FREE BRIEF OF THE WEEK: Kuehne + Nagel’s first half painful but not disastrous
Kuehne + Nagel (K+N) has weathered the crisis of the first half of the year not too badly. Its results published on Tuesday, July 21, show that the Swiss-based forwarder saw revenue fall over the first half of the year by 7.5% to CHF9,808m and Earnings Before Interest and Tax (EBIT) was down 18.0% at CHF419m. The second quarter saw a distinct improvement, with EBIT down just 12.6% although it’s worth noting that gross profit was weaker.
At the core sea freight forwarding business, unsurprisingly, things have been painful for K+N. The volume of business has been hit and this has been reflected in the revenue numbers. In the second quarter, volumes measured in TEUs (Twenty-foot equivalent units) at sea freight forwarding fell by 11.7% and revenue (net turnover in the case of K+N) fell by 11.9%. The interesting number was the fall in gross profit. This was down by 17.8% strongly suggesting that the robustness of freight rates squeezed K+N. Even worse, and harder to understand, EBIT fell by 28.5% year-on-year to CHF167m. Commenting on the fall, K+N said that whilst it “was able to gain market share in select, high-yielding industries including pharma, reefer transport and e-commerce” this did not “fully compensate the significant decline in the high-yielding SME customer portfolio”. This surely is an interesting insight into the reality of K+N’s business.
Air Logistics also had an eventful time in both the second quarter and over the half-year. Net turnover actually rose by 4.2% for the six months and Q2 it jumped 15.0% but gross profit fell by 3.9% and 2.0% respectively, illustrating the leap in air freight rates. The result was an EBIT up 4.0% over the first half of the year and up 17.0% for Q2.
As K+N themselves commented the results are heavily influenced by the “high demand for crisis goods in the second quarter of 2020, which led to a short-term, beneficial shift in the product mix. Furthermore, the Air Logistics business unit purchased charter capacity for its customers on a targeted basis as belly capacity on passenger flights was not available during the second quarter of 2020”. The impact of this market condition is illustrated by the gross profit/tonne which leapt from CHF75 in Q4 2019 to CHF106 in Q2 2020. This is despite a 22.0% fall in volumes year-on-year for the second quarter.
However, it’s worth noting that K+N commented, “the gradual resumption of passenger services since June, a slight normalisation of the general market conditions is visible”.
K+N was not able to exploit the crisis in the trucking sector as effectively as in airfreight. Its Road Logistics business suffered a 13.0% decline in net turnover and a 42.2% fall in EBIT over the first half of 2020, with things not looking to be improving in the second quarter.
The experience of Contract Logistics was interesting. Although its results were badly hit with a fall in net turnover of 11.3% and EBIT of 21.1% over the half-year, the company commented that “essential goods and e-commerce, which now account for around half of the Contract Logistics portfolio, recorded significantly higher demand. Securing operations, even during the lockdown, resulted in market share gains”. It might be suggested that the other half of the Contract Logistics business is heavily exposed to the automotive sector and is likely to have been savaged over the past half-year. This may be an indicator of the future direction of K+N Contract Logistics business.
Dr. Detlef Trefzger, CEO of Kuehne + Nagel, observed that the company expected “the second half of the year to continue to be marked by major uncertainties”. This is clearly true, however, an optimist might suggest the worst is behind the company.
Source: Transport Intelligence, July 23, 2020
Author: Thomas Cullen