Interview with the CEO and CFO
From left to right:
MARKUS BLANKA-GRAFF, CFO
DR. DETLEF TREFZGER, CEO
Dr. Trefzger, Mr. Blanka-Graff, these are turbulent times. Trade barriers are being erected or announced, while digitalisation and increased use of technology are changing the business models of entire industries. Against this backdrop, how would you characterise the 2018 business year?
Dr. Detlef Trefzger (DT): 2018 was another very successful year for our company with new records in net turnover, gross profit, EBIT and earnings for the year. Following on from a stormy 2017 in our largest business unit seafreight, we succeeded in further reinforcing our position as the global leader. Both in seafreight and in airfreight we achieved growth rates that were significantly higher than the market. Our success story in overland continued thanks to a very clear strategy. In contract logistics, our growth in net turnover and gross profit was well above the market.
Markus Blanka-Graff (MBG): The most important indicator for us is our conversion rate – the EBIT-to-gross-profit ratio. In the last year, we once again achieved a high conversion rate. Only in contract logistics EBIT was below the previous year because we made, as planned, significant expenses for operational systems.
“Our goal is to act as a key partner for our customers in transforming their own business models. Thus we make a relevant contribution to their success.”
Dr. Detlef Trefzger
What drives the company’s success?
DT: That’s relatively easy to answer. For us, the customer value always is at the centre stage. That applies to semi-automated shipping services as well as to our highly specialised industry-specific solutions. Let’s take two examples: In 2018, we launched our KN InteriorChain, the world's first modular solution to offer an integrated supply chain for the refurbishment of aircraft interiors. It’s crucial for customers that downtimes for general maintenance of cabin interiors be kept to a minimum. We won significant new projects with airlines around the globe. We also had an important breakthrough with another innovative product – KN BatteryChain, which allows us to cover multimodal transport and storage for the entire life cycle of lithium batteries. This highly specialised handling is essential for our customers because lithium batteries are dangerous goods. We’re delighted to have won a very renowned customer in this field.
We are observing fundamental changes in all sectors of the economy – how do they impact business at Kuehne + Nagel?
DT: We have indeed been observing for quite some time now a fundamental transformation of all processes. With our strategic programme “Leading the Transformation”, we have set ourselves the goal to actively shape this trend. Regarding the macroeconomic situation, the past year was, of course, marked by uncertainties about trade barriers and disputes between leading economies. On the other hand, employment rates were higher than ever in many important economies, while tax rates were simultaneously lower. As a result, consumer confidence was high during the first three quarters. And it's the consumers who ultimately determine volumes in supply chains.
When talking about the implementation of the strategic programme: Where are you today?
MBG: Our strategic programme sets the framework until the end of 2022. It will allow us to continuously align with the changing environment. We are driving automation and technological development. An important indicator here is the ratio of semi-automated shipments made via so-called eTouch solutions. Thanks to these eTouch solutions and the underlying automation which are of strategic importance to us we can achieve significant volume increases with low additional costs. That in turn allows for higher conversion rates.
DT: One of our core strengths as a company is that, in addition to these semi-automated services, we offer highly specialised solutions tailored to the needs of specific industries, such as KN PharmaChain or the previously mentioned KN InteriorChain and KN BatteryChain. In both areas – automated processing and specialised solutions – we continue to record strong growth.
All of that involves many changes. How do your employees react to this?
DT: Our business model is based on people, and this won’t change in the future – despite automation in certain areas. I truly believe that we have the best employees in our industry – and I say that with some pride. This is evident in the way our employees have responded to the strategic programme. They welcomed it with a mixture of curiosity and enthusiasm and are implementing it with the same positive attitude. Their commitment is reflected in the high approval ratings revealed in a survey of our employees, conducted nine months after the implementation was started. My heartfelt thank you to all our employees for the contribution to our success!
“To meet our strategic goals for 2022, we focus on organic growth. We complement our portfolio with targeted acquisitions.”
Logistics is a highly segmented industry. In this environment, do you also envisage achieving growth through acquisitions?
MBG: First of all, we aim at organic growth. We don’t need acquisitions to meet our strategic goals for 2022! However, we do have an active M&A strategy. Acquisitions are something we will consider if they allow us to gain expertise in niche areas in which we don’t currently have a very strong presence or if they provide us with an opportunity to strengthen our foothold in a specific region. We succeeded so in 2018 with two acquisitions in China and Indonesia. We don’t want to grow at any price, but where it makes sense to do so we’re ready for acquisitions, even for large ones. We demonstrated this last year with the acquisition of Quick International Courier, which enabled us to significantly expand our offering in the area of time-critical shipments.
Let’s talk about technological development: You relied heavily on new technologies again last year. Which of these are most important to you?
DT: Big data and predictive analytics help us to optimise supply chains. On our digital seafreight platform Sea Explorer, we use the enormous volume of data gained from operations – supplemented by external data – to offer customers detailed comparison options. Customers can plan their shipments based on criteria like reliability, capacity or CO2 emissions. Doing business in a sustainable way has long been an important decision making factor both for our company and for our customers. Last year, we also launched KN ESP, a digital platform for supplier management, which we offer to our international supply chain customers.
MBG: We also use new technologies successfully in the finance area. We introduced a digital platform that allows us to speed up the settling of electronic invoices from our suppliers by integrating a financial provider. For this, we received a prestigious award from the Supply Chain Finance Community.
There’s a lot of talk about blockchain technology right now. Where do you see the applications for this in logistics?
DT: Blockchain technology can be profitably used to enable a tamper-proof, reliable and verified exchange of data. It can act as a catalyst, in particular when setting standards for data and the exchange of information. Blockchain will simplify our business but will not fundamentally transform it. We are already using the advantages of this technology in an existing seafreight application, in which 800,000 transactions are completed per month.
Let’s go back to the beginning of our conversation. How do you view the development of the economic environment as a whole?
DT: There was a clear downturn in the economy at the end of last year. However, we expect the global economy to continue to grow in 2019, even if this growth is not as strong as last year. And, in terms of political developments, it goes without saying that we support a global trade system that is as free as possible. If additional trade barriers are put in place, end consumers will have to pay higher prices in the medium term. I firmly believe that free trade is the bedrock of global prosperity!
You mentioned that the conversion rate is an important indicator of your success. Some time ago, the company set itself the objective of achieving a conversion rate of 16 percent. How close are you to reaching this goal?
DT: We set ourselves a goal of achieving a conversion rate of 16 percent for the entire group by 2022. The automation of standard processes accompanied by a simultaneous growth in volumes will be an important factor in achieving this goal in the medium term.
MBG: We expect to see the greatest effects in 2020 and 2021.
And what are your most important short-term goals for 2019?
DT: Our goal is always to make a relevant contribution to our customers’ success and to act as a key partner for them in transforming their own business models. For our Group, we want to grow twice as strong as the overall market in all the business units. 2019 will be once again a year of investment, during which we will finish rolling out our AirLOG operational software at the beginning of the year and will continue implementing SeaLOG as per schedule. We’ll also be getting many more important strategic projects over the finishing line. Overall, we expect that 2019 will be a good, but challenging year.
Kuehne + Nagel Management Board
DR. DETLEF TREFZGER, CEO
MARKUS BLANKA-GRAFF, CFO
HORST JOACHIM SCHACHT, Seafreight
YNGVE RUUD, Airfreight
STEFAN PAUL, Overland
GIANFRANCO SGRO, Contract Logistics
LOTHAR HARINGS, Human Resources
MARTIN KOLBE, Information Technology