KUEHNE & NAGEL Annual Report: Contents 05 Contents 2 KUEHNE & NAGEL AT A GLANCE 3 THE GLOBAL LOGISTICS NETWORK 14 BOARD OF DIRECTORS AND MANAGEMENT BOARD 16 Report of the Board of Directors 20 Report of the Management Board 24 STATUS REPORT 26 Turnover 27 Income 30 Financial Position 32 Investments, Depreciation and Amortisation 35 Corporate Development 36 Research and Development 40 Human Resources 44 Quality Management 45 Environment and Safety Management 48 Information Technology 50 REPORTS OF THE BUSINESS UNITS 52 International Forwarding 64 Contract Logistics 68 Insurance Broker 71 CORPORATE GOVERNANCE 78 CONSOLIDATED FINANCIAL STATEMENTS OF THE KUEHNE & NAGEL GROUP 81 Income Statement 82 Balance Sheet 84 Changes in Equity 85 Cash Flow Statement 86 Notes to the Consolidated Financial Statements 112 Main Investments 116 FINANCIAL STATEMENTS OF THE KUEHNE & NAGEL INTERNATIONAL AG 117 Income Statement 118 Balance Sheet 120 Cash Flow Statement 121 Notes to the Financial Statements
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Consolidated Financial Statements: Contents 79 Consolidated Financial Statements 81 Income Statement 82 Balance Sheet 84 Statement of Changes in Equity 85 Cash Flow Statement 86 Notes to the Financial Statements 112 Main consolidated companies, associates and joint ventures
Consolidated Financial Statements: Income Statement 81 Income Statement CHF 000 Note 2002 2001 Invoiced turnover 40 8,805,019 8,434,986 Customs duties and taxes (1,858,296) (1,773,493) Net invoiced turnover 6,946,723 6,661,493 Net expense for services from third parties (5,035,569) (4,934,451) Gross profit 40 1,911,154 1,727,042 Personnel expenses 15 (1,042,757) (955,847) Selling, general and administrative expenses 16 (510,772) (459,208) Income from associated & joint ventures 4,334 3,337 Other operating income 17 17,864 14,362 EBITDA 379,823 329,686 Depreciation fixed assets 23 (76,130) (66,385) EBITA 303,693 263,301 Amortisation intangible assets 24 (79,979) (50,292) Impairment of goodwill 24 (206,381) EBIT 17,333 213,009 Finance result 19 (12,826) 14,729 Income before tax 4,507 227,738 Income tax 20 (3,280) (67,068) Income after tax 1,227 160,670 Minority share (1,096) (208) Net income for the year 131 160,462 Basic earnings per share 21 0.006 6.951 Diluted earnings per share 21 0.006 6.951
82 Balance Sheet CHF 000 Note 31/12/2002 31/12/2001 ASSETS Non current assets Fixed assets 23 471,154 490,649 Intangible assets 24 180,960 468,672 Investments in associates & joint ventures 25 19,107 20,404 Investments in affiliated companies 25 19,500 10,959 Deferred tax assets 20 57,133 14,720 747,854 1,005,404 Current assets Prepayments and deposits 33,421 28,241 Work in process 26 166,767 151,819 Trade receivables 27 874,365 835,912 Other receivables 28 50,160 49,445 Marketable securities 29 43,783 56,119 Derivative financial instruments 30 791 12,208 Cash and cash equivalents 31 776,819 246,610 1,946,106 1,380,354 Total Assets 2,693,960 2,385,758
Consolidated Financial Statements: Balance Sheet 83 CHF 000 Note 31/12/2002 31/12/2001 LIABILITIES Equity Share capital 32 120,000 120,000 Capital reserves and retained earnings 33 756,896 704,491 Net income for the year 131 160,462 877,027 984,953 Minority interest 34 4,732 1,730 Long term liabilities and provisions Provisions for pension plans and severance payments 35 147,472 140,610 Deferred tax liabilities 20 8,282 12,146 Bank liabilities 36 8,662 12,155 Financial lease obligations 37 6,237 27,131 170,653 192,042 Short term liabilities Bank liabilities 534,707 86,525 Trade liabilities / Accrued trade expenses / Deferred trade income 38 860,269 854,533 Current tax liabilities 28,749 32,118 Other liabilities 39 217,823 233,857 1,641,548 1,207,033 Total Liabilities 2,693,960 2,385,758 Schindellegi, March 28, 2003 KUEHNE & NAGEL INTERNATIONAL AG Klaus Herms Gerard van Kesteren CEO CFO
84 Statement of Changes in Equity CHF 000 Share capital Share Net unreali- Revaluation Treasury Cumulative Retained Total premium sed (loss)/ reserve 1 shares 2 translation earnings shareholders gain on deriva- adjustment equity tives & available for sale investments Balance 1/1/2001 120,000 540,122 (87,315) 6,067 (71,013) (10,994) 387,109 883,976 Reclassification 3 (87,315) 87,315 Changes in the scope of consolidation, net (300) (300) Purchase of treasury shares (1,984) (1,984) Disposals of treasury shares 3,328 3,328 Dividend paid 4 (51,892) (51,892) Reversal of deferred tax liability on revaluation 3,904 3,904 Unrealised gain on 5% SembCorp investment 3 1,119 1,119 Depreciation of revalued property (481) (481) Foreign exchange differences (190) (12,989) (13,179) Total gains and losses recognised directly in equity 0 0 1,119 3,233 1,344 (12,989) (52,192) (59,485) Net income for the year 4 160,462 160,462 Balance 1/1/2002 120,000 452,807 1,119 9,300 (69,669) (23,983) 495,379 984,953 Change in accounting policy 1 (9,300) (9,300) Disposal of treasury shares 2 939 4,926 5,865 Dividend paid 4 (67,010) (67,010) Unrealised gain on 5% SembCorp investments 3 8,541 8,541 Foreign exchange differences (46,153) (46,153) Total gains and losses recognised directly in equity 0 939 8,541 (9,300) 4,926 (46,153) (67,010) (108,057) Net income for the year 4 131 131 Balance 31/12/2002 120,000 453,746 9,660 0 (64,743) (70,136) 428,500 877,027 1 The revaluation reserve related to the revaluation of certain properties in Germany. As of January 1, 2002, the Group abandoned this revaluation policy in order to account for all properties at historical cost less accumulated depreciation and impairment losses. The revaluation reserve of CHF 9.3 million as of that date was reversed against the related carrying amounts of the properties concerned. Due to the immateriality of this change, comparative figures were not restated. 2 See note 15 of the financial statements of Kuehne & Nagel International AG for the movements of treasury shares during the year under review. 3 The 5% investment in SembCorp Logistics Ltd., a publicly listed company domiciled in Singapore, was acquired in 2000 and is stated at a significant discount due to foreign currency transfer risks, lack of liquidity of the market as well as the fact that the investment is restricted for disposal until February 2006. The original acquisition was linked to a 20% participation of SembCorp Logistics Ltd. in the Company s equity, conducted by a capital increase in the same year. Since both transactions were carried out at a share price well above the stock exchange price as of that date, the Company changed its original assessment and set off the additional paid-in capital that it received in excess of the listed share price against the original cost of the investment acquired. This assessment was reflected retrospectively by reclassification as of January 1, 2001 presented above. The original fair value estimate of the investment is revised each year to reflect the listed share price at balance sheet date, less an appropriate discount to take account of the impact of the restrictions mentioned above. 4 The proposed dividend payment subject to approval by the ordinary annual Shareholders meeting is as follows: Dividend Per share CHF 000 2002 3.00 69,438 2001 2.90 67,010 The legal bases for any profit distribution is the retained earnings of the statutory financial statements of Kuehne & Nagel International AG. The share premium and retained earnings of the Group may not be paid out as a dividend to the shareholders.
Consolidated Financial Statements: Changes in Equity Cash Flow 85 Cash Flow Statement CHF 000 Note 2002 2001 Cash flow from operating activities Net income for the year 131 160,462 Add/(deduct) non cash related transactions: Minority share of net income for the year 34 1,096 208 Increase/(decrease) minority interest 34 2,785 280 Add/(deduct) result from associated companies (1,403) (1,637) Depreciation fixed assets 23 76,130 66,385 Profit/(loss) on disposal of fixed assets, net (5,412) (2,095) Profit/(loss) on disposal of associated companies, net 3,706 706 Amortisation goodwill 24 53,105 31,326 Impairment of goodwill 24 206,381 Amortisation IT software 24 26,874 18,966 Net addition to provision for pension plans and severance payments 3,893 (27) Total operational cash flow 367,286 274,574 (Increase)/decrease work in process (34,215) 29,977 (Increase)/decrease receivables, prepayments and deposits (78,986) 112,526 Increase/(decrease) tax liabilities less tax assets (49,302) (24,485) Increase/(decrease) other liabilities 12,939 (86,273) Increase/(decrease) trade liabilities/accrued trade expenses 70,966 (32,834) Total cash flow from operating activities 288,688 273,485 Cash flow from investing activities Capital expenditures Fixed assets 23 (126,352) (106,945) Intangible assets Goodwill on purchase of consolidated companies 24 (27,030) (17,853) Investment in IT software 24 (26,874) (18,966) Acquisition of USCO Logistics Group (net of cash) (542,571) Total capital expenditures (180,256) (686,335) Disposal of fixed assets 17,413 32,315 Disposals of marketable securities 12,091 386 Total cash flow from investing activities (150,752) (653,634) Cash flow from financing activities Increase/(decrease) bank liabilities 480,219 (51,293) Purchase of treasury shares (1,984) Disposal of treasury shares 5,865 3,328 Dividend paid to Kuehne & Nagel shareholders (67,010) (51,892) Profit distribution to minority shareholders 34 (593) (440) Total cash flow from financing activities 418,481 (102,281) Exchange difference on cash and cash equivalents (26,208) (1,977) Increase/(decrease) in cash and cash equivalents 530,209 (484,407) Cash and cash equivalents at the beginning of the year 246,610 731,017 Cash and cash equivalents at the end of the year 776,819 246,610 Tax paid for previous years 14,498 17,922 Tax paid for current year 39,662 46,191 Dividend received from associates, affiliates and joint ventures 5,894 3,993 Interest received 13,073 24,442 Interest paid 12,083 11,554
86 Notes to the Consolidated Financial Statements PRINCIPLES OF CONSOLIDATION AND VALUATION 1 Basis of preparation The consolidated financial statements of the Group are based on the individual financial statements of the consolidated subsidiaries as of December 31, 2002. Those financial statements have been prepared in accordance with uniform accounting policies issued by the Kuehne & Nagel group which comply with the requirements of International Financial Reporting Standards (IFRS) and with Swiss law. The consolidated financial statements of the Group have been prepared on a historical cost basis except for certain financial instruments and marketable securities which are measured at fair value. No new standards have been introduced during the year and the accounting policies used are consistent with those used in the previous year. Interpretations of the International Financial Reporting Interpretations Committee (IFRIC) that became effective during the year have been applied. The financial statements under IFRS contain certain assumptions and estimates which affect the figures shown in the present report. The true result may differ from these estimates.
Consolidated Financial Statements: Notes 87 2 Scope of consolidation The major consolidated and associated companies are listed on pages 112 115. The material changes in the scope of consolidation in 2002 relate to the following companies: KN capital share Share capital acquired in per cent in 1,000 Additions /Disposals Acquisitions Kuehne & Nagel Ltda., Sao Paulo 50 BRL 362 Kuehne & Nagel Ltd., Cairo 50 EGP 1,000 KN Mars W.L.L, Bahrain 49 BHD 100 Nacora Weichert Corretagens de Seguros Ltda., Sao Paulo 15 BRL 60 Nakufreight (Mauritius) Ltd., Port Louis 51 MUR 4,000 KND Automotivo Ltda, Curitiba 25 BRL 2,431 KN Jerre Timbertrans GmbH, Hamburg 26 EUR 102 Pan European Alliance for Computer Transportation S.A., Paris 50 EUR 46 KN Cargo Systems International S.A., Montevideo 45 UYU 3,840 DAL Forwarding (T) Ltd., Dar Es Salaam 20 TZS 25,000 Ibrakom Deniz ve Tasim. Hizmetl. Ltd./Sti., Istanbul 60 TRL 5,000,000 KN Ibrakom FZCo, Jebel Ali Free Zone, Dubai 60 USD 273 Ibrakom Cargo L.L.C., Dubai 60 USD 82 Lloyds Maritime & Trading Ltd., London 60 USD Ibrakom Logistics Ltd., Isle of Guernsey, Channel Islands 60 USD Kala Navgan Shargh Co. Ltd., Teheran 60 IRR 2,000 Sahand Tarabar International Transport & Shipping Co. Ltd., Teheran 54 IRR 5,000 Incorporation Ferroviasped S.r.l, Milan 100 EUR 100 KN Lead Logistics, USA, Raleigh 100 USD 1 Kuehne & Nagel, S.A. San Jose / Costa Rica 100 CRC 1 Kuehne & Nagel, S.A. Panama 100 USD 1 Divestments Kuehne & Nagel Travel Inc., Toronto 100 Kuehne & Nagel Travel Service Ltd., Johannesburg 100 Stute Reisebüro GmbH & Co. KG, Bremen 50 S.E.M.T. International S.A., Paris 100
88 3 Principles of consolidation The consolidated financial statements comprise the accounts of Kuehne & Nagel International AG (the ultimate parent company) and its subsidiaries. Subsidiaries are all entities which Kuehne & Nagel International AG has the ability to control. Control exists when a Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. These subsidiaries are included in the consolidated financial statements according to the method of full consolidation. As a consequence, all assets, liabilities, expense and income are fully included. Subsidiaries acquired within the financial year are accounted for according to the purchase method as of the date of take-over of control. The difference between the purchase price and the Group s share of the fair values of the acquired net assets at the date of acquisition is recognised as goodwill under intangible assets and amortised over its estimated useful life. The minority interest in equity as well as net income or loss is reported separately in the consolidated accounts. Associates and joint ventures Associates are those companies that the Group has the ability to exercise significant influence, but not control over. Joint ventures are those that are subject to contractually established joint control. Associates and joint ventures are accounted for under the equity method and carried in the balance sheet at the equity-accounted amount or, if lower, recoverable amount (see note 10). The Group s share of income (loss) of associates and joint ventures is included in the income statement. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Foreign exchange translation Year end accounts of subsidiaries are prepared in their respective functional currencies and translated into CHF (the group reporting currency) as of year end. Assets and liabilities are translated at year end exchange rates and all items included in the income statement and cash flow at average exchange rates for the year. Exchange differences originating from such translation methods have no impact in the income statement since they are directly posted to equity. Transactions in foreign currencies within individual subsidiaries are translated into local currency at actual rates of the day of transaction, monetary assets and liabilities are translated at year end rates. Exchange differences arising on the translation of monetary items are included in the income statement. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the acquiring company and are recorded at the exchange rate at the date of the acquisition.
Consolidated Financial Statements: Notes 89 The major foreign currency conversion rates applied are as follows: INCOME STATEMENT AND CASH FLOW (Average rates for the year) 2002 Variance 2001 Variance Currency CHF per cent CHF per cent EURO 1. 1.46769 (2,8) 1.51009 (3,2) USD 1. 1.55831 (7,7) 1.68862 0,1 BALANCE SHEET (year end rates) 2002 Variance 2001 Variance Currency CHF per cent CHF per cent EURO 1. 1.45460 (1,8) 1.48060 (2,7) USD 1. 1.38750 (17,3) 1.67830 2,5 4 Financial assets and liabilities The accounting policy applied to financial instruments depends on how they are classified. Financial assets and liabilities are classified into the following categories: Financial assets or liabilities held for trading are those that are acquired or held with an intention to be sold in the short term to generate a profit from fluctuations in their fair value. All derivatives are classified as held for trading. Trading instruments are measured at their fair value at the balance sheet date. Any changes in fair value are recorded in the income statement (finance result) for the respective reporting period. Originated receivables are those loans and receivables originated by the Group supplying goods or services or financing directly to a debtor. Originated receivables are carried at amortised cost calculated using the effective interest rate method, less allowances for impairment (see below). Financial assets/investments available for sale, include all financial assets/investments not assignable to one of the above-mentioned categories. These include investments in affiliates that are not associates or joint ventures and investments in bonds and notes. Financial assets/investments available for sale are recognised at fair value, changes in value (after tax) are recorded directly in equity until the assets are sold at which time the amount reported in equity is transferred to the income statement. Non-derivative financial liabilities are carried at amortised cost calculated using the effective interest rate method, provided that they have a material impact on the consolidated financial statements. The fair value of investments held for trading and investments available for sale is their quoted bid price at the balance sheet date, less an appropriate discount, if there are restrictions on the transferability.
90 Derivatives and hedge accounting Derivative financial instruments (foreign exchange contracts) are used to hedge the foreign exchange exposures on outstanding balances in the Kuehne & Nagel internal clearing system, centralised at head office. Derivatives are not used for speculative purposes. Given that the Group s hedging activities are limited to hedges of recognised foreign currency monetary items, the Group does not apply hedge accounting. Derivatives held to hedge foreign currency exposures are carried at fair value and all changes in fair value are recognised immediately in the income statement. Impairment of financial assets If there is any indication that a financial asset held to maturity, available for sale or originated by the enterprise, may be impaired its recoverable amount is calculated. The recoverable amount of the Group s investments in held to maturity securities and receivables is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted. Trade receivables are reported at their anticipated recoverable amounts. The allowance for bad debts is determined based on an ageing analysis and considering previous experience of bad debts. The recoverable amount of available for sale debt securities is the anticipated future cash flows discounted at a current market related discount rate. The recoverable amount of available for sale equity securities is their fair value. Where an asset s recoverable amount is less than its carrying amount, the asset is written down to its recoverable amount. All resultant impairment losses (after reversing previous revaluations recognised in equity) are recognised in the income statement. An impairment loss in respect of a financial asset is reversed if there is a subsequent increase in recoverable amount that can be related objectively to an event occurring after the impairment loss was recognised. 5 Segment reporting The segment reporting reflects the structure of the Kuehne & Nagel Group. A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The primary segmentation covers the business fields Seafreight, Airfreight, International Overland, Rail, Customs Brokerage, Warehousing, Distribution, Special Logistics and Insurance Broker. The secondary segmentation represents geographical areas. Assets and liabilities cover all balance sheet positions which are directly, or on a reasonable basis, attributable to a segment.
Consolidated Financial Statements: Notes 91 6 Fixed assets Fixed assets are included in the consolidated accounts at cost less accumulated depreciation and accumulated impairment losses (see note 10). The depreciation is calculated on a straight line basis considering the expected useful lifetime of the individual fixed assets. The following depreciation rates are applicable for the major fixed asset categories: per cent Buildings 2 1 /2 Vehicles 25 Leasehold improvements 33 1 /3 Office machines 25 IT hardware 33 1 /3 Office furniture 20 Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. 7 Leases Leases that transfer substantially all the risks and rewards of ownership of the leased asset to the Group are classified as finance leases. Other leases are classified as operating leases. Assets leased under finance leases are included at the present value of the future minimum lease payments, or their fair value if lower, less accumulated depreciation and accumulated impairment losses (see note 10). Leased assets are depreciated over the shorter of the lease term and their useful lives. The interest portion of the lease payments is expensed through the income statement based on the effective interest rate inherent in the lease. Operating lease payments are treated as operating cost and charged to the income statement on a straight line basis over the lease period unless another basis is more appropriate to reflect the pattern of benefits to be derived from the leased asset. 8 Intangible assets IT Software is carried at cost less accumulated amortisation and accumulated impairment losses (see note 10). IT Software is amortised over its estimated useful life. Goodwill from acquisitions is recognised at cost, less accumulated amortisation and accumulated impairment losses (see note 10). Goodwill is amortised over its estimated useful life. The average useful life of goodwill is 5 years.
92 9 Cash and cash equivalents Cash and cash equivalents comprise of cash at bank and in hand and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist as defined above. 10 Impairment The carrying amounts of the Group s investments in subsidiaries, associates and joint ventures and its intangible assets and property, plant and equipment, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. Calculation of recoverable amount The recoverable amount of an asset is the greater of its net selling price and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. 11 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event. It is probable that an outflow of resources will be required to settle the obligation and the amount of the obligation can be estimated. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. 12 Pension plans, severance payments and share participation plans All major subsidiaries maintain pension plans in favour of their personnel in addition to the legally imposed social insurance schemes. The pension plans partly exist as independent trusts and are operated either under a defined contribution or under a defined benefit plan. Defined benefit plans The Group s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value, and the fair value of any plan assets is deducted. The discount rate is the yield at balance sheet date on AAA credit rated bonds that have maturity dates approximating the terms of the Group s obligations. The calculation is performed by an independent, qualified actuary using the projected unit credit method.
Consolidated Financial Statements: Notes 93 In calculating the Group s obligation in respect of a plan, to the extent that any cumulative unrecognised actuarial gain or loss exceeds ten percent of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in the income statement over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognised. Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. Severance payments The anticipated cost of severance payments, as legally required in certain countries, are also provided for over the period of service of the related employees. No compensation cost is recognized in the financial statements for options or shares granted to employees from the employee share purchase and option plan. 13 Revenue recognition Revenue from services rendered is recognised in the income statement when the related services are performed. 14 Taxes All taxes (on income, profit, capital and real estate) are provided for. The level of the provision is calculated based on the tax laws and rates prevailing in the individual countries at the balance sheet date. Both current and deferred tax is recognised in the income statement, except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. The provision for deferred tax is recorded following the comprehensive liability method. As a consequence, all temporary differences between the consolidated and fiscal balance sheet are considered in the preparation of the year end accounts. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. Non recoverable withholding tax on anticipated or probable next year s profit distributions by subsidiaries are also recorded under deferred tax liabilities. A deferred tax asset in respect of temporary differences or tax losses is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
94 NOTES TO THE INCOME STATEMENT 15 Personnel expenses CHF 000 2002 2001 Salaries and wages 793,563 739,714 Social expense and employee benefits 218,754 189,639 Pension plan expense (including portion of defined contribution plans) 30,440 26,494 1,042,757 955,847 16 Selling, general and administrative expenses CHF 000 2002 2001 Administrative expense 87,721 84,872 Communication expense 61,963 59,330 Travel and promotion expense 54,704 49,026 Vehicle expense 43,483 42,718 Operational expense 42,187 38,648 Facility expense 211,071 172,457 Provision for bad debt and collection expense 1 9,643 12,157 510,772 459,208 1 Specification provision for bad debt and collection expense 2002 2001 Addition to provision for bad debts (note 27) 6,924 8,616 Recovery of receivables previously written-off (1,929) (831) Expense for credit inquiries 1,250 1,491 Expense for premiums to credit insurers 3,300 2,581 Collection expense 98 300 9,643 12,157 17 Other operating income CHF 000 2002 2001 Gain on sale of fixed assets 6,387 2,995 Profit on sale of consolidated companies 7,983 11,715 Dividends received from affiliated companies 3,262 2,293 Loss on sale of fixed assets (975) (900) (Write-down)/reversal of write-down of affiliated companies 1,172 (1,515) (Write-down)/reversal of write-down loans 35 (226) 17,864 14,362
Consolidated Financial Statements: Notes 95 18 Depreciation and amortisation The depreciation of fixed assets and the amortisation of goodwill and IT software are shown in the notes 23 and 24. 19 Finance result CHF 000 2002 2001 Interest income 13,073 24,442 Interest expense (12,083) (11,554) Exchange difference, net (13,816) 1,841 Income/(Expense) (12,826) 14,729 20 Income tax CHF 000 31/12/2002 31/12/2001 Deferred tax assets on provision for pension plans 7,443 7,618 on losses carry forward 6,596 4,367 on other liabilities 43,094 2,735 57,133 14,720 Deferred tax assets for unused tax loss carry-forwards and expected tax credits from temporary differences are only recognised to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. The recognised deferred tax assets relating to tax losses carried forward are expected to be used by the end of 2004 at the latest. CHF 000 31/12/2002 31/12/2001 Unrecognised deferred tax assets on losses carry forward 23,849 25,464 on temporary differences 31,884 31,275 55,733 56,739 In view of the fact that the realisation of the above deferred tax assets is considered to be unlikely, the assets were not recognised.
96 The unrecognised deferred tax assets relating to tax losses carried forward expire by the end of the following years: Year CHF 000 2003 828 2004 705 2005 690 2006 785 2007 and later 20,841 23,849 CHF 000 31/12/2002 31/12/2001 Deferred tax liabilities on non recoverable withholding tax relating to anticipated distributions from subsidiaries 680 3,336 on impairment of financial investments 4,938 5,090 on depreciation of fixed assets and provision for bad debts 2,664 3,720 8,282 12,146 CHF 000 2002 2001 Expense related to current income tax 54,529 72,258 (Income) related to deferred income tax (51,249) (5,190) 3,280 67,068
Consolidated Financial Statements: Notes 97 Reconciliation of the applicable tax rate CHF 000 2002 2001 Income before tax according to the income statement as of December 31 4,507 227,738 add non tax allowable amortisation of goodwill (4,143) 16,216 less tax free gain on sale of subsidiary (5,600) (10,911) add benefit of current year losses to be set off against taxable future profits 44,538 17,760 less current year income set off against tax losses carried forward from previous years (9,025) (22,372) Adjusted income before tax 30,277 228,431 Tax according to income statement 3,280 67,068 Tax refund Germany 1 4,579 Adjusted tax charge 7,859 67,068 in relation to income before tax according to income statement of TCHF 4,507 and TCHF 227,738 respectively = effective tax rate 72.8% 29.4% in relation to the adjusted income before tax of TCHF 30,277 and TCHF 228,431 respectively = applicable tax rate 26.0% 29.4% 1 This amount relates to previous years. 21 Earnings per share The following reflects the income and share data used in the basic and diluted earnings per share computations for the years ended December 31. CHF 000 2002 2001 Net profit 131 160,462 Weighted average number of ordinary shares outstanding during the year 23,120,278 23,083,182 Effect of dilutive securities: Share options 2,254 Adjusted weighted number of ordinary shares applicable to diluted earnings per share 23,122,532 23,083,182 Basic earnings per share in CHF 0,006 6,951 Diluted earnings per share in CHF 0,006 6,951
98 Notes to the Balance Sheet 22 Non current assets The development of non current assets in 2002 is shown on notes 23 25 of the Consolidated Financial Statements. Disclosure of significant matters is included in the footnotes on the above mentioned pages. 23 Fixed assets CHF 000 1/1/2002 Exchange Additions Disposals Additions Adjust- 31/12/2002 difference from initial ments/ consolidation Transfers Properties, including buildings on third parties properties 429,502 (26,932) 46,034 (1,547) 4,006 (14,062) 437,001 Properties, buildings under financial leases 72,704 (1,277) (20,242) 51,185 Other fixed assets, operating and office equipment 380,808 (36,780) 69,271 (51,330) 6,305 (752) 367,522 At cost 883,014 (64,989) 115,305 (73,119) 10,311 (14,814) 855,708 Properties, including buildings on third parties properties 103,554 (5,736) 13,045 (1,220) 1,196 (5,019) 105,820 Properties, buildings under financial leases 37,651 (686) 1,576 (8,552) 29,989 Other fixed assets, operating and office equipment 251,160 (25,840) 61,509 (41,565) 3,976 (495) 248,745 Accumulated depreciation 392,365 (32,262) 76,130 (51,337) 5,172 (5,514) 384,554 Net book value 490,649 (32,727) 39,175 (21,782) 5,139 (9,300) 3 471,154 1,2 1 fire insurance value as of December 31, 2002 TCHF 662,194 2 of which pledged assets to secure own liabilities: net book value of properties and buildings TCHF 13,341 mortgages: total nominal value and deposited TCHF 13,003 outstanding liabilities (note 36) TCHF 5,644 3 see note 1 in the Statement of Changes in Equity
Consolidated Financial Statements: Notes 99 24 Intangible assets CHF 000 1/1/2002 Exchange Additions Disposals Additions Adjust- 31/12/2002 differences from initial ments/ consolidation Transfers Goodwill from acquisitions of consolidated companies 505,494 (83,609) 27,530 (2,114) 447,301 IT Software 40,179 26,874 67,053 At cost 545,673 (83,609) 54,404 (2,114) 514,354 Goodwill from acquisitions of consolidated companies 36,822 (7,347) 53,105 82,580 IT Software 40,179 26,874 67,053 Accumulated amortisation 77,001 (7,347) 79,979 149,633 Impairment goodwill 1 (22,620) 206,381 183,761 Net book value 468,672 (53,642) (231,956) (2,114) 180,960 1 The Group acquired USCO during 2001. The USCO operations have not achieved the level of profitability that was anticipated at the date of acquisition. This caused the Group to assess the recoverable amount of the USCO operations. Based on this assessment, the carrying amount of the goodwill related to USCO was written down by TCHF 206,381. The estimate of recoverable amount was based on the USCO cash-generating unit value in use. 25 Financial investments CHF 000 1/1/2002 Exchange Additions Disposals Additions Adjust- 31/12/2002 differences from initial ments/ consolidation Transfers Investments in associates & joint ventures 2 22,962 (331) 1,337 (3,706) 2 1,403 1 21,665 Investments in affiliated companies 10,959 8,541 3 19,500 Total 33,921 (331) 1,337 (3,706) 9,944 41,165 Investments in associates & joint ventures 2,558 2,558 Investments in affiliated companies Accumulated write-downs 2,558 2,558 Net book value 31,363 (331) 1,337 (3,706) 9,944 38,607 1 KN share of 2002 result of TCHF 4,035 net of dividends received TCHF 2,632 2 transfer to consolidated investments due to purchase of remaining 50 per cent 3 see note 3 in the Statement of Changes in Equity Investments in affiliated companies The Group holds a 5 per cent investment in SembCorp Logistics Ltd., Singapore. The acquired shares are blocked for a period of 5 years (starting January 1, 2001) and therefore cannot be sold or traded. As a result, the share price as traded at the Singapore stock exchange is not considered to be the fair value. The investment is therefore carried at CHF 19.5 million, whereas the market value is CHF 53.6 million as per December 31, 2002. The difference in valuation versus December 31, 2001, has been credited to the equity.
100 26 Work in process This position increased in 2002, despite the continuous supervision of the invoicing procedures, from TCHF 151 819 in 2001 to TCHF 166 767 which represents a billing delay of 5.8 working days (basis: 240 working days per year) against the previous year s 5.4 days. 27 Trade receivables Trade receivables outstanding as of year end averaged 37.7 days (2001: 37,8 days). The ageing of the receivables outstanding changed as follows: Ageing outstanding account 2002 2001 per cent per cent 0 180 days 96.4 95.5 181 360 days 0.9 1.6 over 360 days 0.4 0.6 Doubtful accounts 2.3 2.3 100.0 100.0 The provision for bad debts decreased in 2002 by TCHF 2 969 to TCHF 46 649. It represents 5.1 per cent of outstanding receivables as at December 31, 2002 (2001: 5.6 per cent). The movements in the provision for bad debts were as follows: CHF 000 2002 2001 Balance 1/1 49,618 46,630 add exchange difference (1,463) 1,511 less write-off of non collectible receivables (8,430) (7,139) add addition to provision (note 16) 6,924 8,616 Balance 31/12 46,649 49,618
Consolidated Financial Statements: Notes 101 28 Other receivables CHF 000 31/12/2002 31/12/2001 Receivables from associated and affiliated companies 14,992 22,052 Advances to employees 2,310 3,412 Receivables from tax authorities refundable withholding tax 4,985 2,115 refundable VAT 14,792 16,431 advance payments of tax 2,289 2,228 Receivables from social security authorities 1,885 872 Receivables from insurance companies 1,695 945 Other receivables 7,212 1,390 50,160 49,445 29 Marketable securities Marketable securities consist nearly exclusively of fixed rate interest bearing debentures in EUR (84.2 per cent), in CHF (11.7 per cent) and other currencies (4.1 per cent). 96 per cent of those securities lie in custody at major Swiss and German banks. The marketable securities have been valued at fair market value. All marketable securities are classified as trading financial assets. 30 Derivative financial instruments Contract or underlying amount Positive fair value CHF 000 2002 2001 2002 2001 Forward currency contracts 791 12,208 791 12,208 31 Cash and cash equivalents CHF 000 31/12/2002 31/12/2001 Cash on hand 1,744 1,999 Current and deposit accounts with banks (incl. postal accounts) 775,075 1 244,611 776,819 246,610 1 of which CHF 373 million is deposited in a bank account as collateral for a US$ bank overdraft
102 32 Share capital 31/12/2002 1/1/2002 Registered Capital Voting Registered shares share share shares of nominal of nominal CHF 5 each CHF 5 each Number CHF 000 per cent per cent Number 24,000,000 120,000 24,000,000 Main shareholders K. M. Kuehne, Schindellegi 13,380,000 66,900 55.75 57.81 13,380,000 SembCorp Logistics Ltd., Singapore 4,800,000 24,000 20.00 20.74 4,800,000 Public shareholders 4,965,925 24,830 20.69 21.45 4,903,483 entitled to voting rights and dividend 23,145,925 115,730 96.44 100.00 23,083,483 Treasury shares 854,075 4,270 3.56 916,517 Total 24,000,000 120,000 100.00 100.00 24,000,000 Employee Share Purchase and Option Plan During 2001, Kuehne & Nagel International AG implemented an Employee Share Purchase and Option Plan under which registered shares will be offered to members of the Management. There will be four share offerings under this plan, the first having taken place on July 1, 2001, the other offerings being made once a year, through 2004. The purchase price for the shares offered under this plan amounts to 90 per cent of the price corresponding to the average closing prices for one share at the SWX Swiss Exchange during the months of April to June. The shares are restricted for a period of three years before being released to the employee. In addition, for each share purchased under this plan, the company grants two options to the participants for the average price April to June. Each option entitles the participant to purchase one share of Kuehne & Nagel International AG. The vesting period starts with the day of grant and ends three years from that date. The options granted may be exercised after the vesting period during three years until the end of the option term. The following table summarizes information about share options outstanding at December 31, 2002: Exercise period Strike Number as Number Number Number as price of Jan 1, issued exercised of Dec 31, CHF 2002 2002 July 1, 2004 June 30, 2007 92.60 87,800 87,800 July 1, 2005 June 30, 2008 111.00 77,650 77,650 To date no options have lapsed.
Consolidated Financial Statements: Notes 103 33 Capital reserves and retained earnings The development of the capital reserves and retained earnings in 2001 and 2002 is recorded in the consolidated statement of changes in equity on page 84. 34 Minority interest CHF 000 2002 2001 Balance 1/1 1,730 1,682 Dividends paid (593) (440) Additions Capital increases 79 Acquisitions of shares in equity 2,706 471 Exchange differences (47) (2) Disposals Shares in equity (239) (189) Share in net income for the year 1,096 208 Balance 31/12 4,732 1,730 35 Provisions for pension plans and severance payments CHF 000 Pension Severance Total plans payments Balance 1/1/2002 131,738 8,872 140,610 Exchange differences (1,552) (550) (2,102) Usage (8,188) (1,285) (9,473) Additions 16,266 2,171 18,437 Balance 31/12/2002 138,264 9,208 147,472 Pension plans The group has some defined benefit pension plans predominantly in Germany and Benelux, as well as defined contribution plans in some other countries. Retirements benefits vary from plan to plan reflecting applicable local practices and legal requirements. Retirement benefits are based on years of credited service and the compensation as defined. The principal assumptions used in determining pension obligations for the Group s plans are shown below: Principal assumptions used in determining 2002 2001 pension obligation per cent per cent Discount rate 2.0 7.0 2.5 6.0 Expected rate of return on plan assets 1.5 6.0 1.5 3.0 Future compensation and pension increases 2.0 2.5 2.0 4.0 Fluctuation rate 2.0 2.5 1.1 1.6
104 Development in CHF 000 2002 2001 Net benefit expense Current service cost 6,439 6,568 Interest cost 10,121 10,058 Actuarial (gains)/losses 459 1,100 Expected return on plan assets (753) (3,500) Net benefit expense 16,266 14,226 Benefit liability Present value of benefit obligation 184,208 175,347 Fair value of plan assets (37,293) (39,846) Funded status 146,915 135,501 Unrecognized actuarial gains net (8,651) (3,763) Benefit liability 138,264 131,738 Movement in net benefit liability Opening benefit liability 131,738 131,309 Net benefit expense (as above) 16,266 14,226 Exchange differences (1,552) (4,234) Benefits paid (8,188) (9,563) Closing net benefit liability (as above) 138,264 131,738 Severance payments In certain countries such as Austria, Italy, Netherlands and Turkey severance payments based on the years of service with the company of each employee is required. A provision is raised for these costs over the service lives of the employees concerned. 36 Bank liabilities CHF 000 31/12/2002 31/12/2001 Between 2 5 years 6,665 4,283 After 5 years 1,997 7,872 8,662 12,155 Of which secured by mortgages 5,644 7,336 37 Financial lease obligations 1 CHF 000 31/12/2002 31/12/2001 Between 2 5 years 6,237 21,539 After 5 years 5,592 6,237 27,131 1 Current portion amounting to TCHF 8,352 (2001: TCHF 20,825) in 2002 included in short term bank liabilities
Consolidated Financial Statements: Notes 105 38 Trade liabilities / Accrued trade expenses / Deferred trade income CHF 000 31/12/2002 31/12/2001 Trade liabilities 455,473 450,955 Accrued trade expenses 346,655 342,802 Deferred trade income 58,141 60,776 860,269 854,533 39 Other liabilities CHF 000 31/12/2002 31/12/2001 Personnel expense, profit participation and untaken annual leave 91,397 89,585 Other operational expense 53,227 61,299 Interest payable 8,700 7,273 Pending claims 1 23,951 30,229 Liabilities due to associated and affiliated companies 3,729 7,168 Bills of exchange payable 1,412 206 Other liabilities 35,407 38,097 217,823 233,857 1 The movements in the provision for pending claims were as follows: CHF 000 31/12/2002 31/12/2001 Specification of pending claims Balance 1/1 30,229 31,220 Payments/release of provision (11,735) (23,764) Additions 5,457 22,773 Balance 31/12 23,951 30,229 Some companies are defendant in multiple legal cases based on forwarding and logistic operations. Where the risk of a negative outcome is considered to be more than likely by the corresponding legal advisers, the probable amount of future payments has been accrued for. The statement of the timing of the corresponding settlements is not practicable, as the timing of final court decisions is unknown and dependent on long legal procedures. Some legal cases have been settled in the reporting period and corresponding payments have been made.
106 40 Segment reporting a) Primary reporting Invoiced turnover Gross profit EBITA CHF million 2002 2001 2002 2001 2002 2001 Seafreight 4,028.5 3,925.9 588.8 531.7 141.8 126.2 Airfreight 2,098.6 1,984.6 392.3 387.2 83.5 62.3 International Overland 514.3 472.4 86.7 81.4 13.3 8.0 Rail 248.9 229.5 24.6 21.0 9.6 7.1 Customs Brokerage 637.4 658.3 57.8 53.9 3.1 0.8 International Forwarding 7,527.7 7,270.7 1,150.2 1,075.2 251.3 204.4 Warehousing 779.0 644.5 623.5 501.2 24.6 27.0 Distribution 378.2 296.9 91.5 93.8 7.3 7.8 Contract Logistics 1,157.2 941.4 715.0 595.0 31.9 34.8 Special Logistics 51.9 146.6 19.1 31.3 6.6 12.9 Insurance Broker 68.2 76.3 26.9 25.5 13.9 11.2 Total KN Group 8,805.0 8,435.0 1,911.2 1,727.0 303.7 263.3 b) Secondary reporting Invoiced turnover Gross profit EBITA CHF million 2002 2001 2002 2001 2002 2001 Europe 4,695.5 4,695.5 934.3 922.2 168.1 137.2 Americas 2,657.8 2,430.2 699.4 554.8 45.6 54.3 Asia Pacific 893.5 847.3 218.4 203.5 84.4 68.9 Middle East and Africa 558.2 462.0 59.1 46.5 5.6 2.9 Total KN Group 8,805.0 8,435.0 1,911.2 1,727.0 303.7 263.3
Consolidated Financial Statements: Notes 107 Assets Liabilities Investments Depreciation/ Non cash amortisation expenses CHF million 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 Seafreight 609.2 542.8 427.7 383.4 32.1 20.6 31.5 32.0 5.1 10.9 Airfreight 374.0 390.0 279.2 299.9 18.0 13.9 20.7 19.9 1.9 6.6 International Overland 94.5 78.2 84.6 74.1 6.0 4.2 4.6 3.2 0.5 1.7 Rail 44.7 37.1 41.6 38.7 3.1 3.4 2.7 2.8 0.3 0.3 Customs Brokerage 26.9 16.6 20.5 13.5 1.3 1.4 1.4 0.4 0.3 0.0 International Forwarding 1,149.3 1,064.7 853.6 809.6 60.5 43.5 60.9 58.3 8.1 19.5 Warehousing 512.4 1 831.7 259.7 311.6 101.2 565.8 294.3 1 51.2 2.6 8.5 Distribution 114.8 117.9 81.9 72.9 7.7 8.8 6.0 5.7 1.0 0.7 Contract Logistics 627.2 949.6 341.6 384.5 108.9 574.6 300.3 56.9 3.6 9.2 Special Logistics 15.5 20.8 19.7 16.3 1.1 1.2 0.4 0.6 0.1 0.8 Insurance Broker 30.3 27.1 15.4 14.2 0.5 0.9 0.9 0.9 0.1 0.1 Total KN Group 1,822.3 2,062.2 1,230.3 1,224.6 171.0 620.2 362.5 116.7 11.9 29.6 Assets Liabilities Investments Depreciation/ Non cash amortisation expenses CHF million 2002 2001 2002 2001 2002 2001 2002 2001 2002 2001 Europe 949.4 952.6 848.5 863.0 88.8 85.7 55.4 71.9 8.1 22.2 Americas 589.7 1 849.2 192.5 191.1 69.8 522.4 293.5 1 36.5 3.1 4.1 Asia Pacific Region 204.9 207.6 131.9 131.4 4.7 7.4 6.4 5.9 0.6 1.8 Middle East and Africa 78.3 52.8 57.4 39.1 7.7 4.7 7.2 2.4 0.1 1.5 Total KN Group 1,822.3 2,062.2 1,230.3 1,224.6 171.0 620.2 362.5 116.7 11.9 29.6 1 As a result of the profit development of USCO Logistics, an impairment amounting to CHF 206.4 million is included.
108 OTHER NOTES 41 Personnel 31/12/2002 31/12/2001 Number Number Europe 8,740 8,603 Americas 5,514 5,957 Asia Pacific 2,182 1,964 Middle East and Africa 1,253 888 17,689 17,412 42 Contingent liabilities As of year end the following contingent 31/12/2002 31/12/2001 liabilities existed: CHF 000 CHF 000 Guarantees in favour of third parties 7,166 11,487 Contingent liabilities under unrecorded claims 37,180 37,850 Total 44,346 49,337 Some Kuehne & Nagel companies are defendants in various court cases. Based on respective legal advice, the management is of the opinion that the outcome of those proceedings will have no material effect on the financial situation of the Kuehne & Nagel group beyond the existing provision for pending claims (note 39) of TCHF 23,951 (2001: TCHF 30,229). In addition, under a global logistic outsourcing contract guaranteed payments may occur, if certain future criteria will not be met by Kuehne & Nagel. 43 Other financial commitments As of year end the following financial commitments existed in respect of non cancellable long term operating leases and rental contracts. CHF 000 Year Properties Operating TOTAL and buildings and office equipment 2003 108,155 21,486 129,641 2004 80,010 13,216 93,226 2005 62,690 7,760 70,450 2006 46,922 4,016 50,938 2007 37,077 2,510 39,587 2008 2012 169,797 3,727 173,524 Total 504,651 52,715 557,366 The Group leases a number of warehouse facilities under operating leases. The leases run for a fixed period and none of the leases includes contingent rentals.