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

Ladies and gentlemen, welcome to the Kuehne+Nagel Q1 2023 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Paul, CEO of Kuehne+Nagel. Please go ahead, sir.

Thank you very much. Good afternoon, everyone, and welcome to the presentation of our first quarter 2023 financial results. I'm Stefan Paul, CEO of Kuehne+Nagel and I'm joined here in Schindellegi by my colleague and Group CFO, Markus Blanka-Graff. Together, we are happy to present our most recent financial results and to address your questions. Let's go into the first quarter results and the highlights. The results for the first quarter 2023 mark a solid start of the year. EBIT of CHF 612 million would have been the strongest Q1 ever if not for the last year's record performance. We achieved this solid start against the backdrop of reduced demand for logistic services visible in the year-on-year declines versus an extraordinary 2022. This most recent result once again demonstrates our resilience and our ability to manage yield actively in volatile markets. We remain in a strong position to manage through uncertainty relying on our long-standing experience, technological capabilities and highly flexible business model. In parallel, our long-term strategy aims are front of mind including an increased focus on yield management. I will revisit our strategy and our Roadmap 2026 later in this presentation. Let's move into Sea Logistics. Yield management boosts Q1 2023. Thanks to effective yield management, average gross profit per TEU in the period broke with the recent trend. This also reflects our concerted efforts to pivot to high yielding volumes and we stated that a couple of times during the Capital Markets Day recently. The first quarter average yield marks a 13% increase from the fourth quarter level and it's roughly double of the average of 2019. Volumes remained below the levels of last year, but month-to-month development in the first quarter resembled more normal seasonality including a volume uptick in March. Against an estimate market development of minus 7% to minus 8%, we believe our market share expanded over the period. According to Datamine, we are the market leader in the transpacific for the first time ever. In combination with cost reductions, which partly compensated for inflationary pressures, Sea Logistics unit EBIT also improved sequentially with a conversion rate of 50% versus 46% in the fourth quarter and 64% in Q1 last year. Air Logistics, yield normalization trend continues. As expected and not a surprise, Air Logistics result in the first quarter reflects a weaker market demand trend, particular we have seen that on the transpacific routes. Our assessment is that 17% year-on-year decline in tonnage broadly reflective of the market development with concentration in general cargo and high tech. Pockets of relative strength include perishables in addition to aerospace. Combined with an incremental expansion of cargo capacity, overall average gross profit declined 13% sequentially in the first quarter. As was the case in Sea Logistics, cost reductions partly offset inflationary pressures. The net result was a conversion rate of 32% in the first quarter compared to 40% in the fourth quarter and 52% in Q1 last year 2022. Let's have a look into Road Logistics, record results driven by high network utilization. The Road Logistics result in the first quarter marks a new all-time high. The outcome is a credit to continued high end utilization of our network along with relatively stable volume development as well as a stringent yield management and that was as well part of the Capital Markets Day discussion. Excluding currency headwinds, organic net turnover expanded by 2% and gross profit by 11% year-on-year. We view our market share as stable. The net result was an impressive EBIT of CHF 52 million and a conversion rate of 15% versus 9% in prior year 2022. Contract Logistics, strong performance with record EBIT. Contract Logistics delivered an outperformance in the first quarter with a record EBIT result. Market share expanded over the course of the quarter because we selected new customers from fast growing sectors. Excluding currency headwinds, net turnover and gross profit grew by 12% and 11%, respectively. Idle space at the close of the quarter was below 2%. The EBIT in the first quarter was CHF 62 million versus CHF 4 million (sic) [ CHF 44 million ] last year, including a CHF 9 million profit from a sale of real estate in 2023 reflecting a conversion rate of 7% or 6% versus 5% in the prior year. Now reflecting to the Roadmap 2026, a quick update on Q1 2023 and what happened after the Capital Markets Day. As I mentioned, our Roadmap 2026 ambitions are front and center with numerous initiatives well underway. Our plan is to provide detailed progress reports annually. On a quarterly basis, we will provide brief updates on notable milestones. In the first instance, I'm happy to highlight that I personally had the chance to discuss our new strategy with thousands of colleagues and hundreds of customers as part of a global internal roadshow, which only recently ended. The last 5 weeks I was almost on the road traveling the globe. The strong positive response reaffirms our conviction in the direction we are pursuing. We have also nominated in the meanwhile a very experienced Kuehne+Nagel colleague to lead the Kuehne+Nagel experience effort so the cornerstone [ KNIX ] customer experience and employee experience. This function will report directly to me and be fully dedicated to this core element of our strategy. As of April 1 now, Sarah Kreienbuhl started as new member of the Management Board responsible for human resources and ESG. I would also like to highlight an early success in our renewable energy growth area. As a reminder from the CMD, we see a huge opportunity for profitable growth in renewables and to build meaningful market share much as we did the health care arena where we had no prior presence 8, 9 years ago. With this, I would like to hand over to Markus.

Thank you, Stefan, and good afternoon, everyone. Thank you for your interest in Kuehne+Nagel and taking the time today. I think it's important to mention that as Stefan has outlined, we aim to secure a new sustainable level of profitability against the backdrop of the normalization in supply chain conditions in the Sea and Airfreight Logistics. Contract Logistics and Road Logistics continue to further increase their profitability levels in quite volatile market dynamics. So let me come to the income statement and as expected, I may say, we can see negative developments on nearly every P&L line compared to last year. But I think what matters is the absolute performance in the quarter with an earnings before tax of CHF 628 million, a result that we haven't seen in any year before other than during the pandemic. The gross profit margin was even higher than in 2022 confirming some early successes in our strategy to focus on higher yielding businesses. We look at solid conversion rate of 25.6%, which is additionally supported by a diligent FTE resource management. The headwinds coming from currencies persist with a negative impact of around 3% on a gross profit level representing CHF 92 million and on an earnings before tax level with roughly 2% or an equal to CHF 22 million. Working capital: changes in working capital, one of the topics that has been on the agenda for the last couple of quarters already, quickly contracting due to the reduction of receivables and contract assets together currently at around CHF 5 billion. Receivables to remind ourselves have reduced as a function of lower rates, accessorial charges and of course lower volumes. Going forward, I anticipate stable net working capital for the next quarters to come. Lower down on this slide, we see the DSOs. They have expanded slightly against the beginning of the year, less so against the same time last year though. DPOs, on the other hand, have increased quite significantly mainly due to a reduction in our airfreight charter contracts that usually don't offer any payment terms. As a result, the spread between the DSO and the DPO have increased to 11.5%. Last, but not least, cash and free cash flow generation, I'm on Page #11 of the presentation. Q1 being traditionally a quarter of relative weaker cash generation than the other quarters due to the business seasonality. In 2023 we report CHF 415 million free cash flow. It is 40% of last year's, again pretty much as expected, but 3x as much as in 2020 or any year before. This and the strong cash flow generation in 2022 have increased our cash and cash equivalent position to around CHF 4 billion at the end of March 2023. I expect the business to continue to deliver a healthy cash flow in line with the trajectory of previous years. With these few comments, I would like to end the presentation on the Q1 2023 with a couple of key takeaways. Solid results in the first quarter against the known backdrop versus previous year. Volume declines, sea and airfreight as expected offset to a large extent with an active yield management, cost control and ultimately some of the 2026 Roadmap initiatives contributing already to some success, but admittedly in a rather modest space. That would conclude our brief presentation of the Kuehne+Nagel Group result for the first quarter 2023 and we would open the line now for Q&As.

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

3 for me, please. First, on volume trends for the rest of 2023. What are you currently seeing and what are you expecting as we go through Q2 and summer? Second, following your discussions with customers and employees since the 1st of March, what has common feedback been and reflecting on that, what risks in execution are you most focused on managing over the next couple of years? And finally, you highlight that you see market share expanding in the period even despite capacity constraints becoming less severe, which I might have expected would help smaller forwarders more. What do you think has caused your market share increase, please?

Alex, Stefan. From a volume perspective, what we have seen and I alluded to that a couple of minutes ago when we talk about the seafreight market, for instance, right? January, February, we have seen a negative trend similar to Q4. March was the first month versus previous quarter 2022 where we have seen a little bit of an increase in volume. And on the question how do we see the quarter from a volume perspective, we believe that from a volume perspective seafreight will be rather similar, maybe slightly above the Q1 figure and airfreight remains a bit more difficult and we will not see a significant uptake in volumes. Road Logistics remain very stable and there is no difference to be expected for Q2. Same goes for Contract Logistics. Then the second question was on customers and employees. I think we have seen with some of the customers, with the international ones, that the stockpiling basically came to an end. So we see -- especially in the month of March, we have seen that Contract Logistics in particular had an order uptick for the first time this year and this will most probably lead as well to restocking activity helping the seafreight activities, the seafreight volumes as discussed before. So there is a certain confidence in the marketplace for some of our -- from some of our customers in some of the verticals not overall. And as I said, I'm repeating myself, airfreight will remain at most probably the same level as we have seen in Q1. I think and the third one if I understood correctly; it was hard to understand, Alex, I think your line was breaking up a bit; but it was about market share expansion if I understood you correctly and relative towards smaller competitors. So if that was the question, I think the answer is pretty much unchanged to the last years. I think this industry is developing into an area where especially digital capabilities and global reach with scalability when we add the customer experience and the service component to it is going to drive consolidation of the industry not necessarily because it is through M&A consolidation, but there will be requirements from customers or expectations more than requirements, expectations from customers where small and medium-sized providers may not be in a position to fulfill those anymore. So I think that's going to be a longer-term development that we will witness.

[Operator Instructions] The next question comes from Robert Joynson from BNP Paribas.

Stefan and Markus, just 2 questions for me, please. First of all in seafreight, the GP per TEU expanded during Q1 as you showed in the presentation and that was essentially a function of the freight cost per unit declining substantially, but the revenue per unit declined by less. So I guess people may look at that and conclude it's the classical countercyclical forwarding model at play whereby when rates go down, the GP per unit goes up. But at the same time, that wasn't the case during Q2 through to Q4 of last year when the freight cost per unit declined sequentially and the GP per unit declined as well. So just in that context, could you maybe provide some color on what was different about Q1 specifically in that respect? And the second question just on the outlook. Now I appreciate you don't provide EBIT guidance at least not for the current year. But on the Q3 results call, you spoke about the consensus expectation as of the time which was CHF 2.3 billion EBIT and commented you thought that was on the conservative side. Could you maybe just provide some color on latest thinking in that respect?

So let me take the first question, Rob. And I think it is a known fact that I think over the last 24 months at least, the traditional way of looking at the business model has been challenged in many ways. And I think the first message to you is the Q1 numbers I think have been supported by the traditional, call it at that point in time, mechanism that falling freight rates would benefit to a certain extent the GP per unit. And I think it's an absolute fair and correct question. So why did it not happen in comparison to some of the other quarters be it Q2 or Q4 last year? And the answer for last year at least for Q4 very clearly is in Q4, there were still a couple of quite significant committed volume agreements with carriers in place. So some of that free movement of rates versus the carrier rates or spot rates movement we have not been able to take benefit from, if you like, versus the committed available space that we have covered as you may remember early or mid last year for customers that have asked us to do so. So you see I think the major impact or the difference of the impact is last year we had volume contracts in place that in Q1 have all run out and Q1 was the more traditional, as I said before, spot rate mechanism in place.

Let me take the second question. Indeed Rob, we don't give any corridor or guidance for the full year 2023. And the reason why I basically articulate myself in the third quarter because there was so much uncertainty and we got so many questions after the pandemic is the forwarding industry in particular or our company moving back from a figure perspective to 2019 level, which I clearly denied and I reiterated that statement a couple of times the last couple of weeks and months. So overall with the Q1 figures now in, we feel very confident and positive that the full year estimate will be in line with expectations.

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

So just another one on the sea yields. With the strong performance in the first quarter, how are you thinking about the normalization from here? I think at the Capital Markets Day, you had mentioned kind of something like a $500 per TEU normal level. Do you think you still -- is that still your expectation and when do you think you get there? And then the second question on cost. So if I look at OpEx per TEU on sea, it was quite high in the first quarter and so wanted to understand what was driving that. Why haven't you kind of cut costs yet and when will it decline?

Muneeba, that is the thousand dollar question or the million-dollar question, the normalization at $500 GP per TEU. Just to reiterate that, I think we have given a $500 GP per TEU as a target within our Roadmap 2026. So on that journey I would say, I would feel comfortable saying that in some quarters we might even be below that and in some quarters we might be above that. But I think the view of our business and very clearly our business means with a managed business mix from our side so actively managed business mix with an actively managed yield is our target to stay at a $500 line. So it's less so a question of normalization and normalization is something that always needs a reference point. So for us, it's really like this is our target with our customer industry portfolio mix and an active yield management with all the cornerstone components that we have put out during the Capital Markets Day.

Yes. Let me take the second question, the cost OpEx per TEU. Let me reiterate what we stated during the Capital Markets Day. We will lead with quality and we will become the most trusted supply chain partner in the industry and that requires, as I said, a certain level of people. However, we have reduced in the first quarter overall including temps close to 2,000 people. If necessary, we could potentially do more. But at the same time, particularly in 2 business units in seafreight and in road freight, but mainly in seafreight, we have increased our sales force -- our dedicated field sales force in seafreight significantly. So we have hired roughly in the fourth quarter effectively as new joiners 100 new people around the globe in order to support our statement to focus more and more on SME customers. And these 100 people part of the field sales force are purely focusing on SME customers and not on the key accounts.

So then we should expect this kind of level to continue on a per TEU basis?

Depends on the GP and on the volume uptick, right? So if the volume is going further up as we have seen in March, then you are right, right? If there is a need, then we reduce.

The next question comes from Sathish Sivakumar from Citigroup.

I got 2 questions. So just to touch upon the cost savings. Obviously you said you've taken out 2,000 FTE. Is it your own fixed employees or is it part of the variable model? And then where those head count reduction has happened, is it on the Air or Contract Logistics? And the second one is actually around the Air Logistics. You highlighted that you're seeing weakness in transpacific market. How much of it is actually related to Apex because given Apex actually has higher exposure to transpacific? Any color on how volumes have trended by market will be helpful there?

I take the first part of the question. So the 2,000 were including temps; 30%, 40% were Kuehne+Nagel FTEs and the rest was temporary workers, right? So this is the flexibility we have with [Audio Gap] to cut cost more easily in the temp arena. But as I said, I'm reiterating my statement, if there is a sign that the volumes are weakening further in either or the other business unit, then we are able to cut even more; but currently we don't see that. The second part of the first question, can you just repeat it because the line was not...?

No, it's more about you took the head count, is it in Air Logistics and Road?

It's equal in air and sea.

It's equal in air and sea so it mainly impacts air and sea.

And on transpac, I think the answer is twofold. On the one side, clearly transpac is one of the largest and most active trades in the world. So even if there is weaknesses over a period of time, it always has a value to increase market share on transpac. And let me say that from a seafreight perspective, we are now the #1 on the transpac business so we have taken market share quite significantly. It has nothing to do with Apex. Apex's seafreight share is minimal. And you could argue but hang on, transpac right now has a rather lower margin expectation, true. But that trade being one of the most relevant trades in the world is going to change also the dynamics over the next couple of years and then there's going to be a quite significant leverage to have a good market share in that. On the airfreight side and this certainly where Apex is relevant, as we always said, Apex is very much focused on one trade which is transpac. Is very much focused around 2 business models, the one around co-loading and the other one around the high tech industry. And both of these combinations currently are not growing in a strong way on the transpac trade. So they are over proportionately, if you like, impacted than the overall Kuehne+Nagel airfreight business, which is far more balanced obviously than Apex that is very much focused in that area. So clear.

The next question comes from Sam Bland from JPMorgan.

I've got 2, please. The first one, again, is actually on this sea unit margin. I appreciate you talked about there's some sort of traditional windfall benefit from lower rates, but you did also say that there's some part of it which is from the customer mix and moving towards higher margin categories. So was there some sort of more repeatable change in the mix of the business between Q4 and Q1 that caused that higher gross profit per unit? And the second one is on the dividend. Appreciate it's early in the year, but I think consensus has the dividend going from CHF 14 to somewhere between CHF 7 and CHF 8. Obviously we'll see how the rest of the year turns out on profitability. But might there be an opportunity to sort of smooth that dividend profile given the balance sheet?

I would like to give you the spin on seafreight more from a year-on-year perspective rather than Q4 to Q1. So what we have seen -- and we said that this is going to happen. What we have seen that we have increased the volume with SME customers by almost 10%. So we are growing and that is significant with the efforts we are putting in with the additional sales force we have activated. We are growing more now with the SME customers as planned and significant less with the low yield business, with the commoditized business and that will have an impact on the quarters to come.

And on the dividend, Sam, I think I have to say maybe we are a victim of the fact that we never give any written dividend policy. I can only say historically we would not get to that payout ratio that the CHF 7 or CHF 8 for 2023 would require, if you like. I think one should still think what we historically did. So our payout ratio historically was, let's say, between the 55% and the 65%. Ultimately, as you know, the decisions are with the Supervisory Board and the AGM. But it looks unlikely to me that for 2023 a number that you have mentioned is something that would fit into this historic pattern.

The next question comes from Alexia Dogani from Barclays.

Just firstly, on your drive of kind of increasing SMEs for your Roadmap 2026. There's 100 salespeople, what are they incentivized on and is there kind of some SME retention target that they get paid on? And then just secondly, on Stefan's opening remarks in the press release, he mentions macroeconomic environment remained extremely challenging at the start of 2023. Is the environment -- would you describe the environment at this point in time the same way and if not, why not?

So incentive for salespeople. So basically salespeople in our organization, they have a fixed salary and then they have a bonus component as you normally have in sales, right? And it's purely on new revenues, on new customers and less on the retainer because we have, and I think Lothar mentioned that during the Capital Markets Day we have CCLs, the customer care locations, which is close to our operational setup and this is in our operations. And these CCL organization, these CCL people are responsible for the customer retention and salespeople are responsible and accountable for bringing in new business, new trade lanes, new customers and new trade lanes from existing customers. So they are purely incentivized when it comes to the bonus, right, on new business and less on a retainer, right? And that is how we drive the growth in SME. The second one was the challenging economic environment and that was pretty much related to the volume decline we have seen since a couple of months now, in particular in airfreight that was reflecting to the sentence and I would reiterate that's still the case.

Stefan, and can I just ask on your comments about the retain, kind of the team that is responsible for kind of customer retention. My takeaway from the CMD is that you have historically been able to win SME business, but the challenge has been historically to retain and grow. So I guess I'm a little bit surprised that the 100 SME salespeople are there to win new business, but they hand it over. And so when they hand it over, how can you be confident that actually you retain this SME investment and keep it growing? I guess can you then talk about what is the [ CCL ] incentive to retain those SMEs because I thought that was a key tenet to the SME yield boost we expect for Roadmap 2026?

Yes, you have both. You have both. You have the customer retention, right, and the impact on the erosion and we mentioned a number which is roughly 25%. And that's the reason why we came up with a cornerstone [ KNIX ], the customer experience and the employee experience, and this cornerstone will help us to ensure that we have a lower customer erosion than in the previous years. And we mentioned as well that everybody here in this company who is bonus related, a certain share on these cornerstones so the CX and EX. So if you as a CCL person are reducing the customer churn, the customer erosion; you will automatically benefit in your bonus payout by a less customer erosion factor or number in the future. And the SME salespeople, they are clearly incentivized on bringing new volume, additional volume with a higher yield into the company and that for me makes absolute sense.

The next question comes from Gian-Marco Werro from ZKB.

Congratulations for the strong results, Markus and Stefan. 2 questions. One on the personnel side also a follow-up and the second question is on your view on the inventories again. So from a personnel cost perspective, you mentioned now this 100 additional sales employees. Is it now the fact that your HR bottleneck to really also increase the volumes is necessary for your midterm guidance? Is now this problem is solved? Do you have now enough workforce to really also go back to historic volume growth? And at the same time you mentioned also that you might be able to further reduce your FTEs, for example if we're now hitting a recession. Can you elaborate about by how much you could further reduce the personnel costs? And then the second question is also on the macroeconomic environment. You mentioned that you see also the inventories levels to maybe being reduced again. Could that also be due to some also recession risks that most or some of your customers might face and how do you assess this risk of global trade and especially the volumes potentially declining now further in the second and third quarter?

So on the personnel cost, I think especially seafreight, I mean we are -- that is I think what you were also referring to. We have 3 drivers more or less and our costs go up because salespeople are being hired. Secondly, we have inflationary cost. I mean everybody knows inflationary pressure is there. And the third component is offsetting or partially offsetting the first 2, which is the FTE reduction so the efficiency gain. I think when we talk about, and you have addressed it, do we find the right people? Yes and no. We find the right people for the incentive of sales. Is every single new sales guy or is every single existing sales guy exactly the correct person in the correct place with the correct job description? Well, I think that is something that every organization has to assess on a permanent time. So yes, we are assessing that and we are trying our best that the employee as much as ourselves being in the right spot for the right job. The other side is the operational workforce. The operational workforce, I think that what you have referred to, was difficult to find over the last couple of quarters or over the last 2 years because the pandemic has changed people's access to the labor market. At the same time, have changed the way to work. And I think we have undertaken that journey to get back into a more standard operational execution pattern with what we mentioned in the Capital Markets Day with operational care centers. We have high efficiency by bundling certain functions and processes. So from that perspective, I think not only that we find more people in the market. I think we have also changed our way how we operate and that is giving more opportunities to bring people into the organization. So from that perspective, I think we are more confident. And inventory levels, that is the other $1 million question. But yes, inventory levels had been very high at the beginning of the year. We do see some outflows or we have seen some outflows at the back end of the first quarter, which is good. I think that's good news. Is that already a sign for optimism for the second half? I don't know. It's certainly an indication. I think it's going to be interesting over the next 2 months to see how expectations go into the second half. And I think at that point in time the next milestone, if you like, is going to be by the end of May, beginning of June. When longer-term contracts are being negotiated also with carriers and customers, that will give us a view on what is the expectation for the second half. Right now I can only say what we see is we started with high levels and we see a certain outflow right now. So that gives us careful indications.

The potential cost cutting on the personnel side?

The potential is as much as we need.

And let me step in. As I said 10 minutes ago, if there is a volume reduction, which we don't see at present, right, then we act immediately.

The next question comes from Lars Heindorff from Nordea.

Follow-up on yields both in sea and air. Markus, I think you mentioned earlier that you had some committed contracts with carriers, which affected you negatively in the fourth quarter which has now been at least, as I understand you correct, partly sold. So how will that play into the second quarter? I mean do you still have less committed contracts there? And the trend that we've seen here with at least quarter-on-quarter improvement in seafreight, will that also then be applicable to the second quarter? And then a little bit about the same question basically in airfreight if you also have there committed contracts going forward on the capacity cycles will make you basically be long in the market or how you are positioned there?

Sure, Lars. I think the answer is pretty clear. A, we do not have any committed volumes anymore going into the year 2023 so that's not going to impact the profitability neither way, positively or negatively. So it's just not there. In Q2 I do not see that benefit to extend for a simple reason because I would expect that freight rates in Q2 will not continue to fall with the same speed as it did in Q1. So with the assumption that freight rates will remain at a stable level, that benefit, if you like, is going to dissolve or dilute quite significantly from a seafreight [indiscernible]. And from an airfreight...

Is that from a seafreight perspective, sorry?

Come again?

Yes. Sorry, that's from a seafreight perspective I assume.

Correct. Both of my statements were around seafreight. So on the airfreight side, I think we are entirely in the spot market with the exception of our long-term charters with the 2 747s that 1 operates for Apex, operates for KN. So both actually for KN, but one under the brand of Apex, the other one for KN brand. So these ones have committed customer contracts.

The next question comes from Michael Foeth from Vontobel.

2 actually. The first one on net working capital, just a clarification. You mentioned you expect stable net working capital. Is that in absolute terms or in relative terms? And the second question is around road volumes. How come you can keep your road volumes so stable in an environment where sea and airfreight volumes are down quite significantly? Can you just explain the mechanics there where the demand comes from?

Ladies and gentlemen, please hold the line. We lost connection with the speakers. Ladies and gentlemen, the connection with the speaker has been reconnected. You should be able to speak, gentlemen. Gentlemen, we can hear you.

Yes. But we can hear music. Okay. Can you hear us?

We can hear you, yes.

Okay. Then we go over to the backup line. Good. We are ready again.

Okay. This is Michael. I'm not sure you got my questions. This is Michael.

Michael. No, sorry. We didn't got your question, sorry.

Okay. So the first question was on net working capital, just to clarify if you expect stable net working capital in absolute or in relative terms? And the second question is on road. You seem to have very stable road volumes in an environment where sea and air volumes are down quite sharply. Can you explain the mechanics there, why is it disconnected?

So on the net working capital, the comment clearly is on absolute terms so we try to limit ourselves here on that CHF 800 million level give or take, which should carry us for the rest of the year.

I think from my perspective road, we have our clear strategy the last couple of years and we are focusing in the U.S. market on brokerage business and I think I mentioned it back in Q3. We have a pretty good product in the meanwhile due to the acquisition of ReTrans in 2015 on the brokerage and on the TLM, the total logistics management, and we leverage that for our airfreight and seafreight customers. And that's the reason in particular in the U.S. why we see still a very stable development of our volumes not connected to any seafreight or airfreight inbound volumes and same with our footprint in Asia and the Middle East, Africa where we have a clear growth plan. And Europe is very stable currently and we do not see any volume reduction in Europe either. So that's the reason it's decoupled from seafreight and airfreight, but that is a clear driver from our strategy which we have started already quite some time ago.

The next question comes from Jain Parash from HSBC. We will take the next question from Mr. Sebastian Vogel from UBS.

Can you hear me?

Yes, we can hear you.

Perfect. The first question would be again on seafreight and gross profit per TEU in U.S. dollar. Given your sort of view for the remainder of the year, how low do you think it can go at some stage?

Okay. So Sebastian, I think also here, what I said before prevails. It's possible that we probably go below the $500 line at a certain point in time in the quarters. I'm not sure when it's going to happen and how low it's going to be. Our clear target is that with mix management and yield management, we should not see that too often. Let me put it that way. But can we exclude it? No. Are we going to back drop or drop back to maybe $300 like prepandemic times? I think the whole management board is working very diligently that that's not going to happen anytime soon.

Got it. My second question would be on the minorities line. Do you think Q1 is a fair run rate or maybe a bit much higher for the next couple of quarters for now?

I think the minority is I mean very transparent. The minority is the minority out of the Apex ownership. And as I mentioned, Apex is specifically impacted over the transpacific weakness and also the airfreight or the air market softness. So I would think that's not a representative run rate for the next quarters. We would expect that to be a higher number. I know it's a negative number in our P&L, but a higher number to go forward into the next quarters when that business is going to pick up again.

Got it. Sorry if I may squeeze in a quick follow-up to one of your earlier questions. When you mentioned your confidence about the 2023 expectation and you meant -- you said that you're sort of in line with what consensus currently has in mind. You mentioned you had like the 1.8 in mind in that regard. Was that on the same page?

Yes, that is a tricky one, right? And I don't say -- now clearly I don't say then take the first quarter 4x, right, and you have it, right? So that is not my message. My message overall is we are confident that we will deliver a decent number for the full year 2023.

The next question comes from Patrick Creuset from Goldman Sachs.

Congrats on a good first quarter. Just 3 questions from me. First, can you comment on how the gross margin not the GP per TEU, just the margin in sea developed through the quarter and then particularly how the March exit rate looked versus the quarter average? Second, when you look at the air division, can you comment on GP per unit developments that you expect in the coming quarters versus Q1? And then last one, just a quick update on your M&A appetite, how the pipeline looks and where you'd focus?

So I think our message was 2 questions per caller, but we make an exception for you. Gross margins in seafreight, what exactly do you mean if you don't mean gross profit?

Just gross profit versus sales, just the margin so not the GP per TEU in absolute terms. I think the average margin came out at 23% or so, Q4 you were at 15%. So just curious how -- if you looked at it month by month, what the exit rate will look like in terms of the margin?

That is a number that we can calculate, but we don't manage a margin versus a rate because we make our gross profit margin certainly to an extent with the brokerage of the space, but much more is on the service capabilities, on the value-add and other components. So our gross profit margin, as you know, is not a percentage of the freight rate. So from that perspective, it's nothing we are even managing. I think from a GP per unit on an airfreight basis, you were asking how it's going to look like into the next quarters. Well, I think we are in the first quarter around CHF 103 GP per 100 kilos. Can you hear us again?

I can hear you.

Okay. So good. And we are around CHF 100 to CHF 103 GP per 100 kilo. Given the soft market and let's say the careful outlook into Q2 from a volumes perspective, I would currently expect that we probably are staying somewhere around that CHF 100 line, maybe below that slightly and reach maybe the lowest point somewhere in the middle of the second quarter. If we were -- and that is obviously a speculation. But if we were right that the second half is going to be improving also on a volumes perspective, I would think that airfreight as an early reaction to that will also benefit from additional business in that area. On the M&A strategy, I think nothing has changed on this one. Clearly bolt-on acquisitions; Asia is one of the main target areas, e-commerce, pharma. So these are the themes that we are continuing to focus on also from a size perspective -- maybe to anticipate some of the thoughts around in the call. From a size perspective. you have seen one of the largest deals we have ever done was the Apex deal and I don't think we are talking that magnitude in our mind. We are talking smaller than that.

Great. Can I just come back to the first one? If you don't want to talk about margin, will you just look at the GP per TEU, then how does the exit rate from the quarter look compared to the quarter average? Can you comment on that?

No, I cannot.

The next question comes from Nikolas Mauder from Kepler Cheuvreux.

First of 2 is coming back to road. Margin performance was quite impressive, record on recent investment history I think and you mentioned that high network utilization is the main driver here. So what does the way forward look like? Will you add capacity due to perhaps some growth plans going forward or is this some sort of high watermark on the margin and if volumes develop less strongly going forward, then the margin should also come down? That's the first question. The second one, we've seen Bollore Logistics going to CMA CGM/CEVA as perhaps another example of a carrier going after traditional blue chip customers of Europe. Do you face more competition for them? And is this also part of the industry consolidation that we talked about earlier that incentivizes you to go after SMEs?

Let me tackle the first question on the capacity side, on the volume side. Coming back to everything outside of Europe. So road freight in Europe -- outside of Europe is a brokerage business. So we have a certain yield, we focus on yield and we can grow without adding any capacity from a cross-dock perspective as we have to look into from a European perspective. So in other words, the sky is the limit in the U.S. and we only need to add a certain manpower in order to execute the orders, but there is no impact basically on the yield on the GP if we grow significantly outside of Europe. And in Europe we have a certain capacity with our cross-dock network. We have a couple of hundreds, right, for instance 56 in France alone and what you have to do and what we are doing currently is if the network comes to a certain capacity constraint, then we either increase the network or alternatively if you have products like FTL and LTL not terminal-based LTL where you can grow without adding any capacity. So that's for me not a big problem statement in terms of is the certain capacity reached and then we do not have the possibility to grow further. So I would decouple the yield question from a volume and growth opportunity point of view. So that is not a problem statement especially not outside of Europe. From a Bollore point of view, we have seen competition the last decades. And as I mentioned at another -- I think I did that during the Capital Markets Day, 50% of the volume is BCO volume with carriers directly and 50% is 3PL business and OCC business. And one thing is pretty clear, carriers will not enter in the SME business so much. They will focus pretty much with everything what they do on the BCOs rather than the SMEs and that's the reason. Not only that's the reason, but the reason is that 1.8x more profitability with the SME customers and that is the key driver and not what anybody of our competitors or a liner is doing with acquiring further in our space.

Okay. So thank you very much all of you for all the questions. And whoever heard me singing is now aware of the fact that I'm better as a CFO than as a singer. And apologies for the breakup of the lines. And thank you for joining us for this quarterly update call of the KNI Group. Thank you very much and bye, bye.

Bye, bye. Thank you.

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