Kühne + Nagel International Stock

Ladies and gentlemen, welcome to the Kuehne + Nagel 9 Months 2026 Results Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Stefan Paul, CEO of Kuehne + Nagel. Please go ahead, sir.

Thank you very much, Matilda. Good afternoon, and welcome to the presentation of Kuehne + Nagel's Third Quarter 2026 Financial Results. I am CEO, Stefan Paul, and I'm joined once again today by our CFO, Markus Blanka-Graff.

Let's move into Page #2 and 9 months 2026 results. Kuehne + Nagel significantly improved profitability in the third quarter. Over the first 9 months of the year, Kuehne + Nagel maintained its positive earnings momentum, supported by disciplined cost control. Air Logistics growth and the recent stronger growth in sea logistics. Solid underlying business development and market share gains also improved the results of road and contract logistics.

In the third quarter, recurring EBIT rose to CHF 435 million, 53% higher year-over-year and 14% higher quarter-on-quarter.

Let's review some of the key factors. Our cost reduction program introduced a year ago and underway since year-end 2025 has already delivered year-to-date savings of about CHF 100 million. We expect savings to accelerate into the Q4 and reach an annualized savings run rate of at least CHF 200 million by year-end. These cost savings helped improve the group conversion rate to 18.2% in Q3 versus a 16.9% in Q2 and 13.4% in Q3 last year on a like-for-like basis. In sea and air, we target a conversion rate of 35%. The combined conversion rate was 32.3% in Q3 versus 30.2% in Q2 and 22.8% in Q3 last year, again, on a comparable basis.

Important factors behind the higher conversion rate included resilient yields and favorable mix, consistently strong air logistics and improving sea logistics volume. Recurring group EPS grew by 58% year-over-year in Q3 with no material impact from currency translation. Underlying free cash flow generation in the third quarter improved by 53% year-over-year when we exclude disposal proceeds in both periods. Given the positive earnings momentum and our expectations through year-end, we are once again lifting our 2026 full year recurring EBIT guidance. Markus will cover this in more detail shortly.

Before we move on to our business unit details, let me briefly recap our AI ambitions. We are calling for CHF 100 million to CHF 150 million of annualized benefits to emerge over the course of 2027. Our next deep dive will come with the full year results in March, in line with our commitment to provide formal updates. As I said, at top, each business unit contributed to our strong third quarter and 9 months results.

Let us now turn to our performance by business unit, starting as always with sea logistics, which you find on Page #3. Strong growth trajectory with supportive yields. In Sea Logistics, we steadily increased volumes and returned to year-over-year growth in the third quarter. Unit profitability has risen consistently aided by cost control and resilient yields. This is clear to see on the 3 charts on the slide. As usual, on the left, we have the volume in thousands of TEU. In the middle, we show gross profit per TEU, on the right EBIT per TEU.

Q3 volumes grew by 5% year-over-year and 6% quarter-on-quarter. Sequential growth is above our typical performance for this period. We gained market share in Asia export rates as well in the transatlantic, where the recovery of U.S. import demand was a key driver.

The SME volumes grew in line with the overall business. Average yields ticked up sequentially in the third quarter, the fourth consecutive quarter of stable or better results. All these factors combined to lift EBIT in the third quarter to CHF 172 million, a 23% gain sequentially and 55% gain on a year-over-year basis. The Sea Logistics conversion rate was 32% in Q3 and versus 29% in the second and 23% last year in the third quarter.

Let's now focus on Page #4, our Air Logistics business unit. Ongoing market share expansion in higher-yielding segments. In Air Logistics, we delivered yet another quarter of strong volume growth in higher-yielding segments. That growth combined with effective cost control helped the conversion rate improve even further. Q3 volumes expanded by 10% year-over-year and 7% sequentially. As with sea logistics, these results are better than what we typically see in this period.

The drivers behind this growth were once again the high demand in the tech sector and stronger general cargo volumes. In parallel with the strong volume growth, we kept yields broadly stable Q-on-Q, thanks to incremental improvement in unit cost. EBIT rose to CHF 169 million in Q3, a gain of 10% sequentially in a very healthy 84% gain year-over-year. The Air Logistics conversion rate was 32% in Q3 versus 31% in Q2 and 23% in the third quarter last year.

Next is Road Logistics, Page #5. EBIT growth accelerates on market share gains. In Road Logistics, EBIT growth in the third quarter extended the positive trend we have seen throughout the year so far. Q3 EBIT increased by 40% year-over-year to CHF 28 million. The conversion rate was 8% versus 6% in the third quarter last year. Net turnover grew by 14% in the third quarter or 13% organically, which compares to a 9% like-for-like growth in the second.

We continue to believe the improvement -- improved trend in recent quarters is most likely the result of market share gains rather than underlying market growth. At the same time, we are seeing rising demand from the high-tech sector in road as well.

Page #6, Contract Logistics, positive results from recent investments in growth. In Contract Logistics, net turnover and profitability growth accelerated in the third quarter as recent investments in high-tech sector growth began to pay off. Net turnover grew by 8% in the third quarter, excluding currency effects, well above the average 5% rate of growth over the past year. Q3 EBIT came to CHF 66 million, which is 29% growth sequentially. The corresponding conversion rate rose to 7% in the third quarter from 6% in the second.

We remain confident in the future growth directory. Contract logistics as well field pipeline, solid retention rate and several contracts currently in the implementation phase. And this concludes my comments on the performance of the business units, and I will now hand over as always, to Markus.

Thank you, Stefan, and good afternoon all. Thank you for your continued interest in Kuehne + Nagel. Starting with the income statement for the third quarter. I would like to highlight the key drivers of our year-over-year earnings development.

First, the third quarter was marked by accelerated gross profit growth from all business units and notably, solid volume and yield expansion from both Sea and Air Logistics. Second, a higher proportion of this gross profit growth converted to recurring EBIT, supported by our cost reduction program. On a like-for-like basis, the incremental conversion rate was 57%, lifting the group conversion rate to 18% in the third quarter from 13% in the same quarter last year. Lastly, it is noteworthy that the 5% year-to-date foreign exchange headwind, you see in this table on the right, was confined entirely to the first half year 2026. The Q3 EBIT of CHF 435 million reflected plus 53% year-over-year growth with no material foreign exchange translation impact.

Turning to working capital. Here, we saw the base increase to more than CHF 1.9 billion at the close of the third quarter. This is an increase of about 17%, reflective of continued strong volume development as well as higher rate. Net working capital intensity increased to 5.8% by the close of the third quarter versus 5.5% at midyear and 5.1% at the same time last year. This corresponds to a contraction of the spread between DSOs and DPO with the spread now being negative. The CHF 281 million increase of core working capital over the course of the third quarter 2026, contrasts with an CHF 80 million reduction during the same period, last year. This primarily reflect significantly higher volumes and freight rates as mentioned before, for both sea and air logistics, a large share of airfreight capacity linked to dedicated freighters and material growth from contract logistics.

Let's now turn to free cash flow generation in the third quarter. We produced CHF 336 million of free cash flow, including a CHF 3 million of cash proceeds from asset disposals, which had no material P&L impact.

For a closer look to that cash conversion. Let me move on to the next slide. where we see the usual comparison of free cash flow conversion in the most recent quarters versus the historical average. We focus on the history since the first full year of Apex consolidation since that event changed the pattern of our free cash flow generation due to a larger proportion of freight-based airfreight activities. The third quarter is typically the second strongest cash conversion quarter after Q4, with an average conversion of roughly 100% since 2022.

In Q3, this underlying conversion rate was 105%. This 105% also includes the benefit of favorable cash tax payment phasing with corresponding outflows to come in the fourth quarter. We expect a continuation of normal underlying free cash flow conversion seasonality also over the coming quarters with a long-term average of 90%, heavily weighted to the second half of the year.

Turning now to our financial guidance for 2026. We are rising both the lower and upper end of our recurring EBIT guidance by CHF 150 million and CHF 50 million, respectively. This results in a new recurring EBIT guidance range now from CHF 1.5 billion to CHF 1.6 billion. As you can see in the graph on this slide, this marks the third sequential earnings guidance increase for the year, with the current midpoint, nearly 20% greater than our opening estimates for the financial year, EBIT presented back in March.

Our core assumptions continue to include: we see global GDP growth but with persistent uncertainty across geopolitics, macroeconomic policy and trade patents. We now expect gross savings from our cost saving program announced in the fourth quarter 2025 of more than CHF 150 million in 2026, up from the CHF 120 million as we have reached our target earlier than expected.

In terms of currency translation headwinds, our financial guidance assumes no more than 5% in negative impact. At this stage, it appears that this might be entirely weighted to the first half of the year 2026. And lastly, our expectation for a 25% effective tax rate remains unchanged. That leads me already to our key takeaways.

We rest with our unchanged strategic focus on growing faster than the market in targeted attractive sectors. We see this emerging in Sea Logistics already which is on a strong growth trajectory with supportive yield backdrop. Air Logistics remains a powerful source of volume growth, especially in the higher-yielding segment. Our cost reduction program is ahead of schedule, and we remain confident in full delivery of the targeted savings by year-end 2026. We reiterate our expectation of material AI productivity gains emerging in 2027, with an uplift of CHF 100 million to CHF 150 million. In light of this positive earnings momentum, we are once again raising our 2026 recurring EBIT guidance, this time to a range of CHF 1.5 billion to CHF 1.6 billion.

With this, I want to thank you for your attention and hand back to the operator, Matilda, to open the Q&A session.

[Operator Instructions] The first question comes from the line of Jamie Robert Ham from Deutsche Bank.

First one, how much of the 10% volume growth in air would you say came from underlying market growth versus market share gains? And in so far as there are share gains, do you think you can sustain those or even improve on them into 2027?

And then in sea, obviously, volume growth, sequential yield improvement. EBIT per TEU, the highest level in over a year. Should we be viewing Q3 as the beginning of a more sustained sea freight recovery? Or is it premature to say?

Jamie, Stefan speaking. I'll take the first one, the question on air freight, and this is an estimate, right? I would say 3%, 4% is the market and 6%, 7% is our market share gains and pretty much coming from hard cargo. Cargo had a double-digit increase in terms of volume this quarter, and e-commerce went down significantly. So overall, I would say, it's 60%, 70% market share gain driven.

The other one is the sea freight. Is that the new normal, so to say, a good question and this is difficult to touch basically. But I would say, at least for the fourth quarter and most probably as well as we look into the first quarter, that should be a good reference in terms of the yield is concerned, and I would not expect a significant change in the next weeks and months to come.

Stefan. I don't know if you can comment on market share next year in air, more gains, do you think?

Similar to this year, it should continue.

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

First question is just on the guidance. You have $100 million range with just 1 quarter remaining. So I wanted to understand how you're thinking about the top and bottom end of the guidance range and especially given that 4Q is peak season for air, so the thoughts on volumes and yields on air within that?

And then secondly, on sea yields. So those were up 5% sequentially. It's much less than the freight rate increase we've seen. So is it because of a mix shift that yield performance is lower than the freight rate performance. And so then related to that, how should we think about yields next year in the scenario that ocean freight rates come down?

Muneeba, it's Markus. Let me talk about the guidance. I think, yes, CHF 100 million looks like a larger corridor. I think usual way of looking also from our perspective would be around the midpoint. And I think the rest that goes from the midpoint up and down is really a variance that could still happen around the peak season, how that plays out or if there is any other interruptions that we are not aware of. I think it's a relatively fair and narrow way of looking for the next 3 months. So I would look into midpoint and then that corridor obviously halves relatively quickly.

And the question on the sea yields, Stefan speaking, it has to do with the timing, of course, right. We invoiced at the time when customer receives the cargo right at the destination, and this has to do with the timing. And that's the reason why we have a little bit of a lagged increase and slower time to show the higher yields, right? This is the explanation for this question. And as I said before, I can -- I would reiterate what I said before. I think yield should be stable into the Q4 and Q1. But beyond, it's hardly difficult to make any judgment currently.

And if I could just follow up on like the air peak season then, what are you thinking that turns out to be this year for 4Q?

So our expectation is that the volume development in the Q3, you will see as well materializing in Q4 with stable yields. So we have just started in the peak season, but I would say it's strong. Is it even stronger than the Q3 way to be seen, but it's definitely strong.

We now have a question from the line of Alex Irving from Bernstein.

Two from me, please. The first one is around AI and productivity-related savings. You're achieving really strong volume growth across both air and sea. And what I'm wondering is whether that increases the size of potential productivity savings as you can accelerate the productivity gains faster without needing redundancies, and should we therefore, see upside to the CHF 100 million to CHF 250 million AI-related EBITDA improvement that you've spoken about?

My second question is on your air freight yields. Are you pointing to semi, cloud and hard cargo as the main growth drivers, less e-com and less -- by implication, less perishable phrase in the mix, but excluding FX translation, GP was lower is being in Q4. Why are we seeing more of a positive mix effect on your air freight yields following that mix effect?

I'll go for the first one, right? And fair question, fair assumption. I think as we said before, the next update will follow in March when we present the full year figure. But maybe a couple of topics upfront, right? So for us, it's 3 ways of looking into AI and the impact of the CHF 150 million in 2027. Is everything around additional revenue and GP streams, for instance, that comes from use cases like pricing, AI pricing, where we have tested already quite intensively in air freight, and we talk about that more than in mortgage.

The second one is everything around, Alex, everything around service quality and a better quality in order to retain customers even better, especially on the SMC side. And the third one is then what you have touched based on is everything around efficiency gains, productivity and efficiency gains. And I wouldn't basically link that to a much higher volume. I would focus still on our use cases and how successful are we with the pilots, which we are currently conducting. And then, of course, if we have more volume, we can increase the potential savings. But I would not make any statement currently that we go beyond the CHF 150 million, which we have communicated a couple of quarters ago at the beginning of this year. This is our target and this is our commitment on which you can measure us.

And Alex, it's Markus. On the air yield I think when we look into FX, which obviously had 0 negative impact anymore or very small in the third quarter. So my expectation, obviously that, that's going to continue not having an impact into the fourth quarter either, right? I think what we need to look into when the mix changes, right, you're absolutely right, the stronger, the stronger profitability, the stronger margins are on the hard cargo side and special products, health care side, high tech side. But it's a very -- I think it becomes academic when we look into the fourth quarter, and we say yields are going to stay stable. If that is now CHF 1 or CHF 2 up and down, I think that's something where it's really difficult for us to assess that at the current stage.

What we can certainly say is that we will be in the similar range as we have been in the third quarter. What's exactly supporting or driving it if it's more the mix or more the way how we do the pricing or if it's more about the capacity or is it a bit more of the off the peak. I think I cannot tell you right now. What I can tell you is we expect a very similar and stable yield going forward.

And maybe to add on that last statement or comment, I think the focus is pretty clear in 2027 is as well an improved mix, focusing on the hard cargo and piggybacking on my comment a couple of minutes ago.

The next question comes from the line of Rory Cullinane from RBC Capital Markets.

First question, contract logistics. Could you help us quantify the impact of the 37 new contracts there? What kind of the uplift could that represent? And similarly just hasn't really featured yet asked the same question about the Amazon collaboration.

So let me repeat your sequential because the line was a bit bad that we understood it correctly. First question is on contract logistics, 37 new contracts and implementation and you were asking what would be the GP uplift. Is that roughly?

Yes, exactly.

Okay. And the second question was on...

Yes. Could you help us quantify the Amazon collaboration?

Okay. Right. So on the contract logistics side, I think looking at the performance on Contract Logistics in the third quarter, so when we talk about 37 or a number of new contracts being under implementation, obviously, implementation takes time is putting also some initial investments in place, right? So before -- many times before we start fully operating, we have to implement the business with start-up costs that being usually being invoiced at a later stage to the customer. So from that perspective, when we talk about new contracts, the timing and the phasing can be absolutely fluid, I would call it.

Where they are? I think we currently gain business quite around the globe, on a global basis, with a good mix of different industries. And yes, there is also some of the high-tech cloud provider business that we currently are implementing. So it's a good business mix with a global basis and in different phases of implementation. So you will not have seen the full impact of these implementations as of yet in the third quarter.

What's the second -- just to double check, Stefan speaking. The second one, the Amazon thing was how many do we implement in contract logistics at present from them. That was that the question?

Just could you sort of help us quantify the potential upside from the Amazon collaboration. Just any comments around that would be...

Okay. It's more broader, right? So what we have stated and I can only reiterate what we have stated from a couple of hundred millions, right, in all 4 business units, we have a collaboration partnership in contract logistics, ROCE. The aim is to come to CHF 1 billion kind of revenue as of 2027, and we will contribute or this deal will help us to gain share in all business units, not in one, for instance, air freight. It will help all 4 business units to grow their business with this important customer.

We now have a question from the line of Marc Zeck from Kepler Cheuvreux.

Congratulation on the good results. I just wanted to confirm that, say, for air freight, there's not any, let's say, temporary impact from the Middle East crisis. And there it's a pretty clean number driven by what you said, data center hard cargo and probably good performance Apex, no normal list.

The second question would be on the ocean freight volume number. I guess you quantified market share gains for air freight. Could you do so for ocean freight as well? And to me, it seems that overall, the ocean freight market is pretty solid, especially into the U.S., I believe, in Q3. What do you feel is driving the strength then in U.S. or, let's say, transpacific ocean freight. What do you see on the mix? Is it more consumer? Is it more manufacturing? Do you feel like in the U.S., inventories are still low, people need to restock. So anything that might help us assess the underlying strength of ocean freight volume might be helpful.

Yes, Marc, Stefan speaking. Thank you very much for your feedback and positive reaction. I can confirm, no, there is no impact from the Middle East crisis straightforward. And then the question on sea freight, where is this push or this volume increase coming from? And it's mainly from Asia, in particular, China and the U.S. and twofold, right? And we talked about it already, I think, last time.

So we have decided roughly a year ago in -- to invest into these new, let's call it, new MNC multinational customers, the new logos, new OEMs coming from China, all of them want to become global, and they need definitely support with their uplift into the markets, right, whether it's Europe, whether it's Latin America, but as well to a certain degree, of course, outside of the automotive industry to the U.S. We have signed roughly 25 master service agreements in this year. And now we get quite a good traction with these customers. And you have seen some press releases on BYD. You have seen the, but this is only to name 2. It's much more brands who want to become global, really large and very successful from a product innovation perspective, pushing their products now into the global market, and we see ourselves very well positioned.

And that is part of the success you have seen in the third quarter. That is one of the main drivers. And of course, restocking in the U.S. is ongoing, consumer is getting better, industrial is getting better for sea freight as well. But the main driver in terms of new additional volumes, as I just have described it.

The next question comes from the line of Sebastian Vogel from UBS.

First question is on air. There can you share some sort of indication potentially more on a quantitative basis how much exposure you currently have to semi and tech? And if possible, how that compares to a couple of years ago? So my first question.

The second question is on the sea side with regard to the D&A swing in the third quarter. Can you also add some or shed some additional light on that one, please?

Let me tackle the first one, right, Sebastian, Stefan. I would say, if you look into 5, 6, 7 years ago, we had a very strong automotive business out of Europe, right, with the large OEMs and with the first and second tiers on the former combustion kind of century, right? And if you take this, right, that has been replaced by the high-tech sector by the tech sector in particular, right? So -- so I wouldn't say that we have an over-dependency now on this one, but it has replaced the shrinking auto sector in a one-to-one basis.

And Sebastian on the seafreight depreciation and amortization, we have a reclassification of real estate with no EBIT impact in the sea freight -- so it's a reclass between OpEx and D&A. The amount for the third quarter was accumulated CHF 23 million. So that's why that's changing.

Got it. And going forward, the D&A number would be what sort of number then if I may follow up there for the sea freight.

When we take around CHF 6 million, CHF 7 million less than what it was as an average.

The next question comes from the line of Gian-Marco Werro from Zurcher Kantonalbank.

Two questions from my side. The first one is just a follow-up on the Asian contract or the Chinese contract. What were the key drivers and the strong development or sign new contracts with these master agreements as we already heard and so far also to expand your volumes in China? And what do you expect here? Can you quantify a little bit how many of these master agreements, partners you are currently approaching the share of how many already signed?

What do you expect also for the next 2 to 3 quarters of additional master agreements being signed in China? That's the first question. And the second one is just can you please also give us an update, if possible, on the Apex investigation that you had.

Gian-Marco, its Stefan. I'll take the master service agreement question. The master service agreement is a prerequisite of entering into business discussions, right? So 25 master service agreements doesn't mean that you have business already automatically with all of them, right? If you look at the sheer volume behind this 25, then it's millions of containers and a lot of air freight, right? But that doesn't tell you a lot, right? So it's basically how many customers can we implement and gain in a certain period.

And I would say, third quarter, we are currently implementing between 2 and 3, but the volume is quite massive, right? But you should not link it too much to how many master service agreements is more about. This is the basis, and there is maybe another 20, 30 multinationals where we can go exactly the same route, but this will take us another 2, 3, 4 years. But looking at the sheer volume of each of them, right, it's a couple of thousand container units on a quarterly basis, which we can implement.

And Gian-Marco, on the Apex, understandably, this is -- obviously, we are part of a wider U.S. government investigation. That one is still ongoing. So it's not a lot I can say. But obviously, Apex is entirely cooperating with the relevant authorities. And we know it's an isolated matter. So full cooperation and is not connected to any of our staff or anything like that where we're directly investigating. So it's all I can say at that point.

We now have a question from the line of Alexia Dogani from JPMorgan.

Just wanted to ask about kind of how we should think about your sea yields going into next year? I think I appreciate what you've talked to us before about the fact that the Chinese brands that are giving a lot of volume usually come at a lower margin. How should we think about the evolution of that mix into next year? And should we care at all about the fact that container supply is going to grow double digits next year? Or do you see that your yield will not be affected at all by that because they haven't been massively influenced by this year's spot rate dynamics?

Yes, Alex, it's Stefan. So first of all, looking at our revenue gain in the third quarter, 22%, which we translated into 53% EBIT margin, right? So we will not, by all means, tackle new volumes on a lower yielding basis. We will carefully investigate where to play, how to play and as I said a couple of times, it's not only the port-port portion is as well, everything beyond right, customs clearance, on-site delivery, value-added services. So we are not going into this market with the Chinese MNCs in order to gain sheer volumes.

We are carefully looking into an end-to-end margin, which is similar if you look at it from an end-to-end perspective with the European U.S. market and customers who decide on that side.

And I think on your second question for the container, I assume you mean there is capacity coming into the market and if that has then an impact on the rates, I think that's something we will have to see how relevant that's going to be in the next year. We have seen also this year with all the changes and disruptions and challenges, let's say, around how that works, that even additional capacity does not necessarily lead to a direct impact of freight rates. We are seeing that this capacity is sometimes even locked in congestion situations or alike.

So I would answer in theory when we looked historically in an undisturbed market I would think, yes, it should lead to a certain pressure on capacity. But I think the last at least 2.5 years have shown that, that logic becomes more skewed.

And if I may follow up just on Stefan's point around kind of the end-to-end -- could you kindly remind us the split of value-added services in the 2 kind of product segments at the moment and whether we should expect some changes in the mix there?

I wouldn't expect any changes, but in sea freight is the typical 40-60, 40 to 60 before and after. And in airfreight, we are not so much dependent on that question because we have 50% of our own charter capacity. The rest is block space agreement. And this is for this business, not so much relevant rather than for sea freight, and here is 40-60.

[Operator Instructions] We now have a question from the line of Cedar Ekblom from Morgan Stanley.

I just wanted to follow up on this question of the sort of tech or hyperscaler customer and the relevance in the air freight business. I don't want to know what percentage it is of revenues, but I'd like to try and understand what percentage that segment has been of your growth this year because there's some market data out there that suggests that ex the hyperscaler or high-tech customer that market growth in airfreight has been extremely tapered. And so I'd like to sort of get a bit of color on how you see your composition of growth this year?

And then I don't know if you can give any visibility, but it would be helpful to know if you have any sort of view on what that looks like into '27 or maybe even Q1 or Q2 of next year? And here, I'm talking about specific contracts that you maybe have in place already that can give us a little bit of color and confidence in terms of the durability of growth.

Cedar, it's Markus. So yes, I can certainly confirm that hyperscalers a good part of our growth in 2026. And I think our view currently is that growth in that space with the customers that we continuously gain is also going to continue into 2027. Specifics around which customers, how many and what's the percentage we will not be able to disclose. I'm sorry.

We have a follow-up question from the line of Marc Zeck from Kepler Cheuvreux.

Just quickly on IMC. Could you tell us if there was any yield uplift in Q3 from IMC versus Q2? And would it be correct to assume that IMC activity is strongest in Q4 when all the containers that are shipped in Q3 will arrive in the year? Or would that be a wrong way to think about it?

Your way of thinking it through is absolutely right, right? As more the volume bounce back into the U.S. as better the GP and the overall situation with IMC became so much stronger in the second half, and that is as valid for the fourth.

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.

Yes, ladies and gentlemen, thank you very much for listening. We had a very good third quarter. We will continue with our efforts and deliver the same moving forward and wish you a very good time and talk to you then latest in -- after the first quarter 2027. Thank you very much.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Good bye.

Ladies and gentlemen, welcome to the Kuehne + Nagel International AG Q2 2026 Results Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Stefan Paul, CEO of Kuehne + Nagel. Please go ahead, sir.

Thank you very much, Valentina. Good afternoon, and welcome to the presentation of Kuehne + Nagel's Second Quarter 2026 Financial Results. I'm CEO, Stefan Paul, and I'm joined today by our CFO, Markus Blanka-Graff; and once again, our Chief AI and Innovation Officer, Alireza Nemati.

Let's go into Page #2, half-year 2026 results. Volume growth and cost control drive recurring EBIT momentum. Over the first half of the year, strong volume growth in Air Logistics and disciplined cost control across the group drove the steady improvement in recurring EBIT. In Q2, recurring EBIT rose to CHF 381 million, an increase of 6% year-over-year and 24% sequentially, roughly double the typical seasonal gains. There are several factors behind this momentum. Our cost reduction program first announced last October and largely underway by year-end 2025, delivered savings of about CHF 50 million over the first half with a modest incremental uplift from Q1 to Q2. We expect this positive trend to accelerate in Q4 to an annualized gross run rate of at least CHF 200 million in savings by year-end 2026.

Discipline in cost control enhanced the profitability of the faster-growing business units, notably Air Logistics. It also mitigated the effects of annual wage inflation concentrated in Q2 and the slow development of Sea Logistics volume. The net effect was a group conversion rate of 16.9% in the second quarter versus 14.6% in the first and 16.2% in Q2 last year on a comparable basis, adjusting for the IMC reclassification. The combined Sea and Air conversion alone was 30.2% in Q2 versus 26.2% in Q1 and 28.1% last year in Q2, again, on a comparable basis. Recurring group EPS in Q2 improved by 6% year-over-year or 11%, excluding currency headwinds. Headline free cash flow generation in Q2 was roughly comparable to last year's. Excluding disposal proceeds, there was a decline because of higher working capital outlays linked to growth, especially freighter-based airfreight.

Overall, we see continued evidence of market share expansion across multiple business units. Given the momentum in the first half and our expectations for the second, we are lifting our 2026 full year recurring EBIT guidance. As usual, Markus will cover this in more detail shortly. Here, Alireza will also present our AI update, along with our expectations for material productivity improvements emerging in 2027.

Let us now turn to our performance by business unit. Page #3, we start with sea freight. As always, cost control drives further recovery of unit profitability, left, volume; then GP per container unit, and right, EBIT per container. In Sea Logistics, unit profitability recovered significantly for a second consecutive quarter, thanks to our cost reduction efforts and improved quarter-on-quarter volumes. Q2 volumes expanded by 8% Q-on-Q or in line with the average Q1 to Q2 uplift over the past 5 years. Year-over-year, volumes declined by 1%. The situation in the GCC is still a material drag on volumes. European and North American import trades from Asia were robust in Q2, but countered by weak demand in backhaul trades to Asia.

Our share of SME volumes rose to 52% in Q2 from 50% in the first quarter. EBIT in Q2 improved sequentially by 24% to CHF 140 million, mostly due to cost management efforts. Volume growth and improved profitability at IMC also contributed to the increase. Year-over-year, EBIT declined by 6%, excluding currency effects, mainly due to lower yields. Average yields were stable Q-on-Q for the third consecutive quarter, in line with the expectations we shared during our last earnings call. We anticipate a continuation of the solid trend in yield. The Sea Logistics conversion rate was 29% in Q2 versus 30% last year and 25% in Q1.

Next is Air Logistics on Page #4: Strong EBIT growth driven by higher volumes and better mix. In Air Logistics, strong underlying volume growth, a beneficial shift in mix and ongoing cost control combined delivered a very robust EBIT improvement. Q2 volumes expanded by 13% Q-on-Q. This growth is well ahead of the average 9% sequential uplift over the past 5 years. Year-over-year, volume grew by 3% in Q2 despite a much tougher comparison of 9% last year. EBIT rose by 39% quarter-on-quarter to CHF 154 million in Q2, a 42% increase year-over-year, excluding currency headwinds.

A very beneficial mix shift helped drive this EBIT improvement. We gained market share in higher-yielding hard cargo segments, including the technology sector, while the contribution from lower-yielding businesses like perishables and e-commerce declined. This positive mix shift is the main driver of better yields, 8% better quarter-on-quarter and 10% year-over-year. The Air Logistics conversion rate was 31% in Q2 versus 26% last year and 27% in the first quarter this year.

Next is Road Logistics on Page #5. Headline: EBIT growth accelerates on market share gains. In Road Logistics, EBIT growth showed continued momentum in the first half, building on the signs of demand recovery we first highlighted in Q4 last year. The Q2 EBIT totaled CHF 36 million, a 29% improvement on last year on an organic basis, excluding currency headwinds of 7%. Net turnover grew by 16% year-over-year in the second quarter or 12% organically, both excluding currency headwinds. This marks a clear improvement on the respective 9% and 5% growth in Q1. These positive trends reinforce the view that Q4 marked an inflection point.

We feel that the improved shipment volumes of recent quarters results more from a market share gain than a recovery of underlying demand. Demand for custom solutions remained firm, a consistent trend since Liberation Day in the second quarter last year. This was also the case for demand in the UAE in response to supply chain disruption from the conflict in the Middle East. And lastly, we now see signs of more robust demand emerging from the tech sector. This was Road Logistics.

Now let's move to Page #6, our Contract Logistics business. Solid underlying profits with investments in growth. In Contract Logistics, recurring EBIT was solid on an underlying basis. Recurring EBIT totaled CHF 51 million in Q2, 14% lower sequentially and 9% lower year-over-year, excluding currency effects. This result reflects some additional costs due to new contracts going live in Q2 as well as investments in people and systems to meet growing demand as well, here, in the tech sector.

Net turnover grew by 4% year-over-year in Q2, excluding currency effects. This is roughly in line with the typical underlying growth of 5% over the previous 4 quarters. We saw continued market share gains once again across geographies and sectors. The conversion rate of 6% in the second quarter roughly matches the underlying prior year result. We are confident that the stable growth trajectory will continue as Contract Logistics currently has more than 30 new contracts in the implementation phase. This concludes my comments on the performance of the business units.

And I will now hand over to Alireza for an update on the progress of our AI initiatives.

Thank you, Stefan. Since we spoke to you in March, we have continued to scale AI across the organization with the goal of creating sustainable operating leverage. We currently expect AI integration to yield productivity gains of at least 5% across our addressable white-collar workforce and significantly higher output per IT engineer, with material traction emerging in 2027. Winning the future in global logistics means using AI to manage complexity and increase shareholder and customer value. We have built 4 advantages for exactly that purpose, starting from the bottom of the slide.

We own and control our proprietary cloud-based IT platform and have maintained our own TMS systems for decades. We have made our data AI ready. We are redesigning workflows with AI at the core, and we are equipping our people to scale adoption of AI. These mutually reinforcing advantages create a competitive moat that will help drive our future growth, margin expansion and differentiation. Integrated data enables smarter workflows, redesigned workflows free people for higher-value work. Engaged people build deeper customer relationships and customer relationships not only generate data that makes our AI model smarter, but also generate the revenue that will drive our profitable growth.

The benefits of our AI transformation will come from 4 areas of improvement: operational, developer, individual, and customer. These benefits will establish a durable and compelling value proposition for logistics customers. We're increasingly seeking partners who have successfully integrated AI into their own organization.

I will start with the operational benefits because that is where AI translates straight into better P&L performance and stronger customer relationships. Our efforts to centralize and standardize repetitive workflows are already having a positive effect across the group and they laid the groundwork for AI-driven automation with material traction expected in 2027. In sales, AI has begun to generate customer briefings, automate meeting documentation and assist the contract review of incoming RFQs. Presently, we expect a productivity increase of around 10%.

In quoting, we are increasing our daily capacity and customer responsiveness. AI is now processing standard spot quotes and automatically escalates complex cases for human review. In customer integration, we can now complete bespoke EDI and API connections in less than a day. This means we have started to onboard customers faster at a lower cost. In our global services, we are using AI agents to progressively automate workflows end-to-end. This began with ticket handling and will extend to route verification, document management and proof of delivery validation, just to mention a few.

In shipment visibility, AI agents have started to verify transport milestones autonomously. This improves response time and eliminates manual follow-up. In exception management for temperature-sensitive cargo, AI agents work around the clock, verifying compliance and shipment conditions across carriers and languages. This will enable us to focus on fast, scalable intervention for high-value goods. Finally, in our warehouses, machine learning dynamically matches labor capacity to expected demand.

Beyond operational benefits, AI is also helping our development teams build and maintain higher quality software faster. A growing share of our code is now AI generated. We already deliver products significantly faster and expect to increase output per engineer over the course of 2027, improving our speed to meet market demand. We are transitioning towards a state where AI orchestrates the entire software development process where our engineers retain ultimate responsibility for validation, decision-making and oversight. To increase individual productivity through AI, we are putting internal agents directly in the hands of our white-collar workforce from top management to office employees.

As with our other efforts, we expect to see first traction from these efficiencies over the course of 2027, although the monetary impact remains difficult to assess. We have begun rolling out enablement program that helps every level of the organization understand AI, trust it and use it to augment their own capabilities. As AI literacy rises, the same workforce can take on more volume and more complex work, allowing us to grow without expanding our cost base at the same rate. The benefits for our customers will also be significant. By integrating our AI directly with our customer systems, we become embedded in the operations as we expand our strategic partnerships.

Speed to market is paramount while the window of opportunity remains open. We have already started to evaluate the readiness of industrial and tech companies for this kind of partnerships. As we co-develop AI capabilities with key customers, the integration deepens with every transaction and creates switching costs that competitors cannot easily replicate. For example, better predictive ETAs and proactive exception management enhances customer trust and the durability of our top line growth.

So let me turn to our cloud-based AI platform, which powers this transformation. Our proprietary platform gives us control over quality, cost, resilience, and speed of deployment. This approach to AI integration is rare in a market where most of our peers depend on external vendors for their core TMS. Instead of every team building its own AI stack, our platform provides the shared infrastructure once. So teams solve business problems rather than rebuilding plumbing. And every new capability is deployed enterprise-wide at marginal cost.

Our core AI platform has 3 layers, again, from the bottom of the slide. The foundation layer connects all our internal and external systems. The middle layer lets us ship new AI capabilities across the whole organization at speed by ourselves. No vendor negotiations, no integration queues. Importantly, this means we are not tied to any single model provider. We deploy whichever model is best for each task and swap as the technology evolves. At the top, sits a single pane of glass, one access point that puts our AI agents into the tools our people already use every day.

So let me close where I began. Our AI strategy is focused on creating sustainable operating leverage. This includes at least 5% productivity gains across our addressable white-collar workforce and significantly higher output per engineer with material traction emerging in 2027. We are embedding AI as a core operating logic, not as a peripheral tool. It is a key enabler for future growth, margin expansion and competitive differentiation.

With that, I'm happy to take your questions during the Q&A, and I will now hand over to Markus.

Thank you, Alireza. Good afternoon, all, and thank you for your continued interest in Kuehne + Nagel. I would like to start where Alireza left off with some additional details related to our AI initiatives. The initial traction we expect to deliver in 2027 relates to our core white-collar workforce in Sea Logistics, Air Logistics and functional areas such as sales, finance, IT and HR. We are also working on use cases specific to Road and Contract Logistics, but the focus areas we highlight here are expected to deliver the first visible traction in 2027.

On the left side of the slide, you can see 4 pie charts specifying the addressable workforce and the associated cost base. This is the scope for our short and midterm opportunities. On a long-term basis, this picture may change to a larger population, and we will continue providing you updates on a half year basis. The size of this white-collar workforce is just over 25,000 FTEs and represents a cost base of approximately CHF 1.7 billion. That's roughly 35% of our total staff cost. Based upon the initiatives that are underway, we see current scope of productivity improvements of at least 5%.

Alternatively, a similar increase in business volume without cost increase. We project an annualized EBIT impact of CHF 100 million to CHF 150 million to be realized by the end of 2027. This estimate is based upon run rate gross profit and staff costs in first half 2026 alongside the number of processed Sea and Air Logistics orders per FTE and gross profit per order. Let me emphasize that these values are based on current cost levels for AI services. If these costs were to change in the future, we will include this in our regular updates.

When it comes to technology, I'd like to emphasize the strategic advantage of TMS ownership and in-house development as it should afford us greater speed and depth of AI deployment. Our initiatives to develop a broad-based AI literacy and effective use of copilots at the individual level is a critical foundation for all of our AI efforts. All our initiatives play into better customer experience and service quality.

Lastly, we are assessing additional use cases, including potential top line initiatives. We will update you on these efforts when appropriate to do so. We will continuously assess the scope and provide our next detailed update no later than March 2027 alongside the presentation of our full year results. I would now like to turn to the regular review of our financial performance for first half year and second quarter of 2026.

Looking at the income statement for the second quarter, I would like to describe the key drivers behind the year-over-year earnings development. First, we saw an inflection in year-over-year gross profit trends in Q2 with a return to growth led by Air Logistics volumes and yields. Second, a high proportion of this gross profit growth converted to recurring EBIT growth, supported by our cost reduction program, which provided about CHF 50 million of savings over the first half year. And lastly, underlying EBIT growth was masked once again by a 6% foreign exchange translation headwind in Q2 as last year's results consolidated at a significantly stronger U.S. dollar value.

Turning to working capital development. We saw the base increase to more than CHF 1.6 billion over the past quarter, an increase of 6%, reflective of strong sequential volume development as well as higher rates. However, the relative development improved with net working capital intensity declining from 6% at the close of the first quarter to 5.5% by midyear, back within our guidance corridor of 4.5% to 5.5%. This corresponds with a re-expansion of the spread between DSO and DPO to nearly 3 days. The CHF 97 million increase of core working capital in the second quarter contrasts with CHF 86 million inflow during the same period last year. This primarily reflects the growth in Air Logistics, supported by a large proportion of dedicated freighter services.

Now, let's have a look at how this fits into overall free cash flow generation in Q2. In Q2, we produced CHF 116 million of free cash flow, including CHF 40 million of cash proceeds from asset disposals, which had no material P&L impact. This was offset somewhat by the cash outflows related to our cost reduction program. For a closer look at the cash conversion, let me move on to the next slide.

Here, we see the usual comparison of free cash flow conversion in the most recent quarter versus historical average. What is new in this presentation is a focus on history since the first full year of Apex consolidation, an event which changed the pattern of our free cash flow generation with a larger proportion of freighter-based airfreight activities. The second quarter is typically the second weakest cash conversion quarter after Q1 with an average conversion rate of 54% since 2022. In the current second quarter, conversion was 28% or just above 30%, excluding the effect of the cost reduction program outflows. The weaker relative conversion in Q2 is a product of high growth in airfreight volumes supported by dedicated freighters. Looking forward, we expect a continuation of normal underlying free cash flow conversion trends over the coming quarters and would highlight a long-term average of 90-plus percent conversion rate heavily weighted to the second half of the year.

Turning to our financial guidance for 2026. We are raising both the lower and upper ends of our recurring EBIT guidance by CHF 100 million and CHF 150 million, respectively. This results in a new recurring EBIT guidance range of CHF 1.35 billion to CHF 1.55 billion. Our upgraded guidance for the year implies a stronger recurring EBIT result in the second half of the year versus the first half. This is in step with the historical average distribution of earnings power, given that peak demand is typically weighted to the back half of the year. We continue to see global GDP growth, but with persistent uncertainty across geopolitics, macroeconomic policy and trade.

Our cost reduction program is on track with a faster-than-anticipated start in Q1. I reported about that and some incremental progress in Q2 to deliver approximately CHF 50 million of savings so far. We expect a run rate in Q3 similar to that of the second quarter with acceleration into Q4. The target is unchanged with an annualized run rate of more than CHF 200 million of gross savings and an impact of more than CHF 120 million in 2026 alone.

Moving to currencies. In terms of currency translation headwinds, our financial guidance assumes no more than a 5% negative impact with the bulk of this headwind in the first half. Our expectation for a 25% effective tax rate is unchanged. And one final note regarding capital structure. Please remember that our long-term preference for a small net cash position remains unchanged.

That leads me to the key takeaways, namely our unchanged strategic focus is on market beating growth in targeted attractive sectors. Air Logistics is currently a key driver of profit growth, thanks to market share gains and attractive mix development. Yields in Sea and Air Logistics remain stable, respectively, significantly improved. Our cost reduction program is on track with continued confidence in targeted savings. We reiterate our expectation of material AI productivity gains emerging in 2027. Today, we provided you with further details around specific initiatives and business areas that will contribute to this initial traction with the scope of annualized EBIT impact by year-end 2027 in the range of CHF 100 million to CHF 150 million. Lastly, we are raising our full year earnings guidance range for 2026 to CHF 1.35 billion to CHF 1.55 billion.

With this, I want to thank you for your attention and hand back to the operator to open the Q&A session.

[Operator Instructions] The first question comes from James Hollins from BNP Paribas.

I was just commenting on the Contract Logistics side and the EBIT phasing there. Clearly, you flagged a lot of investments and new contracts starting in Q2. Is that kind of the peak headwind as it were this year? Or maybe should we be thinking about Q3, Q4 seeing something similar, I guess, as a headwind to the overall divisional EBIT in 2026?

And then secondly, I see relative to the Q1 presentation, you removed the comment sea and air freight market demand growth in line with GDP at best. Am I reading too much into that? And is that, I guess, the uncertainty around that is why you've widened the range on full year guidance?

Hi, James, it's Markus. Let me talk about Contract Logistics quickly. Q1, I think we called out also a nonrecurring effect of CHF 36 million that has obviously moved the first quarter result quite substantially. Going forward, Stefan has alluded to contract wins. Contract Logistics is a business that needs a couple of weeks, if not months, to start implementing these businesses. Usually, what we see is that as we speak, back end of the second quarter and going into the third quarter, we have 300,000 square meters under implementation for various customers. So you should see a bit of a start-up cost situation, which goes then into the third quarter and we'll see the first positive impact on the P&L in the fourth quarter. So it's really a matter of growing the business in a contract logistics way.

Yes. And I take -- James, I'll take the second -- Stefan speaking. I'll take the second question in terms of, first of all, is the GDP growth, the 1.5x GDP expectation still our focus, still our commitment? Yes, it is. We have seen a little bit of a dip in sea freight, but we remain confident that this is coming back. We have expectations on positive volume development for the third quarter and as well for the fourth quarter. And overall, most likely, we will end up the year positive. In airfreight, there is a very strong demand still coming in, and that's the reason why we are rather confident to deliver the 1.5x GDP growth in terms of volume in airfreight on a constant basis. So hopefully, that answers your question on the uncertainty around 1.5% GDP growth. Yes, no, yes, it is a clear yes.

Just to confirm, you're talking Sea volumes expected to grow in Q3 and Q4?

Yes. Yes.

The next question comes from Alex Irving from Bernstein.

Two from me, please, both on AI. First of all, thank you for the helpful detail. First question, why would you be able to hold on to any cost reduction from AI in the margin rather than using the cost advantage to take volume share? Second one, you highlight your advantage in deploying AI as you have full workflow ownership, TMS ownership and clean data. But what scope do you see for third-party software vendors and AI start-ups to help other forwarders match your capabilities? In other words, is this a lasting structural moat? Or is it merely a head start as to the rest of the market?

Alex, it's Markus. First question on the cost reduction. Spot on, you're absolutely right. I think I'm a believer in when the cost benefits are being created, eventually, they will move on to the customers' benefit, rightfully so over time. So you have benefits as a first mover. Hence, I think Stefan's comments were clear. Our clear preference is to take on over-proportionately more business with the existing, well-educated expert workforce rather than not growing and -- or leaving some of the business opportunities on the table and just chase cost opportunities that might transfer to the customer. So answer is very clear, preference of growing over proportionately the business with our experts, than the second option.

Alex, this is Alireza. I'll take the second one. As I mentioned, one of our strongest moat is that we have the in-house development, as you rightly called out on the TMS and on the data layer that we currently have. There's a couple of places that we're playing right now. One is that we're currently developing initiatives in-house, obviously, given that this space is moving so fast, we also partner with external companies and start-ups to either co-create together or utilize the latest technology and bake that entirely into our AI core stack. That is one of our biggest advantage so that we don't have to negotiate with third parties and can straight implement the effect of the latest AI models right into our systems.

And when it comes to partnering up, it's obviously important for us to be more agnostic because, for example, it does not make sense to use a very expensive frontier model to read a field in the database. Here, we're looking at the latest models that are currently available and can either use a small language model to do that, which is cost efficient and lower cost or develop the technology in-house to exactly execute on that.

The next question comes from Marco Limite from Barclays.

I have a follow-up question on your estimate of CHF 100 million to CHF 150 million cost savings on AI. Shall we think about it as addition to EBIT? Or in other words, how have you been factoring in your calculation also some pricing dilution as most of the other freight forwarders will also try to implement some cost savings. So is the CHF 100 million to CHF 150 million a net EBIT increase, or is that just a cost gross of some possible pricing dilution? That would be my first question.

And second question is on OpEx. There have been some headlines out there where you are suggesting or headlines suggesting a potential disposal of a 20% stake or an IPO. Can you just clarify what's going on there? Because clearly, you bought Apex, then you sold a minority stake, then the put option was triggered and now this headline. So yes, just why you are considering a disposal? Is there anything going wrong there? Or you just think that makes sense to crystallize value?

Hi, Marco, it's Markus. So first, the question on the CHF 150 million and how that arrives into the EBIT line. And I think however you want to look at it, I can confirm that this is a gross amount at the current stage. And I'm emphasizing the gross because we are currently not 100% sure how the cost development of AI services will continue into 2027, but this is something we will see as we go into the year.

But how it's going to get into the EBIT line can be different routes, right? One can be the straight out cost reductions, manpower reductions, FTE reductions or alike. And the other one is, again, our preference growing the business. And we have assumed in our models that growing the business, we would do at the current productivity and unit economics that we currently enjoy. So it can be through both ways. Clear in our mind is that the CHF 100 million to CHF 150 million will arrive at EBIT level. So that's -- I think your view on -- you can probably look into this from a calculation or modeling perspective in both ways.

Apex, I can only say Apex continues to be our strategic investment. It is a massive growth opportunity and growth organization within the network of Kuehne + Nagel. I have also seen commentary out in the market, but there is nothing that we could comment or confirm or make any statements around that other than Apex is a part of Kuehne + Nagel organization and a very high-valued growth machine for us.

Marco, let me add, Stefan speaking, and I think we have mentioned that already a couple of times. Since now almost 2 years, we are leveraging Apex as well as our carrier. So the Kuehne + Nagel legacy basically is using their expertise, their expertise in terms of the charter capacity and the operation, which is managed out of Hong Kong. And this is as well an enabler, was an enabler, and still is an enabler for our significant growth, in particular, in the tech sector. So this is an integral part of our business offering.

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

Just coming near term, I wanted to talk a little bit on what you're seeing in the ocean market right now. Do you think the strong demand we've seen was a pull forward? And you talked about volumes higher -- growing year-on-year in ocean. And then I just want to make sure, how are you thinking about ocean yields in the third quarter at this point? And then secondly, just on Contract Logistics. So with this growth on the hyperscaler side, where do you see potential for the Contract Logistics business? And how much can it grow, not just this year, but as you think about the next couple of years?

Yes, thank you very much, Stefan. First of all, as we all know, we have seen strong demand coming into the second quarter, especially in the Transpac business. A lot of demand in Asia, especially China to the U.S. and the benefit from -- and this is the second question from a yield perspective will be seen in the second half. So the yield will go up. I have mentioned, I think, in the last 2 calls that we have started to focus pretty much on the new giants in China and on the prepaid market. We see already decent success. And that's the reason why my statement was made a couple of minutes ago that we expect a positive volume development for us, low single digit, of course, but positive development supported by the Chinese prepaid market into Europe, but particularly the U.S. when it comes to the sea freight. So overall, rather or slightly positive in terms of the volume outlook driven by these trade lanes and the yield will be higher going into the third quarter.

The hyperscaler question on the Contract Logistics side, we have mentioned or maybe take it a little bit different spin here. We have started 1.5, 2 years ago with airfreight first with the inbound legs to the U.S., then followed by the last mile, the installation activities, leveraging our road business unit and then on some of the power lanes as well sea freight. And now last but not least, but a very important aspect is the nomination of some of our customers, large customers, very large customers for the Contract Logistics business, we have in implementation roughly 300,000 square meters in the U.S., which is brand new to us. The question was, is that to be replicated and what is ahead of us in terms of how many contracts do we believe we can gain in this marketplace.

And I think this is the beginning. We expect that looking at the pipeline in the U.S. and other markets for this tech hyperscaler marketplace that the stickiness of our contract logistics organization and the capability now, including vendor management has been proven, and I have no doubt that we see more contracts coming in our way.

The next question comes from Alexia Dogani from JPMorgan.

Just firstly, Markus, very helpfully, you mentioned about the cost development of these AI tools. We're hearing kind of increased cost inflation for cloud, for tokens. Can you give us a sense of what's the basically cost base that is relevant for this kind of inflation trends? And how do you see kind of the evolution forward? That's one.

And then secondly, if possible, can you give us a little bit of a sense of this CHF 100 million to CHF 150 million annualized gross savings by the end of '27, how they phase in? And does this give you confidence that basically the organization has enough levers to offset any potential kind of pressure on the Sea Logistics, vanilla brokerage yield?

I can take the first question on the token side. This is Alireza. We can all see an ongoing public debate around the future cost of compute, especially around AI deployment. But given the rapid pace of technology development, we emphasize the flexibility build in our AI stack and that our approach is model agnostic. This affords us to have the freedom to deploy a wide range of tools with varying capabilities and costs that are best suited to the task. And I double-click on the example I mentioned before, if you consider that you want to utilize AI for small tasks, it's not necessary to use the most expensive frontier models instead you would focus on a so-called small language model that could give you the same results at a lower cost base.

And Alexia, I'll take the second question on the phasing. Practically, what we're looking at is where processes have been already standardized, automated to a certain extent. I think this would be the -- or these are the first areas where we can see quick wins, I would call it, low-hanging fruit. Typically, these are already situations where we took from wage leverages from higher-cost countries in the lower-cost countries. So I would look at the phasing of -- when you look at the 2 pie charts that we have provided that maybe from a pure FTE perspective, things are going to move a little bit earlier than on the cost side because there, really, the juicy, I would say, the juicy opportunities we have might actually only get into full scale in the second half of 2027. That's why we have a phasing that is, I would call it backloaded in a very traditional sense.

The next question comes from Kulwinder Rajpal from Baader Europe.

So 2-part question on Road Logistics. Firstly, I wanted to understand how much of the EBIT growth in Road Logistics stemmed from you going from Sea to Road in the Middle East? Because if I remember in the last quarter, we had 90% to 95% of EBIT coming from the base business in Europe plus some growth in U.S. So I wanted to understand how that's changed sequentially. And then when you talk about the emerging demand from tech sector within Road Logistics, is there any carry-through from your other businesses that is translating into that demand on the Road side?

Yes. Stefan speaking. So no change to my statement during the Q1 call. The business in the Middle East is good and developing quite nicely, but it is far too small. So 95% of the business is still, again, Europe, U.S. and Asia. And even if we see growth based on the current situation, that is not moving the needle significantly on EBIT level. That's the first one.

The second one is, I think what we need to understand and what we really push is the cross-selling between the different business units. As I mentioned before, it's not only the inbound for the tech sector when it comes to air freight, it is as well certain power lanes where we come in with our sea freight offering, in particular, the last mile opportunities leveraging our road business unit. And now last but not least, but very important, vendor management and contract logistics capabilities with large warehouse operations coming in for us in the U.S. So here, you clearly see that we leverage all 4 business units in order to support the customer end-to-end and we cross-sell as much as we can between the different units in order to get a higher share from this industry.

Okay. And just a quick clarification on volumes in air. Was there any element of preordering that you saw in air freight volumes? And do you see that happening in your current discussions with customers?

This is difficult. This is, you mean, in tech most probably, right? So preordering. There was a -- so the second quarter was definitely strong, and we had a discussion with some of you already. Is that front-loading or is that sustainable in terms of restocking? I would exclude the tech sector on that because the dynamic here is completely different. So I would not believe or we do not see that from a tech sector hyperscaler, there is any shift in demand or softening in demand coming into the next couple of quarters. So I would say this is an ongoing high demand request from customers on the inbound flows.

The next question comes from Sebastian Vogel from UBS.

The first question is on the air volume side. You mentioned there is some positive volume growth ambition for the third quarter and second half. Is there any chance that you give a little bit more granularity what you have in mind there, something like mid-single digit up year-over-year or something in that direction? The second question is on the sea side. Of course, there is additional containership capacity coming into the market over the second half and also beyond. Is that, in your understanding, a risk to rates over time? Or do you see that can be used by incremental demand or there is more scrapping? Or what's your thoughts there?

I'll take the second, Sebastian. So this is an ongoing debate, right, since now more than a year. Is the additional capacity larger than the incoming or substituting the incoming demand from customers? So far, I would say, with all the disruptions we see in the Middle East, the shortage of boxes, steel boxes in Asia, the high demand in Asia, I would not basically bet on that there is a significant change of rates. Of course, the volume demand is cooling down a little bit right now, but I would not say this is a shift. And I do not yet see that the additional capacity coming in, in the second half will change the picture significantly.

And on the airfreight side, I think, yes, we have higher growth in percentages than in the second half. But I think what we should also see is airfreight has typical seasonality that third quarter is a bit of a lower quarter. I think that seasonality still holds true. So I would phase if I was to look into that, still into a very solid growth continuation and good performance into the second quarter with maybe relative stronger fourth quarter.

Just to one figure maybe, right? I've forgotten to mention, right? The congestion and the disruption currently is absorbing or taking 17% of the global sea freight capacity out of the market. So just to give you a little bit of a flavor why I'm -- what I have said, right?

The next question comes from Mark Zeck from Kepler Cheuvreux.

Two, if I may, could you provide a bit more color on Apex and IMC? What is their current trend development? I would assume that the cost savings you enacted are more for the, let's say, core of Kuehne + Nagel, not so much for IMC and Apex themselves. So is the EBIT development for those 2 branches or subsidiaries going up from last year, recovering from all that happened in the U.S. for IMC and the abolishment of de minimis for Apex?

And the second question is on Road. I guess when you discussed Road, you said you saw some market share gains. Would it be fair to assume that those market share gains were kind of taken from one of your larger competitors in Germany/Denmark? And would you expect to hold on to those market share gains? Or is there a chance once that competitor gets its house in order that they will take back this market share? That's my 2 questions.

Yes. Mark, I take the Road question. So the road business traditionally is in Kuehne + Nagel, very much SME-related business, 60%, 65% in certain markets up to 70% is SME, small- and midsized customers, less of the larger ones. So it's difficult to see from whom do we take market share. Of course, in certain markets, let's take France, maybe a little bit Germany and others, there is an inroad from the competitor you have just mentioned, but I wouldn't overstate that too much. But overall, we see that there is quite some nice volumes coming our way, especially in the SME, but I do not want to point out to one particular competitor, but we see that now since a couple of quarters. And I believe from everything, all the signals, everything, the booking patterns from customers, this is an ongoing trend, and we should see that continuing in the next couple of quarters.

Very good. And Marc, I'll take the questions around Apex and IMC. I think Apex, we have described and answered quite extensively already. It's clear, it's one of our strategic elements in our airfreight strategy, very much centered around good performance or very good performance on Transpacific. And I think also how Stefan has already talked about it, the way how the business operation is being integrated gives us additional leverage. The IMC side, we haven't talked about it yet. We can say that since acquisition, we have developed that business jointly, and it is currently certainly at the strongest that we have seen since the acquisition. Driven is that surely by volumes and also most recently, I would say, some pricing power due to the reduction of certain driver groups from the U.S. market because of the well-known government actions. Clearly, also here, the outlook for the second half is we expect a very strong performance to that. Maybe just for everybody on the IMC side itself, the acquisition was mainly driven from our wish to extend services alongside the supply chain and the value creation, and that certainly is a very strong argument for that.

The next question comes from Peter Ajose-Adeogun from Morgan Stanley.

Just one question for me. I just wanted to ask around pricing power. How would you describe pricing power for your business? And do you think it's better or worse versus the peer group, say, from 2 years ago, if I can just ask around that.

Stefan, I'll answer that in the following way, right? So we have only 3 large competitors left, right? And that has definitely increased our pricing power as the largest in volume in Sea and Air, we have a certain pricing power. I think we should not overstate that. But at least we see in certain markets where we really have a high market share, it helps us in terms of the pricing towards the market.

And maybe just a follow-up. Outside of market share, is there anything where you think maybe your business position has changed versus peers that has helped with that at all?

The consolidation helped definitely on the 2 lanes to Europe, but more to the Transpac. If you look at the statistics, we are amongst the top 2 now in terms of the Transpac volumes are concerned, and this has considerably changed over the last 2 or 3 years, much stronger than in the past. And for airfreight, I would say it's the quality stamp, right, which is convincing and the quality which we are executing and producing is second to none in the marketplace.

The next question comes from Harishankar Ramamoorthy from Deutsche Bank.

Just a couple, please, if that's okay. Firstly, on the AI benefits, it's helpful to have a range of number for 2027. But do you think it's slightly too early to think about how this progresses into 2028 or beyond? And maybe I missed this, but did I miss any numbers on the cost around the AI benefits? I believe you said it was a gross amount. Just wondering what the costs might be? And maybe one another question on air freight. I believe you've mentioned that yields probably in sea hold up really well into H2. But any indications on yields in the air freight segment?

Harishankar, I hope that was right. So airfreight Stefan is going to talk about it. I'm going to do the AI part. Cost savings, I think I would call them structural by nature because when you think about when we have processes that are currently being executed by a certain workforce and tomorrow, they are going to be executed through AI. I think it is inconceivable that in 2 or 3 years' time, we would go back and reinstate workforce for that. So I think once these processes are being put on an AI execution, they will not come back. So savings that we generate in '27 should compared to the baseline where we started should stay savings also going forward as a structural change.

On the cost, you're spot on. We currently -- and I think Alireza has talked to it, we currently and certainly enjoy as a global phenomenon, I would call it, relatively low cost for AI services. I think everyone's expectation is that's going to rise. But frankly, I've got no idea what's going to be the next cost level or what's going to be the cost level next year. So hence, we said for the time being, we consider that as gross savings, and we will have to update you on the cost during our next update in March 2027. Unfortunately, I can't tell more than that.

On the airfreight yields, last part of the question is, I believe that, and what we see is that the yields will stay somehow stable into the third quarter with a stronger peak in the fourth. So third quarter is stable, fourth might be a little bit higher.

The next question comes from Lars Heindorff from Nordea.

It's on the tech vertical and the hyperscalers. I realize that you are now investing a bit in that area, the reason for the results in Contract Logistics. Can you say anything about the length of those contracts that you engage with these hyperscalers? Normally, I would say that contracts in contract logistics will be at least 3 years. Are these significantly longer or shorter? I mean, how is the contract backlog looking? That's the first part.

And then the second is on the share volumes. I don't know if you want to reveal or say or if you can or will say anything about it, but both in Air and Contract Logistics, how much is the tech vertical and specifically the hyperscalers? If you can say it or will say it, then maybe, I mean, will there be any growth in the air freight market, both for you and in the market if it wasn't for those hyperscalers right now?

So Stefan, I'll take the first one. The Contract Logistics question. So our contract logistics normal lifetime or contract time is 10 years, sometimes with the break clause after 7 years. Similar here to the hyperscalers, right, it's a long-term engagement. It's not 3 years or short, right? So we only engage if we have to have a back-to-back for longer than 5 years. But normally, we go for 10 years in our investments or co-investments with customers. So it's not a short-term engagement as well for this industry.

And on the volume side?

Lars, market share -- you were asking around the share on the tech vertical, right?

Yes, more specifically, the hyperscalers. I don't know if it's all of it or I don't know.

Sadly, silence is going to be our answer to this. You have to live with that for a moment, unfortunately. Sorry about that.

But can you -- I thought so. But can you say -- I mean, what would it be if -- I mean, the growth there -- would there be any growth if it wasn't for this vertical right now?

Yes, absolutely. So let me put it in a different way. Hyperscaler is not the only area of growth. We do grow in quite a number of other specific areas very solidly as well.

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 for your interest in Kuehne + Nagel. Thank you very much for your questions. Much appreciated. I wish you a good summer break and talk to you soon. Thank you, and goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the Kuehne + Nagel Management AG Q1 2026 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Stefan Paul, CEO of Kuehne + Nagel. Please go ahead, sir.

Thank you very much, Sandra. Good afternoon, and welcome to the presentation of Kuehne + Nagel's First Quarter 2026 Financial Results. I'm CEO, Stefan Paul, and I'm joined today, as always, by our CFO, Markus Blanka-Graff. Page #2, first quarter 2026 results. Recurring EBIT exceeded our guidance. The recurring EBIT of CHF 308 million in Q1 exceeded the guidance we communicated with Q4 results. That is a result that would broadly match the CHF 285 million we achieved in Q3. We attribute most of the upside to first signs of visible cost reduction with phasing running ahead of plan.

We had announced this cost reduction program in Q3 and booked provisions, as you all know, for it in Q4. We still expect to achieve at least CHF 200 million of annualized gross savings by year-end 2026. At the close of the first quarter, we are running ahead of plan and confident in our ability to reach our target. Our successful cost management in Q1 mitigated some of the effects of volume impacts from the conflict in the Middle East. Also, the year-over-year comparison was high, especially in Sea Logistics, where underlying volume growth last year was 6% in the first quarter. That was due in part to front-loading before Liberation Day.

The net effect in Q1 was a year-over-year decline of 17% in group EBIT. Recurring group EPS declined by 18% year-over-year on the same basis, excluding consideration of negative currency effects and a one-time CHF 35 million gain on a real estate sale and leaseback transaction. The combined Sea & Air conversion rate was 26%. Free cash flow generation in Q1 exceeded that of last year, supported by disposal proceeds linked to the real estate sale. Excluding these, underlying free cash flow conversion of 40% in Q1 reflects typical seasonality as the first quarter is normally the weakest of the year.

Before moving on, I would like to address the current market situation. With respect to market share, it is currently more difficult to assess our progress versus peers in Q1, given the spike in volatility set off by conflicts in the Middle East. Pending further clarity, we are assuming that recent trends continued and that our market share was stable or slightly greater in the period. In terms of expectations for near term, we expect a Q2 EBIT result greater than that of Q1 on the back of higher and sustained service intensity during a period of supply chain disruption.

As such, we are modestly raising the lower end of our full year financial guidance, a topic which Markus will cover in more detail shortly. Now let's turn to our performance by business unit. Page #3, Sea Logistics. Cost control drives recovery of unit profitability. As always, volume on the left-hand side, GP per container unit in the middle and EBIT per TEU on the right-hand side. In Sea Logistics, unit profitability recovered significantly versus the last couple of quarters, thanks to our cost reduction efforts. You can see this underlying improvement in the last 2 quarters in the middle and in the right-hand chart on the slide.

Sequentially, the Q1 volume performance was better than the average change over the last 5 years. Volumes in Q1 declined by 2% year-over-year, mainly due to the events in the Middle East. This pace matched that of Q4, but with a tougher comp. Underlying volume growth last year in Q1 was plus 6% versus plus 4% in Q4 2024, Enhanced by front-loading effects ahead of Liberation Day, European imports volumes from the Far East were once again robust, extending the strong trend we saw in Q4.

Transpac volumes remained under pressure on a year-over-year basis. Average yields were stable sequentially for the second consecutive quarter, in line with the expectations we shared during our last earnings calls. This stability has continued thus far into the second quarter. As we mentioned at the time of Q4 results, we do not foresee a repeat of the yield pressure we saw in Q2 and Q3 2025. The Q1 EBIT improved sequentially by 7% to CHF 113 million as cost management efforts more than offset the volume decline. This resulted in a plus 13% increase of EBIT per TEU quarter-on-quarter basis. The Sea Logistics conversion rate was at 25% in Q1. This compares to 23% in Q4 and a 35% conversion rate in Q1 last year.

Let me turn now to Page 4, Air Logistics. Stable unit profitability is supported by cost control and mix. In Air Logistics, strong cost control was the most prominent factor supporting stable unit EBIT during the seasonally weak first quarter. You can see this development in the third figure on the slide. Favorable mix shifts also contributed to the stability. Volumes in Q1 were flat year-over-year. This marked a declaration from plus 7% growth in Q4, chiefly due to reduced perishables and Apex e-commerce volumes. Excluding these lower-yielding segments, we achieved upper single-digit volume growth.

On a quarter-over-quarter basis, the volume decline exceeded the 10% seasonal decline we have averaged since Apex was acquired in 2021. Volume growth was most robust in Asia-Europe trade lanes, followed by North American exports. North American imports were relatively weak, especially from Europe. Average yields increased by 2% quarter-on-quarter, a notable improvement on the result we usually expect coming out of Q4. From Q4 to Q1, demand for higher-yielding cargo usually softens while lower-yielding perishable volumes tend to remain stable.

As I just explained, this was not the case in the most recent quarter as the mix shift resulted in positive yield effects. EBIT rose by 7% to CHF 111 million year-over-year in Q1, excluding FX headwinds. The Air Logistics conversion rate was at 27% in Q1 versus 26% in Q1 last year. That was Air Logistics. Now Page #5, our business unit, Road Logistics. EBIT growth supported by ongoing volume recovery. In Road Logistics, the signs of demand recovery we highlighted in Q4 extended into the first quarter and supported our EBIT growth. Net turnover grew by 9% year-over-year in Q1 or 5% organically, both excluding currency headwinds.

This affirms our view that Q4 marked a positive inflection point for shipment demand after a sustained weaker period in the European market. Demand for custom solutions also remained robust, a consistent trend since Liberation Day in April last year. Additionally, we reinforced our services to the UAE in response to supply chain disruption from the conflict in the Middle East. EBIT rose sharply to CHF 25 million in Q1, a 42% improvement on last year or 35% on an organic basis.

Please follow me to Page #6, our Contract Logistics business unit. Strong underlying profitability impacted by FX headwinds. In Contract Logistics, recurring EBIT increased modestly year-over-year, offsetting material currency headwinds. The net turnover grew by 5% year-over-year in Q1, excluding these currency effects, in line with the underlying rate of growth over the previous 4 quarters. We saw continued market share gains across geographies with a particularly strong contribution from our North American business.

Recurring EBIT totaled at CHF 59 million in Q1, which is 4% higher year-over-year or 11% higher, excluding the currency effects. This figure excludes the CHF 35 million gain from a real estate sale and leaseback transaction. The recurring conversion rate of 6% is in line with the prior year result. With the Q1 results, the trailing 12 months ROCE for Contract Logistics alone is stable at a level of 25%, excluding the effects of exceptional items. And lastly, we are confident in the growth trajectory with more than 30 new contracts currently in the implementation phase. This overall concludes my comments on the performance of the business units, and I will now hand over, as always, to Markus.

Thank you, Stefan, and good afternoon all. Thank you once again for your interest in Kuehne + Nagel and taking the time today to review our financial results for the first quarter 2026. First, we see on our profit and loss statement a pronounced 7% foreign exchange headwind at both EBIT and net earnings level. That is because the prior year benefited from a stronger U.S. dollar ahead of Liberation Day.

Second, the material cost reductions in the first quarter, which are part of our restructuring program, helped mitigate this impact of the headwinds. Third, while Sea Logistics yield stabilized over the last 2 quarters, the first quarter year-over-year comparison for gross profit reveals some pressures. And lastly, Stefan already mentioned a nonrecurring CHF 35 million EBIT gain related to the real estate sale and leaseback transaction in Germany, a factor to consider when evaluating recurring profitability.

Turning to working capital. We saw the base increase to more than CHF 1.5 billion over the past quarter or an increase of 9%. With this, net working capital intensity sits at 6% or above our guidance corridor of 4.5% to 5.5%. This compares to 5.2% at the close of the fourth quarter or 5.1% at the end of the third quarter last year. You can see the spread between DSO and DPO narrowed as DSO deterioration outpaced the DPO improvement due to a temporary shift of business mix.

Additionally, the share of multinational customers with extended payment terms in contract logistics is growing. The net CHF 129 million increase of core working capital in the first quarter 2026 was comparable to a CHF 132 million increase over the same period last year. All business units contributed to this expansion, except for Air Logistics. So let's now have a look at how this fits into overall free cash flow generation in the first quarter 2026. We produced CHF 194 million of free cash flow, bolstered by CHF 105 million of cash proceeds from the real estate sale and leaseback transaction just mentioned earlier.

Excluding the proceeds, free cash flow sits at CHF 89 million, and that compares to CHF 167 million from last year in Q1, also excluding modest disposal proceeds. For a closer look at cash conversion, let me move on to the next slide. Here, we see the usual comparison of free cash flow conversion in the most recent quarters versus the historical average. The first quarter is typically the weakest cash conversion quarter of the year with an average 48% conversion. In the first quarter 2026, conversion was 40%, including some material cash flows linked to our cost reduction program. Accounting for these, we view the first quarter cash conversion as very much in line with the historic average. We expect a continuation of normal underlying free cash flow conversion trends over the coming quarters.

Turning to our financial guidance for 2026, and Stefan mentioned that we have raised the lower end of our 2026 recurring EBIT guidance to reflect both our current expectations and the better-than-expected Q1 results. As such, our guidance range is now CHF 1.25 billion to CHF 1.4 billion, up from the previously communicated CHF 1.2 billion to CHF 1.4 billion. For the second quarter, we expect the recurring EBIT results to exceed that of the first. This is also consistent with the historical long-term average seasonal development from Q1 to Q2.

And we consider the seasonal impact of any wage increases, the bulk of which take effect in April. As a reminder, our underlying core guidance assumptions include the global GDP will grow, but with persistent uncertainty across geopolitics, macroeconomic policy and trade. As a base case, global sea and air freight volume demand will grow no faster than GDP. And as we have already highlighted, our cost reduction program remains and is on track, and we still expect more than CHF 200 million of gross savings on an annual basis. These savings will ramp up over the course of 2026 with an estimated impact of at least CHF 100 million in the current year.

There is no change to the assumed 5% currency translation headwind reflected in our EBIT guidance nor is there any change on our expectation for a 25% effective tax rate. With this, I would now like to close our presentation with a summary of our key takeaways. Our focus remains on market-beating growth in targeted attractive sectors. At the same time, we are striving to meet the heightened market demands and complexity borne out of the conflict in the Middle East. Yields in both sea and air logistics remain stable and slightly improved.

Our cost reduction program is on track with continued confidence in targeted savings, whereby the progress in the first quarter was ahead of plan. We have a strong foundation to achieve AI productivity gains and foresee material traction from 2027 onwards, a view that we shared on our last call. We have seen continued progress over the past few months with AI adoption expanding across our operations, empowering our workforce in their daily work.

We will share a more comprehensive update, including further details on operational integration and next steps alongside our second quarter results. Lastly, we are raising the lower end of our full year earnings guidance range to reflect the better-than-expected first quarter results and current expectations for the rest of the year. With this, I want to thank you for your attention and hand back to the operator to open the Q&A session.

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

Two for me, please. First one, what impact on earnings do you expect from the recent events in the Middle East? Given the small narrowing of the guidance range, the answer looks like none or at least net none to get your perspective on that. Second, regarding the cost cuts, how far into those and especially how far into the expected headcount reductions are you now? How much is still to be done? And how significant do you take the execution risk to be?

Alex, Stefan speaking. I take the 2 questions. First of all, in the first quarter, just to reiterate, there was no no impact to be seen on GP or EBIT level from the Middle East crisis. Moving forward into the second and third quarter, mainly into the second quarter, we do not believe there is a significant impact to be expected other than the volume trajectory in sea freight. We see bookings currently are down by 70%, 80% in and out for the GCC. We have mentioned in the numbers that, that had an impact of 1.5% approximately, particularly in March on the volumes.

The yield will be stable, as Markus mentioned as well. Yield will be stable in sea freight moving into the second quarter. What you will see more and more coming into the second quarter and the result to be expected is the fuel adders, which we transparently pass forward to our customers. And I want to reiterate very transparency, very transparent. So we definitely will share that on a regular basis with our customer base in order to ensure that everybody understands what is happening.

So overall, from a volume perspective, we expect air freight slightly picking up. Volumes overall in sea freight, most probably flattish. We are confident that we can move forward with certain other trade lanes and piggyback on certain other trade lanes and growth, particularly coming in from Asia to Europe and to a certain degree as well to the U.S. to offset the decline in the Middle East. So overall, not a huge impact to be expected from the Middle East crisis, rather not negative, not neither positive.

And the main focus in terms of the EBIT improvement will come from the cost efficiency and cost-cutting program. That now focuses on the -- or let me focus on the second question, how many FTEs, what has been executed already by end of March this year, end of March 2026, we have executed in full, and there will be no further reduction from that particular program to be expected in terms of additional FTEs in the second or third quarter.

Next question comes from Muneeba Kayani from Bank of America.

I just wanted to follow up a bit more on the air market, which is clearly tightened because of the Middle East disruption, a bit surprised to hear you say that, that hasn't had an impact and you don't expect it to have an impact. So I just want to understand how you're seeing that. And I wanted to clarify on air yield expectations for 2Q. Do you think there could be a further pickup from the strong performance we've seen in the first quarter on air yields?

And then secondly, just on the guidance. So I appreciate you've raised the lower end. But based on what you've said on kind of 2Q expectations, that would imply a second half EBIT lower than the first half, which is seasonally not what happened. So really kind of what needs to happen to reach the second -- the lower end of your guide? And why did you raise the upper end of your guide by a similar CHF 50 million?

Muneeba, let me just take the second question first on the guidance. I think I even mentioned it, I think, in my presentation, we expect the second quarter to be seasonally as well stronger than the first quarter. So there is no concern that the second is going to be lower than the first. Why we increased and raised the lower end of the -- the lower end of the guidance is basically because we exceeded on the first quarter and we adjusted the lower end to that effect with a little bit of an add-on on top of it. But it actually means we are consistent and remain with our assumptions and conclusions for the guidance for the rest of the year.

Yes, Stefan speaking. Muneeba, so clarification or more clarity on the air yield. So what we expect is a slightly higher yield into the second quarter versus the first one on Air Logistics. I mentioned Sea Logistics most probably rather flat in terms of volume and yield. Air will be slightly up. Same is expected for volume. Remember what I said during the call 6 weeks ago in the first quarter in March, when the crisis started, when the war started in the Middle East, we missed roughly 16% to 18% of the total volume, the capacity, which was grounded from the Middle East carriers, that is now back.

Single digit still is missing, but this is back. And why do I state that we believe there is a little bit higher EBIT to be expected or yield per 100 kilo expected is based on the product mix, based on the better mix, which we have seen in the last couple of weeks, less perishable, significantly less e-commerce and a better basically gain ratio in the hard cargo segment where we traditionally see a higher yielding paired with the surcharge adders, which will increase the rate level as well to a certain degree.

That's clear. Markus, actually, my question on guide at the lower end was on the second half, not the 2Q, which 2Q is very clear, but how you thought about the second half of the year in that guide?

As I said, we are not changing our assumptions for the rest of the year.

The next question comes from Parash Jain from HSBC.

My question is more into -- in your discussion with your customers, both on air and sea, what kind of commentary are they sharing with you given we have seen U.S. retail sales to inventory has come down. But at the same time, do you think that higher inflation will dent the business sentiment or consumer sentiment as it is shown in the U.S. Michigan index. So going into the second half, do you have certain assumptions by when this crisis will be over or where the oil price will be to get to the numbers, the range that you are offering?

Yes, Stefan speaking, Parash, thank you for the question. So as mentioned, so the Transpac, so the volume, the consumer volume and the sentiment mainly from Asia into the U.S. is rather soft. And I think depending on where you are in the U.S., $1 -- up to $1.50 more per gallon basically and the inflation overall is impacting the consumer sentiment, and you mentioned that quite rightly so. This is definitely ongoing.

We do not see any signals that the Transpac market, the U.S. market is recovering soon as long as we have that situation. But that was baked into the updated outlook and forecast that will be offset to a certain degree by other trade lanes and in particular, by our cost measures. But your main question was about the consumer sentiment, and we see that is still rather soft.

And then just in terms of -- has the duration of the war or oil prices has gone into your assumption? Or you think that oil price irrespective will be passed through almost on a real time?

It will pass through, yes. As I mentioned before, I think that was the question. It will be passed through. And at the beginning of your question, you mentioned how our customers are reacting, right? I think we have very open, transparent discussions and 99% of the customers fully accept and expect it, right, and accept the discussion, and we do not see a significant topic in regards to the fuel price and the adders. But as I said again, and I'm repeating myself, we are extremely transparent.

The next question comes from Marco Limite from Barclays.

I have one follow-up question on your Q2 outlook. So you have talked about sea yields stable quarter-over-quarter. And then you have talked about volumes also stable. Now the question is, is that year-over-year stable or stable quarter-over-quarter? Because generally, Q2 has got better seasonality versus Q1. So yes, wondering if that's year-over-year or quarter-over-quarter. And actually, same question for air freight volumes, where you -- when you said slightly up for volumes, were you referring to year-over-year or quarter-over-quarter?

And then my second question, again, another follow-up question is on your cost savings. Clearly, the peak in Q1 was all driven by -- or mostly driven by cost savings. Now are you able to quantify where are you in terms of run rate compared to the CHF 50 million run rate by year-end? Because I mean, if the beat versus the CHF 285 million guidance is all coming from cost savings means that, yes, you achieved CHF 30 million basically more of cost savings than what you expected. So that's a run rate of -- yes, rate compared to the CHF 50 million by Q4. So yes, that would be helpful.

Marco, it's Markus. And I'll start with the cost saving part. I appreciate your reverse engineering calculation and you are relatively close to reality. So we had a head start, I would call it, into the first quarter with the cost savings. So it's not a linear development as we anticipated still at year-end. I would say that from our ambition of a CHF 50 million per quarter cost reduction, so CHF 200 million annualized, we are probably just past the 50% on a quarterly basis cost reduction.

So you talked about CHF 30 million. We're probably somewhere in that ballpark. That also means we might not see the same linear development going into the CHF 200 million run rate. We might see the second quarter being a bit flatter. We have already talked about inflationary impact on April through the manpower cost. So we might see a bit of a slower progression. But then from then on, we will continue into the third and the fourth quarter. As I said, I think our CHF 100 million ambition for this year, we should be able to exceed that. On your first question, the comparatives had all been on a year-on-year basis. So every comparison on volume and yield had been on a year-on-year basis.

Sorry, just to -- I think it's quite an important point. So also your comment on air yields of small up is on a year-over-year basis, okay, which was CHF 770 million, right? Does not make -- if I can, does not make sense, does not make the outlook for Q2 quite positive, especially in air if you have quarter-over-quarter, let's say, based on normal society, 10% more volumes on higher yields means that Air EBIT will be significantly up quarter-on-quarter versus Q1 in your view?

I would say the likelihood is there, yes. Short and crisp.

The next question comes from Cedar Ekblom from Morgan Stanley.

I just wanted to ask a little bit more on your air business. Can you talk about your approach to buying capacity? Obviously, there's a huge amount of volatility in the market. And so I just want to get a better understanding for how you're risk managing some of the potential impacts around spot rates for your business. So how are you positioned, net long, net short? Maybe a little bit of color by region would be helpful.

Yes. What we do is, as you know, we have a combination of block space agreements long and short with the commercial carriers. And we have since years now, a charter operation together with our subsidiary, Apex, where they operate on our behalf as well. So what we do is we have secured in addition the last couple of weeks, we have secured additional charter operation, especially when you look into the Southeast Asian markets where the technology comes from large demand from the hyperscaler, semicon industry and the other tech companies, mainly from Thailand, from Vietnam, to give you 2 main examples, Taiwan, Taipei is as well, very hot in terms of the volume demand is concerned.

And we don't only piggyback on the normal commercial flights, the uplifts directly airport to airport from these destinations into the -- or from that locations into the receiving countries. We will operate or we already operate with charter capacity point to point. But additionally, with capacity, which we utilize from Southeast Asia to China, and then we take from China, from Western -- from an airport in the West China region, we take uplift, significant additional uplifts from China in order to ensure that we always promise or keep the promise towards our customers to have enough capacity and to guarantee a certain transit time even if there is a problem on the commercial flights, we add and balance this with additional charter capacity for the customers.

The next question comes from Kulwinder Rajpal from Baader Europe.

So 2 questions on my side. First on Road Logistics. So I wanted to better understand how much of the EBIT growth actually came from going to road from sea in the Middle East and how much actually came from the demand recovery in Europe? Just a qualitative flavor there would help. And secondly, I'm not sure if I missed it, but when we look at the decline in air volumes in Q1 on the lower-yielding side, was there some selectivity at play here? Or if there are some other factors behind the scenes. So could you please elaborate on that?

I'll take the road question first. So it was mainly 90%, 95% coming from additional volumes in the European marketplace plus the U.S. and only to a smaller degree based on our size of business, book of business from the Middle East crisis.

Raj, on the second question on the decline in air volumes in Q1 compared to last year, major contribution is coming from a reduction on e-com business, e-commerce business that in the first quarter 2025 was still let's say, there in a simple world. And right now, it has declined by over 50% in volumes. So that's really the volume impact and also the mix impact.

Right. So just to clarify, I mean, would we expect some sort of a catch-up? Or would it be determined by customer behavior in the future as to how these volumes trend?

But it's not only customer behavior, I think it's also how attractive that volume is for our profitability and how it matches with capacity, right?

The next question comes from Hugo Watkins from BNP Paribas.

Just to go back to airfreight. Can you give any insight on potential jet fuel shortages, whether that's from yourself or what you're hearing from carriers and just what that might mean for airfreight capacity more structurally for the remainder of the year?

Yes. We all know, and this is not a secret that especially in Southeast Asia, I think lowest capacity is in Indonesia, followed by Vietnam, Thailand to a certain degree. I think China has significantly more reserves. I would not worry about China currently. And as I said before, with our strategy to balance charter block-based agreements and own capacity operated by FX, I think we are well positioned to manage that crisis if it would even come. But repeating myself, the highest risk in terms of mitigating lies in Southeast Asia, where some of the countries do not have buffer beyond end of May or so.

The next question comes from Alexia Dogani from JPMorgan.

Just firstly, you mentioned you are targeting growth in other trade lanes to offset the Middle East pressure. Can you tell us which trade lanes you're working on? And what gives you confidence that there is kind of growth to be captured there? And then secondly, I'm aware that usually wage deals reprice every April. What is your target or I guess, your assumption for wage inflation this year, considering the CHF 100 million or over CHF 100 million is a gross cost saving target?

Yes, I tackle the growth question, trade lanes, we have started, and I think I mentioned it now 2 times, we have started heavily to look from a sea freight perspective into the prepaid China market. You have a lot of new Chinese giants who are asking for support and they always call it help me to become global. So we have reiterated and dedicated additional sales force in the Shenzhen area, for instance, where a lot of these customers are located. And we are confident from what we have seen already in the last couple of weeks in terms of business gains are concerned that we can offset with China prepaid additional volume coming in from new customers and existing customers, the mid prices from a pure volume perspective.

Alexia, it's Markus. On the inflation base, so as you can imagine, we try obviously to address inflation topics and compensation on the larger workforce on the ground. And I think overall, we usually have a compensation for inflation also for Contract Logistics business. That is usually a pass-through. So where we really have cost impact that is also impacting the bottom line is on the sea and air freight basis. And here, I can safely say we remained below the global inflation values, but I don't want to disclose precise numbers.

And can I just ask a follow-up on this prepaid China market? Is that intra-Asia or kind of ex China to the world?

No, it's ex China to the world. As I said a couple of times, we are not focusing so much on intra-Asia. The volume is huge, but the profitability is rather low on the low-end side, $50, $60 per container unit. So it's always focusing on China long haul to the world.

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

I have 2 questions. The first one is a follow-up really on what you discussed already on this kerosene potential shortage in the belly capacity. So can you tell us, are your clients already planning alternatives to Air Solutions with you, which might be beneficial to you, I think? And then also the charter situation, how does that work with the kerosene availability? Does some of the charters already have their own stock fuels? And then the second question is just on your AI potential that you mentioned already 6 weeks ago. Can you so far already give us a bit more details here about the potential cost cutting that you see there?

So on the jet fuel, I would say, yes, of course, we have with certain customers different models. And what we do is -- and don't get me wrong, we are -- we cannot do something which is not possible at all, but we can do proper planning. And then with our charter capacity, as I mentioned before a couple of minutes ago, Gian-Marco, so we refill certain charter flights in China. We have access to certain capacity in China. So we bring cargo from Southeast Asia into China and then we refill our aircraft on the way back to Vietnam, for instance, in China.

And on the long-haul flights, we refill as well in China. And remember what I said, China capacity will last significantly longer than in Southeast Asia, just in case something is happening. And I'm not saying that we will see a significant shortage. It remains particular on how fast the straight of homes will be reopened and we come back to a normal situation. But just in case this is going to happen, then we are already in close contact with some of our very large customers to do certain planning and scenario planning in order to help them to maintain a certain supply chain accuracy.

And Gian-Marco, on AI, so clearly, that's an ongoing development, and we see continued progress over our last couple of weeks. But between our last announcement and today, it's really just a couple of weeks. And I would ask you to wait until we get into the half year results in July. And I think we should be -- you can expect from more tangible report and numbers, I think, at that point in time. But between the last 6 weeks and now, really not much has changed. We have expanded our use cases, and we are more and more seeing the benefits in empowering the workforce and making really their work more or supporting their work in a much better way.

The next question comes from Lars Heindorff from Nordea.

The first one is on the road business. It sounds like you actually see maybe a little bit of sign of improvement in the European market. Maybe just if you can sort of elaborate a bit on that. We've seen Maut statistics in Germany still being down. So this increase in the organic revenue growth, is that caused by price increases? Is it volumes? Or where do you see any pockets because I mean, feedback on Germany is still pretty big in my view.

And then the second part, which is what most of the other questions have been around, which is still regarding the yield development, the bunker surcharge, particularly in sea freight. To what extent is that affecting the yields positively or negatively? In sea freight, I'm hearing that the carriers are, to some extent, struggling a bit passing through the emergency bunker surcharges and maybe that many customers are waiting for the regular BAF to kick in sometime in the third quarter? And how will that affect your yield development if we look a little bit further beyond just what goes on right now?

Yes, Lars, it's Stefan. I'll tackle the first one. It is mainly market share gains, right, in the U.S., in particular as well in Europe. We have seen a pretty good development in the last 6 weeks. We have gained additional volumes in Germany and France in the large domestic markets, but as well international. I think it has to do with what we have started last year on the back end of the softening when we saw that the market has really started to soften quite a bit. And then we increased our sales efforts. This is paying off now. And then with you, overall, the German economy is still pretty challenging, but even so we see good development from customers and new customers and the volume is coming in much better than expected.

And Lars, I'll take the question on -- I think your general question is any fuel bunker or any surcharges beneficial to the yield. And I can answer, I think, for all 3 business units, if it's road, sea or air, that is neutral to the yield. I think what is important is what Stefan also mentioned a couple of times, there is transparency from that impact towards the customers. And I think that is the most important thing we can do being transparent and straightforward. It's not a yield topic. It's a cost pass-through.

The last question comes from Marc Zeck from Kepler Cheuvreux.

Last question then would be actually on the macro situation in Europe. We talked about the U.S., I guess. But let's say, volumes into the U.S. were kind of sluggish for the last 2 years and most of the volume growth, at least for the entire market was driven by volumes into Europe. And now the energy crisis is probably more of an issue for Europe as we are not really self-sufficient on energy over here. So what is the latest really that you see for April or that you see forward bookings for May? How is the energy crisis affecting Europe? And why would you be kind of positive that -- yes, that you will get over this rather without a major slowdown in European activity towards peak season in ocean freight in August and September? That's my question.

Mark, this is an interesting question because it's, I think, nearly impossible to answer correctly. So I take the risk of being wrong, right? So I think on energy crisis and what is the impact on the macroeconomics, the first question for us is, and I have -- we have talked about a little bit what is the expectation of how long energy prices are going to stay at such a super elevated level, much connected to how long the crisis in the Middle East is going to continue. What -- what we can see is that at the current stage, the trade lanes, Asia to Europe are basically holding up strong.

How much the inflationary impact is going to put on customer confidence in the U.S. remains to be seen. But again, here is a question more like how long is it going to persist. So I think too early to say if there is already an impact into the third quarter peak season expectations. I think we really have to sit here and look at the development for the next couple of weeks before we have any idea what's going on. You know better than certainly us, oil price volatility is a topic on the day. And obviously, for us, as I said in the previous answers, we are passing through this impact towards the customers. Their behavior, I think, cannot and has not reacted on a daily basis. How that's going to be going forward, I think, as I said, we have to wait a bit.

Understood. If I just have a chance to follow up on that one. If you compare the current situation to how things played out during the Ukraine crisis, let's say, from a current perspective was pretty similar end of February, right? When -- then when did you see from European customers really the action that they put back a bit on the other side?

Well, I think my first answer would be the magnitude or the impact on economy, on macroeconomics of the Middle East crisis now is far bigger than what we have seen on the Ukraine war. So the energy prices and the severity, I think we have talked about even the potential of jet fuel shortages. That has never been a situation from the -- coming from the Ukraine war. So I'm not sure if that is comparable.

What we can generally say is when there is such severe disruption in supply chains, there is a certain period of a couple of weeks, so maybe 6, 8 weeks where alternatives, we spoke about how alternative supply chains are being designed are being done. And then if that new situation persists, then slowly that becomes that new situation to deal with. But I think we are far away from any of that stage right now. We are still in a stage of disruption.

We have a follow-up question from Marco Limite from Barclays.

So I just want to go back to one of your statements, which is the Middle East had no real impact in Q1 and potentially into Q2. Was that referring to the sea freight business or to all the divisions? Yes, I would say this is the question and then in case I've got a small follow-up.

So my answer was -- Stefan speaking. My answer was that the impact from an EBIT perspective in Q1 was not to be seen from the Middle East crisis. just piggybacking on what I said before, we will see an impact on the overall freight rates due to the fuel surcharge adders, which we transparently hand forward and put forward to our customers, and I talked about that as well.

From a yield and from a volume perspective, you might see and I mentioned it as well that the second quarter in air freight will have a little bit of a better yield. Is that coming from the crisis or from a better mix? I would say it's more coming from a better mix and less from the crisis. But overall, one thing is clear due to the fuel surcharge adders, the freight rates overall are getting higher.

That makes a lot of sense. And when we think about the better mix, is that market-driven? Or is you guys trying to...

Nothing to do with the market. It's us we decide basically based on verticals and higher profitability, where do we play and where do we want to play.

That makes sense. Is that because in a period where capacity there is shortage of capacity, I guess you prefer to go with better yield volumes. Is that the logic or...

Some of the logic, yes. some of the logic that and we put much more emphasis on the general cargo on the hard cargo, right? And with our service, with our product offering, with the quality we offer, we have the choice to basically go for the higher-yielding business.

Ladies and gentlemen, there are no further questions. Back over to you for any closing remarks.

Thank you very much, as always, for your interest, listening for the good questions, and we speak to you then when we communicate the Q2 figures. Stay tuned and healthy. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the Kuehne + Nagel Management AG Full Year 2025 Results Conference Call and Live Webcast. I am Moira, the Chorus Call operator. [Operator Instructions] 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 the guest speaker, Chief AI and Innovation Officer, Alireza Nemati.

Let's go to Page #2, full year results. First of all, I would like to thank our customers for their trust and our colleagues for their commitment as we reinforced our #1 position in sea and airfreight 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 nonrecurring items and a currency headwind of 3%.

The combined sea and air conversion rate was at 28%, excluding nonrecurring 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%. And 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. But first, let's review our performance by business unit.

Let's go to Page #3, Sea Logistics. As always, volume in TEU on the left-hand, GP per TEU in Swiss francs and then EBIT per TEU in Swiss francs as well. In Sea Logistics, yields stabilized after a period of pressure. We continue 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 2 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. Yields 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 U.S. dollar.

The Q4 EBIT was in CHF 59 million or CHF 106 million, excluding nonrecurring items. Quarter-on-quarter, this resulted in a broadly stable recurring EBIT per TEU. The underlying Sea Logistics conversion rate stands at 23% in Q4 or 25% on an organic basis.

Next is Air Logistics on Page #4. As always, again, volume on the left hand, GP per 100 kilo and then on the right side, EBIT per 100 kilo in Swiss franc. 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% to 5% market growth. Market share gains were centered in the hyperscaler sector alongside health care and aerospace. Average air 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 costs ticked down by 1% from the third to the fourth quarter. Absolute operating costs increased by 5% quarter-over-quarter, but volume grew faster Q-on-Q with 6%. This resulted in a Q4 EBIT of CHF 107 million or CHF 132 million, excluding nonrecurring 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 #5. 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 nonrecurring 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 #6, Contract Logistics. In Contract Logistics, a steady growth momentum drives another record result. Contract Logistics produced EBIT of CHF 78 million in Q4, excluding nonrecurring 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 3 quarters. We saw continued market share gains centered in the health care 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 #7. I would like to briefly touch upon key developments and targets for each of our 4 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 road map to 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 runs through that cloud, supported entirely by our own software set. 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 an 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 involves to integrate text, image, video and audio, we will involve with it on our own terms. As such, our AI journeys is not complicated by they 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 that we have it and maintain our lead.

Second, the data. We control a lot of 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 become 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 proof initiative at Kuehne + Nagel, not an isolated one. You can already see the 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 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 scratched 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, we'll 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 contribute to 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 date in April, amplified by the drop in U.S. dollar value versus the Swiss franc.

Looking at the income statement for the most recent quarter. It is important to call out nonrecurring 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. And 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. But first, let's have a look at the progress of our cost reduction program. And let me reemphasize 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. And we still expect to achieve the full run rate by year-end 2026.

Lastly, we do not anticipate any significant additional one-off costs, 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 remained stable over the last quarters, DPO have improved from Q3 to Q4. We 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 the overproportionate increase of airfreight charter business, for cloud infrastructure customers that we started to enjoy over the last 2 quarters 2025, we will adjust the net working capital intensity corridor to 4.5% to 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 million 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 the slide.

We do expect the strong free cash flow generation along the usual seasonal pattern to continue also in 2026. Now 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 6, 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 recurring group EBIT in the range of CHF 1.2 billion to 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 the result comparable to that of the third quarter 2025. And as an additional information, we expect already now a further 5% pressure on currency translation due to the U.S. 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. And base case, global sea and airfreight volume demand growing no faster than the GDP. Our own cost reduction program is on track and we would expect more than CHF 200 of gross savings. These 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. And lastly, we introduced our 2026 recurring EBIT guidance of CHF 1.2 billion to 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 1 day to Friday, April 24. Please take note of this. Back to the operator.

[Operator Instructions] The first question comes from the line of James Hollins from BNP Paribas.

Two for me, please. I was wondering if, Stefan, you might want to run us through your reaction to, I guess, the share price to those sort of general fears that we had last month on Open Mercato algorithm. And how you would, I guess, give your own opinion on the sort of fears around AI disruption rather than 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. And then the second one, GP TEU trends sequentially into Q1. I think you noted [ fee ] was stable. Clearly, Q-on-Q, Q3 to Q4 last year, you're well ahead of your competitors. So well done there. I just wonder if you could give a bit more detail on how you're seeing things in Q1.

Yes, James, thank you very much, Stefan speaking. So the glass is always half full, right? So I see AI as an opportunity for us, right? And as Alireza have mentioned it, 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.

And 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 because now we have the business units, the products pretty much driving the process. So process stability and a certain process reliability on a global basis is the prerequisite for AI. So overall, I see it rather positive for us because we have all the ingredients now with Alireza and the team, we are pretty sure that we can create certain value, and 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 2 or 3 weeks ago and the reaction from the marketplace, I think these reaction will continue. The question is, is the substance behind. This is the first question. And 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 5, 6, 7 years ago that the digital forwarder industry will be able to disrupt the old economy, so to say, and the result is pretty clear.

I think AI, and we should not forget, right, a pellet is not talking. A pellet has no voice other than our label, right? But 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. So overall, my take is we see it as an opportunity and not as a threat. But on the other side, we need to really march ahead and we need to be quick in adapting and executing our AI strategy.

So James, maybe for me for the second question on the gross profit per TEU. Correct observation, Q3, Q4, stable gross profit per TEU. And 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 2 months.

The next question comes from the line of Alexia Dogani from JPMorgan.

Just firstly, net debt to EBITDA, I believe, is now 1.5x. Is that the level you want to sustain? Or do you want to actively bring down?

And then 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 the next year's season?

Alexia, Stefan speaking. I'll take the first one. We still stick to the 1.5% growth aspiration in the [ transactional ] business units. And let me reiterate or go a little bit more into the details. So in airfreight, we have achieved it already now. The last couple of quarters, full year 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. And we do not see any change in the pattern the first 2 months. And as well, the pipeline is very strong, and I strongly believe that we can continue with the growth pattern which we have seen in the last couple of quarters. So a clear tick in airfreight.

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, but nevertheless, we will stick to it. I said a 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 comers in the marketplace in terms of customers are [ designing ] on the Chinese prepaid market where we can leverage even more.

And in Road, I think we have seen the tipping point. February so far has seen quite nice growth, single digit still, but no decline anymore. So 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.

So next, maybe for the second question on the, let's say, starting level I think we have mentioned that for us, 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. So I would expect fourth quarter and also volume growth to continue into the first quarter on the air freight side.

But not to forget, for 2026, we should see, and we do in the first 2 months, clearly, that cost savings are ramping up. So that's going to support certainly the results in 2026.

And contract logistics has been a very strong contributor in the fourth quarter as well. So I think they are various elements that play together into the starting point -- starting point being Q3 2025 to let's say, a good development into 2026.

And 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 1.5x net debt to EBITDA. Are you comfortable with this level? And should we expect it to be maintained? Or will you actively reduce it?

Okay. Sorry, Alexia, that was my mistake. I understood something about growth, the 1.5x. So at least we have already answered a question, which probably would have come up later in the call.

Yes.

Leverage. Yes, we are comfortable at the current situation with 1.5x leverage. You will see we have a couple of ideas how to refinance the current situation in appropriate way so that we are going to reduce a little bit on the interest cost as well. So yes, that's the current situation.

Clearly, and you know that we, over time, kind of not saying this is 2026, but it's a longer time that we are looking at. We would prefer to come back to a situation that brings us closer to a net cash position. But for the time being we are fine where we are.

The next question comes from the line of Alex Irving from Bernstein.

I have two on AI, please. First of all, I hear the argument about you've got the good proprietary TMS. You've got clean data, you've got workflow ownership. You've got all the ingredients to reduce cost through AI. But how do you feel about change management? Do you have the right skill set or are the risks you worry about in actually implementing AI and how you're 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 on to those cost savings in higher margins? Or is the aim here to use this price more competitively and to grow volumes faster?

Alex, Stefan here. I take the first part of the question or the first 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. And 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 time frame, but you need to manage the activities. You need to manage the agent as well. And 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. And 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. So that's one angle of it.

The 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 in the ground that we can then utilize AI to solve that. So 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.

And Alex, to your second -- or to your second part of the question, let's say, on the cost reduction and how it's going to 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. But I think what is even more important is that is that fact that you can create productivity gains and capitalize on it is only true for the largest and the well-resourced forwarders, yes. Because when we look into much smaller units that, that will become insignificant, if at all, reachable due to standardization, data quality and all the stacks that we have seen that Alireza has been talking about. So 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.

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

So first one on AI and 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 software? We've seen Descartes, Magaya, all of these coming up. And could -- like is there something really differentiated about your tech stack that allows you to have more cost savings that others cannot replicate? It's kind of the first question on AI.

And then secondly, just on the guidance for 2026 and the EBIT range of CHF 1.2 billion to 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? Because you talked about the stable yield's trend. Is that kind of the midpoint is what you're talking about? Just some clarity on that would be helpful.

I will take the first question. So what the difference is towards the third -- relying on third-party data stack is the following: the first one is given that we own our own TMS, we have full control of the end-to-end processes, meaning that instead of individually improving 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 your own TMS, you 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 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. And for the question around guidance, let me just reflect a little bit on our presentation, Page #16. I think the 4 major elements that are out there, we have listed our assumptions around global GDP, market demand on the sea and airfreight side, and obviously, the expectations around cost reduction as well as what we know today on the translation -- 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 kilos or so, I would politely ask you to get in touch with Chris on the IR side, if you can share a bit more details than I would like to do here on the larger call.

The next question comes from the line of Jason Seidl from TD Cowen.

I'm going to switch it up a little bit away from AI. 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?

And then for my second question, recently, a CEO of another forwarder mentioned, I think, in a post that about 18% of the airfreight 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 for you -- to have on this air business?

Yes. Jason, thank you very much. I was the guy who was talking about the 18% this morning, most probably, right? So what you see is -- I tackle the second one first, what you see is -- now with the Middle East crisis is that 18% of the airfreight capacity in belly and charter is grounded for the time being. And what the impact is that most probably in 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.

And then the question is, what is happening on the demand side, on the customer side because there is a mismatch most probably them coming similar to the COVID times on supply and demand. And then, our aim is to help as much as we can to put additional capacity for this 18% directly in charter capacity from the various origins into the destinations, right? But it's too early to say what the impact will be because it's only -- we are only 3 or 4 days into the situation. But 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, it's 50%. We mention that now we are really getting traction on the SME side. I think it's -- we said it a couple of times, profitability is 1.6x roughly. And I would like to use this question to give a little bit more color in terms of what is happening. So we are growing with our SME business or with our own controlled business quite nicely, and let's call it, everything outside of the U.S.

If you look into the trading pattern for the first 2 months, we see -- 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. And as one of the key or as the market leader into the transpac, that means twofold for us. First of all, we have a significant upside potential for the later of this year as soon as the market bounces back. And 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. So that hopefully gives you a little bit more color on the situation in sea freight.

The next question comes from the line of Marco Limite from Barclays.

I've got 2, which are follow-ups to some of the topics that have been already discussed. So AI, you have been talking about expectation of improvements over the next 18 months. But can you confirm if you expect any AI benefit in 2026 or that is going to be all 2027, so back-end loaded in the, let's say, 18 months you were mentioning? And 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. So just wondering whether that higher FTE reduction is actually driven by AI and -- yes. So this is the first question.

The second question, just a 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, it's not included at all in your guidance?

Marco, it's Markus. Well, I think these 2 questions, they are broadly in one bucket. I think from a guidance perspective, indeed, the most recent development have 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. But as AI is AI, right, sometimes you see phenomenal results sooner than what you thought. But for the time being, we would like to stay on the safe side and say for 2026, we are not expecting and not factoring any productivity gains into it.

Okay. And just a quick one, which is a bit more technical. So you had CHF 122 million of one-off costs in Q4. Just wondering whether those are cash costs, and if yes, are cash costs for '25 or will be a headwind in '26?

The vast majority of cash out will be in 2026.

The next question comes from the line of Patrick Creuset from Goldman Sachs.

My first question is just to get a better sense of the overall ambition here on conversion margins in Air and Sea. I think, when you look at the starting point in the second half of '25, you're basically at a 20-year low, I think, on air and sea conversion margins. And then, I think you've highlighted the productivity upside from rolling out AI tools. So I think overall, when we -- when you put those together, I mean, it's the idea to go back to, let's say, historic average conversion margins somewhere in the 30% range. Or do you think, basically, the ambition without guiding that when we look at this in a few years time, you could be materially higher?

Patrick, it's Markus. Twofold as an answer, I think. When we look into the operational results, so backing out the CHF 122 million, obviously, for the fourth quarter as a one-off cost, right? We are currently trading at a conversion rate in the fourth quarter, just to get our starting point right to 23%; for the full year '25, it was 29%. We are trading in airfreight around 28%, 29% the full year '26. Not to forget, at the same time, we are not only at the historic low, as you said, on some of the quarters conversion rate, we're also on a historic low for the U.S. dollar. So that certainly had an impact for us as well.

Recognizing that U.S. dollar translation not only impacts the gross profit, but also the cost, I'm fully aware of that. But since sea freight is fully U.S. dollar-denominated and not all of our costs are in U.S. 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 3 drivers, I think, of our productivity going forward. One single one doesn't work. We have to get also standardization at the forefront, including the change management that will realize these or materialize these cost savings. But to answer your question simply, we stick with our 35% conversion ambition that is collective or together sea and airfreight.

Okay. And then, Stefan, your point on change management leads to my second question. 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. But in terms of how you would suggest we directionally model this, would we -- basically, 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 than the market on a stable-ish cost base or FTE base, and that's the way you get the margins and result up? Or would you say that if the volume environment remains weaker, then we could see continued absolute cost out further around of what you've done in the fourth quarter?

So 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 over the same manpower. But 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? So it will be most probably a combination. But in a perfect scenario, we add significant volume with the same amount of cost and manpower.

But do you see this as sort of a bit more of the same sort of thinking back to eTouch and was 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 has -- it comes back a little bit to this eTouch when we started it, right? But AI, we all know, has a bigger potential. And it's a little bit too soon, as we said, right? So give us a little bit more time, and we will -- we have committed ourselves during the next couple of quarters to give more color or to add more color to that, but it's too early to make a statement now.

The next question comes from the line of Andy Chu from Deutsche Bank.

Just one question, please. On the cost savings, could you just give us some help in terms of the phasing of those cost savings by quarter, please, for this year?

Andy, now you're challenging me, right? By quarter is a bit of a tricky one, but I would say we are running up to the full quarterly cost saving of -- so of the full annual cost saving of CHF 200 million on a quarterly basis in the fourth quarter. So that would be around CHF 50 million. And 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. So you will have some benefits already in Q1? I think I had maybe understood that the -- sorry, the CHF 285 million wouldn't carry any cost benefit, it will 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. But the development between the first and the fourth quarter should be a linear development.

The next question comes from the line of Sebastian Vogel from UBS.

The first question is on the guidance, and potentially, it's also impacted, of course, by Iran, but 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 thoughts that you can share with us on quantifying the benefits on EBIT or straight line over time that you can allude to.

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. So 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. So that could still have an impact. As you can imagine, it can have an impact on rates and everything else. But for our guidance, we had assumed that at the back end of 2026, there will be carriers regularly using the Red Sea. What it now means for the guidance, frankly, I don't know yet.

And on AI, quantifying future benefits and productivity gains, I think it's -- 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 going to 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. So that gives us confidence and hope, obviously, that things are going to progress in that way. But as Alireza also said, it's not a software that you apply. It's something far more fundamental that is -- that has an impact on your entire service delivery execution operation. And hence, the benefit is much bigger, but also the uncertainty, how much is going to come out of it. But let's stay with material at the current point in time.

The next question comes from the line of Arthur Truslove from Citi.

Three, if I may. First one, please, can you just tell us what your assumptions for air and sea freight trends are over the course of 2026? Obviously, there's a range within your guidance. So obviously keen to sort of get a feel for what that -- how that looks.

Second question, it's -- 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, indeed in which direction?

And then 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 Airlines. What are you seeing on demand there?

Yes. Arthur, Stefan here. I try to answer the airfreight questions and the Red Sea. So airfreight 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. And automotive and mobility was the sector where we have seen the highest decline in terms of the volume is concerned. That has now equalized in the first couple of weeks this year. We see a strong demand in aerospace, health care, pharma, hi-tech, semicon, hyperscalers as well the industrial piece is coming back. So overall, we are quite confident that we see the same pattern in terms of airfreight 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.

So I would be -- I would say -- at the current stage, I would say that the airfreight 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 3 days.

And maybe a little bit -- you didn't ask it, but I think taking the opportunity as well because we had such a good year in Contract Logistics in 2025, so we have the most healthiest pipeline ever in Contract Logistics. And I believe from what I see and from the gain ratio, we will see a very good traction for the Contract Logistics business unit into 2026.

The next question comes from the line of Rajpal, Kulwinder from Baader Europe-AlphaValue.

So I wanted to firstly ask about hyperscaler business within Air Logistics division. And how much volumes came from that particular business in 2025? And how did that business grow for you? And 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? So that's the first one.

And secondly, I just wanted to quickly check with you, how do you -- how should we think about M&A in 2026? Is it fair to assume that it would be similar to what we saw in 2025, so a couple of bolt-ons?

Should I start with the hyperscalers? So we will not disclose the volume figures. But what we can share with you is out of the magnificent 6 or 7, including Tesla, right, so 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. So in other words, the room to maneuver, the room to grow is significant still because we have just started a year ago, right? But I will not disclose exactly the numbers how much volume have we gained, but there is quite some room to maneuver.

And 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. So on that side, I think we shouldn't expect any major changes.

The next question comes from the line of Marc Zeck from Kepler Cheuvreux.

I guess 2 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 more? Or did you feel like there was an opportunity on the staff side and to not be overly aggressive if you 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 deliver? That's the first question.

And second question, maybe for Alireza on AI. I guess, you mentioned bookings and quoting as parts where you currently already employ AI, where you see large opportunities. To me, that seems like, say, low-hanging fruits. And 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, in it from a time perspective? Or are we still quite far away from that, especially in air and sea freight? And if there was any progress, would you expect that we see that first in road, be it U.S. road or European road and only at a later point in air and sea freight? That's my 2 questions.

Marc, it's Markus. So on the cost savings, interesting observation, you're fishing for more savings. And I think what is important for us is that we are saving on the structural side. And I think this is -- sustainable structural cost reductions is our paramount task. And I think with the cost reduction on the FTE side, this is not simple adjustment of operation workforce to volume development. This is structural change. This is a sustainable change of overall cost structure. And 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 further potential going forward, consolidation of locations. And so, 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 2 buckets. They are clearly repetitive workflows or processes where AI can quickly help us to automate that and standardize it. But there are going to be also tremendous improvements in the entire value chain, specifically around the TMS, but then it requires to recreate the workflows with AI at the core, and that will take them some more time.

The last question for today comes from the line of Gian-Marco Werro from ZKB.

Two from my side. First one is your progress that you will do for your volumes in sea freight now that's serving for the first time more than half of your volumes to SME customers. Can you tell us if you have more ambitions for 2026 to increase this even further?

And then, I remember over the last few years, we also spoke about potential profitability improvement 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?

Yes. Let me take the first question on the SME, Gian-Marco. So as more is better, pretty clear, right? Because the profitability is 1.6x of the average. That is something which we put further. We have a pretty good hunting force on the SME, which we will leverage to the maximum. So 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. So 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. And I think without repeating, but our development on volumes, right, on hyperscalers has been one of these proof points.

And our development that we are potentially looking into markets where currently we are not 100% covering the geographies. So especially in air, the cold chain has been designed some while ago and is continuing to evolve. So 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. So strategy confirmed, I would say.

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. And looking forward to the next call. Have a good spring time, weather is becoming better and enjoy it. And thanks again for listening in.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the Kuehne + Nagel Q3 2025 Results Conference Call and Live Webcast. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Stefan Paul, CEO of Kuehne + Nagel. Please go ahead.

Thank you very much, Valentina, and good afternoon, and welcome for the presentation of Kuehne + Nagel's 9 months 2025 financial results. I'm CEO, Stefan Paul, joined today, as always, by our CFO, Markus Blanka-Graff. We go through the slides first. And then as Valentina said, we focus on the Q&A in about 15 to 20 minutes from now.

Let's go into Page #2, the 9 months results 2025. Overcapacity and softer demand in the third quarter of 2025 made the logistics market environment more challenging. Even so, we significantly expanded our global market share in Air Logistics and also in the SME segment in Sea Logistics. Year-to-date, group EBIT declined by 13% year-over-year, excluding currency effects as yield came under greater pressure. This was centered in Sea and Air Logistics, which combined year-to-date EBIT down 16%, again, excluding negative currency effects. The combined sea and air conversion rate was 28% over the first 9 months of the year. The consolidation of IMC has reduced the combined conversion rate by about 100 basis points since January of this year.

Group EPS declined 18% year-over-year or 15% excluding currency effects. In addition to our expanding market share, plus in the Q3 result is the further improvement of our free cash flow conversion. It reached 105% in Q3 alone, the first time it has exceeded 100% since Q3 in 2022. Conversion over the first 9 months of the year was 66% versus 33% last year.

In response to the Q3 financial performance, we are announcing measures to reduce recurring operation costs by at least CHF 200 million over the coming quarters. Markus will provide you with more details shortly. But first, let's turn to the usual review of the performance by business units.

Page #3, we start as always with Sea Logistics volume in container units on the left, GP per TEU and then EBIT per TEU always in Swiss francs. Sea Logistics headline, overcapacity puts pressure on yields. Underlying Sea Logistics volume grew by 2% in Q3, while the addressable market was flat. This growth did not meet our aspirations. However, after we have achieved 5% underlying growth in the first half of the year versus addressable market growth of plus 2%.

Trade was weakest in the transpac; however, we have relatively large exposure, followed by European and North American export markets. In contrast, European imports were quite strong. Overall SME share expanded Q-over-Q in Q3. Deployed capacity in Q3 far exceeded demand and intensified pressure on margins. This is evident in the central chart on this slide, where the average yields declined 10 percentage points Q-on-Q.

The Q3 EBIT was CHF 111 million, reflecting the near full effect of the yield pressure as operating costs were down only 1% Q-after-Q. With this result, Sea Logistics conversion rate stands at 24% in Q3 or 25% on a net basis.

Let's move quickly to Air Logistics, Page #4, ongoing market share expansion. In Air Logistics, volume grew by 7% in the third quarter, well ahead of the estimated 4% market growth. This is consistent with 7% volume growth in the first half of this year. Perishables and semiconductors, including hyperscalers, drove volume expansion in Q3 with the latter accounting for about half of the overall year-over-year growth.

Average Air Logistics yields also came under pressure. They declined by 6% Q-on-Q due to excess capacity. E-commerce demand contracted sharply following the elimination of the U.S. de minimis exemption. An absolute reduction of operating costs by 3% quarter-over-quarter offset about 1/3 of the yield pressure. This resulted overall in a Q3 EBIT of CHF 92 million and a conversion rate of 23%.

We also announced today that Partners Group exercised its option to put its 24.9% equity stake in Apex to Kuehne + Nagel. The transaction is expected to be settled in cash during Q4 against the recognized liability of CHF 886 million in our balance sheet. The transaction will be financed by bank loans.

Let's have a look at Page #5, Road Logistics. Over proportional exposure to weak European market, we achieved a net turnover growth of 6% in Q3, excluding currency effects or 2% excluding the contribution from TDN. That's our recent Spanish acquisition, which we consolidated for the first time in Q3. We continue to expand our global customs activities in an environment of fast-changing tariffs, mainly in the U.S. but as well in Europe.

Our core European road markets remained under pressure in Q3, which is also seasonally the weakest quarter over the year, July and August. Demand levels are still below the last year's level. We continue to mitigate these challenging market conditions effectively by focusing on pricing, capacity management and cost control. Road Logistics overall delivered an EBIT of CHF 20 million in Q3, which is a decline of 9% year-over-year versus an underlying 23% drop year-over-year. The conversion rate of 6% was 1 percentage point lower than last year in Road Logistics.

Now Contract Logistics, Page #6, steady growth momentum. Contract Logistics produced an EBIT of CHF 62 million in Q3. This is the second strongest quarterly result ever and reflects 9% year-over-year EBIT growth or 12% excluding currency effects. Net turnover grew by 5% year-over-year in Q3 on a constant currency basis, in line with the growth over the first half of the year. This reflects continued market share expansion, which gains, as always, centered in health care and e-commerce. The conversion rate of 7% in Q3 is also comparable to recent quarters an improvement versus Q3 last year. This concludes my comments on the performance of the business units.

With this, I now hand over to Markus for a closer look at the financials and in particular, our cost reduction program.

Thank you, Stefan, and good afternoon, everyone. Thank you for your interest once again in Kuehne + Nagel and taking the time today to review our latest financial results. On the income statement, I would like to draw your attention to the most significant developments in the third quarter, which relates to yield pressure and ongoing currency headwinds. Yield pressure in both Sea and Air Logistics intensified in Q3, contributing to the net CHF 80 million decline of group gross profit. This includes a 4% negative currency impact in the third quarter alone, which equates to CHF 85 million. I will come back to this topic when reviewing our updated outlook in a few moments.

Before that, let's take a quick look at working capital. Working capital, we can see some increase of the net working capital intensity to 5.1% at the close of the third quarter versus 4.8% at midyear and 5.1% for the same level at the end of Q1. Both DSOs and DPOs came under pressure over the most recent quarter with DSO up 1.6 days and DPO down 0.6. This development and volume growth contributed to a 6% quarter-over-quarter increase in the net working capital. I will elaborate a bit more on the working capital development with the review of free cash flow generation.

Continuing with cash and free cash flow. In the third quarter, we produced CHF 226 million of free cash flow, which equates to a conversion rate of 105% versus 82% last year. For a better illustration, let me move on to the next slide. And in Q3, overall net working capital generated a net positive inflow of CHF 10 million despite the expansion of our core net working capital. This is the first inflow since the fourth quarter 2023. On a year-over-year basis, this represents an improvement of CHF 131 million. This contributed to the significantly improved third quarter cash conversion of 105%, as I mentioned before, which compares to the 82% of last year. However, that is below the historical average for a third quarter, as you can see on the slide, and we attribute the gap, which continues to close to relatively robust air freight volume and Contract Logistics turnover growth. We expect this to continue and note that the fourth quarter is typically the strongest quarter of the year when it comes to free cash flow generation.

Now as Stefan mentioned, let me talk about our actions and how we are taking action to mitigate the impact of a challenging market environment. This comes in the form of a cost reduction program, targeting at least CHF 200 million of annualized savings. We estimate just over half of these savings are linked to staff-related costs, including FTE reductions. The balance of savings is split almost equally between facilities-related costs and a basket of other variable expenses.

We anticipate achieving the full run rate of these savings by year-end 2026 or in other words, they should be fully reflected in the first quarter 2027 result. The costs associated with this program should not exceed a mid-double-digit million and are to be booked in the fourth quarter 2025 and the first quarter 2026.

Before we move on to the updated outlook, let me emphasize that these measures will not impede our ability to grow in line with our already communicated strategy. So from today's perspective, we anticipate a fourth quarter recurring result comparable to that of the third quarter. Based on that expectation, our year-to-date financial performance and the challenging market conditions, we are reducing recurring EBIT guidance to greater than CHF 1.3 billion.

Note that our guidance excludes nonrecurring items, such as the CHF 16 million charge in the second quarter and the items that we plan to book in the fourth quarter associated with our cost reduction program.

Lastly, the Apex transaction will result in significantly expanded net debt by year-end 2025. And note that long term, we continue to prefer a small net cash position. We can also confirm that this transaction will have no impact on our dividend policy.

With this, I would now like to close our prepared commentary and presentation with a summary of key takeaways. We are launching a sizable cost reduction program in response to the challenging market environment. The tough conditions are putting heavy pressure on sea and airfreight yields. At the same time, we maintain our long-term focus on market share gains in attractive sectors and continue to make progress. The expansion of our stake in Apex will be accretive to our EPS basis. And lastly, we are adjusting our outlook for recurring EBIT in 2025.

With this, I want to thank you all for your attention and hand back to Valentina to open the Q&A session.

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

My 2 are on the cost reduction program announced this morning. First of all, what functions would you be eliminating? Are you scaling back to calibrate to lower volumes? Or is there additional structural change? You also say the measures will not impede your ability to grow volume. What gives you that confidence?

Secondly, what facilities are going? I noticed there was CHF 50 million of facility reduction expense in the release this morning. Are there services that will disappear either entirely or in certain geographies? A little more color here would be helpful.

Alex, it's Markus. So let me do the cost reduction pieces. So first, your question on the cost reductions on the functions. I think currently, we are looking into trimming, I would call it, structural cost, taking out structural costs that can be management layers, but also locations connected to the second point, operating locations. And of course, we are adjusting our operating workforce according to our progress in being more efficient automation and out for -- putting work out into global services and shared service centers. I think it's a combination, but it's an acceleration very clearly. And let's say, a deeper cut into the cost structure of not only operational but also structural and overhead cost. So it's not a single function that will be untouched. Everybody will have a clear focus on the cost reduction program.

On the facility side, the major savings are coming from putting operational locations, so network locations, be it international or domestic, putting them together, improving network density by reducing locations and operational locations. Something that I think in the industry when volumes are reduced is a common practice to consolidate locations and hence, reduce not only staff, but also location cost.

Yes. Alex, Stefan speaking, maybe a little bit more caveat on the sales side, right, because you were alluding as well on -- what do we do on the commercial side in order to be still confident to grow the business. So we are not reducing commercial stuff, in particular, not in the SME sector. So in the meanwhile, seafreight has 45 customer care locations, around 700 SME people or dedicated small, medium-sized enterprise-focused hunters. We will not reduce there.

We will, of course, intensify our efforts into the hyperscaler market. We talked about it now a couple of quarters already. You see that is paying off already to a certain degree in airfreight, in particular, where we have gained market share even more so in the third quarter, but we will definitely look into verticals which are not growing at present, for instance, automotive and certain industrial and solar panel activities from Asia into the U.S. But overall, commercial people will not be as affected as the operational side, as just mentioned by Markus.

The next question comes from Uday Khanapurkar from TD Cowen.

This is Uday on for Jason Seidl. Maybe on the cost again, you've described it as at least CHF 200 million in cost out. Are you guys reserving upside there in case the market environment worsens further? Or is it more that you're starting out with a conservative number and could exceed it irrespective of the market?

Uday, it's Markus. Clearly, this is our ambition and our target that is reachable from today's perspective with the program that we have launched. If there is -- assume for a moment, there might be a further deterioration coming through the year 2026, we will, of course, not stop. This is not all we have to give. If there is a further deterioration or more adverse commercial environment or whatever else could happen, we can continue doing that, and we will continue doing that.

And to add a little bit to caveat on that as well from my side is we are talking about cost efficiencies now in the program. We are looking pretty much as well into the digital ecosystem. I mentioned that a couple of times already. We are at the very early beginning, but looking at the large language models and the digital agent capabilities from the software coming to the market or already available in the market, we will identify -- have identified and will further identify areas where we can leverage digital agents, and that should as well help us to reduce our cost to serve.

Okay. That's helpful commentary. And maybe for my follow-up on sea. Can you give us your expectations maybe on ocean capacity trends in 2026? And maybe like what magnitude of an ocean demand recovery do you think is needed to start seeing maybe a firming up or a recovery in ocean rates off of these depressed levels?

Yes. So we all see and know that the carriers add significant more capacity into the marketplace, which is not helping the yield position overall pretty clearly. So maybe to give you a little bit of a number, China to the U.S. in the third quarter was down approximately, I would say, 25%, 26%, more so in the large customer base, less in the SME and smaller customer base. So what definitely needs to come back is this 20%, 30% down in the key account space. So we need to have a significant uptick in terms of volumes in the market in order to reverse the current pressure on yields. So the capacity as well to give you a precise number, which is growing or coming into the marketplace is roughly between 6% and 9% of the overall capacity, which is added now into 2026. So we need to have a significant uptick in demand, especially in the U.S. in order to reverse the situation from a yield perspective.

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

Just continuing on this question around sea yields. So in the scenario that ocean freight rates remain under pressure over the next year, should we expect kind of your ocean yields to continue to decline? Or do you have any mechanisms in there to kind of protect the yield within the context of your strategy to gain market share? And then secondly, on the road segment, your competitor today talked about the road market stabilizing. It seems like you don't see that. Am I right? And kind of what are the trends you're seeing on the road side?

Muneeba. Stefan, I'll tackle the road question first. I think what we have seen is now that we -- over the year, we had 6% to 7% less volume in the large domestic networks, particularly in France, U.K. and Germany. Germany was the worst, and that is not a surprise. It is stabilizing a bit now. It was stabilizing at the end of September, a little bit more uptick than expected in October. But is that a tipping or turning point? I would say, no. There is still less volumes in the networks versus the previous years. I would say, if it's not 6%, it's still 3% to 4% less. It's stabilizing a bit, but it's not a tipping or turning point as we see it right now.

And maybe on the seafreight yield side, I think we have already a situation today where rates are on a very low basis. I think our portion of the gross profit that stems from the capacity is already heavily compressed under current conditions. And from that perspective, we believe that's pretty much at the bottom range of a potential corridor in that cycle. I mean, let's not forget it's still a cyclical business we talk about. So -- but that is our current feeling.

What we are focusing on clearly is on expanding our SME share with higher yields, and we are successful in doing that, and we expanded on a quarter-over-quarter basis. And we are focusing on more services per shipment. You remember our strategy on the land side, value-added services that we have completed and extended at the beginning of the year with IMC is one of these steps. And these are the areas we can focus on. These are the areas that are, from a yield perspective, fully under our control, and we are going to expand on that. So from that perspective, I think I would not necessarily expect a further deterioration as you put into your question.

The next question comes from Marco Limite from Barclays.

So just a follow-up on the last question you just answered. So when we think about Q4, I think you mentioned that we should expect Q4 flattish versus Q3. I mean by looking at the different moving parts, I guess you're sort of guiding for a GP TEU not deteriorating further versus the Q3 levels. Does that mean also that the headwinds from FX now are fully in the base, we are not going to see any further FX pressure, would be my first question.

And my second question, again, on the gross profit per TEU point, you have just said that you think you are getting to the bottom in a way, but we are still at quite higher levels versus pre-pandemic. I know a lot has changed in terms of volume mix, [ IMC ] acquisition but at the same time, also 20% currency devaluation. So again, what gives you the confidence that also the service part of the GP, not just the procurement part of the GP is going to be stable and won't go down in the future?

Marco, so we're just looking at each other. So I take the second one. What makes us confident? I think, first of all, the yields are already very much compressed. And what we have just shared again is that our focus and the results in terms of our NVOCC SME volume is getting traction slowly, but more and more getting traction. So we are growing double digit in SME growth, which is helping us to maintain a certain yield position.

Unfortunately, our large customers in the sectors I have just described are declining massively into the U.S., which we have not a huge influence over. But what makes us confidence is that we get more and more traction into the SME market. It took us quite a while, right?

Now with the 45 new customer care locations with the highest sales force or largest sales force ever in history of Kuehne + Nagel and with a share of SME then which is north to 50% in the meanwhile, that makes us confidence that we have at least a chance to maintain a certain GP level which is not going down further significantly in the fourth quarter and the quarters to come. But there is, of course, no guarantee. We do not know the market dynamics completely. But anticipating what we see currently, that should help us to maintain a certain position.

And maybe just completing it for the first question on the fourth quarter outlook, I think adding to what Stefan just said on the additional services component on the origin and destination services. From an FX perspective, we will continue to see a pressure on the FX for another quarter because in the consolidation, we consolidate standard with average exchange rates over the year. And obviously, as long as the U.S. dollar predominantly, that is the currency that impacts here the most is residing at a level of $0.8 or $0.79 towards the Swiss franc, we will continue to see for another quarter an impact.

And sorry, on the Q4 in airfreight, I guess in the past, we're talking about peak season. What's the view now also in terms of GP per tonne in air, if you can add any color.

What we see currently is that the volume, the market share gains will continue in the fourth quarter, especially in the area of the hard cargo where we have been more successful than in the first. E-commerce is going down further. So no support from e-commerce to be expected, but there are 2 main verticals where we see nice growth, which is the perishable and the hyperscaler semicon market, which is going to continue.

But what is clearly -- and that is what we said as well during the last Q call, there is no peak season to be expected. So no additional support in the marketplace, but we would estimate the same growth pattern in the fourth quarter, which we have seen in the last 2. On yields, I would say, stable yields and no further deterioration in terms of the GP per unit is concerned.

The next question comes from Alexia Dogani from JPMorgan.

Just firstly, on the cost saving program. Can you please discuss why CHF 200 million is the right number? Because when I look at the addressable cost base that you have, this represents just around 3%, which could be seen as just covering inflation. And so can you just little bit explain why you think this is enough. And when I look at a very high level, the run rate of profitability of this business, given what you delivered in Q3, we are looking at numbers very close to 2019 levels. And so why have things kind of unwound so quickly in the past few years? And what can you do to regain some of the more positive trajectory you have seen?

And then secondly, on financial leverage, obviously, you talk about the commitment to the dividend, the fact that you want to go back to net cash neutral. But when we look at net debt-to-EBITDA, including leases, you're already at a range of around 1.5 to 2x. How high are you willing to let this metric go before you have to, I guess, take more urgent action.

Yes. Alexia, Stefan, I will tackle the first question, the cost savings and the basis of the cost savings. So I think what we have to do is here, we need to distinguish between the freight forwarding side, so Sea, Air and Road logistics, where our cost base is roughly CHF 4 billion. And we focus pretty much on this CHF 4 billion, right? So then the cost reduction is significantly higher than the 3%.

Because in Contract Logistics, the cost is always related to the execution of the customer contracts and as more we win, as more we add, but this is a little bit independent from what we have put forward in the cost program, cost efficiency program, and this is pretty much focusing on the network side of the house.

And we have a starting point, a cost position of roughly CHF 4 billion. So that's the reason why the percentage point is a little bit higher. And as Markus said a couple of minutes ago, there is a need for further cost reduction or cost saving measures, then we are able and willing to take them, right? So this is only what we have identified so far since August this year.

Let me answer on the debt position. I think you're right, it's 1.5x what we currently look at from a debt perspective. And yes, we have said we prefer a small net cash position going forward. So that means we're going to focus even more on our free cash flow generation going forward. Our current net working capital is expanded, is expanded more than what we usually would require for that business. Our net working capital intensity corridor 3.5% to 4.5%. So we are at 5%.

Clearly, that speaks for a certain business pattern that we currently experience, namely in the airfreight arena on the charter businesses that are taking a larger portion than what we have experienced in the past. So there's a couple of moving points there, but I think something that we will manage even closer, and that gave us the confidence to go out with this confirmation of the dividend policy as well as our long term, it's nothing that's going to happen next year or at the end of next year that we will get back to a net cash position. But it's something that clearly remains in our strong focus.

And do you mind if I just follow up on the point about the cost savings. I appreciate that it's 5% of the kind of the more forwarding side. Is there something that you can do on the revenue, do you think? Or really the only lever you have is the cost base to improve profitability?

No, the revenue side, you mean the GP side, right? So it's more the GP side...

Yes, just help on GP...

Yes, it's more the GP side, of course, right? So it's how do you do the pricing, where do you focus? SME, we touched already quite intensively and airfreight is the mix basically, less growth basically in perishables, but more growth in the semicon and the hyperscaler and the industrial side of the house or in the hard cargo because here, the yield per 100 kilo is much higher.

So that is what you can do and what you do on a constant basis with our sales force, focusing on the high yield business and look into additional services, so the so-called value-added services before and after port-port or airport to airport, and we have certain examples for that, the customs clearance piece, the transloading piece, the white glove service, the value-added service in the U.S., for instance, right? So there are a couple of things which you can expand, which we do in order to offset the pressure on port-port or airport-airport rates.

The next question comes from Marc Zeck from Kepler Cheuvreux.

Just a couple of quick ones on your recent acquisitions, to put that way. Can you give us a feeling of what you expect for Apex in Q4? I believe it's very much geared towards the transpacific and probably also there's a bit of e-commerce business. So you might say all the wrong places to be in right now. What will be kind of the rough EBIT contribution from Apex that you expect?

Then on IMC, could you give us an update what IMC is currently doing in terms of profitability and what ocean yields will look like ex IMC? Are we still above CHF 400 million with excluding MSC or already in CHF 300 million? And then just a quick follow-up on the free cash flow and working capital development. It was my impression that in the past, you talked about elevated working capital being kind of a relic or artifact of the pandemic and high freight rates. Now obviously, freight rates came down quite a bit. Why is free cash flow or working capital lagging and normalizing above and beyond what you said on the airfreight charter business? That's from my side.

Yes, I'll start a little bit with Apex, right? So you're absolutely right, Marc. So Apex is transpac in particular, and it was more focusing on e-commerce, where we see a certain reduction in terms of volume is concerned. But we leverage Apex as Kuehne + Nagel pretty much as the carrier. So to give you one example is we have now 14 charter operations out of Hanoi, Vietnam, purely on the high-tech side, on the hyperscalers, semicon and high-tech customers, which is operated by Apex, and we jointly leverage the capacity towards the U.S.

So we get the best out of both worlds, so to say. But of course, Apex margins are currently more under pressure based on the business mix and the situation. They are focused more on the U.S. and general cargo basis. But nevertheless, we utilize them as the carrier with their 747 charter operations for both legacies, which will add future value to the growth of the hyperscaler market.

Marc, it's Markus. On IMC, I think strategically, we talked about it a bit before. I think the right thing to do, quite happy with the land side operation, how we can also consolidate operation KN with IMC and so on. Your specific question on the gross profit per TEU, when -- the first answer is do not forget we have CHF 22 on currency headwinds on that. So what you can clearly see is a deduction of, say, roughly CHF 50 for IMC contribution into gross profit per TEU brings you to a CHF 370 number plus the CHF 22 on the FX headwinds.

I would say from a U.S. dollar perspective, we are still around the $400 -- sorry, correcting for the U.S. dollar impact, we are still on the CHF 400 line. You have the full transparency on the breakdown as well in that books that we have published. But that is from a quick calculation on the back of the envelope that is the reality.

Free cash flow and working cap, I think, yes, the pandemic situation was extraordinary in many ways, one of which obviously was also on the rates and on the working capital needs. But again, that has passed some time ago. Currently, we are looking predominantly on the portion of charter business in the airfreight arena versus the business that was on belly regular carrier business, what it was in the past, and that is still the main driver for -- that is still the main driver for the extended net working capital intensity. There's nothing else out there. We will continue to manage DPOs and DSOs and at the same time, try to optimize the business model as it stands today.

The next question comes from Michael Foeth from Vontobel.

Two questions from my side. Can you just remind us what the basis for the Apex valuation was in the deals, Partners Group now, and in hindsight, what the benefits of selling the stake to [ PG ] now taking it back has been for Kuehne + Nagel, both financially and strategically. And the second question, just a clarification. You said that the yields on the hyperscaler data center part of the business is much higher, much higher than perishables, I think you said, is it above the group average as well, the yield on that business? That would be those 2 questions.

Then I answer the last one. And yes, the overall semicon high-tech, in particular, hyperscaler margin end-to-end is higher than the average on group level. So significantly higher than group -- perishables, sorry.

And Michael, on the Apex, maybe just for transparency, Apex, Partners Group had a put option. So it's not so much about us selling. So they exercised the put option at the back end of the summer. I think what we have certainly taken out from that cooperation and that partnership is an excellent view into further growth opportunities on the M&A side at Apex, the way how to operate and look at business, I think from a highly professional partner like Partners Group in managing the business in Asia. So there's a lot of things, I think, that we have positively learned and taken away experience. From that perspective, I think we can be strategically very happy that we had this partnership in place. From a valuation point of view, I think we have disclosed that since the put option was in place in our financial statements. In principle, it is a multiplier on the financial performance of the company.

The next question comes from Gian-Marco Werro from Zürcher Kantonalbank.

One question also on Apex and the terminated partnership there with Partners Group. So can you anyhow, despite this termination of the partnership, tell us about the pipeline for bolt-on acquisitions there in Asia? How did it evolve over this partnership? And how does it look at the moment? Does it look less promising now compared to 1 year ago? And the second question is on DSV, and the volumes from the DB Schenker integration that might come to the market. Do you see already some volumes coming into your direction? Could you benefit in the last quarter now from some clients who have diversified their portfolio of freight forwarders?

Gian-Marco, it's Markus. Let me take the Apex since we talked about it already before. So clearly, the visibility that Partners Group had to potential targets, it's much higher quality than what we have had internally. I think that is clear. And the pipeline for potential acquisition objects or targets is there. And I think without giving away anything over the next 12 to 24 months, we will see some actions there. In a bolt-on acquisition type, of course, we have not changed our view on that, but it's something where I think we get extremely good value for money. Going forward, I think it has proven to us that, that can be a future model for developing business in areas where a partner is really of substance and help to us.

Yes, Gian-Marco, Stefan. I tackle the DSV Schenker question. Yes, in particular, in seafreight and airfreight we have seen significant volumes on the market. And if you compare now Q3 volumes in seafreight on both companies, you see that it's a head-on-head race. It's not so clear anymore that one is larger than the other one, which we need to take as a sportive race like soccer, right? So you have to have fun sometimes as well in business life.

So overall, I can confirm that we have taken advantage out of that merger, as I said, in airfreight, now road as well is helping us with the white glove service with the value-added services, particularly in the U.S., which we hadn't had before. So overall, it has benefited us and look at the -- again, at the numbers, compare the numbers in seafreight third quarter in total, both companies and us, then you see that is almost equal now. And it will be interesting to see in the next couple of quarters and years to come who can leverage the customer side for its own benefit.

Just maybe one small follow-up. What is the hurdle to not also gain volumes in seafreight from the DB Schenker?

The airfreight market is much quicker. And customers -- so in seafreight, you have 1 or 2 RFQ cycles, it's mainly 1 RFQ cycle for the Westbound and for the transpac a year, and you have to wait for the RFQ cycle and the airfreight customers in particular, decide more on a monthly or quarterly basis and the share of wallet needle has moved much quicker in airfreight than in seafreight. So the risk or the purchasing guidance is more obvious in airfreight than in seafreight, but that can come and should come during the next RFQ cycle.

Next question comes from Laura Bucher from Octavian.

More of a follow-up really. You've mentioned expanding SME as a way to potentially increase the GP. I'm interested in knowing how that flows to EBIT per TEU. I think you once mentioned that SME offered, I think, was 1.8x the average GP per TEU, but that it also had much higher costs. So I'm interested in how has that developed over time? And if you're addressing any of it with the CHF 200 million cost-cutting program.

Laura, it's Markus. Good to hear you after we met a couple of months ago. So SME, clearly, 2 factors, and you're absolutely right, 2 factors, higher GP, but also higher cost to serve, and I can [indiscernible] to the end. Our cost reduction program that we have started today, and I think Stefan has also put a lot of color around which areas are lesser impacted like on the sales side.

So to be absolutely clear, we maintain and focus our service quality and our ability to grow. That also means for SME customers, we will continue that high-level service that we are able to deliver. So there is not going to be an impact on the service quality. We save costs on areas where we think we can do that without impacting this service levels. 1.8x, that is still the correct number, at least from our experience that we see that also returns with a conversion rate or with a conversion rate in line with our ambition. So that is between 30% and 35% towards the bottom line.

So as long as we maintain the service quality, then the customer loyalty is going to be the SME section will expand. So we are going to continue that journey. Nevertheless, when we automate or digitize or eliminate process steps, tasks within the execution, that will also benefit for the profitability of SME customers, for sure. But that's nothing that a customer will feel as a change or if a change then to be better for his customer service. So optimization, efficiency gains are also still be valid for SME. But overall, your business case is still very valid.

The next question comes from Cedar Ekblom from Morgan Stanley.

Just one for me. On the cash return, I wonder, would you ever consider going from a dividend to a buyback considering where shares are? Do you think that there is any opportunity to express a view that shares are maybe undervalued, particularly if you believe that you can deliver your medium-term targets that you set at the Capital Markets Day only a couple of months ago?

Sure, Cedar. Fair question, and I think a fair consideration. I can only reflect what the Supervisory Board is sharing with us, and clearly, their preference is on the side of dividends. Not much more that I can say for that.

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.

Yes. Thank you very much for your questions, for listening in, your interest. Stay tuned and have a good winter. So the weather here is getting really now more to the skiing season. Thank you again for your interest, and talk to you soon.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.