K+N hit by the strength of the Swiss Franc in Q1 but underlying profits still reasonable

As expected Kuehne and Nagel (K+N) has been hit by the sharp appreciation of the Swiss Franc against the Euro and most other currencies in its Q1 results. The forwarder has its corporate headquarters outside Zurich, however most of its business is done in Euro’s, Dollars or Sterling and consequently its exposure to the increasingly strong Swiss France is limited, if not superficial.

Turnover for the last quarter (Jan-March) edged down by 0.8% measured in Swiss Franc terms, whilst EBIT (Earnings Before Interest and Tax) was unchanged year-on-year. This suggests quite a reasonable underlying performance as K+N stated that the currency factors depressed results by 7%, implying that K+N is growing in mid to high single digit percentages.

That said, the core sea freight business experienced slightly falling volume over the period, down 0.7%. The company said that this was a consequence of its renewed focus on the quality of the business it took up. Consequently gross profit and EBIT were up 2.2%, with the latter at CHF94m. The retreat from Asia Pacific business due to poor profitability does mark a slight but notable change in policy at K+N which has a record of increasing market share.

The position was very different at the air freight business, with tonnage increasing by 7%. K+N said that both strong exports from Europe and the ability to gain market share in transpacific trades resulted in the higher volumes. Yet the company was also able to harden margins considerably through a 9% year-on-year increase in EBIT, to CHF68m over the quarter.

In contrast Contract Logistics’ performance suffered, with the company giving a string of reasons from the strength of the Franc to investment in new capacity. Turnover fell by just under 2% whilst EBIT was down by 27% year-on-year, to CHF24m. Road freight saw profits continuing to recover, up from CHF3m in Q1 2014, to CHF4m this quarter, despite falling revenue influenced in part by lower diesel costs.

In a conference call today (14/4), Kuehne and Nagel’s CEO, Detlef Trefzger, commented that he foresaw slower growth in sea freight over the coming year, although he was much more optimistic about air freight. He is also quoted as saying that the depreciation in the Euro may lead to European companies reducing sourcing in China.