News / Revenue up at K+N in Q1, but exchange rates and rising costs bite into profits

Despite revenue growth of almost CHF300m (US$300m), Kuehne + Nagel struggled to increase profits in the first three months of 2017, thanks to exchange rates and operating costs ate into the rising turnover.

For the three months to March, the company brought in just shy of CHF4.3bn in revenue, a 7.2% increase on Q1 2016. While this resulted in 3.5% growth in gross profit (CHF1.6bn), net earnings for the period fell 2.4% to CHF165m.

During a conference call, chief financial officer Markus Blanka-Graff said that, considering the negative impact of foreign currency, largely led by a decline in the pound since the Brexit referendum, the company considered itself “stable” compared with last year.

“Foreign exchange negatively hit our results,” added Mr Blanka-Graff. “And we saw a 2% impact on earnings for the period to March – considering this I think it’s safe to say we have recorded a stable performance for the three-month period.”

The company’s balance sheet indicated the costs of business had also chiselled away at its earnings, outpacing gross profits.

K+N added nearly 8,000 employees – mostly related to new contract wins – pushing up staff costs by 3.1% year-on-year, while selling, general and administrative expenses shot up 5.3% year-on-year.

Across its sea freight, airfreight and overland sectors, K+N continued to grow volumes at a rate that outpaced the market.

Sea freight volumes grew by 9% year-on-year to just over 1m teu, with chief executive Detlef Tretzger noting this was part of a policy aimed at counteracting ongoing margin pressures.

“We saw particularly strong growth in less-than-container-load and reefer volumes,” said Mr Tretzger. “From a market perspective, we continued to grow across the main tradelanes – North America and Europe to Asia and Asia to North America and Europe and on intra-Asian routes.”

Despite this, ongoing margin pressures saw gross profit decline 3.2% against last year and the company’s long-cherished dream of a CHF400 per teu gross profit further receded, averaging CHF328 per teu compared with CHF369 12 months before.

In airfreight, volumes surged 16%, with Mr Tretzger noting “we have not seen such strong growth since the financial crisis”, while Mr Blanka-Graff said the company’s overall gross profit boost was largely due to the performance of airfreight, overland and contract logistics.

The growth in airfreight volumes resulted in a healthy 12.6% upswing in revenue to just over CHF1bn, with gross profit also up, albeit less spectacularly, by 2.6% year-on-year to CHF241m.

“Our results in airfreight, as with sea freight, indicate that increasing volumes is the right answer to tackling our margin pressures,” said Mr Tretzger.

However, EBIT and EBITDA both declined for the sector during the period, down 1.4% and 1.3%, respectively.

Growth in overland activities, described by Mr Tretzger as “significantly above market”, resulted in a straight sweep of turnover, gross profit, EBIT and EBITDA increases. Revenues grew 5% to CHF730m, generating 2.7% growth in gross profits (CHF226m).

And while the actual figures remained low, growth in EBITDA of 13.3% to CHF17m and a surging EBIT of 75% to CHF7m continued to indicate upward momentum. Mr Tretzger said the healthy growth in overland activities was linked to the successful implementation of a pharmaceutical service.

Similarly, contract logistics also increased turnover (3.2% to CHF1.1m), gross profit (6.8% to CHF844m), EBITDA (18.2% to CHF65m) and EBIT (12.1% to CHF37m).

“The good result in the first quarter 2017 supports our optimistic outlook for a continued successful business development this year,” continued Mr Tretzger.

“In sea freight and airfreight we are experiencing strong growth and have gained significant market shares, and this increase in volume and productivity as well as cost control mitigated the ongoing pressure on margins.

“Our strategic approach for overland and contract logistics led to a further improvement of results. We have established a good basis for the second half of 2017,” he said.