Kuehne + Nagel manages to improve 1Q results despite margin pressure,

Kuehne + Nagel Group announced its first quarter result for 2012 on April 16th.

Despite further volume growth, cost increases, lower margins in the forwarding business and an antitrust fine of CHF 65 million imposed by the European Commission that led to unsatisfactory results for the first quarter 2012.

At CHF 4,834 million, turnover remained stable compared to the previous year’s period (currency adjusted: increase of 5.4%). Gross profit improved by 3.0% (currency adjusted by 8.1%) to CHF 1,502 million.

The operational result (EBITDA) declined by 12.4% to CHF 218 million, including the one-off item for the antitrust fine to CHF 153 million. Net earnings decreased by 14.2% to CHF 133 million, including the one-off item to CHF 68 million.

In seafreight, Kuehne + Nagel increased container volume by 9% while – according to first estimates – the global container market grew between 3% and 4%. Inline with its strategic goals, Kuehne + Nagel increased growth in the transatlantic and transpacific trades.

As a result of margin pressure, influenced by significant rate increases in several trade lanes, and high investments in IT and sales, EBITDA-to-gross profit margin declined from 35.9% to 30.3%. The operational result decreased by 15.2% compared to the previous year’s period.

The international airfreight market experienced a significant volume decline in the first three months of 2012, resulting in a contraction of 3% after an encouraging volume development in the same period of 2011.

Kuehne + Nagel raised tonnage by 4%. Beside the ongoing positive demand in South America, the intra-Asia business developed well and volumes increased in the trades from Asia-Pacific to the Middle East, partly due to the acquisition of an Australian company specialized in logistics for perishables.

Investments in growth initiatives and IT resulted in a decline of the EBITDA-to-gross profit margin from 32.3% to 26.5%. At CHF 54 million, EBITDA was 14.3% below the previous year. Due to the inclusion of the one-off item for the antitrust fine a loss of CHF 11 million was recorded.

Good progress was made in the European overland business. Freight volumes increased in the segments groupage and full and part loads despite the difficult economic situation in Southern Europe.

The British RH Freight Group, member of the Kuehne + Nagel Group since 2011, considerably contributed to the overall improvement of net turnover by 18% in local currencies. EBITDA increased by 7.7%; at 1.9% the EBITDA margin remained stable at the previous year’s level.

The contract logistics business saw divergent regional developments in the first quarter of 2012. Strong demand in Central Europe, Asia and South America resulted in an increase of net turnover by 6% (currency adjusted).

In contrast, high margin pressure and volume declines especially in France and Southern Europe led to a decrease of the business unit’s operational result by 19.5%. EBITDA margin was at 3.1% (previous year: 3.9%).

“In the first quarter of 2012 we had to cope with a number of adverse factors,” said Reinhard Lange, CEO of Kuehne + Nagel International AG. “Our investments in growth initiatives resulted in considerable cost increases.

We will counteract this trend with strict cost control and measures to improve productivity. Furthermore, profit margins declined in sea and airfreight. In addition, there are one-off charges due to a high antitrust fine, which was reported on March 28, 2012. Nevertheless, we achieved growth above market average.”

He added, “As a consequence of the experiences made in the first quarter of 2012, we have intensified our cost management. We are confident that the measures implemented as well as solid growth will contribute to an improvement of results in the second half of the year.”
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