Best results despite economic downturn

Reinhard Lange, Chief Executive Officer of Kuehne + Nagel International AG, said: “The economic slowdown, which accelerated in terms of scope and pace in the last quarter, severely affected the logistics industry. Thanks to the stable development of our business in the first nine months and the early adaptation of rigorous cost controls, we were able to soften the impact of reduced volumes, while improving results compared with the previous year.”

Seafreight
Volumes increased by 2 per cent to a total of 2.670 million containers (TEU) shipped. Contrary to market trends, Kuehne + Nagel significantly increased export volumes in the trade lanes from Asia to North and South America and to the Middle East, extending its market share. However, cargo volumes declined in line with market developments in the main Asia-to-Europe and Europe-to-North America trade lanes. The operational result improved by 7.3 per cent due to the ability to provide value-added supply chain management services, cost efficiency as well as a positive performance in niche segments. EBITDA margin increased from 4.4 to 4.6 per cent.

Airfreight
International airfreight was heavily affected by the economic downturn, with December 2008 registering the biggest ever decline in traffic volumes. Although this development had an impact on Kuehne + Nagel’s airfreight activities, nevertheless, in 2008 the company increased cargo volumes by 2.1 per cent. EBITDA improved slightly (+0.9 per cent) and the EBITDA margin remained at a high level (5.7 per cent / 2007: 5.9 per cent) as a result of strict cost management and intensified marketing of value-added airfreight solutions.

Road & Rail Logistics
Volume growth in the overland business was above the market average during the first nine months of 2008, supported by the successful integration of the two German groupage providers G.L. Kayser and Cordes & Simon. However, Kuehne + Nagel was not immune to the slackening of the overall market in the fourth quarter, with order volumes declining significantly. Quality improvements and continuing process standardisation contributed to a gross profit margin improvement of 13.1 per cent. The takeover of the French Alloin Group, effective January 1, 2009, was an important milestone in the business unit’s strategy implementation. It provides a strong foothold in France and is expected to support growth in volumes across Europe. The operational result declined by 32.4 per cent, compared with the previous year, due to significant investments in IT and sales as well as budgeted start-up costs. EBITDA margin was at 0.8 per cent (2007: 1.2 per cent).

Contract Logistics
Kuehne + Nagel’s industry-focused contract logistics solutions are well accepted by customers worldwide. Despite adverse exchange rates, turnover was sustained at the previous year’s high level, further consolidating the market position. Falling demand from a number of large customers in the United States, Canada and Great Britain, however, resulted in reduced capacity utilisation and increased margin pressure. In addition, start-up costs in some Eastern European countries negatively affected the operational result, which was 12.2 per cent lower than in the previous year. EBITDA margin was at 4.6 per cent (2007: 5.3 per cent). A new production system and better management tools are being implemented to increase productivity and better adapt costs to volume fluctuations.

Dividend
At the May 13, 2009 Annual General Meeting, the Board of Directors will propose the distribution of an increased dividend of CHF 2.30 per share, up 21 per cent from CHF 1.90 in the previous year.

Turnover
In 2008 Group turnover grew by 3.0 per cent to CHF 21,599 million, despite negative currency effects of 6.7 per cent. CHF 374 million resulted from acquisitions.

All Kuehne + Nagel regions contributed to this increase; most significantly the Middle East, Central Asia and Africa, where turnover improved by 14.6 per cent (currency adjusted: 27.5 per cent). Increases in the Americas amounted to 7.0 per cent (currency adjusted: 15.5 per cent) and in Asia-Pacific to 5.4 per cent (currency adjusted: 12.3 per cent). In Europe, turnover was 0.6 per cent higher (currency adjusted: 6.1 per cent) than in 2007.

Gross profit
Gross profit – a better indication of a logistics provider’s margin and volume performance than turnover – improved by 4.0 per cent to CHF 6,253 million despite the negative currency impact of 7.3 per cent. Acquisitions accounted for CHF 132 million.

Gross profit improved by 12.7 per cent (currency adjusted: 23.8 per cent) in the Middle East, Central Asia and Africa; by 5.1 per cent (currency adjusted: 11.6 per cent) in Asia-Pacific, and by 3.9 per cent (currency adjusted: 10.8 per cent) in Europe. In the Americas, the increase was 2.5 per cent (currency adjusted: 11.3 per cent).

Operational result (EBITDA)
Earnings before interest, tax, depreciation and amortisation of goodwill and other intangible assets (EBITDA) increased by CHF 1 million (0.1 per cent) compared to the previous year. Organic growth, amounting to CHF 59 million, was nearly eliminated by a negative exchange rate impact of CHF 60 million. Europe delivered the largest EBITDA contri­bution of CHF 626 million (61.4 per cent), followed by the Asia-Pacific region with CHF 182 million (17.8 per cent). The Americas contributed CHF 174 million (17.1 per cent) and Middle East, Central Asia and Africa CHF 38 million (3.7 per cent).

Despite the cyclical reduction in volumes in the second half of 2008, the EBITDA margin of 4.7 per cent was almost maintained at the previous year’s level (4.9 per cent).

2009 Outlook
For the time being there are no indications that world economy will recover quickly; therefore further volume reductions are expected in all business units. Kuehne + Nagel will counteract this with rigorous cost management and process efficiencies.

“At an early stage, the Management Board decisively framed a course of action within the sphere of its influence to enable Kuehne + Nagel to sustain its market position even in difficult times,” said Klaus-Michael Kuehne, Chairman of the Board of Directors. “The Group remains committed to its traditional principles of operating economically, while being guided by a forward-looking, entrepreneurial spirit. Thanks to Kuehne + Nagel’s strong position across the globe, our logistics competence and our financial strength, we have reason to be confident about the further development of our the company.”

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