News / Strong first half for K+N as profits hold steady against rising costs

Kuehne + Nagel saw first-half 2017 profit hit the same level as last year, arresting a profit decline in the first quarter, despite being hit by increased operating expenses.

The forwarder recorded an 8.2% increase in first-half revenue to Sfr8.8bn alongside the announcement it had acquired two perishables freight forwarders.

Despite a Sfr668m increase in revenue, which led to a 3.7% increase in gross profit (Sfr3.4bn), net earnings for the period remained stagnant atSfr356m.

This was largely due to increases of 3.6% in personnel costs (Sfr2.03bn) and 11.2% in third-party expenses (Sfr5.4bn), as well as being hit on the foreign currency and amortisation fronts. Also, general administration costs continued to rise over the course of the year, up 4.6% compared with 2016.

New contract wins saw K+N add 8,000 employees between April 2016 and April 2017, with a further 1,000 since, taking the total number of employees to 87,665.

During an investor call, chief financial officer Markus Blanka-Graff pointed out that amortisation and foreign currency exchange rates had had a combined negative impact of Sfr15m on net earnings.

Excluding this, Mr Blanka-Graff said, the company was pleased with a strong first half and an even more impressive second quarter, which had had seen EBITDA growth of Sfr40m quarter-on-quarter.

“Our second-quarter growth made up for the lost ground we reported during the three months to April,” he said. “If you exclude issues with foreign currency and amortisation, the first six months of 2017 have been suitably impressive for Kuehne + Nagel, and we are pleased with this result.”

The company continued to grow volumes at a rate outpacing market average across sea freight, airfreight and its overland sectors. Chief executive Detlef Tretzger said that in Q2 the company shifted some 66,000 tonnes by air, equating to year-on-year growth of 21%, and for the six months to July volumes were up more than 18% compared with market averages of roughly 10%.

“Despite seeing growth of 18%, the additional costs to us have been minimal, at Sfr12m,” said Mr Tretzger. “And that double-digit growth is being experienced across all the major trades.”

These strong volumes accounted for an 13.7% growth in air freight revenues of Sfr2.1bn, resulting in gross profit growth of 3.3% to Sfr494m and, unlike the first quarter, EBIT and EBITDA increased, by 2.6% and 2.7%, respectively.

Sea freight volumes grew by 8% year-on-year – outpacing average market growth of 4% – to just over 1.08m teu.

“Less-than-container-load and reefer volumes have continued to gain ground over the course of the year,” said Mr Tretzger. “And we have achieved this with just an additional Sfr3m being spent. “We have also seen double-digit growth in online bookings – albeit from a low base – with LCL shipments booked this way up 25%; though I’d add this is not the main engine of growth.”

Unlike air, however, strong revenues did not equate to healthy margins with declines in gross profit (2.7%), EBITDA (9.5%) and EBIT (10.4%).

As in the first quarter, overland operations were “significantly above market”, again resulting in a straight sweep of turnover, gross profit, EBIT and EBITDA increases. Revenues grew 3.3% to Sfr1.4bn, generating Sfr472m in gross profits (up 3.5%), leading to surges of 32.4% (Sfr49m) in EBITDA and 70.6% (Sfr29m) in EBIT.

Similarly, contract logistics also increased turnover, by 3.9% to Sfr2.3bn, gross profit (6.6% to Sfr1.7bn), EBITDA (10.5% to Sfr137m) and EBIT (5.7% to Sfr74m).

“Our overland activities have grown because of a clear strategy and the implementation of strong network growth,” said Mr Tretzger. “While contract logistics has benefited from a decision to develop specific industry solutions.”

These industry-specific solutions include the acquisition of Commodity Forwarders (CFI) in the US and Kenya’s Trillvane, both specialist perishables forwarders. Together, they will bring more than 150,000 tonnes of perishables to K&N’s network, as it looks to solidify its standing in the sector.

Based in Los Angeles, CFI operates from 14 locations across the US, and specialises in agricultural products, flowers, greens, and sea food. Chief executive and founder Alfred Kuehlewind said he was looking forward to becoming a member of the K+N group.

“The planned transaction will offer us new growth perspectives and access to a global logistics network,” added Mr Kuehlewind. “Both companies’ customers will benefit from an extended service scope.”

Through Trillvane, K+N said it was looking to strengthen its perishables service between Kenya and Europe – particularly the UK – with the forwarder specialising in flower and vegetable exports.

K+N board member Yngve Ruud said the acquisitions would further strengthen and expand the company’s fresh chain network, and would connect “key” production countries to major consumer markets.