In the first nine months of 2017, international freight forwarding and logistics company Panalpina grew volumes in both Air and Ocean Freight compared to the same period of last year. As the year progressed, group gross profit as well as EBIT increased with every quarter. Year-on-year, Panalpina’s reported EBIT increased from CHF 67.5 million (adjusted YTD 2016: CHF 93.6 million) to CHF 72.1 million and the reported consolidated profit increased from CHF 46.5 million (adjusted YTD 2016: CHF 72.6 million) to CHF 48.4 million.

“Nine months into the year, Air Freight and Logistics are well under way and showing continued solid performance. In Ocean Freight, we are growing in line with the market but due to continued low margins and productivity levels, the profitability does not meet a satisfactory level,” says Panalpina CEO Stefan Karlen. “Seeing the challenges particularly in Ocean Freight, I am pleased to say that preparations for the next big roll-out of our new operating system SAP TM in the U.S. are progressing as planned.”

Panalpina Group: Results for the first nine months of 2017

(CHF million)
YTD 2017 YTD 2016
Net forwarding revenue
4,065.5
3,863.5
Gross profit 1,024.8 1,091.7
EBITDA reported 103.9
104.6
EBIT reported 72.1 67.5
Consolidated profit reported 48.4 46.5
Non-recurring items - (26.1)
EBITDA adjusted 103.9 130.7
EBIT adjusted 72.1 93.6
Consolidated profit adjusted 48.4 72.6
Higher EBIT and consolidated profit

Group gross profit decreased 6% to CHF 1,024.8 million in the first nine months of 2017 (YTD 2016: CHF 1,091.7 million), while total operating expenses decreased 4% to CHF 920.9 million (YTD 2016: CHF 961.0 million). Reported EBIT and consolidated profit increased year-on-year (decreased when compared to respective 2016 adjusted figures). Reported EBIT reached CHF 72.1 million compared to CHF 67.5 million a year before (adjusted YTD 2016: CHF 93.6 million) and the EBIT-to-gross- profit margin stood at 7.0% up from 6.2% (adjusted YTD 2016: 8.6%). The consolidated profit increased from CHF 46.5 million (adjusted YTD 2016: CHF 72.6 million) to CHF 48.4 million.

Air Freight

Panalpina’s Air Freight volumes increased 8% in the first nine months of 2017, broadly in line with market growth. From January to September, gross profit, unit profitability and EBIT in Air Freight increased with every quarter. Compared to the same period of last year, gross profit per ton decreased 7% to CHF 632 (YTD 2016: CHF 678), resulting in a gross profit of CHF 456.0 million (YTD 2016: CHF 453.4 million). Reported EBIT in Air Freight increased from CHF 60.0 million (adjusted YTD 2016: CHF 72.6 million) to CHF 69.4 million. The EBIT-to-gross-profit margin for the first nine months of 2017 came in at 15.2% compared to 13.2% (adjusted YTD 2016: 16.0%) a year before.

Ocean Freight

Panalpina’s Ocean Freight volumes from January to September 2017 increased 4% year-on-year, in line with estimated market growth of equally 4%. Gross profit per TEU decreased 10% to CHF 283 (YTD 2016: CHF 314), resulting in a gross profit of CHF 323.4 million (YTD 2016:
CHF 345.0 million). Higher volumes than last year were processed at lower margin and with increased costs which resulted in an EBIT loss in the third quarter. For the first nine months, Ocean Freight posted an EBIT loss of CHF 5.5 million, down from a profit of CHF 6.3 million in 2016 (adjusted YTD 2016: CHF 16.0 million).

Logistics

In Logistics, gross profit decreased 16% to CHF 245.4 million year-on-year (YTD 2016:
CHF 293.3 million), but has stabilized throughout 2017. Logistics is now sustainably profitable, posting an EBIT of CHF 8.1 million for the first nine months of 2017, compared to CHF 1.2 million (adjusted YTD 2016: CHF 5.0 million) for the same period last year.

Outlook

“We are well-prepared for another strong peak season in Air Freight, however it remains to be seen how dynamic the carrier market will be this year,” says Karlen. “Low gross profit margins and low productivity resulting from the inefficiency of our legacy system will continue to hamper us in Ocean Freight, where for the time being we can only grow moderately to avoid incremental costs. It is therefore encouraging that our new operating system SAP TM was successfully implemented in Germany and that the roll-out in the U.S. will commence this year. In Logistics, the focus clearly lies on top-line growth and we will achieve this in the mid to long term by expanding our offering of value-added services.”

In the first nine months of 2017, the Kuehne + Nagel Group’s growth momentum accelerated sequentially in the quarters. All business units recorded significant market share gains. Compared to the previous year’s period, net turnover increased by 10.4 per cent to CHF 13,525 million and gross profit by 4.8 per cent to CHF 5,136 million. The operational result (EBITDA) improved by 2.8 per cent to CHF 840 million and earnings for the period by 1.3 per cent to CHF 540 million.

Kuehne + Nagel Group January to September
2017 2016
CHF million
Net turnover 13,525 12,247
Gross profit 5,136 4,900
Operational result (EBITDA) 840 817
EBIT 685 678
Earnings for the period 540 533


Seafreight
With a volume increase of approximately 8 per cent in the first ninemonths of the year, Kuehne + Nagel confirmed its ability to achievestrong growth in a still demanding market environment. In total, the Group handled 230,000 TEUs more than in the previous year’s period, whereby the strongest volume increases were realised in all US trades. Kuehne + Nagel also achieved double-digit growth in the Latin America trades. The Group significantly improved its leading market position in the reefer container and LCL (Less-than-Container Load) operations. In the third quarter Kuehne + Nagel improved margins through further automation of internal processes, economies of scale and efficient cost management. The EBIT-to-gross profit margin (conversion rate) was at a high level of 29.2 per cent; EBIT reached CHF 308 million.

Airfreight
In the first nine months of the year, Kuehne + Nagel increased volumes by 19 per cent (+180,000 tons), growing more than twice as fast as the market. A key factor for this positive development was the company’s comprehensive offering of industry-specific airfreight solutions. New business was won in the pharmaceutical, high-tech and automotive industries. Perishables logistics continued to develop very successfully, thus further expanding Kuehne + Nagel’s position as the global market leader in this segment. Trillvane, the Kenyan perishables logistics company acquired in July 2017, has been part of the Kuehne + Nagel Group since September 2017. With strict cost control and productivity increases due to process automation Kuehne + Nagel compensated for margin pressure and maintained the conversion rate with 30.3 percent at previous year’s high level. EBIT improved by 3.2 per cent toCHF 227 million.

Overland
Despite seasonal market fluctuations the successful development of the overland business continued in the third quarter. In the first nine months of 2017, net turnover increased by 5.2 per cent and gross profit by 4.6 per cent compared to the previous year’s period. All regions, in particular Europe and North America, contributed to this improvement. The groupage and full truckload shipments as well as industry-specific services were the key drivers for growth. As a result of the consistent and ongoing process optimisation, EBIT increased from CHF 18 million in the previous year’s period to CHF 36 million.

Contract Logistics
In the first nine months of the year, Kuehne + Nagel won a significant amount of new contracts, with business activities in Asia growing dynamically. The acquisition of two specialised pharma logistics companies in Italy and Turkey, which have now been integrated into the Kuehne + Nagel network, enables a further expansion in pharma logistics. E-commerce fulfilment equally performed very strongly. Gross profit increased by 7.7 per cent, the operational result improved by 14.2 per cent compared to the previous year’s period. EBIT increased by 14.0 per centto CHF 114 million.


Dr. Detlef Trefzger, CEO of Kuehne + Nagel International AG: “With strong volume growth and active cost management we further improved results in the third quarter in line with our expectations. In seafreight a margin improvement was achieved in the third quarter. The airfreight, overland and contract logistics businesses contributed to significant profitability increases. The business development in the first nine months of 2017 confirms our strategic focus on value-creating solutions and makes us confident to reach our profitability targets we have set ourselves for the full business year.”

Panalpina was recently contracted by Salini Impregilo (ISJ V), a leading global construction firm, to transport the two main towers of a new rail bridge for Sydney Metro, Australia’s biggest public transport project. Transport for NSW, the authority that manages the transport services in the state of New South Wales, Australia and owns the project, tasked ISJV to build the bridge along with a four kilometer skytrain section between the Sydney suburbs of Bella Vista and Rouse Hill.

Each of the towers is 29 meters tall and weighs 210 tons. Because of their size, they had to be mounted on a special 18-axle, 55-meter long rig for a 17 kilometer trip under police escort from the manufacturing site in Glendenning to the project site at Rouse Hill. The route needed to be planned out down to the inch to make sure the truck and outsized cargo fit the streets and could turn around the corners. Upon arrival, the pillars were lifted by two cranes and secured to the deck using bolts in a precision night-time operation.

New distribution center near Budapest officially opened today in the presence of Prime Minister Viktor Orbán. It will provide next-day deliveries to Eastern Europe and offer significant lead time reductions to the Middle East and North Africa.

Federal-Mogul Motorparts, a division of Federal-Mogul LLC, has agreed to a multi-year contract with Kuehne + Nagel to operate its new automotive replacement parts distribution center near Budapest, Hungary. The opening ceremony took place in the presence of Hungarian Prime Minister Viktor Orbán.

Located in Páty, 22 kilometers west of Budapest, the state-of-the art warehouse has a 23,000 sqm storage area and offers a full range of inventories for its target markets with well-known brands like as Ferodo®, Jurid®, Champion®, MOOG®, Payen®, Goetze® and BERU®*. The facility will employ more than 160 people and has the potential to be expanded by at least 33 percent to support volume growth or changing trading profiles.

This new built-to-suit logistics hub is about to be fully operational, following a successful test run. The logistics complex will serve customers in Southern, Eastern and Central Europe in conjunction with the company’s new distribution center in Willebroek, Belgium; the Páty facility will also serve customers in Africa and other markets adjacent to the EU. This investment reflects Federal-Mogul Motorparts’ ongoing strategy to optimize the performance of its supply chain and provide the world-class delivery performance its customers expect.

“The opening of our new distribution center in Hungary is the next logical step in our effort to better serve customers, including our long-term goal of being best-in-class in order-to-delivery time,” explained Andrew Sexton, President, EMEA Aftermarket and Regional President, EMEA, Federal-Mogul Motorparts. “Together with our new distribution center in Willebroek, our regional warehouses and improved supply chain capabilities, we believe this new facility positions Federal-Mogul Motorparts to be the first choice for customers in our product categories.”

Under the terms of the contract, Kuehne + Nagel will operate the facility, providing contract logistics services, such as warehouse services, receipt of goods and pick and pack operations, plus value-added services including labelling and kitting in customer-specific product configurations.

“We are very pleased to enter into a partnership with Federal-Mogul Motorparts in Hungary,” said Gianfranco Sgro, member of the Managing Board of Kuehne + Nagel International AG, responsible for Contract Logistics. “It proves our capabilities to specifically address the logistics needs of globally operating companies and underlines our expertise to deliver solutions that create day-to-day efficiency benefits and quality. This new contract is a key strategic win for Kuehne + Nagel in Hungary and reflects our business strategy to continuously strengthen our presence in automotive replacement parts logistics.”

With the inauguration today, the branch office in Accra officially opened its doors. Operations have been successfully taken up, following the IDA Foundation Aid & Relief award to deliver 150 40 feet containers of mosquito nets to Ghana’s Ministry of Health.

Within the short time frame of one month, Kuehne + Nagel will ship the significant amount of mosquito nets from Denmark to Ghana, where they will be distributed to local health centres as part of a national campaign against malaria. Due to the geopolitical environment in the region, emergency and relief logistics is a major focus of Kuehne + Nagel Middle East and Africa. The cooperation with the IDA Foundation showcases the company’s extensive experience to provide freight forwarding and tailor-made logistics services for a broad range of customers and industries.

“Kuehne + Nagel Ghana is delighted to assist the IDA Foundation in accomplishing this humanitarian aid project and we look forward to creating a meaningful partnership to support the progress of the region in the coming years,” says Jeffrey J.O.Peprah, Kuehne + Nagel Ghana National Manager.

Aligned with the business development efforts in the region, additional initiatives have been set off to increase awareness of customers in the humanitarian aid sector. With its strategic location, the Kuehne + Nagel office branch in Accra is well positioned to provide cross-border forwarding and industry-specific logistics solutions to customers operating in West Africa, specifically in Ghana and its neighbouring countries.