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Strict cost management drove Q3 earnings growth in an improved market environment
The Kuehne + Nagel Group demonstrated profitable growth in Q3, 2020, following a first half year marked by the coronavirus pandemic. On a currency-adjusted basis, the Company significantly improved key operating figures in Q3. In Q3, 2020, net turnover fell 4.0% to CHF5,031.0 million, as gross profit declined 5.5% to CHF1,866.0 million. EBIT climbed 31.1% to CHF371.0 million.
Net turnover for the first nine months amounted to CHF14.8 billion and EBIT to CHF790.0 million, declines of 6.3% and 0.5% respectively. Currency fluctuations had a significant negative impact on both net turnover (-5.7%) and EBIT (-5.9%) for the first nine months. Gross profits declined 7.9% to CHF5,516.0 million. Free Cash Flow increased by 31.4% in the first nine months.
In Q3, 2020, the earnings development in Sea Logistics reflected a very positive reversal of trend compared to the first half of the year. The improvement is due to the recovery of demand from SME customers and the increase in imports to Europe and North America from Asia. Net turnover declined 6.2% in Q3, as gross profit fell 3.3%. In Q3 2020, container volume rose by 10.4% to 1.2 million TEUs compared to Q2. The unit's net turnover amounted to almost CHF1.8 billion and EBIT improved by 12.3% year-on-year to CHF 137 million. The conversion rate reached 36.2%. Process optimisation via local Customer Care Locations and central Operational Care Centres supported effective cost management and the future expansion of Kuehne + Nagel's leading market position. For the 9M period, net turnover declined 8.3% as gross profit fell 10.4% and EBIT dropped 14.8%.
Improved market conditions in Q3, 2020, including the automotive sector and perishable goods, led to a greater than normal seasonal uplift in Air Logistics volumes versus Q2. Crisis goods, on the other hand, increasingly shifted to alternative transport routes. At 354,000 tonnes, air freight volume in Q3 was 12.8% lower than in the same period of the previous year, while net turnover increased by 8.7% to CHF1.2 billion and EBIT by 89.9% to CHF169.0 million. This includes a positive one-off impact of net CHF63.0 million due to early settlement of the contingent consideration of an acquisition from 2018. For the 9M period, net turnover rose 5.7% as gross profit fell 4.0% and EBIT climbed 33.1%.
Q3, 2020 was characterised by a significant increase in shipments in the Road Logistics business unit versus the previous quarter. In particular, demand for domestic transport capacities in European countries reached pre-crisis levels. In North America, demand for all product segments – with the exception of pharma & healthcare and eCommerce – remained significantly below the previous year's level; however, an initial market revival has been evident since September. The business unit's net turnover decreased to CHF796.0 million in Q3 and EBIT was down to CHF12.0 million, a drop of 29.4%. Gross profit increased 1.9%. The continued very weak 7.7% demand for expo and event logistics had a significant negative impact on the result. For the 9M period, net turnover fell 11.3% as gross profit fell 4.0% and EBIT decreased 38.7%.
Market share gains in pharma & healthcare services and in eCommerce fulfilment as well as stringent cost management led to a significant improvement in earnings in Contract Logistics in Q3, 2020 compared to Q2. The business unit's net turnover in Q3 was CHF1.2 billion, down 9.3% and EBIT was CHF53.0 million, down 3.6% Gross profit fell 8.7%. Adjusted for extraordinary income in Q3, 2019 and 2020 from real estate sales of CHF21.0 million, and CHF4.0 million respectively, EBIT increased by 44.0%. The business unit is continuing to expand its eCommerce fulfilment activities which are driving a significant proportion of new business wins. In Sweden, for example, it will operate a new distribution centre for Amazon. For the 9M period, net turnover fell 10.6% as gross profit fell 9.3% and EBIT decreased 12.5%.
The Company announced that it is ready to play a role in the distribution of Covid-19 vaccines. The first contracts related to Covid-19 vaccine production have been signed in Contract Logistics. Distribution by Air and Road Logistics is expected to start in 2021 (subject to product approval). It is currently estimated that between 11 and 15 billion vaccine doses may be needed globally.