal effects, and especially -- and that is maybe then the margin effect that we see. When we ramp up with 14% top line growth, when you ramp up new projects, that has in the beginning, in the months or quarter where we ramp up new projects, a negative impact on the margin, and we will recover immediately once the projects are up and running. So also, as you know, that is mainly -- that's the main impact. I hope that explains or answers your questions.

The next question comes from the line of Andy Chu from Deutsche Bank.

Two questions from me, please. Just to sort of clarify the comments around the sea freight rates being up 2x to 3x from pre-pandemic levels, are you talking here about the ocean carrier rates? And therefore I'm just trying to translate that into sort of GP per TEU. And if I were to apply that sort of 2x to 3x from pre-pandemic levels, which I believe, I guess, would be about CHF 300 per TEU, are you saying here that a floor would be around CHF 600 per TEU going forward? And I wondered if you could give us a view, please, on air -- apologies if I missed that -- and again, similarly, what would happen to GP per 100 kilos?

I think interesting conversations around connectivity of or connections between rates and gross profit. I think last time we spoke about it in such intensity was when the freight rates were extremely low, because then we also made money because we are not -- our gross profit per unit is not a function of the freight rate by itself, so it is the service you offer to the customer. It's the service levels and the intensity that we offer to the customer. Of course, there is a certain part in it that is connected to freight rates, but that is one part of many. And I think what we can say is, whatever the level of freight rates is going to be, I think what Detlef and many in the industry are -- one opinion is that it's not going to come back to the level which we have seen right pre pandemic. What we will see is that service will be paid and good service will be paid well. And with our extremely efficient systems and customer orientation in how we solve problems for customers, the flexibility that we deploy on a daily basis with our logistics experts, I think we should look confident into the future with a reasonable gross profit level. I cannot tell you if that level is now 450, 500, 550, 600, 700 -- I don't know. But it's going to be a level where our profitability is going to be reasonable.

And just in terms of that 2x to 3x, probably a question that's been asked several times, and I guess there's probably a bit of art as well to science to it, but how do we -- how do you get to 2x to 3x? Maybe some sort of thoughts behind that, because obviously it’s…

It's not scientific, and it's not based on a model. It's more -- we had, in the previous decade, exceptionally low rates. I remember -- and I will have to say this now -- the rate from Shanghai to [ Santos ] with $50, less than a taxi ride in Zurich at that time, which were unbearable for the carriers. So we all experienced very low freight costs, for many reasons. But with sustainability, ESG investments, infrastructure, forward investments, technology investments -- all the things that have to happen -- our assumption is that minimum twice as high or maybe 3x as high as last decade. The average freight rate -- not individual rates, the average rates -- will be the market rate, so to say, for this decade. We will see that end of 2029. And I'm not saying this because then I'm watching it from somewhere else, but nobody should assume that freight rates of 2017, 2018 or 2019 will become reality again, especially with regards to the cost of protecting the environment. This will be a huge cost driver. I hope that explains our thinking there.

The next question comes from the line of Sebastian Vogel from UBS.

I've got 3 questions. The first one would be, can you quickly sort of guide me through the quarter in terms of volume and yields for air and sea -- how sort of stable or volatile they had been? That would be quite great as the first question. The second question, when I was looking through the half year report, I was stumbling over this divestment of the Russian operations, and I guess it was written like there's a non-material effect that was linked to that. I was wondering, what is the threshold in million when you say "non-material effects", or at least a sort of ballpark where I can put this one? And the last one would be if you can just quickly give me an update on the CapEx program compared to the previous guidance and where we stand in the mid-term.

So I have to say, for the first question, I think the volumes and details and the GP and so -- I think we have provided a stat book, if this would help you, and certainly Chris is available in the afternoon to detail out what you need. Second half, Russia, yes, well spotted, and I think not only well spotted. I think we have been vocal about it, our operation in Russia, because of the aggression and the war that Russia has inflicted. So the financial impact of this is around CHF 28 million. I think we have also disclosed that in our stat book for the second quarter 2022. Immaterial or not material in that context because of the magnitude of the rest of the group performance. And the other one, I have to say, well spotted is the CapEx. Yes, indeed, we are running at a lower pace, thankfully, on CapEx, around CHF 200 -- maybe CHF 220 million. I think that's a good orientation point, a reference point, and I think we can keep that level.

The last question from today comes from the line of Michael Foeth from Vontobel.

Just 2 questions. The OPEX per kilo in sea freight was quite high in the quarter, and obviously I understand there's a lot of manual intervention, but my question is what has really changed in the quarter versus prior quarter that explains that level, and where should we expect it to go? And the second question is the volumes in road seem very strong and somehow a bit disconnected from the muted volume growth in sea and air freight, so maybe you can explain where the disconnect comes from in those markets and if you have any capacity constraints also in road or not.

Michael, it's Markus. So on the OpEx sea freight, I think for us the reference point is always the expenses per TEU, because that really shows the operational efficiency. And there, we have a rather marginal development of 336 to 342 per TEU cost. I think that, for me, does not raise any concerns for me because I know what's happening. We have, of course, inflationary pressure with a lot of manual intervention, as you say. So it's a lot of these things going on. I think what is important is that eTouch into automation becomes even more effective when we have a higher cost base, because then also the gain is higher. And I think that's something that we are looking at, but that's a bit of a mid-term outlook from -- or mid-term view, not outlook -- a mid-term view on the costs. I think right now, and most likely also for the quarter to come, we -- as Detlef mentioned already, we struggle with people. We need people, and people that are newly hired, yes, they go through an educational program, they're onboarded, they are trained on our systems. But compared, of course, to somebody who was working in the sea freight -- in the sea freight arena already for years, the productivity is not the same, so we have these startup inefficiencies that we have with new people. So I'm afraid probably for the next quarter we will not see a lot of change in that number. All right. Then I think we are at the end of our…

Then we are at the end. Ladies and gentlemen, Kuehne + Nagel has performed strong in the first semester 2022, with earnings more than doubled. This is -- and this will mark the ninth consecutive year with an all-time high result. Also, 2022 remains unpredictable and challenging, and I think we have exchanged a couple of news recently. We at Kuehne + Nagel remain committed to our proven strategy of providing reliable, high-quality, technology-supported and data-driven supply chain services to all of our customers. And it is all about our logistics experts, our technology and our agility. Complexity and agility are our friends. As Markus said, today also marks a milestone for myself and my family. After 9 consecutive years at the helm of the Kuehne + Nagel Group, I will step down at the end of this month, and virtually we'll hand over to Stefan in a couple of minutes. My successor, Stefan Paul, will take over as of August 1. And Stefan has been part of the Kuehne + Nagel success for the last 9 years, and he is well familiar with the organization and its strategy. Thanks to all of you -- our colleagues around the globe who are typically also listening in, but also for you in the finance community, analysts and investors -- for your trust and collaboration and the many great moments that we have created together. I'm handing over this precious diamond of Kuehne + Nagel to Stefan now, and he will for sure sharpen some of -- new facets of the organization and lead it to another great success. I'm pretty sure he will be the right person to ride the horse further. Before I say goodbye, I have to give 2 messages to Stefan. Stefan, that this is a diamond, and it's shining and it's great, but it has a lot of room to improve and become more shining in the future. And as you know, no pressure, no diamonds. And the second saying is the best is yet to be, and I count on you to make it a great story. Stefan, I'm handing over the floor to you. It's yours. And to all of you, bye-bye. Have a great summer. Bye-bye.

Yes. Ladies and gentlemen, you see me smiling. Detlef, thank you very much for the very warm welcome, and thank you in particular for your great leadership in the last 9 years. Under your tenure as CEO of Kuehne + Nagel, we have achieved outstanding results. You have been able, together with your leadership team, to create significant value for our customers, for our people and investors. I now feel excited, honored and responsible to take over this great company with almost 80,000 people into a very bright future. I started my career, for those who don't know me, back in 1990 as a salesclerk in Munich, and then afterwards as the department head for Road Logistics as well at the same location. After 7 years, I decided to join a competitor for almost 16 years, where I held various management positions in sales, in marketing and integration, and senior leadership roles managing large P&Ls. In February 2013, I decided to come back to Kuehne + Nagel, and since then, here in Schindellegi, I'm responsible for the Road Logistics business unit. And since 2020, in addition to that, I've taken over the responsibility for our sales unit. Sales in particular, key account management, focusing on our key accounts in the network businesses, air, sea freight, road logistics and as well the large customers and contract logistics. And by the way, I have decided to maintain this role. I will take it over into my new CEO role in order to stay very close and committed towards our customer base. Ladies and gentlemen, I look pretty much forward interacting with you. I have 3 main events here in my calendar. The next one is our interaction for the 9 months results, which we are going to release on October 25. In between, we are going to start road shows with some of our investors. Markus and Chris are organizing that for me and us. And then, last but not least, a very important milestone will be the capital markets day on March 1 next year, 2023. In the morning, we will release our full year figures 2020, and then in the afternoon we will share the strategy and the road map with you moving forward. With that, thank you very much again, Detlef and Markus, and I will hand over back to you.

The best is yet to be. All the best to you. Have a nice summer and bye-bye from Schindellegi.

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