Financial Statements 2006: Strong performance - above-average results

The globally operating Kuehne + Nagel Group looks back on a highly successful business year. Organic growth and the successful integration of the ACR Group, acquired effective January 1, 2006, increased turnover by 29.5 per cent to CHF 18,194 million. The operational result (EBITDA) improved by 52.3 per cent to CHF 855 million. After amortisation of intangible assets of CHF 104 million, net earnings grew by 45.5 per cent to a record CHF 458 million.


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Kuehne + Nagel International AG




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*Proposal to the Annual General Meeting




“The Kuehne + Nagel Group again proved its strength in 2006; this was impressively underpinned by all key performance indicators. With our global logistics expertise and our strategy of increasing customer value through integrated solutions, we were successful in meeting market requirements worldwide,” said Klaus Herms, Chief Executive Officer, Kuehne + Nagel International AG. “In sea- and airfreight, strong growth was successfully maintained despite fierce competition. The efficient integration of the ACR Group has considerably strengthened our market position in contract logistics. Our targeted expansion of overland activities enables us to provide customers with end-to-end services from a single source. In addition, it has opened up further cross-selling opportunities.”

In 2006, Kuehne + Nagel realised an above-average 19 per cent growth in seafreight volumes. The company handled 2.28 million TEUs – a figure which has doubled over the last three years. Higher productivity and process optimisation contributed to a significantly improved operational result, up by 41.4 per cent, and an EBITDA margin increase to 4.5 per cent.

In airfreight too, Kuehne + Nagel outpaced the market by a factor of two, raising volumes by 10 per cent. Strict cost management and productivity increases helped improve the operational result by 19.1 per cent, compared with the previous year, and the EBITDA margin was raised to 4.9 per cent.

Rail & Road Logistics
Kuehne + Nagel continued its overland expansion and investment programme. Organic and external growth strengthened the company’s market position across large parts of Europe. Through the introduction of a continental hub system, processes are optimised and economies of scale leveraged; by the end of 2006, already 20 Kuehne + Nagel national companies were participating in this network. During the coming two to three years, a turnover of CHF 5 billion is envisaged. To achieve this objective, acquisitions in key European markets are being considered.

Contract Logistics
In Contract Logistics, the integration of the ACR GrouTurnover increases 29.5 per cent - Operational result (EBITDA) improves 52.3 per cent - Net earnings up 45.5 per cent - Dividend increasep was given top priority and was successfully completed by the end of the year. With turnover at CHF 3.9 billion, Kuehne + Nagel is now the third largest global provider in this area of business. Intensified cross-selling appreciably expanded the customer base and business volumes. Despite a strongly improved operational result, extensive new business accounted for high costs and consequently reduced the year-over-year average profit margin.

Compared with 2005, cash flow increased from CHF 575 million to CHF 857 million, due to the strong operational result and a reduction of net working capital. At CHF 246 million, investments in tangible assets were below budget.

As in previous years, the Board of Directors of Kuehne + Nagel International AG will propose the distribution of an increased dividend of CHF 1.50 per share (2006: CHF 1.10) at the Annual General Meeting on May 4, 2007.

In 2006, Group turnover increased by 29.5 per cent to CHF 18,194 million, with acquisitions accounting for CHF 2,580 million, organic growth for CHF 1,249 million, and currency effects for CHF 316 million.

In seafreight, turnover was up 10.7 per cent, in airfreight 12.5 per cent. Rail & Road Logistics recorded an 18.1 per cent increase, and Contract Logistics grew by 193.7 per cent (177 per cent from acquisitions).

Turnover increased across all Kuehne + Nagel regions. Europe improved by 41 per cent, benefiting from the ACR acquisition. Turnover growth in all other regions was purely organic: the Americas were up 9.2 per cent; Asia-Pacific 14.7 per cent; and the Middle East, Central Asia and Africa 15.8 per cent.

Gross profit
Gross profit – a better indication of a logistics provider’s volume and margin performance than turnover – improved by 89.7 per cent to CHF 5,253 million compared with the previous year. Acquisitions contributed 69.8 per cent, organic growth accounted for 16.4 per cent, and currency effects 3.5 per cent.

Due to the above-average increase in volumes, seafreight gross profit gained 20.7 per cent, and airfreight 13.6 per cent. In Rail & Road Logistics, gross profit rose by 14.5 per cent, and the ACR acquisition increased gross profit in Contract Logistics by 249 per cent.

Regionally, Europe contributed the largest gross profit (74.7 per cent), followed by the Americas (15.7 per cent), and the Asia-Pacific region (7.4 per cent).

Operational result (EBITDA)
The substantial volume and productivity increases raised the operational result by 52.3 per cent to CHF 855 million, with acquisitions accounting for 26.8 per cent, organic growth 22.7 per cent, and currency effects 2.8 per cent.

Strong growth and high operational efficiency improved seafreight EBITDA a remarkable 41.4 per cent, while in airfreight, optimised cost management and processes increased the operational result by 19.1 per cent. In Rail & Road Logistics, extensive new business along with intensified IT and process standardisation measures resulted in an increased operational result of 25.9 per cent. The considerable 160.7 per cent EBITDA rise in Contract Logistics derives from the ACR acquisition, as well as contract extensions and new business wins.

At regional level, European countries’ operational result improved by 81.8 per cent, with the ACR acquisition accounting for 49.3 per cent. A 24.9 per cent improvement was returned by the Americas, due to good performance in all areas of business, as well as intensified cross-selling. The Asia-Pacific region increased EBITDA by 23.9 per cent, particularly due to the expansion of activities in China, India and Japan. A decline in the project business led to a 22.0 per cent lower operational result in the Middle East, Central Asia and Africa region.

Kuehne + Nagel’s 2007 objective is again to continue to grow at double the market average in sea- and airfreight, while maintaining high margins in both business fields.

Expansion of European overland operations will be continued. To further consolidate the continental network and achieve above-average volume growth, considerable investments will be necessary in the course of 2007.

In Contract Logistics, the leading-edge through innovation – a comprehensive combination of ongoing product and process innovation, along with workflow optimisation – will be leveraged, in order to generate above-market growth at stable margins.

“All key performance indicators confirm: Kuehne + Nagel took a quantum leap in 2006. Through the merger with ACR and strong organic growth we have significantly expanded our market position in all business fields,” said Klaus-Michael Kuehne, Executive Chairman of Kuehne + Nagel International AG. “Ongoing favourable economic development in virtually all regions of the world continues to provide Kuehne + Nagel with considerable growth opportunities. We therefore anticipate a further increase in logistics volumes and to continue our positive performance.”