In its 2011 annual results, Kuehne + Nagel (K+N) delivered the type of performance the market has come to expect from the Swiss-based company, namely substantial increases in sales with profits disturbed only by the rise of the Swiss franc.
Measured in terms of Swiss francs 'invoiced turnover' fell by 12.6% to CHF19.596bn whilst EBITDA (Earnings Before Interest, Depreciation and Amortisation) and EBIT (Earnings Before Interest and Tax) fell by similar percentages to CHF978m and CHF750m, respectively. K+N pointed out strongly that the falls in profits were wholly currency driven with underlying performance being the opposite of the Franc reported results. This is certainly the case, with the main currencies that K+N actually does business in depreciating by over 12%, however the issue does make the objective performance of K+N easier to assess.
Judging by volumes, the sea freight forwarding business continues to be very healthy. Container volumes grew by 11% to burst through the 3m TEU (Twenty-foot Equivalent Unit) ceiling, with a total volume of 3.27m TEUs moved in 2011. K+N asserted that overall market volumes are only growing by 5% or 6%. The growth of K+N's volumes was broadly spread across the world as North American export traffic grew 12%, European export traffic grew 10% and Asian export traffic grew 12%. Intra-Asian traffic was also buoyant. It worth noting that gross profit margin rose in currency adjusted terms by 16% which is certainly to be expected considering the violence of the falls in container rates.
In airfreight, the volume performance seems even more extraordinary, with an increase of 13% in a market that may have shrunk by 0.7%. Admittedly, part of this was driven by acquisitions. The state in the market was due to the poor level of exports out of Asia Pacific, with the consequent effect on freight rates. Gross profit grew by 20% in underlying terms and 6.1% in terms of Swiss Francs, invoiced turnover fell by 0.6% to CHF4bn, whilst EBIT rose by 7.4% in Swiss Franc terms; although underlying numbers for the latter indicated an increase of over 20%.
Road and rail operations also saw growth in adverse markets, although the European market overall grew by 5%, with K+N seeing organic growth of 9%, whilst the purchase of RH Freight resulted in growth of 10%. Invoiced turnover was CHF2.967bn, whilst EBIT saw a reduced loss of CHF13m. The German market was buoyant and the UK market grew, but France and the rest of southern Europe struggled.
Contract Logistics has suffered as margins were hit. Invoiced turnover in Swiss Franc terms was down 3.4% to CHF4.168m and an underlying figure of 8%, although EBIT fell by around 7% in underlying terms, from CHF77m in 2010 to CHF63m in 2011. Although Germany is strong, France in particular appears to be dragging K+N contract logistics down, with poor margins in several accounts.
As ever, the performance of K+N poses some questions. How can it grow its forwarding businesses so much faster than the market yet sustain profitability? The senior management of K+N firmly asserts that it is service quality that is building its business and it is not buying market-share. If this is so, it is a remarkable achievement.
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