2027 Financial Targets
Q: Why has the 2027 EBITDA target decreased more than revenue?
A: Baris explained that since January 2023, lower volumes and customer footprint consolidation have led to rebasing expectations for 2027. About one-third of the impact is from lower consumer vertical volumes in 2023 and 2024. Another third is due to customer footprint consolidation affecting revenues and margins. The final third results from a slower ramp-up in automation margins, as GXO won many first-time outsourcing projects with low capital intensity in 2023. Margin improvements are expected from automation (30 basis points), Wincanton synergies (35 basis points), and productivity gains (30 basis points), totaling approximately 95 basis points by 2027.

Organic Growth Outlook
Q: How does Q1 organic growth bridge to full-year expectations?
A: Malcolm stated that while consumer goods volumes remain sluggish, there has been positive sequential improvement from Q4 to Q1, with April continuing the trend. Baris provided a bridge for Q1's 1% organic growth: new business contributed 6.5%, volumes were negative 3%, pricing (mainly inflation) added 2%, and retention was in line with long-term averages. For the full year 2024, GXO expects organic growth of 2.5%, with new business at 9%, volumes at negative 3%, pricing inflation at 2%, and retention matching long-term averages.

Wincanton Acquisition Impact
Q: What is the impact of the Wincanton acquisition on guidance?
A: Malcolm highlighted that the Wincanton deal brings about $1.1 billion in revenue for 2024. Baris added that Wincanton's full-year EBITDA is around $80 million, with $45 million expected in 2024. The acquisition is accretive from the start, adding approximately $0.03 per share in 2024. GXO anticipates cost synergies of about $45 million, equivalent to 35 basis points of margin improvement by 2027.

Levi's Contract and Automation
Q: When will the Levi's contract contribute, and what's its automation scope?
A: Richard announced that the Levi's partnership will begin in June, ramping up over 12–18 months to full production. The facility will be Germany's greenest warehouse, fully equipped with state-of-the-art automation, handling around 60 million units and employing 750 people. Automation is central to GXO's operations, currently at 42%, with plans to increase through adaptive technologies like AI-driven robotics.

Future M&A Plans
Q: Are there plans for future M&A after Wincanton?
A: Malcolm stated that GXO's focus is on integrating Wincanton throughout 2024 and 2025. While the company considers M&A when appropriate, the current priority is digesting Wincanton, which opens new verticals like industrials and aerospace.

Cash Flow Guidance
Q: How does Wincanton affect cash flow guidance?
A: Baris affirmed that despite heavy investments, GXO expects to achieve 30%–40% EBITDA-to-free-cash-flow conversion in 2024. Strong working capital management and high cash flow generation are anticipated, above long-term targets.

Operating Leverage and Costs
Q: When can we see operating leverage in direct costs?
A: Baris explained that GXO's business model has high variable costs and limited operating leverage. Margin improvements are expected from automation (30 basis points), Wincanton synergies (35 basis points), and productivity gains (30 basis points) by 2027. The company is pursuing efficiencies in central costs and support structures.

Market Share and Competition
Q: Are you taking market share from automated or non-automated players?
A: Richard noted that GXO focuses on the vast opportunity of first-time outsourcing, with automation as a key differentiator. Malcolm added that industry consolidation favors large-scale companies like GXO that can deploy complex automation and AI solutions.

First-Time Outsourcing Trend
Q: Why is there momentum in first-time outsourcing?
A: Richard explained that challenges like inflation and labor shortages drive companies to seek GXO's automation expertise. Customers are making decisions faster, with the sales pipeline including around $500 million in automation. This trend is expected to continue, contributing to outperformance in 2024.

FX Hedging Considerations
Q: How are you approaching FX hedging for Wincanton?
A: Baris stated that while three-quarters of 2024 hedging is completed, hedging for Wincanton has not yet been done. The guidance is based on average exchange rates of EUR 1.08 and GBP 1.34, and the company plans to lock in these rates to de-risk the P&L.

Customer Response to Wincanton
Q: How are customers reacting to the Wincanton acquisition?
A: Malcolm reported very positive feedback from both GXO's and Wincanton's customers. The acquisition opens opportunities for pan-European services and strengthens relationships, with revenue synergies expected to materialize in about two years.

Competitive Landscape and DHL
Q: Any strategic changes due to DHL management changes?
A: Malcolm acknowledged DHL as a strong competitor and noted that the competitive environment is consolidating. GXO sees strong demand for its services due to its ability to offer complex automation and AI solutions, which favors larger companies in the industry.