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

Ladies and gentlemen, welcome to the Full Year 2023 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And 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 Mr. Stefan Paul, CEO of Kuehne + Nagel. Please go ahead, sir.

Thank you very much, Sandra. Good afternoon, and welcome to the presentation of Kuehne + Nagel Full Year 2023 financial results. I'm Group CEO, Stefan Paul. And once again, I'm joined on the call today by our group CFO, Markus Blanka-Graff. Let's look into Page #2 of the presentation. We delivered a robust financial result in 2023. Thanks to ongoing and resolute cost and yield management, we also made more progress towards meeting our long-term strategic ambitions. We achieved this robust result admit subdued demand with some signs of improved volume trends at the end of the year. The 2023 EBIT result of 1.9 billion represents a solid performance for the group, following the extraordinary results of the pandemic years 2021 and 2022. The fact that the percentage decline in gross profit year-on-year was half the decline in turnover is a direct consequence of our resolute cost and yield management throughout 2023. Our ability to radically match our cost base to the market environment underscores once again, the flexibility of our asset-light business model. Cost control measures intensified over the course of the year. This is evident in the substantial reduction of operating costs from the first half to the second half of 2023. Additional measures taken near year-end will drive further improvement already visible in the current quarter. They will result in a headcount reduction of nearly 1,300 with roughly 40% already implemented by the end of 2023. These latest measures come at a cost of CHF 53 million booked in Q4, but we project recurring cost savings equivalent to at least twice that amount. Additional cost measures are already in progress in Q1. Our strategic priority on yield management also supported our 2023 financial results. We drove a positive shift in our portfolio mix. At the same time, we see some stabilization of demand, and we are well positioned to maintain or expand our share of a recovering market. Our success in shifting the mix is most evident in Sea Logistics. Next is Sea Logistics deep dive, GP per TEU and EBIT per TEU in Swiss franc, as always. Sea Logistics produced EBIT of CHF 161 million in Q4, excluding one-off costs and the full year EBIT of just over CHF 1 billion. The positive shift in mix I just mentioned on the previous slide, came primarily from higher yielding SME volumes. They outperformed with a growth of plus 7% year-on-year in contrast to commodity volumes, which contracted by 9%. Overall volumes were down 1% for the year but up 1%, excluding the effects of our choice to discontinue certain commodity volumes from early Q4. This compares favorable to estimated market volumes, which were down by 3% for the year. Looking at Q4 alone, volume trends ended the year on a stronger note. Overall organic volume was up by 5% year-on-year versus overall market growth of only 2%. Our SME volume alone were up by 9% in Q4. Unit costs fell by 14% in the second half relative to the first half, thanks to a 7% increase in volumes and a 9% reduction in recurring operating expenses. This excludes consideration of the CHF 21 million one-off costs booked in the fourth quarter. When evaluating the likely run rate cost base going forward, one should take into account the most recent cost measures, which are already having a visible effect in Q1. Over the course of 2023, yields normalized consistently, but also at a moderating pace. Thus far, at the start of Q1, there are signs of sequential stability relative to Q4 average yield alongside modest volume growth. Regarding the Red Sea situation, we saw no financial impact in Q4, but expect to see some in the first half of 2024. The extent to which recent current conditions may support yields remains highly uncertain. Next is Air Logistics. On the left-hand side, again, as always, tons, GP per CHF 100 and EBIT per CHF 100 kilo. Air Logistics delivered Q4 EBIT of CHF 140 million and CHF 569 million for the full year both excluding one-off costs booked in Q4. Overall, Kuehne + Nagel volumes declined by 11% in 2023, but only by 4% year-on-year in Q4, in line with estimated market development. Volume was weakest year-on-year in Q1, then improved progressively over the next 3 quarters. This resulted in a more typical peak season pattern from Q3 to Q4 with a 6% plus organic sequential volume uplift. This was strongly driven by perishables demand and rising e-commerce exports from Asia. We reduced recurring operating expenses by 13% in the second half relative to the first half, thanks to cost control efforts. Similar to Sea Logistics, greater volumes in the second half, also plus 7% versus the first half resulted in sharp 19% decline of unit costs over the same time period. This excludes consideration of the CHF 14 million of one-off costs booked in Q4. Again, please take note of the impact to come in Q1 and future quarters from the most recent cost measures we initiated in Q4. The pace of yield, normalization and Air Logistics also moderated into year-end with a modest 4% decline from Q3 to Q4. This trend appears to have continued into the early part of Q1 alongside organic volume growth. The situation in Red Sea triggered a wave of customer interest in exploring various options, including sea, air combinations. However, to date, this has not resulted in a material uplift of Air Logistics demand. Next is Road Logistics, Page #5. Road Logistics EBIT for Q4 was CHF 19 million or CHF 138 million for the full year, both excluding one-off costs booked in the last quarter. Shipment volumes declined by 6% year-on-year and by 9% in Q4. We believe this volume development was broadly in line with the market. Ongoing yield and supplier cost management mitigated the volume pressure throughout the year. In Q4, this limited the pressure on gross profit to a 3% year-on-year decline, excluding currency headwinds. In the early part of Q1 2024, it appears that challenging market trends continue. We are pleased to have closed the acquisition of Customer Broker Farrow Group by end of January 2024, more in this development later in my presentation. Next, Contract Logistics, Page #6. Contract Logistics delivered a record high underlying EBIT result of CHF 55 million in Q4 or CHF 204 million on a full year basis, excluding nonrecurring items. These include CHF 13 million of one-off costs booked in Q4 and a CHF 9 million of profit on sale from Q1. Market share expand that over the course of the year with continued gains in health care and e-commerce. Ongoing process reengineering and automation supported an underlying improvement in the conversion rate in Q4 of nearly 100 basis points. We look forward with confidence given the new business opportunities are up by more than 20% year-on-year. Next is a deep dive into our road map 2026 targets, Page #7, the progress update. We concluded baseline customer and employee experience surveys, which will serve as a reference point from which we can measure progress over the coming years. We are also improving customer experience in Sea Logistics. As noted earlier, the share of SME customers in our portfolio is expanding. Measures include the additional of 27 new customer care locations, we call it CCLs, and second tier cities as of end 2023 and the addition of about 170 SME-focused field sales over the last 2 years. In the area of technology, we are now leveraging AI in a meaningful way in several areas while developing solutions in others. The scope of opportunity is right with implications for our own efficiency as well as pricing and the quality of our service offerings. On Road Logistics slide, I touched up on the successful acquisition of Farrow Group. Here represents a step change in our customs clearing capabilities in the market, which is seeing strong demand growth fueled in part by nearshoring. Additionally, we have developed several specialized service offerings, including LCL for health care customers and in India U.S. SME commerce solution. Turning to ESG Q4. So an expansion of our electrified fleet and Road Logistics, and we are proudly supported the first-ever transatlantic cargo flight and fully powered by SAF. We also more explicitly define the scope of our social impact framework by identifying 6 key dimensions: human rights, labor rights, employee development, health and safety, diversity and inclusion and community support. With this, I would like to hand over to Markus.

Thank you, Stefan, and good afternoon, everyone. Thank you as always for your interest in tuning and taking the time today for the full year 2023 results. As Stefan has outlined, we witnessed an environment of demand for global logistics services that remains subdued, and we don't expect a material change to this situation. Seafreight and airfreight did not see a broad-based peak season in 2023. And I want to point out, we have been managing through countless economic cycles and periods of unforeseen volatility a credit to a highly flexible asset-light business model combined with our entrepreneurial spirit. Our current focus, hence, is on cost control that intensified during Q4 of 2023 and will continue into 2024 to ensure a further reduction of unit cost. This reflects both a reduction of absolute costs and stable to increasing sequential volumes in sea and airfreight. Contract Logistics and Road continue to defend and work hard to further increase their profitability levels in equally volatile markets. Let's start with the income statement. And as expected, compared to the pandemic years, we can see lower results in nearly every P&L line compared to last year. What matters is the absolute performance with an earnings before tax of CHF 324 million in the fourth quarter, including as mentioned before, CHF 53 million one-off cost and a total of approximately CHF 2 billion earnings before tax for the full year 2023. The gross profit margin continued to outperform 2022, confirming some early successes in our strategy to focus on higher-yielding businesses. We see a solid operational conversion rate for the growth of 22%, also supported by active manpower resource management. The combined sea and airfreight operational conversion rate was 34% in Q4 and just below 40% for the full year 2023. For reference, the full year 2019 conversion rate was 28%, excluding WACC. Headwinds coming from currencies increased with an impact of around 4% or the equivalent of CHF 414 million at the gross profit level and around 3% or roughly CHF 105 million on earnings per [indiscernible]. on the next slide, working capital. One of the topics that have been on the agenda for many quarters, contracted due to the reduction of receivables and contract assets together currently at around CHF 4 billion. Receivables have reduced as a function of lower rates and excess air charges. We anticipate stable net working capital for the next quarters to come. Days of sales outstanding have expanded against the beginning of the year and against the same time last year. Days of purchase outstanding on the other hand, have had increased also significantly so that the spread between DSO and DPO has increased to 11 days. Net working capital intensity is based on a slightly narrower selection of working capital items in the cash flow statement. And by the end of 2023, closed with the result of 3% versus 2.7% for 2022. The absolute level is around CHF 768 million and is stable since some quarters versus in comparison, roughly CHF 1 billion 1 year ago. Continuing with cash and free cash flow generation in Q4, we anticipated and reached close to 90% cash conversion rate, which represents a continuous improvement through the last quarters. Compared to the previous years, of course, this is at a lower absolute level. For a bit better illustration, we have added 1 additional slide when we move to the next slide. This features an expansion about the cash tax issue, which weighted on the free cash flow generation and conversion over the past year. While the headline free cash conversion was 85% in Q4, it was nearly 100% excluding cash tax effect, as you can see in this slide. In recent quarters, cash tax outflows have significantly surpassed P&L tax liabilities by wide margin. This trend, which has now faded reflects the lag between the peak P&L tax recognized in 2022 and the usual lag in cash payments, which typically comes over the course of the following tax year. As the P&L tax of 2023 declined by about 50% year-on-year, that is the higher cash tax outflows in that year related to 2022 resulted in significant pressure on the free cash flow generation. Another less significant factor has been our shift away from diligently prepaying tax as the interest rate environment swung from negative as we have experienced years ago to positive. As of the end of 2023, aggregated P&L and cash tax since 2020 is now nearly identical. Going forward, we anticipate a more consistent relationship between P&L and cash tax. Going to something more tangible and easier. As a result of our healthy profitability, well-managed cash conversion and balancing current and future cash needs for adapting the workforce to the markets. The Supervisory Board has decided to propose a dividend distribution of CHF 10 per share to the AGM on May 8, 2024. This represents a higher payout ratio compared to recent years, but is in line with earlier historic values. As a special element, CHF 1.75 per share are being paid as a repayment from capital contribution reserves, which may offer tax advantages to recipients under certain conditions. But now in of 2023, let's move on to the activities that will shape our future, which is eTouch and our customer portfolio management. I'm on Slide 14 on eTouch Sea Logistics. Digitalization and automation are the core drivers to increase efficiency in operation. For all of us to remind ourselves, we developed the eTouch methodology that addresses all aspects of operational processes, and we have selected only a few workflow areas for Sea Logistics and Air Logistics to demonstrate the relevance of eTouch. Man-hour savings continue to accelerate as we expand the efficiency gains through the operational processes, resulting at a positive conversion rate of around 100 basis points in Sea Logistics. This represents a value of roughly CHF 4 operating cost here to you. Most of you are familiar with this topic. So let's have a look at the customer portfolio management and important activity that we haven't shared in the past. So let me first explain the content of Slide 15. The pie chart represents the share of product and customer type per TEU category in terms of share of volume and share of gross profit for the years 2019, 2022 and 2023. SME is green, commodities, gray and others is blue. Additionally, we have provided the share of Apex in the same dimensions in dark blue. SME contributes to a much larger portion of the gross profit compared to their share in volumes and commodity of the opposite. What you can also notice is the increase of share from SME and Apex contribution over the last 2 years compared to 2019 from 58% GP contribution to 61. Most notable, of course, is the development in absolute terms as gross profit per TEU, whilst, of course, CHF 793 per toy represents the high point in the pandemic years, they look through from 2019 to 2023, better represents the organic efforts to shift the portfolio and the product mix. There's more to come. It's the first stab at it. So we're confident that this is one important element to achieve the financial ambitions in road map 2026. Moving on, and I think I can keep this short as you're already familiar with the information. In Air Logistics, we can report man-hour savings resulting at a positive conversion rate impact of around 300 bps, representing a value of CHF 2.75 operating cost per 100 kilo. And same, moving on swiftly towards the customer portfolio development in Air Logistics, we have chosen the categories, perishables, Apex and all dry cargo, which includes all type of customers. I think you can digest that information on that slide yourself, but we do focus very clearly on yield improvements with all customer categories. With these comments, I would like to end the presentation with our key takeaway slide a challenging fourth quarter 2023 in various dimensions. I think as Stefan has pointed out, they're stable but still uncertain volume development going forward. We do intensify our cost measures, focus on active yield and portfolio management, and we are diligently hard working, confirming our focus on the road map 2026 initiatives. In closing, Volume trends showed some improvement in the Q4 amid challenging market conditions. Nonetheless, market demand and yields remained subdued. In this environment, we remain relentlessly focused on cost management, and this is evidenced most recently by measures taken in the first quarter to further reduce costs. These actions will yield incremental benefits ramping up from Q1 going forward. With this, I would conclude our presentation section for the full year results 2023 of the Kuehne + Nagel and hand back to the operator, Sandra, for the Q&A session. Thank you.

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

Two from me, please. First of all, conscious this is the 1-year anniversary of your Capital Markets Day from 2023, in which you laid out a target for over CHF 3 billion of EBIT in 2026. How confident are you in that target 1 year on? And was it the main moving pieces to get there from today? My second question is on the cost restructuring. So you mentioned recurring cost savings at least to double the Q4 restructuring costs, should we, therefore, expect your unit operating costs to stabilize below CHF 600 in air? And if so, what would be a sensible rate to have in mind, please?

Alex, so Capital Markets Day, I think just for one simple clarification. I think we didn't mention the full absolute amount of the earnings before tax ambitions. But of course, some others have resulted in the corridor that you have mentioned. I think what is clear is we have been putting out in the Capital Markets Day, a couple of KPIs that we want to achieve in terms of conversion rates for sea and airfreight and the quality of the P&L that is going to shift from a, let's say, 16% conversion rate for the whole group into a 20% to 25% conversion rate for the whole group. I think these are the cornerstones that we have been talking about, clearly, and there is full evidence for that in the set of numbers. The total volume development that we have anticipated has not materialized until today. So I think what we can confidently say is we go into the right direction to achieve the qualitative KPI sections in terms of conversion rates for the business units and for the overall group, we may not achieve the overall volume of this business as we laid it out on the Capital Markets Day.

Stefan speaking, Alex. I take the second one from a cost perspective. Yes, you're right in assuming that the costs will come to the level you have just described. The aim is in seafreight to reduce it to a max of 280 rate and further cost measures are underway. So this is definitely supporting then the production cost in terms of cost per file is concerned and similar in airfreight as mentioned by yourself.

The next question comes from Jason Seidl from TD Cowen.

Two for me here. One, you mentioned in your comments that you're expecting to see some impact from the Red Sea here in 1Q. I was wondering if you can give a little more color on the impacts we should expect. And then you made a comment that as of now, in terms of yield, you're not sure what the long-term impacts are going to be. How long do you think the dislocation has to go on before we see a longer-term impact for yield? And my second question, what impact do you expect from your customers and a shift on ocean when you're looking at North America between the East Coast and the West Coast and what's going on with the Panama Canal?

So I take the first one, Jason on the impact from Red Sea. As we said, there was no impact recorded in the fourth quarter, and that is pretty clear because we invoice customers at the place of destination and the earliest time possible where we send out the new invoices is March 2024. So what will happen is as of the second quarter, we expect an impact, and we made a statement, it's in the double-digit low million EBIT range. The second question was how long is that going to take? That is the silver bullet question. We don't know. We have seen that the first courier basically has started to try again to go via Suez but there is no evidence on any change or pattern change. I would personally expect that this is an ongoing situation for most probably the third quarter and maybe until end of the year. So there is no significant shift to be expected on a short-term basis. This is what we see currently. But that is something which is really depending a little bit on the geopolitical tension and situation.

And your second question on the Panama side. I think Panama Canal, as of yet, has had very limited impact on the container shipping. There are some movements of cargo from East Coast to West Coast, but it's quite moderate on that side. And I would say it's not material. On maybe a subsequent question could be is there any impact on the air side? There is 0 impact on the air side. So it's quite moderate, I have to say.

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

So firstly, just going back to your comments on yields. I believe you said that they are stable in 1Q so far compared to the 4Q levels. How are you thinking about yields for the rest of the year just directionally? Because one of your peers said that they expect yields to be address slightly below 4Q levels in the course of 2024. So do you have a similar view to that? And then secondly, just on M&A. So you've announced another small acquisition today, but I just want to revisit your thoughts on bigger M&A now that the DB Schenker process is very much underway. And if you could clarify if you're at all involved in that at this point?

Muneeba, I take the yield question first, how do we see the yields? So from a seafreight perspective, there is a clear expectation and we see that, and as I mentioned that a couple of minutes ago that yields have been stabilizing, and we expect slightly better yields as of Q1 and then some tailwinds from the Red Sea in Q2. So we should not expect lower yields than what we have seen in the fourth quarter this year in seafreight paired with -- you didn't mention it, but will do so paired with moderate volume growth. We see some upticks already. And on airfreight, we will definitely focus on a higher yield versus Q4. How will that look for the entire year, difficult to be seen due to the entire volatility and the geopolitical tensions. But at least on a short-term basis for the first and the second, we see some evidence that the yields are going up. M&A, Markus is going to take this one.

Muneeba, I think, you mentioned we made a small acquisition. I think for us, it's important, and to remind ourselves, is M&A for us, we are generally an organic growth company. M&A, we use on a selective basis where special knowledge, know-how or markets where we need to get like a foot into the market, then we use M&A and we will continue to do that. And this is the way how we do that, but organic growth is our predominant focus. And hence, you know what our M&A strategy looks like. We look for these specialist companies. Size is not the real driver for that, its knowledge and management capacity, and we will continue to do this. If there is a niche or some special knowledge in the area of e-commerce or health care or anything like that. We will be there and looking at it.

The next question comes from Sam Bland from JPMorgan.

Two, please. The first one is on these pie charts on Slide 15 with the volume split. If I look at SME, I think you said it's gone from 58% to, let's say, 61% between 2019 and '23 include Apex. Then the unit margin has gone from, I don't know, 320 to, let's say, 425 or something. It's quite a big change in unit margin for what looks like a fairly small change in mix. What are the other big components of the high yield? And then the second question is you said with the 2026 targets, the volume might not be as strong as you initially thought. I appreciate we've just had this destocking cycle, but wouldn't you now maybe think the volume would rebound as you end that destocking? I'm just trying to see what causes the permanently lower volume versus what you thought at the Capital Markets Day.

Sam, 2 answers to this. I think when you look at how SME sanction grow, how that works in reality is, and I make a very bold and maybe oversimplifying example. But when we get a large customer on board, we probably talk 15,000 TEUs with long contracts. And an SME customer, 250, 500, 750 TEUs per annum. So there's a lot more you need to do to even keeping up with the volume development or growth to keep the share the same. So there's a lot of work behind that. So shifting even for what looks like a small percentage from 58% to 61% to 62%. It looks like a small percentage is still a hard work to move that wheel into that direction. So I think that is the first message. The second one, you're absolutely right. It's not the only reason why average GP on TEU has increased. There is multiple other factors to that. Some of it, obviously, is given from the market conditions that are sometimes a bit more important for the SME customers than for the large customers. Respectively, we have developments in terms of how much service we provide to these customers. So there is a mix to that, very clear. But I think one of the major drivers remains the overall shift, even again, if it looks like a small shift, it has quite a significant impact.

The second question, Sam, was on the volumes and the rebound, and that is a very good question, but not absolutely easy to answer. So what we see is there is definitely an upswing in the marketplace. We have seen it, as mentioned in the last 2 months of the fourth quarter, in particular in December. And now as well moving into January and February is quite positive. Is that a trend which will materialize over the next couple of quarters? I would answer 2024 certain volume impact on a positive note, more for sea rather than for air, but the normal growth should happen again then in 2025 when the market recovers in full. And maybe let me take this opportunity. We are mainly focusing on organic growth, as you know, guys. And that's the reason why we focus pretty much on the key account and the SME customers and organic growth. And that's the reason why we believe we have done from a volume perspective rather well in the last couple of months and weeks and as well what we see currently in order to prepare it as soon as the market is bouncing back.

The next question comes from Alexia Dogani from Barclays.

I also had two. Just firstly on the timing of the just over CHF 100 million of annualized cost savings, should it be H1 loaded rate to loaded or evenly spread? If you can give us a bit of an indication that would be great. And can you discuss exactly what -- you talked about the 1,300 reductions, 40% already implemented, would we need to see another program announced to see more restructuring charges taken in Q1? And where have you exactly reduced dispositions?

Alexia, so let me talk about the timing of the cost saving and when are we going to see them. I would believe that we took CHF 100 million annualized cost. And I would think that in 2024, we would probably see 50% to 60% of that being fully materialized. We have done our actions. We have taken whatever we could into the cost base of 2023. But obviously, it usually takes at least a quarter in terms of termination costs, termination duration and so on until you see the full effect of it. You see something already today, but the full effect will come in the next quarters.

And then let me add, Alexia. What are we going to do in addition? We have implemented a complete hiring freeze a couple of weeks ago. So new hires to be foreseen only very critical replacements on customer-facing and customer-critical roles. So we will further reduce our workforce by leveraging the normal attrition rate. And then we have started at the back end of last year a new approach in terms of how do we manage our indirect procurement where we believe over the course of the year, we can add as well quite a nice additional profit coming in from this initiative.

The next question comes from Robert Joynson from BNP Paribas Exane.

Stefan, Markus, two questions from me, please. First of all, on the seafreight volume, even including some contribution from Apex volumes during Q4 was 7% below the final quarter of 2019 before the pandemic, which compares with market volumes, which were actually up by roughly the same amount. So it's quite a disconnect. And of course, Kuehne + Nagel isn't unusual in that respect. Each of your listed payers has underperformed the market as well. So could you just talk through what you attribute those market share losses to? Is it forward as share of the market in general has declined? Is it that the large forwarders have lost share to the small forward? Is it mix? Or maybe is it something different? And then the second question on the outlook for EBIT. If we just leave aside the various moving parts across the divisions and just focus on the group, on an adjusted basis, EBIT has now declined sequentially during each of the past 8 quarters. When do you see that downward trend stopping? Did you think Q4 will be the trough? Or could that trend of sequential decline potentially continue?

So it's Markus. So let me answer the question on the seafreight volume first. And my understanding is tying back to the fourth quarter 2019. I think there is 2 reasons for that. First of all, I believe there might be market shrinking stagnation when I compare '19 to 2023. But that, of course, uncharted territory, I've not been prepared for that comparison. So that's a good feeling. What I can certainly answer is we have walked away from commodities. There is a very clear shift from commodities towards our SME portfolio. If that exactly comes up to the minus 7%, to be fair, I would not be able to answer it from the top of my head. EBIT per TEU or EBIT per unit, I think with the cost measures that we have initiated and continue to expand as Stefan has mentioned before, we would like to believe that we have compensated the pressure on the margin so that we can hold that EBIT per TEU at a stable level. Certainly, when we continue our cost adjustment measures, there will be, again, one-offs for redundancies. But having said that, as long as we can clearly identify these. I think that's exactly our aim to stabilize the EBIT at that level. We're going to be 100% successful every quarter? Don't know yet. But I think we are close to that level.

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

First question from my side is on your air volumes. There, you mentioned that e-commerce was a strong driver. And based on your heritage that you are really strong in this industry. Can you also tell us if you might have closed a partnership or expand these partnerships with also Chinese e-commerce giants? And the second question is on the whole [indiscernible] topic again. If we just observe current dynamics of international freight rates having nearly tripled since December. I just would wonder if you could also give us a basis, what you expect as GP per TEU being reasonable for then the second quarter, as you mentioned, where the impact will be really meaningful. Is it overestimated if we even think about the quarterly GP per TEU to nearly go back to CHF 500 again?

Marco, Stefan. Let me take the e-commerce question on air. So we have clearly distinguished between the Kuehne + Nagel legacy and our Apex organization. So Apex is supporting this e-commerce trend much more than the Kuehne + Nagel legacy. However, the utilization roughly on our charters and overall is around 20%, 25%, not more. So we are benefiting from that. But on the other side, in all honesty, we had to increase pretty much the rate level to our customer base in the fourth quarter based on the fact that the market has increased significantly in terms of the purchasing rates are concerned. So we had a double army, so to say, or on one hand side, a positive note on the volume coming from e-commerce. But on the other side, we had to increase the rate level for our existing customers in a rather short time frame, which was concluded in a very positive way, I have to say, we have not lost volume by doing so, and the effect should now be seen in the first quarter.

And Marco it's Markus. On the Reds and your guesstimate of the 500, if I may say. I'd say it's not entirely unrealistic for a certain period of time. If this is expanding over a full quarter or just some months is in between. But I think it's not out of reach, if you like, from a CHF 0.50 margin perspective. But the situation is, as you can imagine, is mostly volatile. And we will have to see how at the end, it really plays out. But I would say the overall impact from an annual perspective, I think, remains rather small.

The next question comes from Jain Parash from HSBC.

If I'm to ask two. First, maybe with respect to DB Schenker acquisition and assuming that you will not be one of them. Do you see Kuehne + Nagel taking market share during perhaps the marathon phase of consolidation between whosoever the 2 players try to merge with each other. And do you see that as more volume positive, but do you see that to intensify the resi competition? And second question is with respect to impact of Red Sea on your GP per unit. Do you view changes whether the Red Sea situation ends today versus end by end of this year? Longer it lasts, does it allow you to pass through and perhaps make more profit like what we have done in COVID?

I'll take the first one. So for customers' uncertainty and potential mergers always required to have an alternative solution that we have seen that the last couple of years and decades, basically. So whatever is going to happen, there will be a certain customer base which is seeking for an alternative and that automatically will help us to increase our share. But that comes pretty much from the uncertainty and depending on who is going to buy this competitor is the share of wallet with our larger customers and do they want to split it in terms of reducing their risk position by working with 1 or 2 major players than in the marketplace. So the question is, yes, it's most probably as in the past as well, and these things happened will have a positive effect on customer gains and market share for us.

And then on the resi I think I'd just add what is the short-term impact, I think, from a GP level. But if it continues, which we obviously all do not help with us, but if it continues over, I think you suggested until year-end or so, we do see and we expect that rates are going to be moderating over time. And probably if it really expands to that time line, then it will become as a new normal, if you like. So I think over time, we should say the longer it takes, the more likely it is that rates are moderating and obviously also GP opportunities will be moderating with that. And just to mention maybe one thing, it's a total different situation on resi than it has been with COVID because I think -- you ask if there is any parallels. At the COVID time, we had really strong demand, and there was a lot of movement from sea to air. And air freight has been the only opportunity to move cargo for certain period of filing and [indiscernible] was worth and everything else. So this is a total different situation. Resi has no spillover until today from an airfreight perspective, and as I say, we expect that's going to probably normalize rather quickly.

The next question comes from Michael Foeth from Vontobel.

Two questions. The first one is just a general question in terms of implementing your strategy. In an environment where we will see probably more and more capacity in seafreight coming online with potentially pressure on freight rates, is that in any way making the implementation of your strategy towards SMEs more difficult? Or does it have no impact at all if there is more capacity available? And the second question, very easy is your CapEx was pretty high in 2023. What should we expect for 2024 and going forward?

Michael, let me take the first one. Is the capacity and what the couriers do in terms of additional capacity, ship space impacting our strategy? My answer is not at all. We have a clear strategy road map 2026, the 4 cornerstones, and it's independent basically in terms of the product mix, what the couriers do. Even more, we need to focus on SMEs where we see a higher yield impact than in the other business. So no impact on our strategy to be expected.

And the second question on CapEx, yes, 2023 has been slightly elevated. We had a larger project in Contract Logistics that started up and ramped up. I think we stick with our expectations for 2020 for still in the range between CHF 200 million and CHF 300 million.

The next question comes from Marc Zeck from Stifel.

Two questions, if I may. One on the pie charts on the seafreight. I believe the Apex volumes plus SME, they are rather low heating volumes more mark-to commodity volumes. So why you say that SME volume has increased to share, would it be fair to say that the share of low-yielding volumes is rather higher now than in 2019? And the second question would be on the '26 outlook. You're right, you didn't give us back then an EBIT figure what you said like was it 17% to 19% EBIT CAGR '19 to 2026. Given what you said about the volumes, would you still stick to that 17% to 19% EBIT CAGR corridor? Or would you adjust that lower to some extent?

The pie chart, speakers, I like them as well. You're entirely right, Apex has, by nature, by their customer base. They are SME customers on the seafreight side, but yes, they have a lower yield than, let's say, a European, U.S., KN customer on the SME side. Having said that, it's still on the SME customer section. And it has the ability, of course, for expansion of services with these customers. Our calculation, but maybe Chris can help you after the call with that as well. We can review that our calculation would not end up in a lower yield for the combined volume of Apex and KN than in 2019. Maybe we can sort it out or you can surge with Chris going afterwards. The outlook question, 2026. Clearly, we have indicated the 17% to 19% CAGR rate. I think as I mentioned before, we will remain on the qualitative targets. I think the 17% to 19% CAGR rate is with the current market environment and the volumes that the market offers to us are not realistic. We will have to see and maybe we'll give an update to that later on this year, how far we can get with the growth rate to it. Again, our focus is on the conversion rate. And I think I made a mistake. I was notified by that. I said the group conversion rate target was 20% to 25%, of course, what we communicated and what we are still pursuing is 25% to 30%. So apologies if that came into your notes beforehand, it's 25% to 30%.

The next question comes from Sebastian Vogel from UBS.

The first one would be on the restructuring cost. You mentioned that there will be some ongoing initiatives also in 2024. Does that also mean we could think about like something around CHF 50 million also impacting you on the one-off side in 2024 on the back of that one? And the second question would be on Apex. Can you remind me that if I'm not mistaking something like CHF 30 million, CHF 35 million of tailwind in that context, what was there behind? And was it all allocated to air? Or was there something also on the sea side?

So Sebastian, I take the first one. Yes, there is a clear, not yet decided, but you could potentially expect there's another one-off for cost measures coming. And as soon as we have decided we will let you know.

And on the Apex side, it's a course of business. You know that we have some different considerations for the Apex management shareholding and it's depending on performance. So if the performance is not reaching the levels of full valuation, then that gives us a benefit. Personally, I would like to -- or I would prefer that the performance always overachieves the target, and we don't have that benefit. But in 2023, it was the case that the performance remained under the threshold or under a certain threshold, but we put it that way. And from an accounting perspective, we had to adjust it.

And that all went into air?

Exactly.

The next question comes from Andy Chu from Deutsche Bank.

Two questions, please. First one is just on the 2024 as a whole. Your own company consensus is sitting at CHF 1.9 billion. I know you don't have any quantitative guidance. But could you just maybe make some comments on the view on 2024, maybe some of the building blocks. Already in the call you've mentioned that you think that quarterly EBIT is there or thereabouts, maybe in terms of a floor, but maybe ramping up bonus payments, the one-off cost or charges still to come? And then secondly, around inventory. I was a bit surprised to hear that you talked about an upswing in the marketplace in December, Jan and Feb. It feels to me like the year-on-year look is not okay in the industry because of weaker comp effects rather than an upswing. So I just wondered if you can maybe make a comment on when you potentially see maybe a larger upswing. March is probably the first important quarter for the year. I know it's just the 1st of March today, but I don't know what heavy or of visibility in terms of a potential V1 by the near term restocking of or to push you for on restocking? Is it a feature for '24 or actually, is it a feature you think for 2025?

Andy, I'll take the first one. From an operational perspective, so consensus question, from our point of view, how do we come to the full 2024 figure and expectation? We look at the operational performance, excluding the one-off Q4 at times 4 plus the savings which we have started and the additional savings, which we are going to implement into the business. And we are somehow confident that the consensus to a certain degree, can be reached.

And on the inventory, yes -- I think, Andy, you mentioned it yourself as a bit of a cash working. I think there are so many moving parts here. And without mentioning it too often, but also impact around the Red Sea with extended supply chains do change the inflow into inventory differently than it had probably been planned beforehand. And I entirely agree with you, March is going to be most likely the first indication, if anything, has changed structurally in this or if anything has changed in terms of restocking or not. We do expect a sequential improvement of volumes. That's clear. But I don't see the market going into a fast restocking and ramping up and filling up quickly. It's going to be step by step. And even more important, our strategy to maintain and keep customer volumes because the moment there is whichever magnitude of restocking, we are going to participate on that and benefit from that on a much larger customer base. So I think looking forward to that, but it's very difficult to say that what's the magnitude of it.

The next question comes from Sathish Sivakumar from Citi.

I got 2 questions here. So first on the SME volume market share, your exposure right has gone up. Could you just clarify which region where you have seen this momentum? I appreciate last year you were investing in North America into, say, North Asia actually. So any color around that? And also if you just take that market share and given your volume growth that you have seen, does it mean that you're actually seeing some pressure in your top pack-on customers in terms of volumes, like underperformance there? And if so, which vertical as such are you're seeing that pressure? And the second is around the restructuring. Obviously, you are investing in SME, and that would come with more investments in the sales stores. In terms of restructuring, where are you seeing this restructuring across the organization in terms of workforce? Is it more back office driven by, say, productivity gains that you're making or even other sales force and some regions you are seeing pressure on volumes that has actually impacted restructuring as the…

Let me take the first 2. Where have we seen the SME volume growth, and this is particularly in 2 regions, Asia, Europe, Asia, North America, less Europe, Asia for good reasons. So on the power lanes, we see the largest growth in terms of market share and development in terms of SME growth is concerned. The second question is pressure from top customers and volume development on top customers or larger ones, the blue ships. There is almost no vertical which has grown in 2023 apart from aerospace and this sector but aerospace was suffering the most during the pandemic '21 and '22 for good reasons. So it's particularly the large consumer brands, where you have seen that the end cost of demand had an immediate impact on their volumes. This is easing up a little bit, but you see that across the board. Almost all verticals have seen a decline and there is only one sector, as I mentioned, which has seen an increase in volumes, and that was aerospace.

And Sathish, on the restructuring, I think the simple answer is absolutely across the board. It's operational workforce we talk about. It is managerial workforce and a good for, I would call it, so 30% to 40%, somewhere in that range on the back office, including some sales force, of course, that is more on the side of the low-performing part rather than structural changes. But I would call it maybe a 60-40 share between back office sales and operational workforce and operational matter.

Can I just have a quick follow-up on that top account customers where you said the volumes have been down across the board. Does that mean that your wallet share exposure to them has actually come down versus 2019? Or it's just year-on-year, you've seen some drop in wallet share?

No, Sathish, I think we talked about the general down trading rather than losing the share of wallet with customers. Again, other than some of the commodity customers, I would call, but other than these ones -- I don't want to say we haven't lost any customers, we did, but it would be noticeable in that context. So it's really a contraction of the volumes. As Stefan mentioned, there's really only 2 areas that are growing, that's aerospace and health care. And that's it. Everything else, we don't lose market share. We don't lose share of volume and it's really the overall market.

The last question for today's call comes from Nikolas Mauder from Kepler Cheuvreux.

Two questions, please. First one, during the prepared remarks, I heard that customs brokerage demand is driven by near shoring. That probably means that the production is not moving into Customs Union, but rather spread across Asia and other countries. How much longer can this trend run? And how would this customers' brokerage business be impacted if the U.S. elected a President later in the year that is fund of raising tariffs? And secondly, if I read the Slide 17 on the Air Logistics split correctly, Apex now looks more similar to KN legacy in terms of yields. Is this the normal level? Or should Apex be structurally higher than KN legacy?

Nikolas, I take the first one, the customs brokerage. And when I was mentioning customs brokerage nearshoring Farrow. So Farrow is a company in the North American marketplace, active at 2 borders, the North border between U.S. and Canada and the South border between Mexico and the U.S. And when I was talking about nearshoring, is everything what you see now coming in from the Biden administration, trying to basically leverage Mexico more as the workbench than some of the Asian countries. And that's the reason why we believe, in particular in the North American market, this acquisition makes more than sense in order to leverage the growth, which is expected from the nearshoring initiative and on the trade lane growth between Mexico and vice versa.

On Apex, the answer is it's neither structurally higher or lower, it's more volatile than the KN legacy operational business. The KN legacy business is a relatively stable business that has certain elements how to improve yield management and other works. Apex, you remember we were particularly attracted by their way of getting access to capacity and selling capacity. So when the markets are tight, they are going to be structurally at that moment, if that exists. But at that moment, they will be more profitable than the KN legacy business. On the other hand, ramp, if there is overcapacity in the market, they might be a bit more vulnerable than the KN legacy business. So that's really how the Apex business model works.

That was the last question. I give the call back over to you for closing comments.

Thank you very much for your questions for listening in and wish you a remaining good day, and talk to you soon.

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