Cost control the key to Kuehne + Nagel’s healthy profits

Kuehne + Nagel has once again appeared to outperform the market with modest increases in revenue and profit for both its air and sea freight business in the half year.

Container volumes in its sea freight business increased 3% year-on-year despite a weak Asia-Europe trade. The overall growth was attributed to increased market share in the trans-Pacific and the intra-Europe and Asian trades. Despite very weak rates, gross profit margin was stable, yet cost controls within Kuehne + Nagel enabled the sea freight business to deliver a slight increase in EBITDA (Earnings Before Interest, Depreciation and Amortisation) of CHF198m, with turnover also slightly up at CHF4.48bn.

Kuehne + Nagel reported that its air freight forwarding business saw tonnage grow by 3.7%. In an otherwise stagnant or shrinking market, the company attributed the growth to its focus on vertical sector solutions in areas such as pharmaceuticals. However, the company also reported growth in export traffic out of North America, Europe and Asia. Turnover was up marginally at CHF2.058bn, but EBITDA recovered to CHF124m with margins stiffening slightly.

The Road and Rail segment saw a slight fall in invoiced turnover and profits with EBIT (Earnings Before Interest and Tax) falling back into a small loss; although in EBITDA terms it made a small- if falling –profit. Nonetheless, Kuehne + Nagel reported growing volumes throughout the business.

Contract Logistics also improved with half-year turnover up 2.8% year-on-year to CHF2.259bn and EBITDA up 19.4% year-on-year at CHF86m. Like so many large contract logistics providers, it appears that it can only improve its margins by concentrating on big customers with global requirements.

The result for the whole company over the half year was up by 3.3% at CHF10.394bn and EBITDA up by 19.8% at CHF466m. Kuehne + Nagel hinted that much of their profit growth has been down to cost-cutting, with the company’s Chairman and CEO Karl Gernandt commenting that “the results achieved in the second quarter 2013 underline the fact that the measurements introduced to improve efficiency on a Group-wide level are effective”.

Despite this, it appears that the company is still doing reasonably well and the sector ought to be expecting an expansion in sales for the full-year 2013, if only in moderate terms. However, it is reasonable to suggest that there must be limit to the profit growth that cost control can deliver in the long term.