Ladies and gentlemen, good afternoon. Welcome to the CUNY NAGO International AG 3 Months 2018 Results Analyst Call. I am Alice, the Chorus Call operator. I would like to remind you that all participants will be in a listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session.
The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Detrecht Hrska, CEO of Kuehne Nagel. Please go ahead, sir.
Thank you very much, Alice. Good morning, good day, good afternoon and good evening to all of you, and welcome to the Kuehne and Nagel International Analyst Conference Call on the Q1 2018 results. We are proud for a good start into 2018, and we have distributed a slide deck, and we will lead you through the details of our results in the Q1 2018, as always, jointly with my CFO colleague, Markus Blanka Graf. And as always, we start on Slide 3 of the slide deck explaining you in a short overview the results of the Q1 2018. The group's earnings for the Q1 with CHF 184 1,000,000 were again significantly over last year 12% higher.
We saw strong volume increase in sea freight of 5% or 72,000 TEUs transported in our networks, and we also saw a very strong volume increase in airfreight of 21% or 72,000 tons in our networks. Overland closed the Q1 with substantial net turnover growth of 16%. And also in contract logistics, we closed the Q1 with a strong net turnover increase of 11%. In the Q1 2018, Kuehne and Nagel continued to grow significantly above market in all business units and market areas, and we significantly expanded our market share. And at the same time, we were able to improve and increase group earnings over last year's quarter 1.
Let me give you a short overview on Slide 4 on the performance in the Q1. Net turnover growth CHF563 1,000,000 or 13 percent gross profit growth CHF 195,000,000 or 11.8 percent and EBIT improvement of CHF 20 7,000,000 or 12.9 percent and earnings per share increasing from CHF 1 37 in 2017 to CHF 1.53 for the Q1 2018, plus 11.7%. Let's deep dive into the sea and airfreight performance. And for those details, I would like you to have a look on Page 6 of the slide deck, where we give a short overview on the business development. Let's start with Seafreight.
As a leader in applying technology, we accelerated investments in the digital transformation and launched 2 digital platforms early this year in March this year, CXplora and KN ESP. We got an overhanding reaction from our customers, and we see a lot of traction with these platforms being launched only 6, 7 weeks ago. The change in import terms for recycling material in China or to China led to a reduction or loss of 25,000 TEU export containers with waste and scrapping material and recycling material. We were able to compensate 10,000 of those 25,000 TEUs lost with other on other trades, but the remaining 15,000 will not come back because this market has significantly changed. In addition, we saw strong growth in Asia exports and North America exports on all trades.
Airfreight, the 2 perishable acquisitions announced last year, end of last year, are fully integrated, which took us less than 6 months to complete. We see continued volume growth in perishables, pharma, healthcare, aerospace and e commerce, and we are gaining market share, especially in those areas where we have specific industry solutions placed on the market. Also here, as and sea freight, strong growth in North America exports, and we launched another new industry solution, KN Interior Chain, which also got a lot of market demand saw a lot of market demand already. Slide 7, airfreight and sea freight. Sea freight and airfreight volumes.
I mentioned already the effect of the waste and scrapping and recycling import terms to China at the loss of 15,000 TEUs net imports to Asia. Organically, our growth was 5 percent or 51,000 TEU is significant showing another all time high quarter 1 volume in our networks. Airfreight, 422,000 tons shipped in quarter 1, which translates into 72,000 tons more in our networks versus previous year's quarter 1, out of which we saw an organic growth of 31,000 tonnes or 9%. And the integration of the 2 perishable acquisitions led to 41,000 tons or 13% growth in our networks. Slide 8.
Let's have a look on the margin development in Seafreight. You saw that for the Q1 this year, we have seen, for the first time, increase in seafreight margins again. We ended the quarter 1 with CHF331 per TEU margin. And at the same time, we saw a cost structure which slightly increased. Usually, that is the seasonality effect in the Q1 coming out of the previous quarter's investments.
This led to a stable EBIT per TEU margin or EBIT per TEU profit of CHF90. As always, let me give you the variance analysis of the Seafreak business unit. The volume effect in gross profit has been CHF16 1,000,000 for quarter 1. The margin effect CHF 11,000,000 for quarter 1. The cost effect has been negatively CHF 23,000,000, leading to an EBIT increase in total of CHF 4,000,000 for sea freight in quarter 1 2018.
Airfreight, Page 9. Here, we clearly see the change in cargo mix through the acquisitions and the volume increase in the perishable business. While the hard cargo margins were slightly above previous quarters, we clearly saw that margin dilution of CHF2 to CHF67 per 100 kilo versus previous year was mainly induced by the per ton versus the CHF 67, CHF 69 that we have seen in the previous mix of our cargo. The cost remains stable at CHF 48 per 100 kilos, leading to an EBIT per 100 kilo of CHF 19. Let me also here refer to the variance analysis in CHF 1,000,000.
Gross profit, the volume effect in gross profit has been CHF 50,000,000. The margin effect has been negatively CHF 8,000,000 reduced. Cost effect CHF 33,000,000 leading to an EBIT positive EBIT effect of CHF 9,000,000. The majority of this is organic growth. It's our legacy business.
On Page 10, we have summarized all the key financials for the 2 business units, sea and air freight. And you also see that we have a small foreign exchange effect in sea freight on EBIT level and a nil foreign exchange effect on EBIT level in airfreight. Margin remained stable in Seafreight. Conversion rate remained stable in Seafreight, above 27% versus previous year. And in airfreight, also a very high and stable margin of 28.6%, reflecting what I said before, the new cargo mix in our networks with more perishables being shipped.
Let's move on to Overland, Slide 11. And let me start with reflecting on the continuous the successful implementation and continuation of our strategy in Overland. The industry specific solutions got a lot of traction in the market. We were able to drive top line growth significantly and at the same time leverage our business model with improved bottom line effects. And also the Brazilian overland business, we were able to sell and dispose in order to concentrate on those networks and those areas where we can create a significant customer benefit.
But there are more good things to come in Overland, you can be sure. We are investing in a groupage network in Italy, which we will launch end of the quarter 2. We have investments coming on with new terminals in Romania, Czech Republic and other Eastern European markets. And most important, also in Overland, the digital transformation is now on European level, we have had some test markets and KN Freight Net for Overland is being rolled out throughout Europe for the remaining for the next couple of quarters. So that will lead to another strong performance in Overland when these investments have been fully implemented.
On Slide 12, you see the financials also here very briefly. Quarter 1 20 18 had a specific book gain coming out of the disposal of our Brazilian overland business of CHF 6,000,000. If you deduct the CHF 6,000,000, you see an operational performance of CHF 18,000,000 versus CHF 7,000,000 previous year. So a very strong organic development in Overland in quarter 1 2018. Contract logistics.
And I know I will repeat myself, but we are successful with scalable logistics solutions with the same customer base. We scale those solutions in all core markets we are active in. At the same time, we are rolling out a new generation of warehouse management systems and new warehousing technology. And this is part of an investment plan in contract logistics to establish the next generation of operating models in that business unit in order to enable future growth and faster growth with especially e commerce fulfillment solutions. On Slide 14, you see the details of the business unit contract logistics performance in quarter 1.
We post a slightly reduced EBIT for quarter 1 versus previous year, which reflects the investments into the modernization of WMS and our technology that we place in our warehouses. And at the same time, it's a very customer specific investment that we conducted in the U. K. We have mentioned that in a couple of calls previously in order to go for the next decade of business with our customer. And the project is called Invest and Grow, and it starts with investments.
And the investments are due this year and early next year in order then to form a mutually agreed platform for future profitable growth for the next decade with that business. And as you know, all investments at Kuehne and Nagel will be fully expensed if possible. And therefore, we will we have seen a slight reduction in EBIT in contract logistics quarter 1 as planned for this year. And now I'm happy to hand over to Markus, who will give you the details of the income statement and on financials.
Thank you, Detlef. Welcome, ladies and gentlemen, also from my side. I'm on Page 15, income statement. As usual, for me, the most important indicator, the growth in our gross profit, dollars 195,000,000 or 11.8 percent. Indeed, with our reporting currency, Swiss francs, we have been able to record a translation impact on ForEx of 4.2%.
But let me come back to that ForEx topic in a minute. Our targets that we have also given ourselves for 2022 and our strategic target on the conversion rate for the group, meaning EBIT in percentage of gross profit. In the incremental view, as you can see on this slide, the €195,000,000 we have made €27,000,000 out of €195,000,000 GP as EBIT, which represents 14%. Clearly, we are not at the 16% where
we want to go,
but we still have a bit of time to reach that level. But we have increased that conversion rate over the last quarter sequentially when you look at quarter 4 2017 versus quarter 1 2018. 1 can also look slightly differently on that. One can look into sea freight income statement, and you will see that 5% volume growth translates in 4.3% EBIT growth, so a nearly one to one translation of volume growth into EBIT growth. I think that is something that we have been proud to record in our Q1 2018 again.
If anybody would ask me where is that trade going to lead us, I think we will see positive leverage going through the rest of the year. Another way of looking into the positive development of our conversion rate could be to look into air freight. And yes, 21% volume growth is also an expression and confirmation of our robust IT system and operational processes to handle significantly more volume through our own systems. Coming back to acquisitions. Acquisition impact as an information line for you on a gross profit, it's €21,000,000 EBITDA, €3,000,000 EBIT, dollars 1,000,000 We have added approximately 1100 people from an employee and FTE perspective.
Tax rate. Currently, we are projecting roughly 23%. And as I said previously, conversion rate target confirmed for the group at 16% going forward as a midterm plan. Quickly coming back to the currency impact. Yes, from a translation perspective, the euro plus 9% has helped as well as the pound plus 6%.
So in the mix with the U. S. Dollar, that has a positive impact of around 3%, as you can see on the levels, EBIT or EBIT or net earnings. What is remarkable is on the U. S.
Dollar, we have weaker U. S. Dollar, which is significant for the Seafreight business. Let's be clear on that. When we have a Seafreight business, which is dollar denominated business, a weak U.
S. Dollar creates a slightly lower GP per toy. On the same token, that slightly lower GP is then translated compensation for the negative impact. So long, complicated explanation to something very simple, which means we actually make in local currency a bit less GP per toy, but the translation is partially compensating for that. Let's not forget that topic because the sea freight GP per toy is still a very relevant number to manage our business.
Going forward to Page 16, balance sheet. And you will certainly have noticed we have 2 new lines on both sides, which is called contract assets and contract liability. Nothing else as a reflection of disclosure change for IFRS 15, the old IAS 18, which when you look at the number is reflecting pretty much the work in progress and the combination of contract liabilities and accrued trade expenses deferred income pretty much the same number as it has been when it was only one line. For us, the change of IFRS 15 or the adoption of IFRS 15 has had no material impact. For further details on what has changed, I would like to point out our quarterly results that we have our interim financial statements where we explain in the note of our accounting rules the change.
Again, no material impact. Our top focus coming back from the pure representation issues, top focus remains receivables and payables. Of course, that is the quality and the value of our balance sheet. Page 17, cash flow. You see here the comparison of the 1st quarters, and we all realize that cash flow has a bit of seasonality in it.
Seasonality is pretty much the same. You see the operational cash flow is in line with last year. We have put less into the working capital than a year ago. Still, that is $200,000,000 so quite a significant number. But the growth rate needs to be, obviously, financed.
And what you can also see out of the next slide, Page 18, the working capital development that the increasing and the consistent pressure on DSO going up now currently standing at around 55.1 days, so 55 days. We were able to compensate through the DPOs with, as I mentioned many times on these calls, with supplier finance solutions and strict management of our liquidity. We have managed to keep the working capital intensity within the barriers of 3.5% to 4.5%. I do expect that during the year to stay around to 4% level as it is now. Page 19 on return on capital employed.
Reflecting what we have discussed on our last call or what we have highlighted in our last presentation, we have introduced a second graph, which is actually representing the return on capital employed excluding acquisitions for the simple reason because, as you know, with the acquisitions, you get the balance sheet 100% immediately, but obviously, the business, when you calculate it on the rolling EBIT for a couple of quarters, for 4 quarters, you only ramp up that EBIT over the 4 quarters. So excluding acquisitions, that is the dark blue line or the line which is on top for the ones that have black and white in front of you. That would be the return on our business excluding acquisition impact. We do confirm going forward our structural return on capital employed when we run the business with the current setup of the balance sheet and the business around 70%. You can see that very clearly.
That leads me to Page number 20, financial targets. Again, a wrap up of what I think I have said over the last 3, 4 minutes. We confirm our financial targets with conversion rate of 16% on a midterm basis return on capital employed around 70% tax rate 22% to 23% and the working capital intensity, 3.5% to 4.5%. Of course, there's a couple of assumptions around that. Whatever our macroeconomic environment is giving us will impact these numbers, and we are generally not considering in our targets specific acquisition impacts.
At the same time, on the right side of the slide, you have overview over our market assumptions or market observations for the Q1. We are expecting the seafreight market around 4% the airfreight market around 5% overland and contract logistics equally at around 4%. With that little outlook, I would like to hand over back to Detlef to his presentation and then to the Q and A. Thanks, Markus.
As you know, there's a lot of transformation in the market, and these transformations offer a lot of opportunities. Our focus topics for 2018 are cost control. To a certain, the leverage of our business model are generated, we have again in quarter 1 achieved a lot of productivity gains. Digitization as a game changer for new solutions and productivity improvements, as you have heard and seen, we have launched 2 unique groundbreaking digital platforms in sea freight. We have a new industry solution in airfreight.
We have a digitalization rollout plan for Europe in Overland, and we have launched 2 innovation centers in contract logistics. With these investments, we will continue to lead the change and transformation from the technology and digitization side in our industry. In addition, with certain customers, we work on leveraging new opportunities with regards to value chain expansion and got some traction here. And as Markus already said, we do not include any acquisitions in our financial targets or figures unless they are done and closed, but we have an active M and A process with a very robust and interesting pipeline. So this will lead our focus for the next 9 months to come in 2018.
And with this, I would like to close the presentation based on the slide deck that we have distributed and hand back to Alice, the operator, to open the Q and A.
We will now begin the question and answer session. The first question comes from Mark McVicar from Barclays. Please go ahead, sir.
Thank you. Good afternoon. I have two questions. In your in the cash flow statement as well as the €7,000,000 gain on disposal of subsidiary, you also got a net €10,000,000 of gains on disposal of property, plant and equipment, which looks sort of unusually high. Could you sort of tell us what's in there and which division that fell in?
Hi, Marcus. It's Marcus. That is related to the disposal of our Brazilian business that, as Dethsef said, are refocusing on our main markets and the disposal of that unit to fill up.
So there's essentially $17,000,000 from disposal of the subsidiary and the disposal of the associated PTA.
Yes, that's right.
Yes?
That's right. Obviously, these are the gross values. You then have a bit of write offs of the investment that we had in our books. So the net result is 6, but obviously, the gross values are higher than the 6.
So you think so in that divisional P and L, there's about a 6,000,000,000
dollars
credit,
if you like, from the net coming out of Brazil?
Correct. Yes. That is all recorded. Sorry, you're asking which business unit that is Overland.
All in Overland. That's lovely. My other question was really when you think about acquisitions, what sort of scale do you think you would consider? Are you only really looking for CHF 100,000,000 deals or CHF 500,000,000 deals or CHF 1,000,000,000 deals? Can you give us some sense of the order of magnitude?
And so the follow-up to that is, would an acquired business need to bring something more than just volume? Or would you be happy in the right circumstances and obviously at the right price just to take volume that overlaps with stuff you've already got today?
So Mark, let me let him speak and let me answer this question. We have a clear set of criteria assessing potential targets. And the size is not the main criteria. It's does it create synergies, market access or does it have a solution or competence that we couldn't build as fast, as competent as the respective target? And you have seen in the last couple of years that we pitched smaller and larger or midsized targets accordingly.
So that is ongoing. But we are also not shy of more sizable targets. But the question is what are the right opportunities. We will not we will always look for synergies or competence as the main criteria to assess and evaluate a target.
Yes. So realistically, you want something more than just more volume to push the systems.
Exactly.
Yes. Okay. And then my final quick question. Obviously, as you've launched a number of initiatives around the K and N next gen stuff that you talked to us about at the Capital Markets Day last September, do you expect to see much return on that investment this year? Or should we really be thinking much more about the sort of a 'nineteen and a 'twenty before you start to see a bit of materiality in terms of returns?
Mark, I should answer 2022 now, but I will not dare to do so. But Mark, clearly, and I said so in my last comment, we invest heavily into the new technology, into digitization of our business, launching those platforms. And we have seen this before. It takes a couple of months years quarters until that is accepted in the market and gets a certain traction. Our targets that we have stated at the Capital Markets Day remain in place.
There's no change. We want to have and this is related to that statement, we want to have we want to achieve 40% eTouch shipments in the year 2022 in our networks. That has nothing to do with contract logistics, obviously. And this is what we are aiming for. And this is what the whole technology investments in digitization is focusing on.
Will we see traction this year? We have a great customer feedback on those platforms and solutions launched. Will it translate into a material P and L effect this year? Most likely not. Next year to be seen.
But for sure, in 2 years, we will see as with KN-fraytonet, we will see this get a lot of traction and help us to capture and do business in new markets or new sales channels and in a much more automated way. A long answer to your question.
That's fine. It will not happen.
It is a we transform our own business model as we said at Market Day and it will take time to be implemented and it will take investments during that time and then it will generate an over proportional return. Otherwise, we wouldn't go for
that.
The next question comes from Damian Brewer, Royal Bank of Canada. Please go ahead.
Good afternoon, everybody. Three questions and then 2 actually follow-up from Mark. First of all, just could you give us a greater feel for the progression within the quarter, particularly how the underlying, I. E. Organic volumes looked pre and post Chinese New Year within the business?
That would be interesting just to get a feel for the underlying resilience or not of the business. Secondly, coming back to Mark's question on the sort of the investment, the returns later. I think it sounds like there's about CHF 6,000,000 to CHF 8,000,000 that went into the contract logistics business. But in terms of other areas where there is investment, could you give us just the sort of feel across the group about how much OpEx went into these new systems and platforms in the quarter, so we could get a feeling for like the underlying incremental EBIT GP? And then very finally, with Marcus' comments on you're ready for considerably more volume, Clearly, the press is reporting there's a peer out there looking to IPO at sort of 3x plus net debt EBITDA.
Can you remind us of the kind of levels where you think you'd be comfortable in terms of the debt or cash position of the balance sheet within your business? Thank you.
Okay. Hi, Daniel. I'm taking the liberty to take the last question. First on the is there a target debt ratio for Kwininago? No, there is not.
You know that the quality of our balance sheet has been one of the assets for many decades and for a long, long history. And I think having had that quality in the balance sheet has always led to that long history. So I think there is no such ambitions that by a foreseen target, we are going to leverage balance sheet or anything. It's about when there is the right target, there will be the right financing. And that is, I think, how we with our boards, how we work together.
It's the right target that is going to determine the rest.
Okay. Then Damian, the other two questions pre post Chinese New Year. First of all, the whole season has shifted by 2 has been shifted by 2 weeks this year due to the change in Chinese New Year or the later celebrations. And we have seen in the Q1 that then the volume started to pick up again. So in total, I would say a normal pattern with the effect that we have mentioned before that the imports to China, not to Asia, but the imports to China with regards to recycling material have been banned.
So they are gone. This is not existing in the market. That was a very remarkable volume. As I said also, we were able to compensate parts of that with other destinations. But in total, the majority of that volume will not come back.
There is now a local recycling market that has been soaring, and there have been other markets regionally that have been established, but this is not generating any secret volume. Our investments into the transformation of our business, the technology transformation of our business has been is clearly defined and has been according to our plan. We will not disclose those details. But it's more than just 1 quarter where you can expect those investments to happen. So as a guideline, maybe the effects that you have seen this year in the Q1 are likely to continue for 2 or 3 more quarters this year.
So that would be my guideline with regards to those investments. Notwithstanding any positive effects that those investments will generate in the respective market of its customers.
Okay. Thank you very much. Thank you.
The next question comes from Daniel Roeska from Bernstein. Please go ahead.
Hi, Detlef. Hi, Markus. Hi, Detlef. Three questions, if I may. One, you mentioned Detlef, you mentioned cost control on your last slide.
Could you let us clue us in a bit where you're focusing on in terms of the efforts? I mean, is it more sales, operations, back office, integration of the acquisitions where you think that you see some cost opportunities? And then maybe to touch upon the whole digitalization topic, one question. You thought at Capital Markets Day, you'd be ready to give us some insight on to where eTouch volumes were and how they were progressing. Just any thoughts of that, where are we currently?
Are they progressing? Do you think that will be part of the reporting at some point going forward? And then maybe a little bit more on the strategic side, I think the digital capabilities in the supply chain, of course, if you look at the environment of carriers, customs offices, of course, is a bit challenging in that progression of digitizing the supply chain. But you've launched some efforts in blockchain. We are seeing customers, organizations kind of waking up to this.
Do you sense that there is an acceleration of the digitization in the supply chain kind of in the partners you depend on to make it a fully digital supply chain? Thanks.
Thank you very much, Damian. Let me start with the latter question, supply chain digitalization. First of all, we see a different perception in the market, not only with customers, but also with other partners, carriers, customs officers, other official authorities. And that will help to change and improve the technology placement in Supply Chain Management. At the moment, I wouldn't talk about an acceleration, maybe 6 months too early, but the attention and the willingness to try to understand and to collaborate and to partner and to test, for example, blockchain shipments have significantly increased.
When we launched 3 years ago, 4 years ago, KN FreightNet, we were the 1st in the market with a quotebook track platform within confirming a shipment within seconds for our customers. Today, we see more and more customers that have moved to our platform and we see more and more market players trying to achieve the same. So there is a higher willingness to move into that direction. ETouch, what we have said at the Capital Markets Day is for sure is still valid. We will come up with the first reporting on eTouch shipments this year.
So we deliver as promised as one of our claims and you can count on us. That will happen. You will see this. Your question on whether you like those figures then or not is a different question. Your question on cost control, we focus on all areas of the supply chain.
But most important is the back office optimization, so operations, and also the manual data keying and manual processes that we still see a lot of that we see in a lot of markets still being state of the art that we can automate this more and more. So I hope Daniel that this has giving you the insights that you were expecting on those three questions.
One short follow-up and kind of the conclusion from that would also be that kind of on the sales front, you're happy with the setup and basically kind of will use the volume or revenue growth to kind of lower the sales cost per revenue, if I get that correctly?
Yes, exactly. Okay. Thanks.
Thanks, Dan.
The next question comes from Neil Glynn from Credit Suisse. Please go ahead, sir.
Good afternoon, everybody. If I could ask 2 questions, please. The first one, just following on the efficiency theme. Within contract logistics, can we revisit Capital Markets Day from last year? And can you help us understand what how significant an efficiency gain from the new WMS system you expect?
How much should manual intensity reduce in contract logistics as a result? And then the second question, the strong growth in overland volume, Just interested, can you help us with some detail as to what extent you're growing with new customers via the Overland expansion versus gaining incremental share of wallet from existing customers who either use you within Overland or other businesses?
Sure. Neil, let me answer Overland the Overland related volume question first. It's both. It's we win new customers, we retain those customers and we win additional share of the wallet of those customers through our quality and network services that we provide. And that is true in all markets.
At the same time, as oil prices are increasing, we see more demand for intermodal in North America, for example. So there's a mix of new customers or customers pushing more volumes into our overland networks. And that is throughout all regions. The contract logistics WMS question, first of all, we have for decades 1 unified global WMS. And we are building and implementing the new generation of WMS that are much that will enhance the easiness of integrating pharma customers and e commerce fulfillment customers.
Especially with e commerce fulfillment, we see higher complexity, higher demand for predictions, higher demand for day plannings, and this system will enable us to do so. It will take another 4 quarters, 3 quarters to have a significant rollout, not a full rollout for this WMS. But the solutions already implemented, especially in China, work extremely well, and we have a very good productivity gain on that side. And your question is right. Productivity is improving our operations and making processes unnecessary or manual processes redundant.
And this WMS will enable us to do so.
Thanks, Detle. If I could just follow-up with just on your second answer there. You mentioned, for example, predictive analytics and capabilities such as those. Does that also suggest there should be a potential additional revenue stream with an additional line item in contracts? Or is that simply likely to help you win business better for a similar price, for example?
I think it's the letter first. So we will start optimizing our own solutioning before we have an independent revenue stream and contract logistics established on predictive analytics. But this is different for integrated logistics, where we have supply chain management activities and take ownership of inventory or working capital optimization on behalf of our customers, their predictive analytics can generate a great benefit right from the beginning. And that is what we are applying with integrated logistics.
The next question comes from Mr. Aymeric Poudin from Kepler Cheuvreux. Please go ahead.
Yes, thank you. Good afternoon. Four questions, if I may. The first is on volumes. You did not refer to calendar effect that some of your competitors highlighted.
So was there any and if so, what impact did it have in Q1? On the waste ban and the impact on Q1 volumes, is that a one off effect for Q1 only? Or should we expect further impact in the rest of the year? That's for the volume questions. On the GP per tonne, the question I had is also referring to some of your competitors' comment recently.
What's your view on the evolution of freight rate this year in Air and the impact it may have on your GP per ton? And last, I understand you don't want to provide yet the data on e booking, but your first experience on that front, would you see more of that volume coming from existing customer? Or are you actually attracting new customers to these platforms? That will be my questions.
Great. Thanks for your questions. The question on volumes calendar effects, yes, there are calendar effects, but we have calendar effects each and every year. Therefore, we didn't prominently put this into the focus. Easter was earlier, so it affected Q1.
But we have, for example, a May, which shows the highest number of public holidays in Europe for the last 2 or 3 years. So but that's the normal seasonality of our business, and I don't see any effect. And you asked for a effect that will last throughout the year. I don't see any effect. Let me answer this question maybe with a macroeconomic view.
At the moment, we see strong volume growth on all trades. We see a high consumer confidence and consumer spending happening in all major markets, a situation we didn't have for the last 4, 5, 6 years because we always had some area where this didn't happen. And this should drive volume growth or the opportunity to capture parts of that volume growth in the market for our business units all over the world. GP per tonne, yes, and you saw this in our hard cargo business. We saw strong volume growth of 9% 10% volume only in that market segment.
So we are able to capture still market share in a market that has maybe seen a slightly reduction of demand over the last 3, 4, 5 months. But still, the market is growing at 5%. If you remember, 2, 3 years ago, we had negative growth, Q1, Q2 in some of those airfreight related markets. At the moment, we see demand growing and our volume growth is or we are over proportionately participating in that growth with our volume growth. GP per tonne, we would not expect a further significantly decrease.
But the pressure on the margins in airfreight are continuing because the demand on air capacity is not only happening from the airfreight side, but also from the passenger side, as you know. And that further congest some of the airports, especially in Europe. And this leads to additional costs in the supply chain for rerouting, for trucking, whatever needs to be done in order to optimize that setup. So there will be a continuous pressure on the margin per ton in airfreight. But as you saw in the past, we are able to manage this because we are optimizing our cost structure, our production models accordingly.
So that in total, the margin and the cost effect are overcompensated by the volume effect. And that is, I think, the most important story for Airfreight. And then eTouch and e bookings, we see a lot of demand increasing. I think I mentioned that earlier in our call. And especially with the solutions we have built on our PlatformK and FreightNet, we see that both quotations as well as bookings are soaring would be maybe an exaggeration, but have a strong double digit growth in all areas.
And you will see some statistics this year, we promised. Looking at markets here.
Okay. Thank you.
The next question comes from Bruce Chan from Stifel. Please go ahead.
Yes, thank you, operator, and good afternoon, gentlemen. I just want to follow-up on the last question a little bit. Good afternoon. Yes. And talk about maybe some of the gross margin dynamics and the capacity environment.
You shed some light on airfreight already, but in Ocean, I think at the beginning of the year, there had been some talk about some persistent lingering overcapacity and now maybe that's tightened. Can you you talked about the you talked about the tight capacity in both main deck freighters and in passenger. Are we getting to the point where we're seeing volume growth starting to get constrained by capacity?
So let's start with Bruce. First of all, good afternoon. Let's start with Sea Freight. We there's an overcapacity on certain trade lanes and there is gas capacity on others. So there's no general answer to it.
On the main trades and our expectation for this year are more stable margins. And you have seen this in our Q1 results. So the margin slightly increased per TEU. So that is that should be our was our expectation for this year. All consolidations carrier consolidations have happened.
And I think there's no surprise to be expected this year as we have seen 2 or 3 years ago. Airfreight, it's made that capacity, it's better capacity, but the most important bottleneck at the moment are some of the European gateways and hubs that are congested, but not by airfreight, but by the passenger planes getting into those hubs. Would we go to an extent that airfreight growth is hindered by that development? I don't think so, because we will see lower margin cargo moving on alternative routings. But at the same time, there's an increasing demand for time critical shipments.
And in the aerospace sector, in the pharmahealthcare sector, with some of the consumer retail oriented sectors. So the demand for airfreight due to its lead time advantages is increasing. So therefore, I we are positive with the overall outlook for this year that the market growth we have anticipated of approximately 5% will remain throughout the year. That's the guidance Marcus has presented. And our target, as we have stated at the Capital Market Day, is to grow twice as fast as the market.
Great. I appreciate that. And then just a quick follow-up on general trade issues. You've maybe fortunately been a little bit more insulated over in Europe than we have here in the U. S.
But there's obviously been a lot of rhetoric going back and forth about tariffs and sanctions and whatnot. And I'm wondering if you've started to see any evidence of these trade
effects.
Great. That's very clear. Thank you.
Thank you.
The next question comes from Edward Sanford, HSBC. Please go ahead.
Good afternoon, everybody. Just a couple of questions left, if I may. I wasn't quite sure whether you had actually answered the question on the recycling volumes and whether that was just a one off or whether we might expect volumes to be affected for the rest of the year on a sort of similar basis? And secondly, you mentioned, I think, about some improvements you're making to the production model in the UK and contract logistics. Could you perhaps just I think I might have missed it in your main comments, but just perhaps amplify on that a little bit more, please?
Thank you.
Sure. Recycling volumes exports to China of waste and recycling material have been banned. So this will not only affect this year's volumes, they are gone. China is not allowing any imports of recycling material anymore. This volume, 25,000 TEUs, 1st quarter in our network, 25,000 TEU, Q1 this year is gone.
We were able to compensate this with other markets that are interested in importing recycling material somewhere else in Asia. But to China, this volume will be gone for the rest of the year. So you should factor this effect in whatever model or view or analysis you do for C grade. The production model in the U. K, we have a long lasting customer there where we have a very good relationship with.
Their markets are changing and we have jointly decided to go into an extension of that partnership for another decade. And as a basis of this partnership to start and invest and grow approach, an implementation of a new production system for this customer and other customers in that niche in the market jointly. This investment for this project will happen this year, and we will not be able to harvest the benefits before, let's say, summer next year. And that is mainly the story behind the U. K.
But it's one single customer in a specific niche. It's not the overall contract logistics business in the U. K. Does that answer your question?
Yes. Just one follow-up question. Can I can we assume therefore that your recycling volumes were roughly 100,000 TEUs a year then?
Yes, it's a different
seasonality, a
bit more than the 100,000. It's a different seasonality. Okay.
Thank you. Yes.
The next question comes from Stuart Todd from Lloyds.
I just like to get your reaction on shipping lines moving more and more into logistics. Just the other
day, we
had CNO CGM taking 25% of CEVA. And before that, we had Maersk talking about getting deeper into logistics, becoming a global integrator of container logistics. Would NERSC, would Kiran Nagel consider that sort of tariff as CMA, CGM hasn't seen or would miss perhaps?
Stuart, we have a lot of competitors in the market, and the company you have mentioned has been a competitor for the last 10 years in some areas and in some areas they are not present. I think shipping lines have always made attempts to expand their value chain as we do with our customers, and I don't see any conflict at the moment in that space. We are having an excellent relationship with all shipping lines for years, decades as you know, centuries most likely. And we work very trustworthy with all of them. We are number 1 to 3 shipper with all high volumes for all of them.
As you also know, some of the shipping lines have started those attempts and then stopped them again or have not got a lot of traction. At the end of the day, the customer has to decide where does the customer get the most highest quality end to end supply chain service with total visibility, with proactive database, supply chain management. And at the moment,
we are
not seeing any conflict here. And let me add one more aspect. Our market share in seafreight, in airfreight, in contract logistics overland, on average globally, is less than 2.5%. There's enough room for growth. As we always said, the highest pressure, especially with the high investments on digitalization and technology, is on the smaller forwarders that are almost unable to deal with these investments in the time or as fast as required.
Gentlemen, there are no more questions at this time.
Then thank you very much, ladies and gentlemen, for joining our Q1 call. Thanks for the interesting dialogue and questions. And as you know, we stay focused on cost control and digitization of our business model and how we got traction in quarter 2 with these topics you will see in 3 months from now approximately. In the meantime, take care and looking forward to talking to you again soon. Bye bye.
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