16 BOARD OF DIRECTORS Klaus-Michael Kuehne, Schindellegi Executive Chairman Bernd Wrede, Hamburg Vice Chairman Prof. Dr. Otto Gellert, Hamburg Dr. Joachim Hausser, Munich Koh Soo Keong, Singapore Dr. Willy Kissling, Hurden Dr. Georg Obermeier, Munich Dr. Alfred Pfeiffer, Trostberg Bruno Salzmann, Pfäffikon Wong Kok Siew, Singapore Dr. Thomas Staehelin, Basel
Board of Directors and Management Board 17 Board of Directors and Management Board Kuehne & Nagel International AG, Schindellegi, Switzerland MANAGEMENT BOARD Klaus Herms, Schindellegi Chief Executive Officer Thomas Engel, Schindellegi Dr. Axel Hansen, Schindellegi Gerard van Kesteren, Schindellegi Reinhard Lange, Schindellegi Klaus-Dieter Pietsch, Schindellegi Dirk Reich, Schindellegi Status December 31, 2003
18 KLAUS-MICHAEL KUEHNE EXECUTIVE CHAIRMAN OF THE BOARD OF DIRECTORS
Report of the Board of Directors 19 Significant increase in shareholder value Dear Madam, Dear Sir, 2003 was a very successful year for the Kuehne & Nagel Group. Turnover increased by 8 per cent and the operational result improved by 14 per cent. At CHF 195.7 million, net earnings represent the best result in the company s history. Shareholders No significant changes occurred in the shareholder structure. Klaus-Michael Kuehne continues to hold 55.75 per cent of Kuehne & Nagel International AG s share capital. SembCorp Logistics Ltd, Singapore, has a 20 per cent stake in the company. Of the remaining shares, 20.88 per cent are in free float and 3.37 per cent are held as treasury shares. Board of Directors At the Annual General Meeting held on May 14, 2003, Prof. Dr. Otto Gellert, Dr. Joachim Hausser, Klaus-Michael Kuehne, Dr. Georg Obermeier, Dr. Alfred Pfeiffer and Dr. Thomas Staehelin were confirmed as members of the Board of Directors for a further three years. In addition, Dr. Willy Kissling was elected to the Board of Directors for a period of three years. Klaus-Michael Kuehne remains Executive Chairman of the Board of Directors, and Bernd Wrede was appointed Vice Chairman of the Board of Directors. Management Board No changes occurred in the Management Board, which consists of seven members headed by the Chief Executive Officer, Klaus Herms. Results As in the previous year, the Group s international forwarding activities significantly contributed to the results, especially sea- and airfreight operations in the triad Europe, Asia Pacific and North America. Strongest volume growth was recorded in the Asia Pacific region, where business was driven by China s continued dynamic export market. European overland transportation operations registered a material improvement. Due to restructuring measures taken in the USA, the business unit Contract Logistics realised a favourable improvement of results.
20 Dividend The Board of Directors of Kuehne & Nagel International AG has decided to recommend to the Annual General Meeting on May 12, 2004, the allocation of an increased dividend of CHF 3.50 per share (previous year: CHF 3.00). Business development In seafreight, Kuehne & Nagel realised far above market growth. Volumes increased by 25 per cent to a total of 1.25 million TEU (20 container units) shipped. In particular, high growth rates were realised on the trade lanes from Asia to Europe and North America respectively. Recording favourable growth rates, the airfreight business was characterised by an above average increase in profitability, mainly as a result of productivity improvements. The expansion of European overland transportation was pursued in line with the strategic goals. In the fourth quarter of 2003, Kuehne & Nagel concluded a contract to acquire Pracht Spedition + Logistik GmbH, based in Haiger/Hesse, Germany, as of January 1, 2004. Pracht is a member of the IDS groupage network and operates comprehensive warehousing and logistics activities. In addition, the company acquired the WM Group s contract logistics operations in Eastern Germany, with two warehouses in Leipzig and Chemnitz, as well as a 40 per cent equity stake in WM Cargonet AG & Co. KG, Bocholt, Germany, its system-driven groupage business. WM Cargonet is likewise a member of the IDS network. Thus Kuehne & Nagel has substantially strengthened its position in the German overland transportation market, a move complemented by corresponding activities in most other European countries. The contract logistics business was characterised by significant restructuring measures and new business contracts on the part of the USCO Logistics Group in the USA. The unsatisfactory results for 2002 were turned around in the year under review. In Europe, contract logistics operations also proved increasingly successful.
Report of the Board of Directors 21 Summary and outlook The Kuehne & Nagel Group belongs to the global market leaders, particularly in sea- and airfreight. A turnaround in results for the contract logistics business was achieved, and first steps have been undertaken to considerably strengthen European overland activities. In view of the excellent business result, the Board of Directors wishes to express its appreciation to the Management Board and the entire staff throughout the world for their successful work and dedication. It also wishes to thank all customers and business partners for their cooperation and the confidence they have placed in the organisation. It remains Kuehne & Nagel s strategic goal to provide high value services backed by its global network. Further improving the service offering to customers, the application of information technology as well as the optimisation of online communication will play an ever-increasing role. In addition to contract logistics, the European overland transportation business in particular is to be expanded, receiving further dynamic through acquisitions and the extension of the network. In this way, Kuehne & Nagel aims to significantly minimise the gap to market leaders in contract logistics and overland transportation and secure its position among the leading global full service providers. KLAUS-MICHAEL KUEHNE EXECUTIVE CHAIRMAN OF THE BOARD OF DIRECTORS
22 KLAUS-DIETER PIETSCH DR. AXEL HANSEN REINHARD LANGE KLAUS HERMS EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT CHIEF OPERATING OFFICER CHIEF EXECUTIVE OFFICER HUMAN RESOURCES GENERAL COUNSEL INTERNATIONAL FORWARDING
Management Board Kuehne & Nagel International AG 23 GERARD VAN KESTEREN CHIEF FINANCIAL OFFICER THOMAS ENGEL CHIEF INFORMATION OFFICER DIRK REICH EXECUTIVE VICE PRESIDENT CONTRACT LOGISTICS
24 Record result confirms strategy Kuehne & Nagel s competence as service provider, its ability to quickly adapt to changing market conditions and its customer-oriented logistics offering, all contributed to the further strengthening of its global market position in 2003. The operational result improved by 14 per cent and underlines the effectiveness of the company s strategic orientation. As a globally operating company, Kuehne & Nagel faced great challenges in view of the political and macroeconomic global environment in 2003. At the same time, however, with its worldwide network the company was able to benefit from globalisation and the increasing trend to relocate production facilities from Central Europe and North America to Eastern Europe and Asia. In addition, stringent cost management and high operational efficiency throughout the company were once again essential factors contributing to business success. Development of business units International Forwarding With a 25 per cent growth in volume to 1.25 million TEU, Kuehne & Nagel s global leadership in seafreight remains undisputed. The company was able to participate above average in the increase in container traffic to, from and intra- Asia. In order to sustain and extend the strong position in the market, ambitious objectives are set for 2004. Kuehne & Nagel aims to again achieve far above market growth and gain further market shares globally. Faced with the limited availability of transport equipment, maintaining good relationships with leading carriers as well as the systematic expansion of IT-based products are of equal importance in order to continue the dynamic growth. Generating excellent profitability, in airfreight Kuehne & Nagel as well recorded an above market increase in tonnage. This is all the more remarkable considering the highly competitive and volatile environment as well as imbalanced traffic. The results confirm Kuehne & Nagel s strategy of offering customers
Report of the Management Board 25 premium IT-based airfreight solutions. Increased efficiencies in freight handling on the basis of the successful worldwide implementation of Cargo 2000 in 2003, as well as the introduction of new, time-defined products and the expansion of activities in key markets will contribute to achieving future growth targets. In rail transportation, which is consolidated across Europe under the Ferroviasped Group, the focus was on the expansion of rail logistics structures. The concentration on market segments with a high proportion of logistics requirements proved favourable for business and will be pursued further. However, unexpectedly high start-up costs for the new product, KN Nordic Rail, negatively affected the operational result. Measures were taken to improve the product and increase efficiencies. In close cooperation with the Kuehne & Nagel organisation, Ferroviasped will concentrate on exploiting business opportunities in intermodal transport concepts and the eastern enlargement of the European Union. In Germany, the development of road transportation activities continued successfully and will gain further momentum in 2004 with the operations of Pracht Spedition + Logistik GmbH and the WM Group. Next steps are the optimisation of interfaces with the traditional business and to expand the offering of national and pan-european groupage line services, as well as industry- and customerspecific transportation solutions. Contract Logistics All regions contributed towards the favourable improvement of operational results in 2003. In North America, new and extended contracts as well as the reduction of costs and empty space helped to stabilise the results. In Europe, Kuehne & Nagel significantly expanded its network of logistics and distribution centres. With large investments in modern facilities and the standardisation of information technology and operational processes, the company has created the foundation to increase the global competitiveness of its contract logistics business. The task will now be to maximise on opportunities in the market and achieve sustained growth in this business unit.
26 Insurance Broker Nacora, Kuehne & Nagel s insurance broker subsidiary, has again delivered excellent results. The continued expansion of its global network and a concentration on tailor-made cargo insurance solutions resulted in a favourable gain in market shares. Regions Although being exposed to different economic cycles, all regions contributed towards strengthening Kuehne & Nagel s global market position. From quarter to quarter, activities were expanded and earnings continually improved, despite significant currency effects. As the growth engine within the Kuehne & Nagel Group, Asia Pacific in particular is of great importance. But also in Europe and North America, the second half of the year especially saw notable growth in all business fields. In Central Asia and Africa, restructuring measures and the focus on specific industries or trade lanes led to a favourable improvement of operational results, while in Central and South America Kuehne & Nagel expanded its international forwarding business. The implementation of an industry-specific global key account management programme consolidated and expanded existing business as well as gaining access to new global key accounts. Customer-oriented service offering guarantees further global growth Kuehne & Nagel s offering of industry-specific services, integrated logistics concepts and global process management capacities is continuously advanced to meet the current logistics and quality requirements of companies in trade and industry worldwide. In line with globalisation, the trend towards worldwide sourcing and production will continue. With its global presence and capabilities, Kuehne & Nagel is well positioned to remain at its customers disposal as a capable logistics partner, decisively supporting their procurement and distribution systems.
Report of the Management Board 27 The Management Board is confident that the positive business development will continue in the current year. Kuehne & Nagel s ability to provide customers with measurable added value through comprehensive logistics solutions, its strength of innovation and its dedicated and highly motivated staff and management are the best foundation for sustained growth and economic success. KLAUS HERMS CHIEF EXECUTIVE OFFICER