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Speaker 1: Hi everyone, and welcome to Bloomberg Intelligence Talking Transports Podcasts.

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Speaker 1: I'm your host, Lee Klaskow, senior freight, transportation and logistics

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Speaker 1: analysts at Bloomberg Intelligence, Bloomberg's in house research arm. We're

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Speaker 1: delighted to have Neil Shelton, gxo's chief strategy officer as

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Speaker 1: our guest on the podcast. Neil has twenty five years

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Speaker 1: experience in the financial industry with companies that include JP Morgan,

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Speaker 1: Chase Morgan, Stanley Credit, Swiss City Group, and Arthur Anderson.

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Speaker 1: Neil has led several TMT equity research teams to number

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Speaker 1: one external rankings and has been regularly ranked number one

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Speaker 1: for specialist sales by Institutional Investor, and has piloted more

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Speaker 1: than fifty equity and initial public offerings. He holds a

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Speaker 1: degree in Industrial economics from the University of Nottingham and Britain. Well, Neil,

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Speaker 1: thanks for joining us today. How are you doing very good?

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Speaker 2: Lee, Thank you so much for inviting us, and congratulations

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Speaker 2: on your new podcast series. It seems fantastically exciting.

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Speaker 1: Yeah, I appreciate that it's been great so far and

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Speaker 1: only getting better by the episode, So, you know, GXO,

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Speaker 1: maybe not a household name. But what you do is

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Speaker 1: a household service. So can you give our listeners just

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Speaker 1: an idea of what GXO is and what is contract logistics?

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Speaker 2: Sure, let's start off on your word service, because that's

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Speaker 2: exactly what we provide to our customers. Lead. We provide

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Speaker 2: a service, a warehousing service for customers across many different verticals,

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Speaker 2: both consumer focused, industrial, food and beverage, and technology verticals

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Speaker 2: where we provide warehousing services. What does that really mean?

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Speaker 2: We help our customers to drive efficiency, to drive an

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Speaker 2: improved consumer experience, to drive improved in ventures reposition by

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Speaker 2: utilizing technologies available to us and driving an overall solution

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Speaker 2: from them. Our role in that is to provide a

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Speaker 2: service for our customers. So we typically operate under a

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Speaker 2: five year average duration contract where we help our customers

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Speaker 2: warehouse operations to become a lot more stable in that

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Speaker 2: overall supply chain and to drive a significant an outsized

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Speaker 2: benefit for them relative to our costs.

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Speaker 3: Right.

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Speaker 1: Well, I mentioned GXO is not a household name, at

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Speaker 1: least not yet. I mean it's a relatively new company.

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Speaker 1: It maybe not the operations as new, but it's a

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Speaker 1: spin off from XPO. Can you talk about you know,

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Speaker 1: you mentioned your customers. Who are your customers, like what

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Speaker 1: type of companies use GXO or if you're able to

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Speaker 1: mention companies by name, sure, So.

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Speaker 2: I mean we've publicly highlighted a number of the fantastic

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Speaker 2: partners that we have across consumer verticals such as Nikes,

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Speaker 2: such as Indo tech such as A such as added

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Speaker 2: ass in technology. We've highlighted having some phenomenal customers such

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Speaker 2: as Apple and in the industrial space boating. We also

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Speaker 2: recently won our largest ever annual revenue contract in the

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Speaker 2: food retail space with a company a UK food retailer

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Speaker 2: called Sainsbury. So we serve a variety of large blue

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Speaker 2: chip organizations. If you look at our business, we're the

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Speaker 2: largest independent three pl in the space that we operate in.

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Speaker 2: In terms of that warehouse contract logistics, our customers are

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Speaker 2: on the whole.

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Speaker 3: They work with us across multiple sites and multiple geographies.

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Speaker 2: So over half of our customers work with us across

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Speaker 2: more than one country, which is really, if you like,

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Speaker 2: reinforcing the fact that they're looking increasingly to a scaled

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Speaker 2: operator to help digitalize a warehouse environment that has historically

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Speaker 2: been very manually focused and seeking to bring more of

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Speaker 2: those benefits across more of their global network.

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Speaker 1: Yeah, and from what I understand, these warehouses and fulfillment centers,

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Speaker 1: they run the gamut from extremely high tech, fully or

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Speaker 1: fully or closely fully automated to kind of pick and

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Speaker 1: pack manual. Can you just talk about the different kind

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Speaker 1: of facilities that you have and I guess the benefits

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Speaker 1: for a customer on maybe looking at more automated facilities.

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Speaker 3: Yeah, absolutely so.

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Speaker 2: If you look at our revenues lead we are what

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Speaker 2: we classify as just over thirty percent highly automated revenues

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Speaker 2: and that's the very significant large scale automation bespoke for

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Speaker 2: a customer that can drive tremendous uplift in their business

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Speaker 2: performance if you include some of the more modular technologies

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Speaker 2: we've been deploying at quite a ferocious rate of late,

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Speaker 2: were close to forty percent of our revenues coming through

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Speaker 2: from some of those more modular technol that's things like

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Speaker 2: movable robotics, collaborative robots, goods to person systems, and in

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Speaker 2: some elements to vision type activities. Our customers are looking

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Speaker 2: to us to deploy these technologies because the overall warehouse

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Speaker 2: environment is very lowly automated. It's only a single digit

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Speaker 2: percentage automated, and it's not in many of our customers

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Speaker 2: wheelhouse strengths to know what is the right technology to

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Speaker 2: solve for their customers. We operate about one thousand sites globally.

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Speaker 2: Ly if you look at a very large customer, they

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Speaker 2: might have five or six sites spread across the planet.

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Speaker 2: So our ability to drive a solution from knowing what

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Speaker 2: is the right technology that's been tried and tested and

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Speaker 2: driven a tremendous result to the customer is vastly different

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Speaker 2: to what a company might be able to achieve themselves.

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Speaker 2: If you look at the benefits of where we are deploying,

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Speaker 2: automation is numerous. Yes, everybody focuses on efficiency. The cost

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Speaker 2: reduction that are automated can ring, and we've got examples

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Speaker 2: where we've helped customers to drop the variable cost per

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Speaker 2: unit by sixty percent or in some instances more than

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Speaker 2: sixty percent by deploying automation, by driving out a lot

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Speaker 2: of repetitive activity, by taking away, if you like, movement

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Speaker 2: that is undertaken by teammates and replacing it with a

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Speaker 2: much less strenuous automated activity. So you know an environment

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Speaker 2: where wage inflation has been relatively persistent. This is very attractive,

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Speaker 2: but the benefits really don't stop there if you like.

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Speaker 2: What we can drive is bigger, outsized benefits for the

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Speaker 2: customer from a number of other effects that automation can ring.

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Speaker 2: For example, we have automated facilities that can drive almost

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Speaker 2: one hundred percent accuracy. One site last month drew over

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Speaker 2: a ninety nine point nine nine percent order accuracy. When

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Speaker 2: the customer was doing themselves in the house that was

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Speaker 2: around a ninety eight and a half percent order accuracy.

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Speaker 2: The impact for the customer is that they have evaded

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Speaker 2: thirty million returned products through inaccurate shipments, which is a

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Speaker 2: significant benefit in terms of avoiding the cost associated with

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Speaker 2: the return. But for this customer too, when you take

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Speaker 2: their product out of a temperature controled environment, there's a

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Speaker 2: greater propensity that it might have to not be reused

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Speaker 2: for the next customer. The other key benefit that we're

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Speaker 2: able to bring to customers is by having these highly automated,

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Speaker 2: very predictable solutions. For our customers, we're able to help

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Speaker 2: them reduce inventory free up working capital now today earns

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Speaker 2: a good yield in a bank, but at the same

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Speaker 2: time too helps has a positive impact on their overall

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Speaker 2: gross profit margin. If you consider most retailers typically one

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Speaker 2: thirty forty percent overstopped come the end of a season,

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Speaker 2: having to discount that can be quite painful on many

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Speaker 2: customers gross profit margins. If we are halving or more

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Speaker 2: that overstocking by having this predictable solution where something that

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Speaker 2: arrives at the warehouse door is available for picking and

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Speaker 2: packing within an hour or two, then that has a

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Speaker 2: tremendously upsized benefit for the customer and that's why our

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Speaker 2: customers are seeking to work increasingly with us. If you

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Speaker 2: look at the economics of warehousing, it's typically about five

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Speaker 2: percent of total product cost. Clearly, depending on the product

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Speaker 2: it can be higher or lower. Our margin therefore is

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Speaker 2: only a few tenders of basis points of total product cost.

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Speaker 2: But the impact from the efficiencies, the impact from reducing

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Speaker 2: over stocking, the impact in helping to drive a better

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Speaker 2: overall end customer or consumer experience through higher accuracy, higher velocity,

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Speaker 2: predictability really makes that work with a three pl very

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Speaker 2: very attractive for our customers, and that that's why we

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Speaker 2: continue to deepen our partnerships with many of the big

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Speaker 2: global brands that we work with.

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Speaker 1: And so, you know, so it seems like, you know,

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Speaker 1: automation technology are big you know, benefits to your customers. Uh,

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Speaker 1: there's been a lot of talk about AI. You know,

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Speaker 1: if you can put AI in your next ten K,

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Speaker 1: you know, you might increase your your multiple turns a

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Speaker 1: couple of times. How how are you? How are you?

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Speaker 1: How is g XO leveraging AI to not only help

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Speaker 1: its customers be more profitable, but to help g XO to.

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Speaker 3: Be more poferable.

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Speaker 2: What AI does for us is it improves the productivity

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Speaker 2: of a lot of the automation and the hardware that

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Speaker 2: we're putting into the warehouse. We've been piloting a number

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Speaker 2: of AI driven improvements for the past few years, and

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Speaker 2: let me walk you through one example. We've piloted a

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Speaker 2: robotic packing arm for a direct to consumer customer, which,

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Speaker 2: when we were using the OEM control systems, was delivering

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Speaker 2: a pack rate of around four hundred units per hour

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Speaker 2: and it was able to cope with around seventy percent

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Speaker 2: of our customer's SKW range by deploying an AI overlay

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Speaker 2: on top of that, helping this robotic packing arm to

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Speaker 2: have a greater series of recognition of the product with

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Speaker 2: which it has got to pack. Going forward, it's helped us

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Speaker 2: to take the pack rate basically double to around eight

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Speaker 2: hundred units per hour, and it's taken the number of skews,

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Speaker 2: the skew percentage that it can cope with up pretty

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Speaker 2: close towards ninety percent. So for us, what that's helped

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Speaker 2: to drive is a tremendous improvement on the return on

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Speaker 2: investment for the automation that we're putting in place. That's

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Speaker 2: great for our customers, clearly, it drives the productivity within

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Speaker 2: the warehouse solution, but it also is good for new

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Speaker 2: customers who are contemplating going down the route of deploying

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Speaker 2: biher automation or robotics. So we've got numerous examples where

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Speaker 2: we have been piloting AI and it's really driven quite

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Speaker 2: a significant improvement in the performance of the technology that

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Speaker 2: we have been historically deploying. So it's a very exciting

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Speaker 2: time in terms of AI in the warehouse environment.

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Speaker 3: And watch this space. There'll be lots to follow going forward.

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Speaker 1: I certainly expect that to be true. You know, when

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Speaker 1: you guys are so when you're looking at different rois

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Speaker 1: and margins, are they different for higher tech facilities versus

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Speaker 1: lasso automated facilities From the GXO standpoint.

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Speaker 3: Absolutely so.

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Speaker 2: If you look around our margin structure for more automated facilities,

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Speaker 2: typically it's somewhere between two to four hundred basis points

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Speaker 2: higher than for a more minor activity. We're driving more

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Speaker 2: value for the customer, we're participating in that upside and

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Speaker 2: it becomes a much more strategic relationship with the overall

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Speaker 2: or customer. Similarly, when we're dealing with returns and reverse logistics,

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Speaker 2: we also have a higher margin structure. So what we

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Speaker 2: increasingly see is more and more companies look at that

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Speaker 2: warehouse through a more strategic lens and saying it's time

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Speaker 2: to automate. It is time to drive the operational and

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Speaker 2: indeed consumer or in customer type of benefits that many

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Speaker 2: of our customers our peers have and looking to GXO

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Speaker 2: to help partner and digitalize that warehouse environment.

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Speaker 1: Are you able to quantify what percentage your business is

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Speaker 1: reverse logistics.

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Speaker 2: Yeah, it's a very high single digit percentage of our

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Speaker 2: business lead. It is growing quite significantly faster than the

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Speaker 2: group average as a whole, and if you look at

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Speaker 2: what reverse logistics really means for customers, it can really

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Speaker 2: drive and have a very significant gross profit impact. So

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Speaker 2: if you consider around certain verticals, you see twenty five

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Speaker 2: percent of return product go to landfill. Last year, GXO

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Speaker 2: helped our customers to resell ninety six percent of product.

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Speaker 2: So where were able to do that, that drives a

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Speaker 2: a new revenue stream, a significant profit stream from product

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Speaker 2: that was particularly previously returned. But furthermore, we're also doing

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Speaker 2: it at a speed and a cadence that helps to

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Speaker 2: drive up the probability of a full price sale. So historically,

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Speaker 2: when you take over reverse logistics facilities, you'll find that

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Speaker 2: a number of customers haven't really looked at dealing with

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Speaker 2: the return product for weeks and in some instances months

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Speaker 2: and inevitably it's out of season and has to be discounted.

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Speaker 2: Where we're able to take that return product and make

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Speaker 2: it available for resale within twenty four hours, that drives

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Speaker 2: up the probability of a four price sale. So yes,

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Speaker 2: it has a significant improvement on our customer's revenue and

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Speaker 2: indeed gross profit. It also helps to serve the next consumer,

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Speaker 2: so you've got very limited stockouts as a result of

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Speaker 2: that returns activity, and don't forget in a director consumer world.

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Speaker 2: Now we are seeing about a third of what goes

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Speaker 2: out of the warehouse typically be returned. Is a very

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Speaker 2: material part of inventory that we help to get back

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Speaker 2: into a resellable condition for our customers. Where it's not resellable,

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Speaker 2: we try to salvage, we try to repair, we try

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Speaker 2: to clean so that it can become like an A

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Speaker 2: grade product that can be delivered into stock to service

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Speaker 2: that next consumer. And increasingly, where as customers are focusing

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Speaker 2: more on efficiency, they're focusing more on using working capital.

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Speaker 2: This is why they're looking to GXO to really drive

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Speaker 2: a significant benefit for them, and this is our heartland strength.

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Speaker 2: We recently took over a customer that wouldn't touch a

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Speaker 2: returned product unless I had a selling price point of

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Speaker 2: north of thirty dollars. We've now, through our processes and technologies,

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Speaker 2: taken that down so that there's a profitable sale for them.

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Speaker 3: That's seven dollars. That company.

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Speaker 2: Compass is almost all of their skew range now and

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Speaker 2: has really helped to drive need tens of millions of

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Speaker 2: dollars improvement in their gross profit from.

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Speaker 1: That, right, So you know, I'm sure you guys are

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Speaker 1: looking towards growth. You're benefiting from the contract the contract

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Speaker 1: logistics market growing. Is it growing more than the global economy?

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Speaker 1: The contract logistics market? And then when GXO is looking

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Speaker 1: to take advantage of that growth, are there certain regions

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Speaker 1: or verticals that are more attractive or higher growth for GXL.

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Speaker 2: Sure, so, Lee, you're absolutely right on the whole. The

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Speaker 2: global contract logistics market is growing a little bit faster

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Speaker 2: than the economy, and there's a couple of tailwinds to that. Firstly,

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Speaker 2: as our customers move more direct to consumer, the amount

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Speaker 2: of work product goes up pretty significantly. An awful lot

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Speaker 2: of what was done in store is now being done

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Speaker 2: in the warehouse, so we see a shift as a

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Speaker 2: result of that. There's also a tailwind coming through from

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Speaker 2: increasing amounts of ensuring activity that helps us. Our footprint

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Speaker 2: is largely North America and across Europe, so we're a

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Speaker 2: natural beneficiary from that. And then lastly, we're seeing our

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Speaker 2: market become much more outsourced. So roughly two thirds of

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Speaker 2: our industry is companies or customers doing themselves in the

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Speaker 2: house as they embrace the need for technology that's not

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Speaker 2: their wheelhouse strength. Their leaders in manufacturing, marketing, designing products

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Speaker 2: not in running warehouses, and so more of this industry

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Speaker 2: is moving towards an outsource proportion, and that's why for

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Speaker 2: the industry as a whole, it will outpace GDP growth.

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Speaker 2: We are out pacing industry growth. We're gaining share within

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Speaker 2: this because of our leadership in the deployment of the

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Speaker 2: technologies that can make a real significant difference for our customers.

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Speaker 2: So we're taking a greater share of that first time

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Speaker 2: outsourcing activity. And then we're also taking share from what

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Speaker 2: is a very fragmented industry from the law tail of smaller,

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Speaker 2: more regional type competitors as customers are looking to work

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Speaker 2: with a partner across more and more regions. So over

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Speaker 2: eighty percent of our revenues today comes through from customers

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Speaker 2: who work with us in more than one site and

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Speaker 2: that but that's a good indication of how we're growing

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Speaker 2: with these customers across their footprint.

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Speaker 1: Can you talk about your pipeline and how that's been

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Speaker 1: building over time?

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Speaker 2: Yeah, sure, So exiting the second quarterly, we had a

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Speaker 2: two billion what we call which is over two billion

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Speaker 2: dollar pipeline. That is where we have formally responded to

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Speaker 2: an RFP, so there's a formal process and we disclosed

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Speaker 2: that number quarterly to the market. We have a pre

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Speaker 2: pipeline which is very significant too, and if you look

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Speaker 2: at those both of those activities, they've been showing a

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Speaker 2: good upward momentum year over year through the second quarter.

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Speaker 2: Our pipeline turns over a couple of times a year,

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Speaker 2: and from that we've driven some really quite phenomenal win

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Speaker 2: The second quarter this year was our largest a quarter

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Speaker 2: for new contract wins, including our largest ever revenue contract

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Speaker 2: that we picked up in the UK with Sainskree. So

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Speaker 2: what we're seeing in that pipeline is a lot of

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Speaker 2: opportunities to continue to expand with our existing customers, a

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Speaker 2: lot of opportunities from companies looking to drive the benefits

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Speaker 2: of outsourcing through efficiencies to allow them to reinvest back

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Speaker 2: into their business or a consumer proposition, and a lot

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Speaker 2: of companies who are looking at their existing relationship with

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Speaker 2: a three PM and saying I'm not sure they're the

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Speaker 2: partner for me to go to a more digital environment.

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Speaker 2: I'm going to go with a more predictable solution such

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Speaker 2: as with GX.

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Speaker 1: And the pipeline that you mentioned. Do you guys break

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Speaker 1: it out by region or by vertical We.

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Speaker 2: Don't, but what we have seen of Latesley is quite

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Speaker 2: a lot more activity coming in to the food services business.

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Speaker 2: So that's one of the areas that we have highlighted

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Speaker 2: that we're seeing quite a bit more activity that is

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Speaker 2: coming through from beverage companies. It's coming through from a

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Speaker 2: traditional food services business and I think in that kind

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Speaker 2: of post COVID new world, they are now looking at

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Speaker 2: their supply chains with the sort of scrutiny that we've

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Speaker 2: seen from a lot of sectors. If you look at

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Speaker 2: our pipeline of opportunities, continues to remain strongly weighted to

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Speaker 2: our heartland areas of strength. So that's on the channel retail,

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Speaker 2: e commerce, consumer technology, food and beverage, and consumer package

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Speaker 2: goods type activities. So we're seeing yet lots of exciting opportunities.

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Speaker 2: And what we have seen too is a couple of

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Speaker 2: those big global leaders push more for growing their addressable markets.

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Speaker 3: What do I mean by that?

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Speaker 2: So it's US companies looking to expand and put more

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Speaker 2: infrastructure down in Europe to service European companies or European

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Speaker 2: consumers and European companies looking to do likewise in the

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Speaker 2: US to really try and reinforce their branding and reinforce

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Speaker 2: their lead shipping some of the verticals that they operate in.

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Speaker 1: So you guys are on the front lines of the

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Speaker 1: economy given the different industries that you serve. You know

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Speaker 1: you're doing direct to consumer deliveries or shipments out of

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Speaker 1: your facilities in B to B shipments, do you have

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Speaker 1: roughly a split of what that business is of direct

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Speaker 1: to consumer and then I guess everything else.

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Speaker 2: Yeah, So if you look at our revenue structure in

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Speaker 2: the second quarter, League, we had just over forty percent

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Speaker 2: of our revenues coming through from omnichannel retail and just

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Speaker 2: over ten percent coming through from the technology and kind

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Speaker 2: of consumer package of goods vertical. So over half our

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Speaker 2: revenues comes through from consumer focused verticals. Some is e commerce,

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Speaker 2: some is traditional retail, some is indeed wholesale. So yeah,

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Speaker 2: we have a reasonably decent eye as to what's going

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Speaker 2: on globally with the consumer.

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Speaker 1: Yeah, So I guess on that in that vein is

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Speaker 1: where what's your assessment I guess of the economy. I

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Speaker 1: don't know if it's from a global perspective or a

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Speaker 1: regional perspective, by what your customers are telling you.

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Speaker 2: So I mean, we can see the volume, so get

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Speaker 2: we get quite a decent glimpse as to what's going

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Speaker 2: on in volumes. But let's be clear that doesn't always

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Speaker 2: give you the full story because revenue is priced volume,

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Speaker 2: and the pricing we've certainly seen through twenty twenty three,

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Speaker 2: customers really try to focus on holding price, going for

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Speaker 2: more price, higher profit per unit, and that's been very

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Speaker 2: much at the expense of discounting type activities. If we

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Speaker 2: look across our footprint in North America, certainly the second

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Speaker 2: quarter relative to the first quarter, we saw a deterioration

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Speaker 2: in some of the consumer focused industries and verticals that

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Speaker 2: we see a tremendous bifurcation, though lead were between different

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Speaker 2: brands even within the same vertical.

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Speaker 3: What we would certainly is.

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Speaker 2: That the very higher end brands are outperforming some of

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Speaker 2: the more generic brands, and I suspect that that is

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Speaker 2: the high end consumer continuing to outperform the lower end consumer,

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Speaker 2: who has faced a lot more share or pressure in

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Speaker 2: terms of wallet at the lower end. If we look

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Speaker 2: across continental Europe, that's been our standout positive business through

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Speaker 2: the first half of this year. We're very fortunate to

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Speaker 2: work with some phenomenal customers leaders and their sectors who

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Speaker 2: are outperforming the overall industry. But two, I think there's

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Speaker 2: also a bit of an annual comp effect. Whereas the

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Speaker 2: European consumer last year was a little bit weaker in

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Speaker 2: trend in the wake of the Ukraine invasion, we're now

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Speaker 2: seeing them exhibit a little bit more confidence.

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Speaker 3: The UK for US, that's.

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Speaker 2: Been pretty weak since late in the second half of

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Speaker 2: last year and has been kind of bouncing along the bottom.

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Speaker 2: There's one or two indications that things might be getting

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Speaker 2: a little bit better, but on the whole, bouncing along

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Speaker 2: the some still feels kind of the right way to

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Speaker 2: think about the.

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Speaker 3: UK right now.

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Speaker 1: Right And can you do you have any insights about

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Speaker 1: peak season from mere director consumer clients.

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Speaker 2: If we look across a number of the kind of

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Speaker 2: retail companies that have been reporting recently, they've on the

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Speaker 2: whole had a relatively kind of uninspiring summer and there's

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Speaker 2: not been a great sense that they're expecting a tremendous

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Speaker 2: improvement coming through in that overall peak season. If you

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Speaker 2: look last year, we saw what was probably one of

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Speaker 2: the flattest peak seasons that we can remember. Customers were

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Speaker 2: much more focused on pricing, less focused on the volumes.

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Speaker 2: At this juncture, that doesn't appear to be a material

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Speaker 2: step up in discounting activity. So it would appear that

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Speaker 2: customers are very focused on driving price unit as opposed

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Speaker 2: to tremendous huge volumes of sale. And will works to

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Speaker 2: make our customers as efficient as possible through this peak season,

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Speaker 2: and there will be a season. It's just a question

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Speaker 2: of what shape it ends up being.

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Speaker 1: And you mentioned earlier the contract logistics market being a

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Speaker 1: fragmented market and you're a major player in that market.

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Speaker 1: Is there the ability to grow through M and A

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Speaker 1: or are you looking to grow just organically and does

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Speaker 1: the company have a history of growing through M and A.

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Speaker 2: So our focus will always be organic growth. We run

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00:24:29,880 --> 00:24:33,199
Speaker 2: our business for revenue growth, we run it for return

402
00:24:33,240 --> 00:24:36,679
Speaker 2: on invested capital, and if you look consistently since the

403
00:24:36,680 --> 00:24:40,000
Speaker 2: spin from XBO, we've been delivering a thirty plus percent

404
00:24:40,080 --> 00:24:44,240
Speaker 2: return on invested capital. We think that that's great for

405
00:24:44,320 --> 00:24:46,800
Speaker 2: our shareholders, great for all our stakeholders. And that will

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00:24:46,840 --> 00:24:49,639
Speaker 2: be our number one priority. You are right, we have

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Speaker 2: undertaken a couple of tucking acquisitions. Most recently we acquired

408
00:24:54,000 --> 00:24:57,719
Speaker 2: PFS Web here in the US. That is a company

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00:24:57,760 --> 00:25:00,399
Speaker 2: with which we're super excited to really accel rate and

410
00:25:00,840 --> 00:25:03,920
Speaker 2: help to drive their business forward. On a more global

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00:25:04,520 --> 00:25:07,520
Speaker 2: type of operation, our M and A will really be

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00:25:07,560 --> 00:25:11,640
Speaker 2: focused on trying to help drive shareholder value by unlocking

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00:25:11,680 --> 00:25:17,159
Speaker 2: opportunities in new verticals with new processes or technologies, or

414
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Speaker 2: potentially in geographies where we might need a little bit

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00:25:21,200 --> 00:25:23,240
Speaker 2: of a leg up to grow. It's not going to

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Speaker 2: be a core part of our business. We will always

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00:25:25,840 --> 00:25:29,840
Speaker 2: focus on organic revenue growth. That's the biggest driver of

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Speaker 2: shareholder value for us going forward. But there are a

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00:25:33,040 --> 00:25:37,560
Speaker 2: number of opportunities in this fragmented industry that we could

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Speaker 2: look at going forward, but is to drive an opportunity

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Speaker 2: to accelerate growth going forward.

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Speaker 3: Let me give you one example.

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Speaker 2: In the first quarter of twenty twenty one, closed in

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Speaker 2: acquisition in the UK which brought a couple of one

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00:25:53,920 --> 00:25:57,879
Speaker 2: hundred million dollars of revenues in a technology activity and

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Speaker 2: also great exposure in a food and beverage and food

427
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Speaker 2: services activity.

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Speaker 3: The technology vertical.

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Speaker 2: We have already more than double the revenues that we've

430
00:26:08,600 --> 00:26:12,439
Speaker 2: acquired through new contract wins. That's bringing in the business,

431
00:26:12,480 --> 00:26:16,199
Speaker 2: giving it access to g xo's scale, giving access to

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Speaker 2: our best in class technologies, and helping them to drive

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00:26:20,080 --> 00:26:25,720
Speaker 2: a greater opportunity for more customers. More broadly, and that's

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00:26:25,760 --> 00:26:28,639
Speaker 2: the sort of focus of M and A. We don't

435
00:26:28,680 --> 00:26:31,600
Speaker 2: need to buy revenues. We've delivered two years of fifteen

436
00:26:31,600 --> 00:26:35,000
Speaker 2: percent organic revenue growth. We've just come off the back

437
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Speaker 2: of our biggest ever quarter of new contract wins.

438
00:26:38,160 --> 00:26:40,040
Speaker 3: We're gaining share in this industry.

439
00:26:40,520 --> 00:26:43,480
Speaker 1: Okay, And so since the focus is going to be organic,

440
00:26:43,560 --> 00:26:46,480
Speaker 1: you know, I'm just curious, you know, once you sign

441
00:26:46,520 --> 00:26:48,840
Speaker 1: an agreement with the shipper, how long does it take

442
00:26:48,880 --> 00:26:51,640
Speaker 1: to get a facility an average facility, because obviously it's

443
00:26:51,680 --> 00:26:55,320
Speaker 1: going to differ depending on how automated the facility is.

444
00:26:55,480 --> 00:26:57,280
Speaker 1: How long does it take a facility to get up

445
00:26:57,320 --> 00:26:59,639
Speaker 1: and running once an agreement signed.

446
00:27:00,720 --> 00:27:04,000
Speaker 2: It can vary significantly, but on average you should assume

447
00:27:04,080 --> 00:27:07,800
Speaker 2: somewhere between kind of six to twelve months. A gestation

448
00:27:08,520 --> 00:27:13,359
Speaker 2: if it is a green Fields bespoke solution, heavily automated,

449
00:27:13,400 --> 00:27:16,640
Speaker 2: with the warehouse effectively built around the automation, then that

450
00:27:16,640 --> 00:27:19,000
Speaker 2: can be longer. We've won contracts where we're not going

451
00:27:19,000 --> 00:27:22,439
Speaker 2: to be booking revenues recently until twenty twenty five, so

452
00:27:22,760 --> 00:27:25,879
Speaker 2: that helps to give us tremendous visibility in terms of

453
00:27:25,920 --> 00:27:29,880
Speaker 2: our growth for forward years. Similarly, however, if you look

454
00:27:29,920 --> 00:27:32,040
Speaker 2: at one of our big contract wins we announced in

455
00:27:32,080 --> 00:27:35,680
Speaker 2: the second quarter, we're live on some of those already.

456
00:27:36,040 --> 00:27:38,040
Speaker 3: That is a first time outsourcing.

457
00:27:37,480 --> 00:27:42,000
Speaker 2: Where you just take over an existing site with people

458
00:27:42,200 --> 00:27:44,600
Speaker 2: in it and it just agree transport date to you.

459
00:27:44,720 --> 00:27:48,359
Speaker 2: So it can vary significantly, but on average you should

460
00:27:48,359 --> 00:27:50,600
Speaker 2: assume somewhere between the kind of six and twelve months

461
00:27:50,760 --> 00:27:51,800
Speaker 2: there will be outliners.

462
00:27:52,480 --> 00:27:58,400
Speaker 1: And for facilities, does GXO owner release of facilities through

463
00:27:58,440 --> 00:28:01,600
Speaker 1: the customers own or releaseacilities and that's of course assuming

464
00:28:02,040 --> 00:28:03,560
Speaker 1: one customer and one facility.

465
00:28:05,880 --> 00:28:09,840
Speaker 2: You're absolutely right. We focus on bespoke solutions for our customers.

466
00:28:09,880 --> 00:28:12,880
Speaker 2: If you look for us, that's the vast majority of

467
00:28:12,960 --> 00:28:16,080
Speaker 2: our activities. We've got a very exciting, fast growing, more

468
00:28:16,160 --> 00:28:21,680
Speaker 2: multi tenanted solution called GXO Direct, but our core business

469
00:28:21,720 --> 00:28:25,760
Speaker 2: has been a bespoke solution where we match co Terminus

470
00:28:26,080 --> 00:28:30,600
Speaker 2: the lease for a site to the contracts. If you remember,

471
00:28:30,720 --> 00:28:35,200
Speaker 2: we on average operator a five year contract. We operate

472
00:28:35,440 --> 00:28:38,160
Speaker 2: under a series of different contracts. There will be some

473
00:28:38,240 --> 00:28:41,360
Speaker 2: contracts with a customer will retain the lease. There are

474
00:28:41,360 --> 00:28:43,680
Speaker 2: some contracts where we will take the lease, but again

475
00:28:44,120 --> 00:28:48,320
Speaker 2: aim to match that co terminous with our contracts and

476
00:28:48,400 --> 00:28:51,000
Speaker 2: for us rent as a pass through cost to the customer.

477
00:28:51,760 --> 00:28:55,760
Speaker 1: Okay. And you know, from a competition standpoint, when you're

478
00:28:55,800 --> 00:29:01,560
Speaker 1: looking at like more direct to consumer facility, is Amazon

479
00:29:01,920 --> 00:29:04,840
Speaker 1: a competitor of g XO leader?

480
00:29:04,960 --> 00:29:06,840
Speaker 2: I think I think the way to think about Amazon

481
00:29:06,880 --> 00:29:10,640
Speaker 2: really is what it does is it raises and sets

482
00:29:10,640 --> 00:29:15,120
Speaker 2: an elevated expectation for the consumer. We're all used to

483
00:29:15,200 --> 00:29:18,440
Speaker 2: in a world of Amazon Prime having super fast deliveries

484
00:29:18,600 --> 00:29:21,840
Speaker 2: and seamless returns of products. And what that means for

485
00:29:21,920 --> 00:29:24,560
Speaker 2: GXO is that we've got to help our customers to

486
00:29:24,920 --> 00:29:31,520
Speaker 2: really deliver that best in class experience. They're a great company,

487
00:29:31,600 --> 00:29:36,200
Speaker 2: They've really driven a phenomenal marketplace activity. A lot of

488
00:29:36,240 --> 00:29:40,920
Speaker 2: our customers are seeking to replicate that in their own environment.

489
00:29:42,280 --> 00:29:46,120
Speaker 1: Okay, and so you know, we kind of mentioned a

490
00:29:46,160 --> 00:29:49,440
Speaker 1: couple of times in the conversation that g XO spun

491
00:29:49,520 --> 00:29:56,080
Speaker 1: out of XPO. Can you talk about g XO where

492
00:29:56,120 --> 00:30:00,280
Speaker 1: it began, you know, kind of the genesis of of

493
00:30:00,480 --> 00:30:03,400
Speaker 1: g XO and why it was spun out and maybe

494
00:30:03,520 --> 00:30:04,800
Speaker 1: what that process was like.

495
00:30:05,640 --> 00:30:11,640
Speaker 2: Yes. So if our chairman Brad Jacobs created XPO through

496
00:30:11,680 --> 00:30:16,160
Speaker 2: a series of most people have and everyone is very

497
00:30:16,160 --> 00:30:20,680
Speaker 2: excited with his new venturers to so Brad created XPO.

498
00:30:21,600 --> 00:30:23,760
Speaker 3: In essence, it was a roll up of a.

499
00:30:23,800 --> 00:30:29,080
Speaker 2: Number of different rate and warehouse companies across the US

500
00:30:29,400 --> 00:30:34,400
Speaker 2: and indeed Europe. Brad is a very shareholder value focused

501
00:30:35,480 --> 00:30:39,840
Speaker 2: executive and has delivered historically phenomenal returns for his shareholder

502
00:30:39,880 --> 00:30:43,240
Speaker 2: and he's a great chairman for g x Brad very

503
00:30:43,320 --> 00:30:45,800
Speaker 2: quickly appreciated that they've got to a stage where g

504
00:30:46,040 --> 00:30:49,400
Speaker 2: XO was underappreciated within XPO. It was about a third

505
00:30:49,440 --> 00:30:55,560
Speaker 2: of the overall group revenues and was garnered very limited attention.

506
00:30:56,200 --> 00:31:00,840
Speaker 2: So highlighted that there was a great standalone store for GXO,

507
00:31:01,160 --> 00:31:05,080
Speaker 2: but also an opportunity to drive value for XPO shareholders

508
00:31:05,120 --> 00:31:08,040
Speaker 2: as a result, so we went through a spin process.

509
00:31:08,480 --> 00:31:11,480
Speaker 2: As you can see from that process, it's been very

510
00:31:11,520 --> 00:31:17,080
Speaker 2: successful in delivering shareholder value for XPO, indeed for GXO

511
00:31:17,160 --> 00:31:21,400
Speaker 2: shareholders through that process, and it helped to really shine

512
00:31:21,440 --> 00:31:24,840
Speaker 2: a light on our business. We're quite different to XPO.

513
00:31:24,960 --> 00:31:29,240
Speaker 2: We're long duration contracts, it's not a transactional type model.

514
00:31:29,720 --> 00:31:34,040
Speaker 2: We have strong structural growth tailwinds, be it through eCOM,

515
00:31:34,240 --> 00:31:36,800
Speaker 2: be it through returns, be it through the need for automation,

516
00:31:37,440 --> 00:31:41,800
Speaker 2: be it through kind of the outsourcing opportunity which were

517
00:31:41,840 --> 00:31:45,719
Speaker 2: heavily overlooked within that slightly more conglomerate structure from XPO.

518
00:31:46,200 --> 00:31:50,440
Speaker 2: We've also accelerated if like the GXO transformation, We've driven

519
00:31:50,760 --> 00:31:54,200
Speaker 2: a productivity initiatives we're expected to yield sixty million dollars

520
00:31:54,600 --> 00:31:59,160
Speaker 2: out to twenty twenty seven. We've also accelerated our I

521
00:31:59,160 --> 00:32:02,360
Speaker 2: feel like a list approach to working with our customers

522
00:32:02,360 --> 00:32:05,600
Speaker 2: on a more global basis. So it's really benefited both

523
00:32:05,840 --> 00:32:11,440
Speaker 2: both shareholders and Brad's spin processes has really kind of

524
00:32:11,480 --> 00:32:16,920
Speaker 2: highlighted the benefits that GXO canding for equity shareholders.

525
00:32:16,840 --> 00:32:21,800
Speaker 1: And the shareholders. Your typical GXO shareholder, are they much

526
00:32:21,880 --> 00:32:27,080
Speaker 1: different than the shareholder of XBO. Like does a GXO

527
00:32:27,760 --> 00:32:31,440
Speaker 1: shareholder look for something different that maybe when it was

528
00:32:31,480 --> 00:32:32,240
Speaker 1: a conglamorate.

529
00:32:32,960 --> 00:32:34,640
Speaker 2: Yeah, it is. I mean it goes back to your

530
00:32:34,640 --> 00:32:37,560
Speaker 2: first question. In essence, we're providing a services, so we're

531
00:32:37,560 --> 00:32:40,840
Speaker 2: like a business services organization that but we sit within

532
00:32:40,880 --> 00:32:44,760
Speaker 2: the transportation sector. We don't have I feel like significant

533
00:32:45,000 --> 00:32:49,960
Speaker 2: margin volatility. We're a very predictable business. That's the nature

534
00:32:49,960 --> 00:32:52,360
Speaker 2: of the contracts that we operate. You can see that

535
00:32:52,440 --> 00:32:57,360
Speaker 2: from our recent second quarter results that there's a very

536
00:32:57,400 --> 00:33:02,400
Speaker 2: predictable profit stream that comes out of our operations. And

537
00:33:02,480 --> 00:33:06,239
Speaker 2: so yes, as a result of that, you've seen a

538
00:33:06,320 --> 00:33:10,040
Speaker 2: gentle gyration away from some of those more transactional, cyclical

539
00:33:10,480 --> 00:33:13,520
Speaker 2: type of shareholders towards those that are looking for a

540
00:33:13,560 --> 00:33:16,960
Speaker 2: structural growth story, a compounding growth story, because, as we

541
00:33:17,040 --> 00:33:19,840
Speaker 2: highlighted in our investor day back in January of this year,

542
00:33:20,400 --> 00:33:24,240
Speaker 2: we expect to deliver around ten percent average organic revenue

543
00:33:24,240 --> 00:33:26,000
Speaker 2: growth at twenty twenty seven.

544
00:33:27,440 --> 00:33:30,840
Speaker 1: Okay, and you know you also put out some twenty

545
00:33:30,960 --> 00:33:37,200
Speaker 1: twenty seven financial targets. Has anything changed since since you've

546
00:33:37,240 --> 00:33:40,840
Speaker 1: initially provided those is I'm assuming you're still on the

547
00:33:40,840 --> 00:33:42,320
Speaker 1: glide path to those targets.

548
00:33:42,880 --> 00:33:45,560
Speaker 2: We've we've just come off the back of our biggest

549
00:33:45,560 --> 00:33:49,760
Speaker 2: ever quarterly contract wins, So we're in a good position

550
00:33:49,840 --> 00:33:53,920
Speaker 2: to continue to deliver on those targets. And look, as

551
00:33:53,920 --> 00:33:57,000
Speaker 2: our recent results have highlighted, we're delivering on our a

552
00:33:57,040 --> 00:34:00,840
Speaker 2: bit our promises, the productivity initiatives within g XO, and

553
00:34:00,880 --> 00:34:04,560
Speaker 2: as a result of our clipper integration, continue to deliver

554
00:34:04,640 --> 00:34:08,880
Speaker 2: the results as we've highlighted, and we can deliver strong

555
00:34:08,920 --> 00:34:09,680
Speaker 2: cash flow growth.

556
00:34:09,760 --> 00:34:12,120
Speaker 3: So we're in a great position.

557
00:34:12,200 --> 00:34:16,680
Speaker 2: This is a very strong environment for companies helping our

558
00:34:17,120 --> 00:34:21,240
Speaker 2: helping customers to drive cost out. As you can imagine

559
00:34:21,280 --> 00:34:23,560
Speaker 2: in this environment, a lot of companies looking at their

560
00:34:23,600 --> 00:34:27,439
Speaker 2: supply chain, looking at their warehousing, and our largest sort

561
00:34:27,480 --> 00:34:30,880
Speaker 2: of growth will always be driven from new contracts. And

562
00:34:31,239 --> 00:34:35,040
Speaker 2: the second quarter was a point in proof that this

563
00:34:35,200 --> 00:34:38,719
Speaker 2: environment can be very helpful for g XO to grow

564
00:34:38,760 --> 00:34:39,640
Speaker 2: its contract base.

565
00:34:40,600 --> 00:34:44,360
Speaker 1: Right and you know, so you're the chief strategy officer

566
00:34:44,400 --> 00:34:47,160
Speaker 1: at g XO, A lot of listeners really might not

567
00:34:47,280 --> 00:34:50,719
Speaker 1: know what that entails. Can you talk about what a

568
00:34:50,880 --> 00:34:55,359
Speaker 1: CSO does? And kind of your transition from a Wall

569
00:34:55,360 --> 00:34:58,080
Speaker 1: Street analyst to corporate America has been, like.

570
00:34:58,840 --> 00:35:02,600
Speaker 2: It's been fantastic. I've thoroughly enjoyed every moment of this.

571
00:35:03,040 --> 00:35:05,080
Speaker 2: So GXO is a business that really is trying to

572
00:35:05,120 --> 00:35:07,520
Speaker 2: drive as much value for its shareholders as possible, and

573
00:35:07,560 --> 00:35:10,560
Speaker 2: so looking at all of our opportunities through a lens

574
00:35:10,640 --> 00:35:14,120
Speaker 2: of more public market scrutiny, which is as you highlight,

575
00:35:14,200 --> 00:35:18,240
Speaker 2: my background has been great. We have some phenomenal growth

576
00:35:18,239 --> 00:35:21,799
Speaker 2: opportunities ahead of us. We can invest organically, we can

577
00:35:21,800 --> 00:35:24,640
Speaker 2: invest in organically, and what we're always going to try

578
00:35:24,640 --> 00:35:26,839
Speaker 2: to do is think like an owner and to drive

579
00:35:26,880 --> 00:35:27,640
Speaker 2: as much.

580
00:35:27,520 --> 00:35:30,879
Speaker 3: Value for our shareholders as possible. And that's my role

581
00:35:30,920 --> 00:35:31,680
Speaker 3: within the company.

582
00:35:32,400 --> 00:35:35,160
Speaker 1: All right, and where are you based? Do you based

583
00:35:35,160 --> 00:35:37,560
Speaker 1: in London or Greenwich? Where are you based?

584
00:35:37,840 --> 00:35:41,160
Speaker 2: I'm based out of London, so we have an office

585
00:35:41,160 --> 00:35:43,800
Speaker 2: in London. If you look at our geographic footprint, Lee,

586
00:35:43,880 --> 00:35:46,439
Speaker 2: we're about a third North America, We're about a third

587
00:35:46,480 --> 00:35:50,279
Speaker 2: continental Europe, and about a third in the UK, so

588
00:35:50,320 --> 00:35:52,719
Speaker 2: we have a decent presence across all of all of

589
00:35:52,719 --> 00:35:54,240
Speaker 2: the key regions that were operating.

590
00:35:55,120 --> 00:35:57,960
Speaker 1: All right, do you have a favorite restaurant in London?

591
00:36:00,040 --> 00:36:03,720
Speaker 2: That's a really good question. I mean, it's a restaurant

592
00:36:03,719 --> 00:36:06,839
Speaker 2: that my kids will always enjoy. So we're blessed in

593
00:36:06,840 --> 00:36:10,640
Speaker 2: London with having some phenomenal Italian restaurants, and that's always

594
00:36:10,640 --> 00:36:14,000
Speaker 2: a favorite with the kids around in so Hey, there's

595
00:36:14,040 --> 00:36:16,680
Speaker 2: quite a lot of very good Italian restaurants to choose from.

596
00:36:17,400 --> 00:36:20,879
Speaker 1: All Right, great, Well, I think we're going to wrap

597
00:36:20,920 --> 00:36:23,000
Speaker 1: it up here. I just want to thank everyone for

598
00:36:23,080 --> 00:36:26,360
Speaker 1: tuning in. If you like the episode, please subscribe and

599
00:36:26,440 --> 00:36:29,120
Speaker 1: leave a review. We've lined up a number of great

600
00:36:29,160 --> 00:36:32,719
Speaker 1: guests for the podcast. Check back and hear conversations with

601
00:36:32,800 --> 00:36:39,160
Speaker 1: C suite executives from Canadian national CSX, Werner, ARC, Best, Starbuck,

602
00:36:39,680 --> 00:36:44,600
Speaker 1: Pam Transports, and Scorpio Tankers, just to name a few. Also,

603
00:36:44,600 --> 00:36:47,319
Speaker 1: if you have any ideas for future episodes, please hit

604
00:36:47,360 --> 00:36:51,440
Speaker 1: me up on the terminal. We're on Twitter at Logistics Lee.

605
00:36:51,960 --> 00:36:54,520
Speaker 1: I just want to thank Neil for joining us today.

606
00:36:54,840 --> 00:36:54,960
Speaker 3: Lee.

607
00:36:55,040 --> 00:36:57,160
Speaker 2: Thank you so much for inviting us onto your podcast.

608
00:36:57,160 --> 00:36:58,239
Speaker 2: It's been a pleasure.

609
00:36:58,560 --> 00:36:59,960
Speaker 1: Enjoyed the conversation. Take care,