Ladies and gentlemen, welcome to the Kuehne+Nagel Management AG Full Year 2025 Results Conference Call and Live Webcast. I am Moira, the call's call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. 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, Moira, and good afternoon and welcome to the presentation of Kuehne+Nagel's Full Year 2025 financial results. I'm CEO Stefan Paul, joined once again by our CFO, Markus Blanka-Graff, and a guest speaker, Chief AI and Innovation Officer, Alireza Nemati. Let's go to page number two, full year result. First of all, I would like to thank our customers for their trust and our colleagues for their commitment as we reinforced our number one position in sea and air freight globally. In the fourth quarter of 2025, we continued to expand our market share in air logistics and further improved our share of SME business and sea logistics. This contributed to stabilization of yields quarter-over-quarter. We achieved these results despite weak demand and overcapacity.
On a full year basis, underlying group EBIT declined by 14%, primarily due to yield pressure in sea logistics in the second and the third quarter. Group EPS declined by 25% year-over-year or 15% excluding non-recurring items and a currency headwind of 3%. The combined sea and air conversion rate was at 28%, excluding non-recurring items. The consolidation of IMC reduced the combined conversion rate by about 1 percentage point. The improving free cash flow conversion trend continued into the year-end with 147% in Q4 alone, the strongest result since 2022. Free cash conversion on a full year basis was 86%. Finally, in October, we announced measures to reduce operating costs by at least CHF 200 million.
We reaffirm that target and now confirm that we implemented all necessary measures prior to year-end 2025. As usual, Markus will provide you with more details shortly. First, let's review our performance by business unit. Let's go to page number three, Sea Logistics. As always, volume in TEU on the left hand, GP per TEU in CHF, and EBIT per TEU in CHF as well. In Sea Logistics, yields stabilized after a period of pressure. We continued to expand our SME market share against a softening market backdrop in our core trade lanes. Sea Logistics volume in 2025 was flat year-over-year. In Q4 alone, volume declined by 2% year-over-year versus a strong year ago comp supported by front-loading to the U.S. Thus far, this was the best result reported amongst our forwarding peer group.
On a quarter-over-quarter basis, the Q4 result was in line with historical seasonality. European import volumes were strong. In contrast, volume was weakest on the Transpac, where we are a market leader. We are targeting growth by intensifying our sales efforts across numerous trades, including China-controlled export volumes, complementing our larger European U.S.-led import business. Average yields stabilized in Q4 after two consecutive quarters of pressure. This stabilization is clearly evident in the middle chart, where the average yields ticked up by 1% quarter-on-quarter in Q4 after pressure in the second and third quarters. Yield have remained stable into early part of this year.
Over the coming quarters, we do not foresee a similar degree of yield pressure as we saw in the second and third quarter, 2025, a period when rates and yields came under pressure due to a number of factors, such as new build deliveries, normalization of the Cape of Good Hope routing, the impacts of Liberation Day on U.S. demand, and a sharp decline of the US dollar. The Q4 EBIT was CHF 59 million or CHF 106 million, excluding non-recurring items. Quarter-on-quarter, this resulted in a broadly stable recurring EBIT per TU. The underlying Sea Logistics conversion rate stands at 23% in Q4 or 25% on an organic basis. Next is Air Logistics on page number four.
As always, again, volume on the left hand, GP per 100 kg, and then on the right side, EBIT per 100 kg in CHF. In Air Logistics, our strong market share expansion continued. Volume grew by 7% in Q4, which is in line with the pace for the full year, and once again, well ahead of estimated 4%-5% market growth. Market share gains were centered in the hyperscaler sector, alongside healthcare and aerospace. Average air yield, yields increased by 8% quarter-over-quarter into the Q4 peak season. This reflected a seasonal uplift in Transpacific trades, as well as slower relative growth of lower-yielding perishable volumes. Unit cost ticked down by 1% from the 3rd to the 4th quarter. Absolute operating costs increased by 5% quarter-over-quarter, but volume grew faster QoQ with 6%.
This resulted in a Q4 EBIT of CHF 107 million, or CHF 132 million, excluding non-recurring items related to the cost reduction program. This translates to a recurring air logistics conversion rate of 29%. Next is the view on Road Logistics, page number five. In Road Logistics, we see signs of demand recovery in Europe, as well as ongoing strong demand for customs clearance. We achieved net turnover growth of 6% in Q4, excluding currency effects. This is significantly stronger than the 4% growth for the full year. This growth may mark an inflection point for shipment demand in what has been a weak European road market. At the same time, demand growth for custom solutions has been consistently strong since the emerge of tariff uncertainty in Q2.
Excluding non-recurring items related to the cost reduction program, Road Logistics delivered EBIT of CHF 19 million in Q4, reversing the year-over-year 9% decline in Q3 and nearly doubling last year's result. The recurring conversion rate of 6% in Q4 was in line with Q3 and double the level of last year. Let's move to page number six, Contract Logistics. In Contract Logistics, a steady growth momentum drives another record result. Contract Logistics produced EBIT of CHF 78 million in Q4, excluding non-recurring items related to the cost reduction program. That is the strongest quarterly result ever and reflects 20% year-over-year EBIT growth or 23% excluding currency effects. Net turnover grew by 5% year-over-year in Q4 on a constant currency basis, in line with the growth over the previous three quarters.
We saw continued market share gains centered in the healthcare and hyperscaler sectors. The recurring conversion rate of 8% in Q4 is also a record, improving on the rate of 7% both last year and most recently in the third quarter. With the fourth quarter result, the rolling last 12 months ROCE for Contract Logistics is stable at a level of 25%. This concludes my comments on the performance of the business units. I would now like to turn to a strategy update, including a closer look at our AI efforts. Page number seven. Now I would like to briefly touch upon key developments and targets for each of our four strategic cornerstones. Starting with the market potential, we now have a strong foothold in attractive markets such as semicon and hyperscalers, as our results over the past few quarters show.
We remain confident on our capabilities to increase market share building upon our strong momentum. This is also true for customs, where we aim to scale rapidly and globally on this solid foundation. Similarly, we aim to scale our suite of sustainable offerings and make even more progress in boosting customer satisfaction. I would now like to spend a bit more time on the fourth cornerstone, digital ecosystem. We completed the migration of our powerful in-house transport management system to the cloud. Now we are building a flexible architecture to accelerate AI deployment at scale and expect a material impact to emerge within the next 18 months. Let me now hand over to Alireza Nemati, our Chief AI and Innovation Officer, who will provide more details on how we will expand our technology leadership in our sector, including the full deployment of AI. Welcome, Alireza. The floor is yours.
Thank you, Stefan. As part of our roadmap 2026, we have successfully migrated our in-house transportation management system and our key legacy systems to the cloud. Today, every order to cash transaction, it runs through that cloud, supported entirely by our own software stack. This independent platform is the foundation of our AI stack, strengthening our market position in the most practical way. By offering superior customer experience and productivity every time customers interact with us.
Our confidence in successfully leveraging AI is based on four structural advantages we are executing against with urgency. Allow me to walk you through each of them on this slide. First, our proprietary IT platform. We control our own destiny because we have an independent cloud-based proprietary IT platform built and operated on the back of our internal technical and engineering skills. This allows us to innovate and scale without depending on third parties.
We will remain a leader in these areas because technology has always been the core of our success. As the AI landscape evolves to integrate text, image, video, and audio, we will evolve with it on our own terms. As such, our AI journeys are complicated by the need to consult in multiple TMS systems or migrate to other systems, challenges that a number of our competitors are navigating. However, as we assume with time, many of our peers may succeed in moving towards a position like ours, and therefore we must leverage our advantage while we have it and maintain our lead. Second, the data. We control large proprietary data streams that power our platform and provide context for every AI-driven decision. We have applied AI to cleanse and standardize master customer data in weeks rather than months, materially accelerating data readiness.
At the same time, we are converting tribal expertise into structured, reusable institutional intelligence, ensuring that the judgment of our best operators becomes scalable across the organization. More than 10,000 employees access this consolidated intelligence each month through our internal AI knowledge platform, embedding it directly into daily workflows. Both elements, the clean master data and digitizing of our tribal knowledge, are prerequisite to fully exploit AI.
Lastly, our workflow and people. We are in the midst of further centralizing, standardizing, and automating repetitive workflows to maximize AI's ROI. A credit to effective change management. To drive AI adoption, we have formed an AI board consisting of global IT and the business and function units. This setup ensures that AI remains a high-priority group initiative at Kuehne+Nagel, not an isolated one. You can already see that initial impact of our AI efforts in customer-facing processes.
In air logistics, our AI-powered pricing tool delivers quotes twice as fast as before, improving responsiveness and quote capacity. In sea logistics, AI is embedded into myKN, reducing booking time from minutes to seconds and lowering human errors at the same time. In customs, AI-driven automation is re-reducing handling time per declaration, improving service levels, and delivering meaningful cost savings.
In contract logistics, machine learning for dynamic workforce planning is showing double-digit productivity gains in pilot sets. These positive results only scratch the surface, and it's a big surface. We see more upside on the horizon as these solutions are fully deployed across our global operations and as a host of other AI development projects are implemented. We expect our efforts to yield material AI-related productivity gains over the next 18 months.
At present, it is too soon to provide you with a specific quantified productivity estimate, but we will provide more clarity over the coming quarters. To reiterate, we're not stopping with a handful of examples I just mentioned. We are already rethinking how logistics can become faster, more predictable, and more responsive by embedding AI into each operational decision with a priority on the largest ROI opportunities. Doing so will expand the scope of further improvements with every customer interaction.
We see AI as a flywheel. Every transaction improves our AI platform. Every improvement enhances our customer experience, and every better experience drives more transactions. AI is the foundation of an evolving operating model at Kuehne+Nagel that can continuously compound value. I'm more than happy to answer your questions in the Q&A section. For now, allow me to hand over to Markus.
Thank you, Alireza, and good afternoon, everyone. Thank you once again for your interest in Kuehne+Nagel and taking the time today to review our latest financial results. Looking at the income statement for the full year 2025, one can see very clearly an abrupt slowdown of the global business environment after Liberation Day in April, amplified by the drop in US dollar value versus the Swiss franc. Looking at the income statement for the most recent quarter, it is important to call out non-recurring effects, most notably a positive CHF 72 million effect on GP from an IMC accounting reclassification effect versus direct expenses with no effect on earnings before tax. A net drag of CHF 122 million at EBIT, chiefly due to provisions related to the cost reduction program.
Excluding these effects, we see that underlying gross profit increased by CHF 90 million and EBIT by CHF 50 million quarter-over-quarter from Q3 to Q4. The seasonal uplift of air logistics volumes and yields were the largest driver of our growth. I will revisit this theme shortly in the context of our working capital development. First, let's have a look at the progress of our cost reduction program. Let me re-emphasize, these measures are designed in a way not to impede our ability to grow in line with the strategy we have communicated. As Stefan has mentioned at the start of the call, we have completed the implementation of our cost reduction program, and we reaffirm targeted annual gross savings of at least CHF 200 million. That said, the composition of savings has evolved since we first presented the plan in late October.
Here you can see that a greater proportion of savings is now linked to FTE reduction. This means that an even greater majority of targeted savings are structural rather than variable. We still expect to achieve the full run rate by year-end 2026. Lastly, we do not anticipate any significant additional one-off cost, although we cannot rule out relatively smaller amounts being recorded in 2026. We will inform if and when these will be recorded. Let us now have a look at the working capital development and how it has been impacted by the transformation of the business responding to the macroeconomic changes.
We can see an increase of the net working capital intensity to 5.2% at the close of the fourth quarter, versus 5.1% at the end of the third quarter and 4.4% at the end of 2024. Whilst DSO remains stable over the last quarters, DPO have improved from Q3 to Q4. Compared to 2024, both DSO and DPO came under pressure, whereby the spread between has been similar in 2025 compared to 2024. This and the volume growth contributed to an 8% year-over-year increase in the net working capital.
Due to over proportionate increase of air freight charter business for cloud infrastructure customers that we started to enjoy over the last two quarters, 2025, we will adjust the net working capital intensity corridor to 4.5%-5.5%. What does that mean for our free cash flow generation? In Q4, we produced CHF 396 million of free cash flow, or a conversion rate of 147% versus 93% last year. Let me just, for better illustration, move on to the next slide. In Q4, overall net working capital generated a net positive inflow of CHF 13 million, despite an expansion of our core net working capital. Free cash flow of CHF 396 million was generated. This against a value of CHF 306 in the fourth quarter 2024.
That all resulted in a significantly improved fourth quarter cash conversion of 147%, which compares to the 93% last year, which is above the historical average for a fourth quarter that you can see on this slide. We do expect the strong free cash flow generation along the usual seasonal pattern to continue also in 2026. Based on the strong development, the Supervisory Board has decided to propose a dividend distribution of CHF 6 per share to the annual general meeting on May 6th, 2026. It reflects our healthy profitability, well-managed cash conversion, and our success in balancing future cash needs for adapting the workforce for the markets, investing into AI solutions, as well as supporting our ambitions for growth.
Turning to the financial guidance for 2026, we expect recurrent group EBIT in the range of CHF 1.2 billion-CHF 1.4 billion. In terms of expectations for recurring EBIT in Q1, note that it is typically a weaker relative to the seasonal peak in the second half. In the current quarter, we expect a result comparable to that of the third quarter 2025. As an additional information, we expect already now a further 5% pressure on currency translation due to the US dollar depreciation 2026 versus 2025. Looking forward, our expected effective tax rate for 2026 remains approximately 25%. Our underlying core guidance assumptions include global GDP will grow, but with persistent uncertainty across geopolitics, macroeconomics policies and trade. Base case, global sea and air freight volume demand growing no faster than the GDP.
Our own cost reduction program is on track, and we will expect more than CHF 200 of gross savings. The savings will ramp up over the course of 2026, with an estimated impact of net CHF 100 million in the current year. With this, I would now like to close our presentation with a summary of key takeaways. Our focus remains on market-beating growth in targeted, attractive sectors. Yield pressure moderated in the most recent quarter, a trend which has continued into the early part of 2026. Our cost reduction program is on track, fully implemented, with savings to ramp up over the course of 2026. We have a strong foundation to achieve AI productivity gains and project material tractions from 2027 onwards. Lastly, we introduce our 2026 recurring EBIT guidance of CHF 1.2 billion-CHF 1.4 billion.
With this, I want to thank you for your attention and hand back to the operator to open the Q&A session. Just one more housekeeping information. We will move the analyst call for the first quarter 2026 by one day to Friday, April 24th. Please take note of this. Back to the operator.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. The first question comes from the line of James Hollins from BNP Paribas. Please go ahead.
Yeah, thanks very much. Two from me, please. Excuse me. I was wondering if Stefan, you might want to run us through your reaction to, I guess, the share price today, sort of general fears that we had last month on Open Mercato algorithm. How you would, I guess, give your own opinion on the sort of fears around AI disruption or on the benefit to the general forwarding model, whether you're quite passionate about it or whether it's something you're sort of looking at seriously. The second one, you know, GPPT trends sequentially into Q1. I think you noted C was stable. Clearly Q o Q, Q3 into Q4 last year, you were well ahead of your competitors. Well done there. I just wonder if you could give a bit more detail on how you're seeing things in Q1. Thanks very much.
Yeah. James, thank you very much. Stefan speaking. The glass is always half full, right? I see AI as an opportunity for us, right? As Alireza mentioned it's based on the proprietary IT platform as well on our capability to clean our own data and to the workflow ownership based on the fact that we have our own TMS landscape. That's the first thing. If you remember what we have done in 2024, where we have started to dismantle the regions, right? That was as well something which is helping us now, 'cause now we have the business units, the products pretty much driving the process. Process stability and a certain process reliability on a global basis is the prerequisite for AI.
Overall, I see it rather positive for us 'cause we have all the ingredients now with Alireza and the team, we are pretty sure that we can create certain value. We have mentioned a couple of times that we see productivity gains coming our way in the next 18 months. The other question or the other part of the question was with the algorithm and everything what we have seen in the white paper coming up two or three weeks ago and the reaction from the marketplace, I think this reaction will continue. The question is there substance behind this? Is the first question.
The second question is, we have seen it already a couple of years from now when there was a wave which we call digital forwarders, and everybody was in the belief, five, six, seven years ago, that the digital forwarder industry will be able to disrupt the old economy, so to say. The result is pretty clear. I think AI, and we should not forget, right? A pallet is not talking. A pallet has no voice other than our label, right? At the end of the day, it's a combination of infrastructure, people and the knowledge of people, and then backed up and supported by AI. Overall, my take is we see it as an opportunity and not as a threat.
On the other side, we need to really march ahead, and we need to be quick in adopting and executing our AI strategy.
James, maybe for me for the second question on the gross profit per TU. Correct observation, Q3, Q4, stable gross profit per TU. As far as we may tell at the current stage, also into the first quarter, broadly stable, at least what we have seen over the first two months.
Okay, thanks very much.
The next question comes from the line of Alexia Dogani from JP Morgan. Please go ahead.
Yeah. Good afternoon. Thank you for taking my questions. Just firstly, net debt to EBITDA, I believe, is now 1.5 x. Is that the level you want to sustain, or do you want to actively bring down? Secondly, if we look at the fourth quarter performance, it was really very strongly driven by the air freight peak. When we look at the seasonally adjusted kind of profitability level, is it fair to look at the 3Q as a kind of starting point for the year, before with next year's peak season? Thank you.
Alexia, Stefan speaking. I take the first one. We still stick to the 1.5% growth aspiration in the interaction of business units. Let me reiterate or go a little bit more into the details. In air freight, we have achieved that already now. The last couple of quarters fully result with 7%, and I think this is pretty much in line with our promise we made during the capital markets day back in March. We do not see any change in the pattern the first two months, and as well, the pipeline is very strong. I strongly believe that we can continue with the growth pattern which we have seen the last couple of quarters. A clear tick in air freight.
We all know that in sea freight, we need to become a bit better in terms of the volume growth aspiration is concerned, despite of the fact that we have been done quite well in comparison to our peers. Nevertheless, we will stick to it. I said couple of minutes ago that we will strengthen and foster our sales efforts out of China with a prepaid business. There are a lot of new commerce in the marketplace, in terms of customers are deciding on the Chinese prepaid market, where we can leverage even more. In road, I think we have seen the tipping point. February so far has seen quite nice growth. Single digits still, but no decline anymore.
I believe in road, if that is going to continue, including the customs brokerage agenda, we have a fair chance to deliver as promised, in air, and in road, and see we do the utmost in order to keep our promise as well.
Alexia, maybe for the second question, on the, let's say, starting level, I think we have mentioned that for us the Q3 is a good starting point. Yes, the air freight peak has happened in the fourth quarter. I have to say, which is also a seasonal pattern that we have seen for many, many years. We have not been used to it anymore because for some years that hasn't been the case, but that is how it is usually. More importantly, we have a very strong volume growth and the volume growth pattern is still intact. I would expect fourth quarter and also volume growth to continue into the first quarter on the air freight side.
Not to forget, for 2026, we should see, and we do in the first two months clearly, that cost savings are ramping up, so that's gonna support certainly the results in 2026. Contract logistics has been a very strong contributor in the fourth quarter as well. I think there are various elements that play together into the starting point, the starting point being Q3 2025 to, let's say a good development into 2026.
Thank you both. Just to clarify, because I think my first question was slightly misunderstood, but Stefan, your comments on growth were very helpful. I meant financial leverage of the group is now at 1.5 x net debt to EBITDA. Are you comfortable with this level and should be expected to be maintained or will you actively reduce it?
Okay. Sorry, Alexia, that was my mistake. I understood something about growth the 1.5x .
Don't worry.
At least we have already answered a question which probably would have come up later in the call.
Yeah.
Leverage. Yes, we are comfortable at the current situation with 1.5 x leverage. You will see we have a couple of ideas how to refinance the current situation in a proper way so that we are gonna reduce a little bit on the interest cost as well. Yes, that's the current situation. Clearly, and you know that we over time, and I'm not saying this is 2026, but it's a longer time that we're looking at. We would prefer to come back to a situation that brings us closer to a net cash position. For the time being.
Great. Thank you.
We're fine where we are.
Thank you.
The next question comes from the line of Alex Irving from Bernstein. Please go ahead.
Good afternoon. Thanks for taking the questions. I have two on AI, please. First of all, I hear the argument about you've got the good proprietary CMS, you've got clean data, you've got what clear ownership, you've got all the ingredients to reduce cost in AI.
How do you feel about change management? Do you have the right skill sets, or are the risks you worry about in actually implementing AI, and how are you seeking to limit those? Second question also on AI. Let's say you're able to achieve cost reduction. To what extent do you expect to be able to hold onto those cost savings in higher margins? Is the aim here to use this to price more competitively and to grow volumes faster? Thank you.
Hi, Alex. Stefan, I take the first part of the question or the first, the question, change management, right? I think this is one of the most crucial questions and most crucial topics and aspects when it comes to AI deployment and execution. I think Alireza mentioned that we have already 10,000 people working with our internal AI stack. That's the first prerequisite. The second one is that you need to train, educate, and coach your people, right? We all know in a couple of years from now, middle management and leadership is both managing human beings alongside with digital agents. None of us, I would say, has a good experience about how do you manage a digital agent, right?
A digital agent can execute 25,000 activities in a certain timeframe, but you need to manage the activities. You need to manage the agent as well. Here it comes about, everything comes about change management, education, coaching, as I mentioned before. You need to invest, and we will invest this year quite a lot into our people, into the entire organization. How to leverage, how to work, how to understand AI, and what needs to be done from a leadership perspective. I believe that Alireza would like to conclude and add a little bit on that as well. Alireza, please.
I think also what is. Thank you, Stefan. I think what's also important is we will not just deploy AI for the sake of AI. We will work together with our people to identify where we can utilize AI to streamline repetitive work, to free up time for them to focus on what matters, closer customer relationship, expectation management. That's one angle of it. A second angle of it is that we have dedicated tiger teams that work together with the business and functional unit to really identify what are the challenges that the people are facing on the ground, that we can then utilize AI to solve that. On top of what Stefan just said, the technical aspect is working closer with people and really understanding how we can utilize technology to solve the problems.
Alex, to your second part of the question, let's say on the cost reduction and how it's gonna be remaining or allocating or ultimately transitioning to the customer. I think it's reasonable at least to assume that a certain portion of productivity gains will be shared with customers, right? But not all. I think what is even more important is that fact that you can create productivity gains and capitalize on it is only true for the largest and the well-resourced forwarders. Yeah.
Because when we look into much smaller units, that will become insignificant, if at all, you know, reachable due to standardization, data quality and all the stacks that we have seen that Alireza has been talking about. For me, it's not so much how much can we keep. For me, it's how much can we generate versus our competitors that are eventually not able to generate any.
All right. Thank you for the detail.
The next question comes from the line of Muneeba Kayani from Bank of America. Please go ahead.
Good afternoon, thanks for taking my questions. First one on AI, just following on from your comments right now. Like, what is proprietary about your in-house IT stack? Like, why can't it be replicated by other forwarders using third-party softwares? We've seen, you know, Descartes, Magaya, all of these coming up. Like, is there something really differentiated about your tech stack that allows you to have more cost savings that others cannot replicate? Is kind of the first question on AI.
Secondly, just on the guidance for 2026 and the EBIT range of CHF 1.2 billion-CHF 1.4 billion, can you talk about how you thought about that range? Like, what are the scenarios on volumes and yields at the low and the top end of that range? You talked about the stable yields trend. Is that kind of the midpoint is what you're talking about? Just some clarity on that would be helpful. Thank you.
I will take the first question. What the difference is, towards the third re-relying on third party, data stack is the following. The first one is giving that we own our own TMS, we have full control of the end-to-end processes, meaning that instead of individually improving in independent use cases, you can exactly integrate end to end and really make a big impact on improving the entire workflow.
You can only do that if you own your own TMS. If you're not, you have to negotiate with third parties on the improvements of their stack. That's the first element. The second element of that is with owning their own TMS, we are capable of controlling and centralizing our own data. One of the biggest challenge in this space is to really harness and centralize the data that you have, cleanse that data, and use that data to to feed your AI models. By being able of having our own TMS in the cloud, having our own proprietary data, we can now start to centralize and standardize workflows on top of it, which gives us an advantage compared to the others.
Excellent. Thank you. For the question around guidance, let me just reflect a little bit on our presentation, page number 16. I think the four major elements that are out there, we have listed our assumptions around global GDP, a market demand on the sea and air freight side, and obviously the expectations around cost reduction, as well as what we know today, on the potential translation impact, because obviously that's always a different question. If you were to look for more detailed information on gross profit per TEU or 100 kg or so, I would politely ask you to get in touch with Chris on the IR side he can share a bit more details than I would like to do here on the, on the larger call. Thank you.
The next question comes from the line of Jason Seidl from TD Cowen. Please go ahead.
Thank you, operator. Good morning, everyone, and good afternoon over there. I'm gonna switch it up a little bit away from AI. You know, your small businesses, accounted for about half of your sea logistics volumes. Can you touch a little bit on the margin profile differential with this group, and if you think this is the desired mix, or should we expect to see further penetration in that market? For my second question, recently, a CEO of another forwarder mentioned, I think in a post, that about 18% of the air freight capacity was being grounded due to the conflict in the Middle East. I guess, one, do you expect this to continue? And two, what near-term impacts do you expect this to have on this air business?
Yeah. Jason, thank you very much. I was the guy who was talking about the 18% this morning most probably, right? What you see is I take on the second one first. What you see is now with the Middle East crisis is that 80% of the air freight capacity in belly and charter is grounded for the time being. What the impact is that most probably the next, let's say, week or so, by end of the week, beginning of next week, we will see most probably certain backlogs arising in Southeast Asia and in China for the European and the U.S. marketplace. Then the question is, what is happening on the demand side, on the customer side? 'Cause there is a mismatch most probably then coming similar to the COVID times on supply and demand.
Our aim is to help as much as we can to put additional capacity for these 18%, directly in charter capacity from the various origins into the destinations, right? It's too early to say what the impact will be, 'cause we are only three or four days into the situation. The likelihood that this is changing the demand and supply situation is rather high, and this is on the horizon for the next couple of days, and we are monitoring the situation extremely closely. On the SME side, on the SME side, it's 50%. We mentioned it now. We are really getting traction on the SME side.
I think it's, we said it a couple of times, profitability is 1.6 x roughly. I would like to give a little bit more color in terms of what is happening. We are growing with our SME business or with our own controlled business quite nicely, in, let's call it everything outside of the U.S. If you look into the trading pattern for the first two months, we have seen, single-digit uplift in terms of volume, but at the same time, roughly 10%, 12% lower volumes into the U.S. marketplace. As one of the key or as the market leader into the transpac, that means, two-fold for us.
First of all, we have a significant upside potential for the later of this year, as soon as the market bounces back. It as well underpins what I have said before, that focusing on SME with our own Blue Anchor Line activities is paying off, outside of the U.S. marketplace. That hopefully gives you a little bit more color on the situation in sea freight.
It does. I appreciate the time as always.
Thank you.
The next question comes from the line of Marco Limite from Barclays. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. I've got two, which are follow-ups to some of the topics that have been already discussed. AI, you have been talking about expectation of improvements over the next 18 months. Can you confirm if you expect any AI benefit in 2026 or that is gonna be all 2027, so back-end loaded in the, let's say, 18 months you were mentioning? In the context of that, you are not changing the CHF 200 million gross cost savings guidance, but you're actually changing a bit the drivers of those cost savings with quite a few more FTE reduction versus the previous guidance.
Just wondering whether that higher FD reduction is actually driven by AI, and yeah. This is the first question. The second question, just to follow up on your guidance. What extent, let's say Iran-related, scenarios are reflected into the guidance or, I mean, Iran is just too fresh and therefore is not included at all in your guidance? Thank you.
Hey, Marco. Markus, well, I think these two questions, they're broadly, you know, in one bucket. I think from a guidance perspective, indeed, the most recent development had not been accounted for. As we said, we have taken some assumptions around currencies and markets. If this is now changing dramatically through the event, then obviously we will have to look deeper into it. It's too early, really, to make any conclusion out of this. From an AI perspective, you're right to assume that for 2026 we have not factored any material productivity gains yet. As AI is AI, right? Sometimes you see phenomenal results sooner than what you thought. For the time being, we would like to stay on the safe side and say for 2026, we're, not expecting and not factoring any productivity gains into it.
Okay. Thank you. Just a quick one, which is a bit more technical. You had under CHF 22 million of one-off cost in Q4. Just wondering whether those are, cash costs, and if yes, are cash costs for 2025 or will be, ahead in 2026. Thank you.
The vast majority of cash out will be in 2026.
Thank you.
The next question comes from the line of Patrick Creuset from Goldman Sachs. Please go ahead.
Hi, Stefan, Markus. My first question is just to get a better sense of the overall ambition here on conversion margins in RNC. I think, you know, when you look at the starting point in the second half of 2025, you're basically at a 20-year low, I think, on RNC conversion margins. I think you've, you know, you've highlighted the productivity upside from rolling out AI tools. I think overall when we, when we put those together, I mean, is the idea to go back to, let's say, historic average conversion margins somewhere in the 30% range? Do you think that, so basically the ambition without guiding that, you know, when we look at this in a few years time, you could be materially higher?
Hi, Patrick, it's Markus. twofold as an answer, I think. When we look into the operational results, so backing out the $122 million obviously for the first quarter, as a one-off cost, right? We're currently trading at a conversion rate in the fourth quarter just to get our starting point right, 23%. For the full year 2025, it was 29%. We're trading in air freight around 28%-29% the full year 2026. Not to forget, at the same time, we are not only on the historic low, as you said, on some of the quarters conversion rate, we're also on a historic low for the US dollar. That certainly had an impact for us as well.
Recognizing that US dollar translation not only impacts the gross profit but also the cost, I'm fully aware of that, but since sea freight is for the U.S. dollar denominated and not all of our costs are in US dollar denominated, there is a gap that is significant. Not as an excuse, just as an explanation. Going forward, clearly automation, standardization, AI, they are just three drivers, I think, of our productivity going forward. One single one doesn't work. Now we have to get also standardization at the forefront, including the change management that will realize these or materialize these cost savings. To answer your question simply, we stick with our 35% conversion ambition that is collective or together sea and air freight.
Okay. Thanks. Your point on change management leads to my second question. You know, I think it's pretty clear you're from the tech stack, you're well positioned here conceptually to extract a lot of productivity gains. In terms of how you would suggest we directionally model this, would we, basically as you, as your people become more productive, would you say that we go back to the growth algorithm, let's say that one would have known from Kuehne 10, 15 years ago, where you have substantially higher volume growth in the market on a stable-ish cost base or FTE base, and that's the way you get the margins and result up? Would you say that if the volume environment remains weaker, then we could see continued absolute cost out further rounds of what you've done in the fourth quarter?
Overall, if I could wish for, right, I would go for the first of course, right? Significant more volume in both sea and air, road and contract logistics, with the same amount of cost position or with the same manpower. I think the world is not perfect, and you might see in certain areas that we can do exactly that, and in other areas we need to adjust our cost base, right? It will be most probably a combination, but in a perfect scenario, we add significant volume with the same amount of cost and manpower.
Do you see this as sort of a bit more of the same sort of thinking back to eTouch and kind of standard digitization where you have a couple of percent productivity growth? Or do you see a step change to something that could be more mid to high single-digit productivity pace?
I think it comes back a little bit to this eTouch when we started it, right? AI, we all know, has a bigger potential. It's a little bit too soon, as we said, right? Give us a little bit more time, and we have committed ourselves during the next couple of quarters to give more color or to add more color to that. It's too early to make a statement now.
Thank you.
The next question comes from the line of Andy Chu from Deutsche Bank. Please go ahead.
Hi, Stefan. Hi, Markus. Hope you're well. just one question, please. On the cost savings, could you just give some help in terms of the phasing of those cost savings by quarter, please, for this year? Thank you.
Hi, Andy. Now you're challenging me, right? by quarter is a bit of a tricky one, but I would say we're running up to the full quarterly cost saving of the full annual cost saving of CHF 200 million on a quarterly basis in the fourth quarter. That would be around CHF 50 million. I would see it largely linear to be open. I think from the first to the fourth quarter, there is a continuous, how do I put that rightly? I think a continuous outflow of cost that is pretty much linear, I think over the quarters to go.
Okay. You will have some benefits already in Q1. I think I maybe understood that the, sorry, the CHF 285 million wouldn't carry any cost benefit. It would come from Q2.
No. We will already see some cost benefits in the first quarter, but they will certainly be much smaller than obviously the ones in the fourth. The development between the first and the fourth quarter should be a linear development.
Right. Thank you very much.
You're welcome, Andy.
The next question comes from the line of Sebastian Vogel from UBS. Please go ahead.
Good afternoon. The first question is on the guidance and potentially it's also in section, of course, by Rand. Nonetheless, did you discount in your guidance or what sort of situation for the Red Sea you discounted in your guidance? That would be my first question. The second one is coming back to the AI topic, and of course it's not easy, but nonetheless, is there any sort of thought that you can share with us on quantifying the benefits on EBIT or GP line over time that you can allude to? That'd be it.
Hey, Sebastian. It's Markus. Can you repeat the first question on the guidance? I didn't really fully understand the question.
Sure. What sort of situation for the Red Sea have you discounted in your guidance?
Red Sea. Okay. Sorry. I got that. We were originally thinking like, during the year 2026 that Red Sea would slowly go back into operation, right? That obviously is probably moved out a little bit in time. It seems unlikely, at least from where we currently sit. That could still have an impact. As you can imagine, it can have an impact on rates and everything else. For our guidance, we had assumed that at the back end of 2026, there will be carriers regularly or using the Red Sea. What it now means for the guidance, frankly, I don't know yet.
On AI, quantifying future benefits and productivity gains, I think we are in such an early stage that it's really hard for me to tell you. I don't know. I cannot quantify reliably, and I think it would be not entirely serious to put a number out there. What I can say is we clearly look for material impact that is gonna come into 2027 and the following years. Maybe as an anecdotal evidence to that, I can confirm that in the use cases that we are having already live today, the impact is very material. That gives us confidence and hope, obviously, that things are gonna progress in that way. As Alireza also said, it's not, it's not an software that you apply, you know.
It's something far more fundamental that is, that has an impact on your entire service delivery execution operation. Hence, the benefit is much bigger, but also the uncertainty how much is gonna come out of it. Let's, let's stay with material at the current point in time. Thank you, Sebastian.
Got it. Many thanks.
The next question comes from the line of Arthur Truslove from Citi. Please go ahead.
Good afternoon. Thank you very much. Three if I may. First one, please. Could you just tell us what your assumptions for air and sea freight trends are over the course of 2026 bviously there's a range within your guidance, obviously keen to sort of get a feel for how that looks. Second question, if, you know, clearly, the conflict in the Middle East delays the Suez Canal reopening, that doesn't really change the current supply situation on the sea freight side. Can you talk about whether you think it will drive demand in any way at all, and indeed, in which direction? Thirdly, what are you seeing in terms of demand from an air perspective? Obviously, you have the grounding of the planes in respect of the Gulf Air. What are you seeing on demand there? Thank you.
Arthur, Stefan, I tried to answer the air freight questions and the Red Sea. Air freight basically from a volume assumption into 2026. As I said at the beginning, I believe that we see a continuation of the growth we have demonstrated in 2025, so similar kind of numbers. Automotive and mobility was the sector where we have seen the highest decline in terms of the volume is concerned t hat has now equalized in the first couple of weeks this year. We see a strong demand in aerospace, healthcare, pharma, high tech, semicon, hyperscalers, as well the industrial piece is coming back. Overall, we are quite confident that we see the same pattern in terms of air freight growth for 2026 versus 2025.
I think in sea freight, I mentioned we will intensify our sales efforts for the Chinese prepaid market into the world, which will help us hopefully as well to see a better growth into 2026. On the Suez Canal, this is difficult to quantify. I think the overall situation in the Middle East, as soon as we see a shift from sea to air, there will be further demand coming in into the air freight. I would say at the current stage, I would say that the air freight business will benefit more than the sea freight business from the current crisis situation we see. It's basically for sea freight too early to judge after three days.
Maybe a little bit, you didn't ask it, but I think, taking the opportunity as well, 'cause we had such a good year in contract logistics in 2025, so we have the most healthiest pipeline ever in contract logistics. I believe, from what I see and from the gain ratio, we will see a very good traction for the contract logistics business sort of into 2026.
Thank you very much.
The next question comes from the line of Rupal Kulwar from Berenberg. Please go ahead.
Yeah. Good afternoon. Thank you for taking my question. I wanted to firstly ask about hyperscaler business within their logistics division and how much volumes came from that particular business in 2025 and how did that business grow for you? When we talk about developing that business further, what sort of initiatives do you need to take and what sort of investments you need to make when we think about accelerating that towards 2030? That's the first one. Secondly, I just wanted to quickly check with you, how should we think about M&A in 2026? Is it fair to assume that it will be similar to what we saw in 2025, so a couple of bolt-ons?
Should I start with the hyperscalers? We will not disclose the volume figures, but what we can share with you is out of the magnificent six or seven , including Tesla, right? We have somehow with 50% of them, we have a decent business. With the others, we are starting the business opportunities. We are gaining traction. We implement business trade lanes on the transactional business on the freight side, and as well now since a couple of weeks in contract logistics with our vendor management service offerings. In other words, the room to maneuver, the room to grow is significant still because we have just started a year ago, right? I will not disclose exactly the numbers, how much volume have we gained, but there is quite some room to maneuver.
Maybe quickly on the M&A side, you're right. I think it's fair to assume we will continue with smaller bolt-ons, high quality businesses where we can scale that knowledge through our own network. On that, on that side, I think we shouldn't expect any major changes. Thank you.
Thank you both.
The next question comes from the line of Marc Zeck from Kepler Cheuvreux. Please go ahead.
Good afternoon. Thank you for taking my questions. I guess two left for me. One on the cost savings, and maybe you can elaborate a bit what is behind changing the kind of composition of the cost saving. Is it that your efforts fell a bit short on the non-staff related part and therefore you kind of squeezed staff, part of it more? Or did you feel like there was an opportunity on the staff side and you're not be overly aggressive? You've kept kind of the headline number unchanged, but there's maybe a bit of dry powder, so to say, on the non-staff side to maybe over-over deliver. That's the first question. Second question, maybe for Alireza, on AI.
I guess you mentioned bookings and quoting as parts where we currently already employ AI, where you see large opportunities. To me that seems like, say, low-hanging fruits. Maybe that's not, you tell me, but wouldn't kind of larger savings or efficiency gains be more like on handling disruptions, having AI handling disruptions, rebooking, rerouting, whatever. Do you see that as something that is close, let's say from a time perspective, or are we still quite far away from that, especially in air and sea freight? If there was any progress, would you expect that we see that first in road, be it U.S. road or EU, European road, and only at a later point in air and sea freight? That's my two questions. Thank you.
Hi, Marc. It's Markus . On the cost savings, interesting observation. Now you're fishing for more savings. I think what is important for us is that we are saving on the structural side. I think this is a sustainable structural cost reductions is our paramount task. I think with the cost reduction on the FTE side, this is not, this is not simple adjustment of operation workforce to volume development. This is structural change. This is sustainable change of overall cost structure. I think that was our primary and most or top priority activities.
Yes, on the other side, when we talk about facilities, network and all the other costs that are on the variable side or the non, staff side, that is something where we see a further potential going forward, consolidation of locations. On the other hand, some of them also take a bit more time to be implemented. Hence, I think our priority was right, to work on the staff topics first.
On the AI bit, I would divide it into two buckets. There are clearly repetitive workflows or processes where AI can quickly help us to automate that and standardize it. There gonna be also tremendous improvements in the entire value chain, specifically around the TMS, that requires to recreate the workflows with AI at the core, and that will take them some more time.
All right. Thank you.
Last question for today comes from the line of Gian Marco Werro from ZKB. Please go ahead.
Thank you, everyone. Two from my side. First one is, your progress that you will do for your volumes in sea freight now that you're serving, for the first time more than, half of your volumes to SME customers. Can you tell us if you have, yeah, more ambitions for 2026 to increase this even further? I remember over the last few years, you also spoke about potential profitability improvements with, cold chain solutions and also, for example, special trade routes that you want to expand. What have your recent developments been in relation to this? Thank you.
Yeah. Let me take the first question on the SME, Gian Marco. As more as better, pretty clear, right? 'Cause the profitability is 1.6 x of the average. That is something which we push further. We have a pretty good hunting force on the SME, which we will leverage to the maximum. The question is, how fast can we grow? What can AI do for us in order to compete, as we always said, with the smaller forwarders? How can we exceptionally grow on the customer experience side, on the Net Promoter? What do we need to do in order to convince more mid-sized customers to go with Kuehne+Nagel? Overall, the message is, of course, as much as we can and with full speed ahead.
Maybe on the second part, Gian Marco, although it links very much into the initiatives that Stefan just talked about. Yes, there is always new trade lanes, special services, areas where we want to grow in attractive sectors. I think, without repeating, but, our development on volumes, right, on the hyperscalers has been one of these proof points. Our development that we are potentially looking into markets where currently we are not 100% covering the geographies. Especially in air, the cold chain, has been designed some while ago and is continuing to evolve.
This is our normal course of business, if you like, to pick attractive sectors, move in either through organic growth or, in my words, as small as possible but as well-managed as possible businesses, and then leverage that through our network. Strategy confirmed, I would say.
Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Paul for any closing remarks.
Thank you very much, Moira. Thank you very much for listening in, for your questions. Looking forward to the next call. Have a good springtime. Weather is becoming better and enjoy it. Thanks again for listening in.
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