Kuehne+Nagel eyes M&A path to increase Asia footprint

Singapore

WITH the ink barely dry from its 1.1 billion Swiss franc (S$1.63 billion) acquisition of China-based Apex International Corp, Kuehne+Nagel (K+N) is prepared to use its dry powder on more mergers and acquisitions (M&As) to increase its footprint in fast-growing Asia.

Swiss-based Joerg Wolle, chairman of K+N's board of directors, tells The Business Times that K+N had anticipated Asia's potential, and has built "a great position" in sea, air and road freight as well as in contract logistics over the past years. Now the world's second largest logistics group wants to entrench its position in the region and is on a lookout for growth opportunities.

"We are also willing to sustain material debt temporarily in support of M&A opportunities, especially in Asia. We have the firepower we need to expand our positions - financially and in terms of know-how," Dr Wolle says.

K+N has a very solid balance sheet, with almost no debt. As of end-June 2021, the group's cash and cash equivalents stood at 656 million Swiss francs (CHF). Free cash flow stood at CHF 424 million.

Dr Wolle is optimistic about the region's prospects.

"We strongly believe that Asia Pacific will be the main driver of global economic development in the years to come as well. We see strong growth for intra-Asia trade, on the transPacific route as well as to Europe and other parts of the world.

"We meet the demand of our customers with value-added logistics services, especially in the field of digitalisation. This is why we are heavily investing in our Asia Pacific footprint, both for organic growth and for M&A, should the opportunity arise,"

As recently as May, K+N completed an acquisition of an 88.5 per cent stake in Apex in a deal worth around CHF 1.1 billion as part of efforts to expand its presence in Asia.

Founded in 2001, Apex is one of Asia's leading freight forwarders, especially on the trans-Pacific and intra-Asia trade routes. It has 1,600 employees across 41 locations globally. In 2020, it generated turnover of CHF 2.2 billion and gross profit of CHF 296 million. It was ranked seventh in terms of global air freight forwarding volume.

In July, K+N said it has agreed to sell a 24.9 per cent stake in Apex to Partners Group, a global private markets firm that has its Asia Pacific headquarters in Singapore. K+N had roped in the investment partner to implement a transformational value creation plan that includes establishing new freight forwarding routes, new growth verticals such as healthcare, and M&As.

K+N, which has more than 130 years of history, has chosen Singapore as the central hub for its Asia Pacific expansion.

"The Lion City has the perfect location and conditions for developing our business further. Singapore is also similar in many ways to Switzerland, where K+N has its global headquarters," Dr Wolle says.

K+N closed the second quarter of 2021 with a record result, which included newly-acquired Apex's.

Net turnover for the second quarter jumped nearly 48 per cent to CHF 7.2 billion, boosting the first-half figure to CHF 13.3 billion, up 35 per cent from a year ago. Net profit for the quarter climbed 158 per cent to CHF 439 million, boosting interim net profit to CHF 756 million, up 146 per cent from the previous year.

Dr Wolle says the result reflects the strategic course the group has set and the initiatives it has taken in recent years, as well as its early and successful pursuit of digital leadership.

"Last but not least, the targeted expansion of our positions in Asia is increasingly paying off," he says. He expects the currently strong situation in worldwide transport markets to continue until at least Lunar New Year, at the beginning of 2022.

K+N's spokesperson says Asia Pacific contributed almost CHF 2 billion in turnover and CHF 308 million in earnings before interest and tax in the first-half of 2021. The company employs more than 10,500 people in the Asia Pacific, representing growth of almost 20 per cent year-on-year. Worldwide, it has more than 78,000 employees at 1,400 locations in over 100 countries.

While K+N manages logistics for companies in a wide range of industries, demand for pharma and e-commerce logistics was extremely strong in the first half of 2021.

Dr Wolle says: "K+N shipped Moderna's Covid-19 vaccines to Singapore for several months now, making sure that Singaporeans get their immunisation as quickly as possible. K+N took the reins in this endeavour early by shipping these essential medical goods. We have invested substantially to be able to deliver what we promised.

Last week, K+N opened a new control tower and conditioning facility in Singapore, together with subsidiary QuickSTAT, which specialises in time-critical and temperature-sensitive shipping to help bring new drugs and medical protocols to market safely and quickly.

The facility will cater to a full suite of healthcare logistics services for all stages of the pharmaceutical product lifecycle. The investment is a part of a wider strategy to further expand both companies' logistics capabilities to serve customers in the pharma and healthcare industry across Asia Pacific.

• Global Enterprise is a collaboration between The Business Times and Standard Chartered. The series of articles aims to inform and update Singapore businesses keen to expand overseas. The topics include but are not limited to investment and business conditions in various relevant markets, issues like global taxes, labour talent and property news. Geographically, the pieces focus on the Asia-Pacific region. For more Global Enterprise articles, go to https://www.businesstimes.com.sg/global-enterprise