Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kuehne + Nagel International AG (KHNGF, Financial) achieved a Q2 EBIT result of CHF402 million, improving from CHF376 million in Q1.
- The company expects stronger group profits in the second half of the year due to higher seafreight yields and an anticipated airfreight peak season.
- Sea Logistics saw a significant EBIT improvement from CHF107 million in Q1 to CHF200 million in Q2.
- Air Logistics delivered a solid EBIT of CHF160 million in Q2, up from CHF94 million in Q1.
- Contract Logistics generated a stable EBIT result of CHF50 million in Q2, with gross profit growth accelerating to 8% year-on-year.
Negative Points
- Sea Logistics' year-on-year volume development was down 1% in Q2, reflecting a challenging market environment.
- Recurring operating expenses in Air Logistics increased by 3% in Q2 due to inflationary pressures.
- Road Logistics experienced soft demand in core European and North American markets, impacting GP growth.
- The acquisition of Malaysia Bay City Zone Express faced delays in regulatory approval, now expected to close in Q3.
- Net working capital expanded due to a sharp rise in seafreight rates, impacting free cash flow generation.
Q & A Highlights
Q: How are you thinking about the third quarter, the gross profit per TEU by between poor congestion, strike threats and equipment shortages? How significant could that uplift be?
A: We believe it will be significantly above the 500 range, but it's too early to judge exactly. We have achieved good utilization with our customers, especially the large ones, despite the SME customer base on agreements a couple of weeks ago.
Q: Can you give more color on the airfreight peak season outlook and how volumes and yields might develop?
A: We expect the gross profit margin to go up slightly in Q3 and even more in Q4. Volumes were up 7% in Q2 and are expected to continue growing into Q3 and Q4. This is due to improvements in yield and increased volumes.
Q: Why did the restructuring costs come in lower than originally guided? Are there more costs to come?
A: We initially planned for a larger cost reduction in a declining market environment. However, with an improving volume outlook for the second half of 2024, we held back on some sales management reductions to benefit from the upswing. Hence, restructuring costs were lower, and the cost-saving target is now CHF100 million, considering inflation.
Q: Can you discuss the current customer pipeline in contract logistics and how we should think about margins in the back half of the year?
A: The pipeline is considerable, with a focus on healthcare and complex solutions. We expect improvements in conversion rates in 2025, driven by projects like the Adidas facility. The sales process is longer, but we are well-positioned for higher-yielding business.
Q: What are the benefits you have seen from the new reporting structure?
A: The new structure has improved execution speed and customer service. For example, we renegotiated rates with key accounts efficiently, proving the effectiveness of the new setup.
Q: Why has airfreight seen better productivity gains versus sea logistics?
A: We started with airfreight digitalization earlier, leading to accumulated savings. Seafreight has a larger operation, so it has more potential for future improvements.
Q: Can you provide more details on the Apex performance and its visibility?
A: Apex capacity for Q3 and Q4 is already 70% sold, with room to adjust rates weekly. This model becomes more successful as the market tightens, and we expect a good peak season in Q4.
Q: What is your base case for international freight rate development in the second half of the year?
A: We expect an uplift in GP per TEU margin development moving into Q3, continuing into Q4. Rates on major lanes like Asia to Europe and Asia to the US are expected to remain stable, with no major changes anticipated.
Q: How should we think about net working capital for the rest of the year?
A: We anticipate stable net working capital, allowing for a certain reduction in freight rates offset by additional volume. If rates drop significantly, receivables will convert to cash, improving cash flow.
Q: Can you provide a run rate for GP per TEU in July and a range for what "significantly above CHF500 million per TEU" means?
A: While we don't give exact figures, we can say it will be higher than CHF500 million, potentially above CHF550 million. The invoicing process in July supports this outlook.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
