Annual Report Kuehne Nagel by alicejenny

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									                               Annual Report    2003




THE GLOBAL LOGISTICS NETWORK   KUEHNE & NAGEL
              Experiencing              dimensions.
In an age of global trade lanes and communication networks, it has become matter of fact
for goods to be transported from one end of the planet to the other. Safely, reliably and
just in time. That is the task of logistics. And it’s a challenge taking us into new dimensions
every day – raising warehouse capacities, recording volume growth, optimising global
flows of goods and managing complex supply chains for our customers all over the world.
Behind all this are the people who make our services possible. And figures that impressively
put the dimensions of a global logistics partner in a visible perspective.




                                                                                    Group Key Data >>
KUEHNE & NAGEL GROUP KEY DATA

(CHF million)                                         1999          2000      2001      2002      2003

Turnover                                           6,635.7       8,247.4   8,435.0   8,805.0   9,548.0
Gross profit                                       1,238.3       1,452.7   1,727.0   1,911.2   2,064.3
% of turnover                                        18.7          17.6      20.5      21.7      21.6
EBITA 1                                             133.0         203.8     244.3     276.8     315.9
% of Gross profit                                    10.7          14.0      14.1      14.5      15.3
EBT                                                 133.9         193.8     227.7        4.5    286.1
% of Gross profit                                    10.8          13.3      13.2        0.2     13.9
Net earnings for the year                            95.2         125.9     160.5        0.1    195.7
% of Gross profit                                      7.7           8.7       9.3       0.0       9.5
Depreciation and amortisation                        60.0          77.5     116.7     362.5     137.2
% of Gross profit                                      4.8           5.3       6.8     19.0        6.6
Operational cash flow 1                             155.5         200.7     274.3     364.5     345.6
% of Gross profit                                    12.6          13.8      15.9      19.1      16.7
Capital expenditures                                 94.5         125.9     620.2     171.0     178.3
% of operational cash flow                           60.8          62.7     226.1      46.9      51.6
Balance sheet Total                                1,795.7       2,413.1   2,385.8   2,693.9   2,719.9
Non current assets                                  426.9         459.5    1,005.4    747.8     770.3
Equity                                              450.4         884.0     985.0     877.0    1,012.7
% of Total assets                                    25.1          36.6      41.3      32.6      37.2
Employees at year end                              12,605        13,765    17,412    17,689    19,004
Manpower expense                                    711.8         799.2     955.8    1,042.8   1,130.1
% Gross profit                                       57.5          55.0      55.3      54.6      54.7
Gross profit in CHF 000 per employee                 98,2         105,5      99,2     108,0     108,6
Manpower expense in CHF 000 per employee              56,5         58,1      54,9      59,0      59,5




Net earnings per share (nominal CHF 5)
Consolidated net income for the year
(KN share) 3                                         4.88          5.46      6.95      0.01      8.44
Distributable net income for the year 3              2.95          2.31      2.91      3.00      3.50
Distribution in the following year                   3.00    2
                                                                   2.25      2.90      3.00      3.50
in % of the consolidated net income
of the year                                           61%           41%       42%        n/a      41%




Development of share price
Zurich (high/low in CHF)                            62/50        110/59    103/59    118/76    160/82
Average trading volume per day                      1,360        14,360     8,189     9,310     4,810


1   adjusted for comparison purposes (1999–2002)
2   including exceptional bonus of CHF 0,75
3   excluding treasury shares
IMPRINT


Published by
Kuehne & Nagel International AG
P.O. Box 67, CH-8834 Schindellegi
Phone +41 (44) 786 95 11
Fax   +41 (44) 786 95 95
www.kuehne-nagel.com


Photos
Alexander Sauer
CH-8048 Zürich


Concept / Layout
Denon Publizistik AG, Cornelia Kaufmann
CH-8640 Rapperswil


Printed by
Kürzi Druck AG
CH-8840 Einsiedeln
     Kuehne & Nagel Annual Report                                                         5




     Contents



 2   KUEHNE & NAGEL GROUP KEY DATA




16   BOARD OF DIRECTORS AND MANAGEMENT BOARD    64   GLOBAL NETWORK

18   Report of the Board of Directors
24   Report of the Management Board             67   REPORTS OF THE BUSINESS UNITS

                                                68   International Forwarding
29   STATUS REPORT                              80   Contract Logistics
30   Turnover                                   84   Insurance Broker
31   Income
34   Financial Position                         87   CORPORATE GOVERNANCE

36   Investments, Depreciation and
     Amortisation                               99   CONSOLIDATED FINANCIAL STATEMENTS

39   Corporate Development                           OF THE KUEHNE & NAGEL GROUP

41   Research and Development                  101   Income Statement
45   Human Resources                           102   Balance Sheet
56   Kuehne-Foundation                         104   Changes in Equity
58   Quality Management                        105   Cash Flow Statement
60   Environment and Security Management       106   Notes to the Consolidated
62   Information Technology                          Financial Statements
                                               130   Main Investments


                                               134   FINANCIAL STATEMENTS

                                                     OF KUEHNE & NAGEL INTERNATIONAL AG

                                               135   Income Statement
                                               136   Balance Sheet
                                               138   Notes to the Financial Statements
6   INTERNATIONAL FORWARDING:   Seafreight
              Experiencing dimensions.                    7




1,250,000                            TEU in container
shipments make Kuehne & Nagel undisputed market leader.
8   INTERNATIONAL FORWARDING:   Airfreight
                        Experiencing dimensions.                 9




Almost  500,000
were handled by Kuehne & Nagel last year.
                                          tonnes of airfreight
10   INTERNATIONAL FORWARDING:   Overland Transport




More than      21%             growth underlines Kuehne & Nagel’s
strengthened position in the market for road transport.
Experiencing dimensions.   11
12   INTERNATIONAL FORWARDING:   Rail
                       Experiencing dimensions.              13




More than   7 million                               tonnes
of freight were shipped by rail in Europe alone in 2003.
14   CONTRACT LOGISTICS
                  Experiencing dimensions.              15




Kuehne & Nagel manages close to



3 million m
of warehousing space worldwide for its customers.
                                                    2
16




       BOARD OF DIRECTORS

     • Klaus-Michael Kuehne, Schindellegi   • Dr. Willy Kissling, Hurden
       Executive Chairman
                                            • Dr. Georg Obermeier, Munich
     • Bernd Wrede, Hamburg
                                            • Dr. Alfred Pfeiffer, Trostberg
       Vice Chairman
                                            • Bruno Salzmann, Pfäffikon
     • Prof. Dr. Otto Gellert, Hamburg
                                            • Wong Kok Siew, Singapore
     • Dr. Joachim Hausser, Munich
                                            • Dr. Thomas Staehelin, Basel
     • Koh Soo Keong, Singapore
                       Board of Directors and Management Board                            17




            Board
  of Directors and
Management Board
                       Kuehne & Nagel International AG, Schindellegi, Switzerland




   MANAGEMENT BOARD

 • Klaus Herms, Schindellegi               • Gerard van Kesteren, Schindellegi
   Chief Executive Officer
                                           • Reinhard Lange, Schindellegi
 • Thomas Engel, Schindellegi
                                           • Klaus-Dieter Pietsch, Schindellegi
 • Dr. Axel Hansen, 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 corre-
     sponding 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                                          23
                          Kuehne & Nagel International AG




GERARD VAN KESTEREN          THOMAS ENGEL                DIRK REICH
CHIEF FINANCIAL OFFICER      CHIEF INFORMATION OFFICER   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 customer-
specific 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 infor-
mation technology and operational processes, the company has created the
foundation to increase the global competitiveness of its contract logistics busi-
ness. 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 concen-
     tration 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 manage-
ment are the best foundation for sustained growth and economic success.




KLAUS HERMS
CHIEF EXECUTIVE OFFICER
28
Status Report:   Contents                                       29




     Status Report




        30         Turnover
        31         Income
        34         Financial Position
        36         Investments, Depreciation and Amortisation
        39         Corporate Development
        41         Research and Development
        45         Human Resources
        56         Kuehne-Foundation
        58         Quality Management
        60         Environment and Security Management
        62         Information Technology
 30




                                                        Turnover
                                                        Exchange rate fluctuations based on average yearly exchange rates between 2002
                                                        and 2003 led to a higher valuation of the Euro (plus 3.5 per cent) and to a lower
                                                        valuation of the US Dollar and depending currencies on it (e.g. Hong Kong,
                                                        Taiwan, Singapore as well as a number of the countries in South America) of
                                                        13.9 per cent against the Swiss Franc. When comparing the turnover in the inco-
                                                        me statement, the currency impact of the Swiss Franc in 2003 amounted to
                                                        approximately minus 3.8 per cent.


          REGIONAL TURNOVER
                                                           In 2003 Kuehne & Nagel realised an invoiced turnover of CHF 9,548 million
                                                        (plus 8.4 per cent versus 2002) and a net invoiced turnover of CHF 7,532 million
 584 CHF million      6.1%                              (excluding customs duties and taxes) respectively. This increase was realised by
1,003 CHF million 10.5%                                 organic growth as no acquisitions took place in 2003.


                                                           At regional level, Europe increased its turnover by 14.0 per cent, Asia Pacific
2,607 CHF million 27.3%                                 by 12.3 per cent and the Middle East/Central Asia and Africa by 4.6 per cent. As
5,354 CHF million 56.1%                                 a result of the negative currency impact the turnover in the Americas decreased
                                                        by 1.9 per cent.

                   Europe
                   Americas                             At business unit level, International Forwarding reported an increased turnover
                   Asia Pacific
                                                        of 10.2 per cent. Seafreight increased its turnover by 11.5 per cent and
                   Middle East/Central Asia
                   and Africa                           airfreight retained its turnover at the previous year’s level. Contract Logistics
                                                        achieved a marginally increasing turnover of 0.9 per cent. Warehousing increased
                                                        its turnover by 5.1 per cent and the turnover in distribution decreased by
                                                        7.9 per cent due to the loss of a major distribution customer in the USA.


                                                           It should be noted, however, that in the forwarding industry – with its con-
                                                        siderable outlays such as customs duties and freight charges – turnover provides
                                                        only a limited indication of the way business is progressing, as is proven by the
                                                        following remarks on income.



                              REGIONAL TURNOVER

                                          CHF million   1999                        3,776             1,813   754 293     6,636

                                                        2000                                  4,643            2,322    906 376         8,247

                                                        2001                                  4,696             2,430    847 462         8,435

                                                        2002                                  4,696              2,658    893     558      8,805

                                                        2003                                      5,354                 2,607 1,003 584          9,548




                                                                   Europe
                                                                   Americas
                                                                   Asia Pacific
                                                                   Middle East/Central Asia
                                                                   and Africa
                                                         Status Report:      Income                                                                 31




                                                         Income
                                                         Gross profit, which in the logistics and forwarding industry provides a better
                                                         indication of performance than turnover, reached CHF 2,064 million in 2003,
                                                         an increase of 8.0 per cent, of which minus 5.7 per cent were due to currency
                                                         impact. Seafreight and airfreight contributed a gross profit of 50.8 per cent.
                                                         Contract Logistics is the other main business unit with a gross profit share of
                                                         37.7 per cent.


                                                            At regional level, Europe was the largest contributor to gross profit with

            REGIONAL GROSS PROFIT
                                                         50.9 per cent, followed by the Americas with 34.2 per cent, and Asia Pacific
                                                         with 11.4 per cent. The balance of 3.5 per cent relates to Middle East/Central
  70 CHF million   3.4%                                  Asia and Africa.
 236 CHF million 11.4%

                                                            Operational cash flow – the sum of the net earnings for the year plus non
                                                         cash related transactions – decreased slightly from CHF 365 million in 2002 to
 706 CHF million 34.2%                                   CHF 346 million in 2003, mainly caused by the 2002 impairment booking.
1,052 CHF million 51.0%

                                                            When considering the EBITA, further improvements have been realised, parti-
                                                         cularly in the business field seafreight from CHF 132 million in 2002 to CHF
                   Europe
                   Americas                              153 million in 2003 (plus 15.9 per cent); the business field airfreight showed
                   Asia Pacific
                                                         strong growth in comparison with 2002 (CHF 96 million in 2003 versus CHF 78
                   Middle East/Central Asia
                   and Africa                            million in 2002, plus 23.2 per cent). The business field international overland
                                                         achieved a growth of 21.6 per cent with a result of CHF 15 million in 2003.




 GROSS PROFIT                                 OPERATIONAL CASH FLOW                                   EARNINGS BEFORE TAX

   CHF million                                           CHF million                                           CHF million

         1999           1,238                                  19991           156                                   1999        134

         2000              1,453                               20001              201                                2000              194

         2001                   1,727                          2001                     274                          2001               228

         2002                      1,911                       2002                           365                    2002    5

         2003                       2,064                      2003                           346                    2003                     286




                                                               1
                                                                   adjusted for comparison purposes
32




                               Start-up costs in the Nordic Rail product reduced the result in the business field
                               rail from CHF 9 million in 2002 to CHF 4 million in 2003. The business unit
                               Contract Logistics achieved an EBITA of CHF 31 million in 2003, which is an
                               improvement of CHF 8 million versus 2002, mainly due to the strong recovery in
                               North America. As of 1/1/2003, the business unit Special Logistics was dissolved
                               as all non-core activities were divested.


                                   All regions improved their results in 2003. These improvements were realised
                               in Europe (CHF 13 million or 8.3 per cent), in the Americas (CHF 13 million
                               or 39.5 per cent) and in the Asia Pacific region (CHF 11 million or 13.5 per
                               cent).


                                   The operational expense including depreciation shows an increase of 6.0 per
                               cent (manpower 8.4 per cent) versus an increase in gross profit of 8.0 per cent,
                               resulting in an improvement of the EBITA margin as a percentage of gross profit
                               from 14.5 per cent in 2002 to 15.3 per cent in 2003.




     REGIONAL RESULTS EBITA

                 CHF million   1999 1           60        35       37    1     133

                               2000 1                     101            48              54    1     204

                               2001 1                            127            45                   69    3    244

                               2002 1                                    154         33                    84     6    277

                               2003                                            167              47                      95   7   316




                                              Europe                                 1
                                                                                         adjusted for comparison purposes
                                              Americas
                                              Asia Pacific
                                              Middle East/Central Asia
                                              and Africa
                             Status Report:   Income                                                                                      33




     EARNINGS BEFORE TAX/
NET EARNINGS FOR THE YEAR
               CHF million   1999                     134                 95

                             2000                                  194                      126

                             2001                                        228                            160

                             2002   5    0

                             2003                                                     286                                  196




                                         Income before tax
                                         Net income for the year




                                The net finance result amounted to CHF 5 million in 2003 versus a loss
                             of CHF 13 million in 2002. This result was realised by the elimination of
                             exchange losses.




     OPERATIONAL EXPENSE

               CHF million   1999                                    712 100 80 78 75                1,045

                             2000                                          799       121    94 83 89         1,186

                             2001                                                    956       173 108        81   97     1,415

                             2002                                                      1,043          211 117        86   97      1,554

                             2003                                                            1,130           213 113 103       95    1,654




                                         Personnel expense
                                         Facility expense
                                         Communication, travel and selling expense
                                         Vehicle and operational expense
                                         Administrative expense
34




                                     Financial Position

                                     The equity ratio of the Kuehne & Nagel Group improved from 32.6 per cent in
                                     2002 to 37.2 per cent in 2003, mainly due to the realised result in 2003.
                                     The return on equity increased as a result of the net earnings of the year of
                                     CHF 196 million to 23.5 percent in comparison to the return of equity of zero
                                     per cent in 2002.


                                        The net-cash position (cash and cash equivalents less short term bank
                                     liabilities) amounts to CHF 407 million in 2003 versus CHF 242 million in
                                     2002. The increase is a result of the improved cash flow.


                                        The total assets of CHF 2,720 million retained at the previous year’s level
                                     (CHF 2,694 million).


                                     Trade receivables (before provision for bad debts) amounting to CHF 1,025 mil-
                                     lion represent the most significant asset of the Kuehne & Nagel Group. The days
                                     outstanding of 37.7 days in 2002 increased slightly to 38.6 days in 2003 partly
                                     offset by the development of the vendor terms, which increased from 41.9 days
                                     in 2002 to 42.5 days in 2003.


                                        Developments of other key figures on capital structure are shown in the adja-
                                     cent table.




     ASSETS AND CAPITAL STRUCTURE


                          ASSETS
                       CHF million   1999          423                             946    427      1,796

                                     2000                      788                         1.166            459    2,413

                                     2001    303                                 1,078                     1,005   2,386

                                     2002                       821                        1,125                   748     2,694

                                     2003                     733                          1,217                    770     2,720




                                                   Cash and marketable securities
                                                   Receivables and other current assets
                                                   Non current assets
                                             Status Report:       Financial Position                                                                                 35




KUEHNE & NAGEL-GROUP: KEY FIGURES ON CAPITAL STRUCTURE


CHF million                                                                1999                 2000                  2001                  2002                  2003
1
     Equity ratio                                                       25.1%                36.6%                 41.3%                  32.6%               37.2%
2
     Return on equity                                                   25.0%                29.4%                 18.9%                   0.0%               23.5%
3
     Self-financing ratio                                             350.4%                636.6%               720.8%                630.9%               743.9%
4
     Debt ratio                                                         74.7%                63.3%                 58.6%                  67.3%               62.6%
5
     Short-term ratio of indebtedness                                   61.2%                54.2%                 50.6%                  60.9%               56.0%
6
     Intensity of long-term
     indebtedness                                                       13.5%                  9.1%                   8.0%                 6.3%                   6.6%
7
     Fixed asset coverage ratio                                       163.4%                240.6%               117.2%                140.7%               155.3%
8
     Working capital
     (CHF million)                                                    270.5                 646.1                173.3                 304.6                426.1
9
     Receivable terms (in days)                                         41.5                 40.4                  37.8                   37.7                38.6
10
     Vendor terms (in days)                                             48.3                 43.1                  42.6                   41.9                42.5
11
     Intensity of capital expenditure                                   23.8%                19.0%                 42.1%                  27.8%               28.3%


1
     Total equity in relation to total assets at end of the year.
2
     Net earnings for the year in relation to share capital + reserves + retained earnings as of 1.1. of the current year less dividend paid during the current
     year as of date of distribution + capital increase (incl. share premium) as of date of payment
3
     Reserves + retained earnings + net earnings for the year in relation to share capital
4
     Total liabilities + provisions in relation to total assets
5
     Short-term liabilities in relation to total assets
6
     Long-term liabilities + provisions for pension plans and severance payments in relation to total assets
7
     Total equity (including minority interest) + long-term liabilities + provisions for pension plans and severance payments in relation to non current assets
8
     Total current assets less short-term liabilities
9
     Turnover in relation to the receivables outstanding at end of current year
10
     Expenses for services from third parties in relation to trade liabilities/accrued trade expenses at end of current year
11
     Non current assets in relation to total assets




                          LIABILITIES

                           CHF million       1999                               942      252 148                454      1,796

                                             2000                                        1,248 135 144                              886      2,413

                                             2001                                   1,132 126 141                                  987       2,386

                                             2002                                   1,115                 550 147                              882      2,694

                                             2003                                       1,234        301 167                                 1,018       2,720




                                                              Trade, tax and other liabilities
                                                              Bank liabilities
                                                              Provision for pension plans and severance payments
                                                              Equity (incl. minority interest)
36




                                      Investments, Depreciation and Amortisation
                                      In 2003, the Kuehne & Nagel Group invested a total of CHF 178 million for
                                      capital expenditures (CHF 160 million in fixed assets and CHF 18 million in
                                      intangible assets).


                                         The financing of these capital expenditures was done from the operational
                                      cash flow of CHF 346 million generated during the year under review.


                                         Investments in fixed assets comprise CHF 63 million for properties and
                                      buildings, and CHF 97 million for operating and office equipment.




     INVESTMENTS AND AMORTISATION

                        CHF million   1999       95     60


                                      2000        126         77


                                      2001                                                 620       117


                                      2002              171                        362


                                      2003               178          137



                                                   Investments
                                                   Depreciation and amortisation




                                      The properties and buildings include the following:


       Western Europe                    CHF million

       Munich                                   13       Construction of a new logistics centre with 12,200 sqm of warehouse space
       Duisburg                                 17       Extension of an existing logistics centre by 16,400 sqm of warehouse space
       Frankfurt                                  8      Finalisation of a new logistics centre with 9,600 sqm of warehouse space
       Hamburg                                    2      Start-up cost for a new logistics centre
       Luxembourg                                 4      Extension of an existing logistics centre by 4,700 sqm of warehouse space
       London                                     1      Purchase of an office building
       Vienna                                   14       Purchase of 67,500 sqm of land
       Kiev                                       1      Start-up cost for a new logistics centre
                                                60
       Canada
       Toronto                                    2      Extension of an existing logistics centre
       Middle East
       Istanbul                                   1      Extension of an existing office building
       Total                                    63
Status Report:   Investments                                                     37




Capital expenditures in operating and office equipment relate to the following
categories:

                                                                      CHF million

Operating equipment                                                           40
Vehicles                                                                         7
IT hardware                                                                   27
Office furniture and equipment                                                23
Total                                                                         97




The allocation by region is as follows:

                                                                      CHF million
Europe                                                                        34
Americas                                                                      53
Asia Pacific                                                                     6
Middle East/Central Asia and Africa                                              4
Total                                                                         97




    Capital expenditures for intangible assets amounted to CHF 18 million cov-
ering goodwill of CHF 3 million and IT software of CHF 15 million.


    Depreciation and amortisation in 2003 amounted to CHF 137 million and are
recorded in the Consolidated Financial Statements as indicated in notes 6 and 8.
38




     DEVELOPMENT OF CAPITAL EXPENDITURES, DEPRECIATION AND AMORTISATION

     OVER A PERIOD OF 5 YEARS:



     CHF million                                      1999          2000      2001   2002   2003

     Capital expenditures
     Fixed assets
     Properties and buildings                          37             40       48     46     63
     Operating and office equipment                    44             66       53     70     97
     Financial investments
     Investments in associates
     and joint ventures                                  1                –      –     1       –
     Intangible assets
     Goodwill in consolidated companies                  6                5   500     27      3
     IT software                                         7            15       19     27     15
                                                       95            126      620    171    178


     Depreciation and amortisation
     Fixed assets
     Buildings                                           8                9    12     15     12
     Operating and office equipment                    39             48       55     61     75
     Intangible assets
     Goodwill in consolidated companies                  6                5    31     53     35
     Impairment of goodwill                              –                –      –   206       –
     IT software                                         7            15       19     27     15
                                                       60             77      117    362    137
Status Report:   Corporate Development                                             39




Corporate Development

Industry analysis
In the first half of 2003, the weak global economy, the outbreak of SARS and
the Iraq war affected the logistics industry as well, resulting in notably lower
growth and increased margin pressures. Nevertheless, the rise in cargo volumes
in the third quarter indicated an upswing, the driving force behind this being
beside the boom region China the traditional engine of the world economy, the
USA. Economic recovery forecast for the year 2004 will give further impetus to
globalisation and worldwide economic integration, which Kuehne & Nagel’s
global logistics network will again significantly benefit from.


   The complexity of logistics services demanded requires extensive industry-
specific competence and globally available implementation resources in rapidly
changing market conditions. The specialised teams and infrastructures needed
are primarily built up organically, but also acquired externally in order to accele-
rate global availability.


   Consolidation in the logistics market, especially in the areas of express and
contract logistics, has continued through a few large and many small acquisitions
by the market leaders. It is to be assumed that this concentration process will
gain further momentum in 2004. Kuehne & Nagel is examining selective external
growth options accordingly.


Market position and main focus of growth
Kuehne & Nagel again extended its leading global position in seafreight through
higher than average growth. Contributory factors were the company’s strong
positioning in Asia, its entry into new markets and, not least, its focus on attrac-
tive niche segments. Through the acquisition of Seabrook & Smith, Kuehne &
Nagel strengthened its operations in the wine and spirits sector in the UK.
It has been engaged in this segment since 2002, and with strategic investments
is establishing a basis for accelerated growth in key markets.
40




        In airfreight, Kuehne & Nagel also recorded above average market growth. In
     a continuously volatile and competitive environment, the company ranks amongst
     the top five leading global airfreight forwarders. Through expansion strategies in
     selected markets, exemplified by the cooperation with Kintetsu Worldwide
     Express in Latin America entered into in 2003, as well as an equity stake in
     GF-X and an improved product management, further steps towards a top three
     position are being undertaken in 2004.


        In the area of contract logistics the strategy focused on organic growth in
     2003. Capacities were extended particularly in Europe and Asia Pacific, and the
     industry-specific service offering further extended.


        Overland transportation activities were strengthened in Germany by the
     acquisition of Pracht Spedition + Logistik GmbH, Haiger, and the purchase of
     a stake in the WM Group, Bocholt. Both companies will allow Kuehne & Nagel
     strategic access to the leading German groupage network IDS.


        The growth and investment focus for the year 2004 will concentrate on a
     combination of organic growth in target industry segments and strategic acquisi-
     tions to strengthen core business fields, especially in Europe and the Asia
     Pacific region.
Status Report:   Research and Development                                         41




Research and Development
Logistics providers are faced with ever-growing demands from companies
in industry and trade in the organisation of value added processes based on the
worldwide division of labour. The management and optimisation of global
flows of goods and the ability to adapt procurement and sales structures to
changing conditions at short notice are of equal importance.


   Kuehne & Nagel has geared its service spectrum to the complex requirement
profiles of its customers. It has developed lead logistics services that permit
the realisation of tailor-made solutions within a short period of time. A modular
product portfolio enables services to be configured to existing customer needs
and considerably reduces the development and implementation cycle.


   Kuehne & Nagel’s lead logistics services support the efforts of commercial
and industrial companies to create higher value in the supply chain and to
eliminate problem areas that may emerge in the context of supply chain manage-
ment.


For example:


– Inadequate knowledge of inventory levels across the supply chain
  The lead logistics product “Network Visibility & Monitoring” guarantees full
  visibility and monitoring of inventory, stored at sites or in motion. Buffer stocks
  can be reduced, logistics processes such as inbound handling in warehouses
  more easily planned and staff more efficiently deployed.


– Inadequately coordinated processes between order management, transport
  planning and scheduling
  Significant savings potential and service performance enhancement can be
  achieved by synchronised and IT-supported processes between these opera-
  tional levels. Moreover, the lead logistics product “Network Management” sup-
42




       ports the best possible consolidation of different orders into one consignment
       as well as achieving an optimised choice of service provider. In this way, logis-
       tics costs can be cut, not least by reducing the share of express deliveries.


     – Inadequate information on the performance quality of partners
       in the supply chain
       The management of global supply chains involving several providers for
       warehousing and transportation can only be successfully accomplished with the
       availability of comprehensive information. Within the framework of several
       customer projects, Kuehne & Nagel has developed its lead logistics product
       “Network Performance Measurement”, which is based on integrated data
       availability. Focused information allows the monitoring of service quality
       and optimal management of inventory levels.


     – Sub-optimal structures at warehouse locations and transport strategies
       Changing conditions for logistical service provision often lead to sub-optimal
       structures. The choice of location for warehousing and product completion, as
       well as the choice of transport modes with corresponding consolidation and
       deconsolidation platforms therefore need to be reviewed at regular intervals.
       Kuehne & Nagel’s considerable experience accruing from such examinations
       has been summarised in the lead logistics product “Network Engineering”.
       This product provides customers with a proven method and the operational
       know-how of a lead logistics provider to build up supply chains that enable
       an efficient and cost-optimised service.


        With this product portfolio, Kuehne & Nagel could prove its capabilities
     as lead logistics provider in the year under review, especially to customers in the
     high-tech, automotive and industrial goods sectors. Due to its network compe-
     tence, in fields where it positioned itself as best service provider the company
     also took on a considerable volume of transport and contract logistics activities.
     Customers considered the combination of supply chain management and opera-
     tional services as a form of partnership tailored to their needs.
Status Report:   Research and Development                                           43




   For instance, in the first quarter of 2003 a supply chain was established for
a leading company in the electronics industry, which stretches from production
facilities in several Asian countries to sales markets in Europe and particularly
China and other Far Eastern countries. Challenging factors are the customer’s
changing production partners – these are sometimes switched on a quarterly
basis – and the quickly growing number of markets to be continually added to
the distribution concept. In the context of Kuehne & Nagel’s customised lead
logistics concept, the above-mentioned products come into use and are supple-
mented by services in the area of procurement and sales planning, all managed
by a dedicated Kuehne & Nagel team working at the customer’s site.


   As a result of the successes achieved with new and existing lead logistics
contracts, Kuehne & Nagel is convinced that this field of activity will make an
increasing contribution to company growth in future.
44   HUMAN RESOURCES
                     Transferring knowledge.                                         45




           Transferring knowledge.
            Ultimately, every company is only as good as its employees. Qualification,
motivation, engagement, identification and experience are vital ingredients for success.
        We follow the principle of “Challenge and Promote”, and with our committed
                       human resource strategy give all employees the professional and
                                                       individual support they require.




                               Mobility
                               Internationality
                               Communication
                               Continuity
                               Human Resources
46   HUMAN RESOURCES
                           Transferring knowledge.                                      47




Human Resources   |
                      Mobility
Being flexible. In times of global competition, mobility has become an essential
success factor. This is particularly the case for a company like Kuehne & Nagel, with
operations spanning the world. International staff transfers across the globe
demonstrate our ongoing endeavours to secure international know-how and experience.




                                                               DURATION OF EMPLOYMENT




                                                <1 year 22%
                                              1–3 years 35%
                                              4–5 years 13%


                                             6–10 years 15%




                                            11–25 years 12%
                                              >25 years   3%
48   HUMAN RESOURCES
                           Transferring knowledge.                                         49




Human Resources   |
                      Internationality
The world is the market. And Kuehne & Nagel is present all over the world. This
is reflected by the over 100 nationalities employed. National offices are multicultural.
Our head office in Switzerland, for instance, is staffed by people from more than
20 different nations.




                                                                PERSONNEL STRUCTURE




                                             Women 40%
                                               Men 60%
50   HUMAN RESOURCES




Human Resources    |
                       Communication
Speaking with partners. Ask, listen, understand, act. This is how the
needs of demanding customers from all over the world are attended to.
With solutions that last. For maximum efficiency of communication
and speed of implementation, all workplaces are globally networked
using the latest technology.




                                   AGE



         >50 years 11%
       41–50 years 21%
       31–40 years 34%




       26–30 years 18%
         <25 years 16%
Transferring knowledge.   51
52   HUMAN RESOURCES




Human Resources   |
                      Continuity
Long-term success. In times when rapid change is normality, we make a big point of
continuity. Qualified and responsible logistics specialists need to take on new challenges
on a daily basis – and this long-term. Therefore it is our committed strategy to invest in
the training and development of our employees. Close to zero labour turnover amongst
our top 200 executive positions proves our policy is working.




                               PERSONNEL STRUCTURE




          Management 14%
              Waged 27%




             Salaried 59%
Transferring knowledge.   53
54




     Human Resources

     High professional competence, strength of innovation and knowledge management
     are competitive advantages, which enable Kuehne & Nagel to respond to custo-
     mer requirements in a solution-oriented manner. For this reason, the company’s
     human resource strategy is based on a systematic and sustained development
     and training of employees. Human resource management is clearly recognised as
     making an essential contribution to the realisation of the corporate objectives.


     Corporate culture
     An integral component of the corporate culture is to draw up career perspectives
     for qualified employees and to support them in their professional development.
     In addition to international mobility, Kuehne & Nagel’s management team is
     characterised by taking on entrepreneurial responsibility. These are important
     factors that create the foundations for dynamic and flexible careers, enabling
     know-how to be held, further developed and exchanged throughout the Group.


     Training
     Aside a range of individual internal and external further education measures, the
     Kuehne & Nagel Academy held approximately 750 trainings and seminars in
     2003. Whilst also including numerous specialist trainings, the emphasis is on
     logistics, management and sales techniques. Furthermore, with the Kuehne &
     Nagel e-learning system, employees have at their disposal an efficient learning
     infrastructure for workplace-related knowledge transfer.


        Rapid changes in economic conditions and customer expectations call for
     both high flexibility from employees as well as the ability to continuously extend
     their industry-specific knowledge, keeping it up-to-date and bringing it in line
     with the established objectives.


        In order to accommodate these requirements, the company creates the
     necessary framework and incentives to promote self-initiative, strong links to
     scientific institutions playing a decisive role. In addition to the activities of
     the Kuehne-Foundation, the logistics group has long-standing connections to
     business schools, technical colleges and universities. In the year under review,
     15 campus recruitment events were organised in Europe. Students are also
     supported in their research work, as illustrated by Kuehne & Nagel’s support of
     two students researching reverse logistics at the Graduate School of Management
     (WHU) in Koblenz, Germany, for which they were awarded a prize by the Koblenz
     Chamber of Industry and Commerce.
Status Report:   Human Resources                                                   55




Management potential and development
The identification and strategic development of management potential represents
a central challenge to future business success. Through the “Fast Track” trainee
programme and individual direct entries, 40 university graduates could be
recruited in 2003.


   At Kuehne & Nagel, career development is based on international place-
ments, the gathering of sales experience and the rotation between specialist and
generalist positions. Whilst this policy requires constant coaching, at the same
time it allows for the individual alignment of objectives. This serves to break up
traditional rigid career paths and focus on the potential and abilities of the
respective personalities.


   Kuehne & Nagel sees its strategy of promoting high potentials as a vital factor
in establishing loyalty between talented employees and the company. Within
the framework of high potential workshops with international business schools,
logistical strategies and innovations are conceived and general management
competence thus built up. At the moment, 60 employees with an average age of
27 are participating in the international high potential programme.


   Management development and career mobility programmes as well as “The
Glocal Networker” model, implemented on an international level and describing
the demands Kuehne & Nagel specialists and managers face in global competition
as well as defining the according qualification criteria, enable 75 per cent of
management vacancies and new positions to be filled internally.


Headcount
Despite an unstable economic environment, the number of employees for the
Kuehne & Nagel Group increased from 17,689 in 2002 to 19,004 in 2003, a
rise of 7.4 per cent.
56




     Personally committed to training and further education
     With a grant of 3 million euros, the Kuehne-Foundation will
     be supporting the Hamburg School of Logistics, founded in July
     2003, over the next five years. In addition to the Kuehne-
     Institute for Logistics at the University of St. Gallen, Switzer-
     land, and the Kuehne-Centre for Logistics Management at the
     Graduate School of Management in Vallendar near Koblenz,
     Germany, the public interest organisation based in Schindellegi,
     Switzerland, now sponsors its third academic institution.



     The Hamburg School of Logistics was established as a public-private partnership
     between the Free and Hanseatic City of Hamburg, the Kuehne-Foundation and the
     Technical University of Hamburg-Harburg. Starting in autumn 2004, a one-year
     full-time postgraduate course leading to an MBA in logistics will be offered. Such a
     facility has so far been missing in Hamburg and perfectly complements the image of
     the globally oriented city with strong international ties. The initiators of the attractive
     course of study expect that, apart from German students, the Hamburg School of
     Logistics will also attract candidates from neighbouring countries, especially from
     new Eastern EU states. The School’s link to the renowned Technical University of
     Hamburg-Harburg guarantees a merging of the technical and commercial elements of
     logistics in combination with the transfer of general management competences.


        The Kuehne-Foundation’s most important project so far, the Kuehne-Institute for
     Logistics (KLOG) at the University of St. Gallen, began its work on January 1, 2003.
     In addition to science and research, a special focus of the Institute is on the further
     education of logistics managers from trade, industry and services. The launch of its
     “Executive Master of Business Administration” (EMBA) course, a part-time post-
     graduate study at university level for logistics executives, proved very popular and
     convincing. 29 participants from seven countries commenced their studies on
     March 1, 2004.
Kuehne-Foundation                                                                      57




   Particularly worthy of mention is the 15-day seminar “Network management for
logistical processes”, which was developed by the Kuehne-Institute for Logistics and
conducted in coordination with five leading universities.


   In 2003, support of the Graduate School of Management in Vallendar, Germany,
that started three years ago was extended and the “Competence Centre for Logistics
and E-Commerce” renamed to “Kuehne-Centre for Logistics Management”. This
centre focusses mainly on logistics research.


   A further highlight of the Foundation’s activities were the annual Logistics Days in
Schindellegi, Switzerland – a top-class event under the motto “Trends in Logistics
Management – Managing the Change”. Additionally, the Kuehne-Foundation for the
first time sponsored the German Science Award for Logistics, which is endowed with a
prize of 8,000 euros and was presented by the Foundation’s President, Klaus-Michael
Kuehne, at the German Logistics Association’s (BVL) annual congress.


   In the future too, the Kuehne-Foundation will devote itself to the strategic
promotion of training and further education measures in close collaboration with its
partners. Apart from science and research in the fields of transportation and logistics,
humanitarian and cultural projects will also be supported.




The public interest Kuehne-Foundation, set up by the Kuehne family in 1976, has as
its sole donor, Klaus-Michael Kuehne, the main shareholder of the Kuehne & Nagel
Group.
58




     Quality Management

     Quality has a long tradition at Kuehne & Nagel. The company founders already
     were guided by the principle that high operational efficiency generates competi-
     tive advantages to both customers and company. Today, a systematic quality
     management ensures the sustained and ongoing optimisation of data, process
     and service quality throughout the company.


     Certification according to quality norms and standards
     All Kuehne & Nagel business units and locations fulfil the latest ISO 9001:2000
     quality standard, which includes customer and process orientation among its
     main points. Furthermore, in the year under review, 35 locations in 6 countries
     were certified according to the OHSAS 18001 norm, which focuses on quality
     standards relating to occupational health and safety.
     In order to meet the stringent quality requirements laid down by the chemical
     industry, the Belgian Kuehne & Nagel locations in Brussels and Eupen fulfil the
     requirements of the “Safety and Quality Assessment System” (SQAS), which
     additionally embraces the aspects of safety and environmental protection. After
     receiving this certification, Brussels became the first Kuehne & Nagel location
     to meet the requirements of four international quality standards.


     Continuous quality improvement
     Kuehne & Nagel is devoted to continuous quality improvement. Fulfilment of this
     goal is backed by the formation of cross-divisional quality management strategies
     and objectives, the issuing of binding quality standards and endorsement of
     training and further education of employees, as well as a regular information
     exchange between quality managers in all business areas of the company.
     By these measures, considerable efficiency and process improvements were
     achieved in 2003, whether in IT-based consignment tracking and tracing across
     the entire supply chain or in warehouse and distribution processes. In the
     reporting year, data quality was raised by a further 10 per cent, leading to an
     improved service quality and, as a result, enhanced customer satisfaction.
Status Report:   Quality Management                                             59




Awards for high quality standards
In 2003 again, Kuehne & Nagel received numerous awards for the quality of
its services and innovative IT solutions. Exemplifying this is the “Service
Productivity Award”, which the Kuehne & Nagel organisation in the Asia Pacific
region was presented with at the Hong Kong Awards for Services. Additionally, at
the Asia Logistics Awards the organisation was named “Seafreight Forwarder of
the Year” and “Lead Logistics Provider of the Year”. For Kuehne & Nagel, these
awards represent as much an incentive as an obligation to continually further
improve the standard of quality for the benefit of all parties involved.
60




     Environment and Security Management

     Further to quality assurance, environment and safety management is of great
     importance to Kuehne & Nagel. Both issues are central components of the QSHE
     (quality, safety, health and environment) management system developed by the
     company.


     Additional locations certified to ISO 14001 environmental standard
     In 2003, the number of locations certified to the ISO 14001 environmental
     standard doubled to 42. Interest in certified environment management systems
     within the Kuehne & Nagel Group has long spread beyond Europe. Currently a
     number of Latin American subsidiaries are intensively preparing for certification
     and more audits will follow in other regions in the current year. This favourable
     development is facilitated by the constant transfer of know-how relating to
     environmental management throughout Kuehne & Nagel. Its efficiency and effec-
     tiveness not only pays ecological dividends, but also makes a decisive contribu-
     tion to business success.


     Economy in line with ecology
     For decades, Kuehne & Nagel has engaged in offering environment friendly
     transport services. The optimum utilisation of transport capacities, the bundling
     of the flow of goods at logistics hubs as well as multi-modal transportation using
     rail and river shipping represent significant focal points in this regard.
     Since 2003, for example, a maximum-length block train for the transport of
     containers operates twice a week from the Alpine countries to the North Sea
     ports, thus reducing the traffic burden on roads. In the opposite direction, import
     containers and other additional loads are also transported by rail. Both from an
     ecological as well as a financial perspective this solution has proved successful
     for Kuehne & Nagel and its customers.


        In 2003, Kuehne & Nagel Norway was one of several countries to introduce
     an environment management system with subsequent certification. Customers,
     convinced of the advantages of environment friendly transport, backed this
     by paying a small levy on each consignment. Moreover, they agreed to handle
     invoices and correspondence electronically.
Status Report:   Environment and Security Management                              61




Safety and security first
A well functioning safety and security management is a crucial component of
Kuehne & Nagel’s QSHE management system. Its main elements are:


– Responsible and professional handling of hazardous goods through an efficient
  network of highly qualified specialists trained in Kuehne & Nagel’s Hazardous
  Goods Competence Centre.
– Early and meanwhile certified participation in the “Customs-Trade Partnership
  Against Terrorism” (C-TPAT) security initiative organised by the American
  customs authorities. In addition to a higher degree of security, this member-
  ship allows Kuehne & Nagel to offer its customers faster customs clearance.
– Fulfilment of the high security requirements of the Technology Asset Protection
  Association (TAPA) at numerous Kuehne & Nagel locations, whose aim it is to
  significantly increase security standards for warehousing and transport of
  expensive high-tech products and considerably reduce the risk of theft. In the
  year 2004, the first TAPA certifications will be awarded.


   The importance of safety and security measures in transportation and
warehousing will grow in coming years. Kuehne & Nagel’s QSHE management
system offers an optimal platform to meet the requirements of customers
in all industries and at all times.
62




     Information Technology

     Globalisation and the increase in electronic business, shorter product lifecycles
     and growing demands on time, cost and quality place high requirements on an
     efficient information management. Kuehne & Nagel’s IT services make a consid-
     erable contribution to business success by providing customers around the world
     with information across the entire supply chain – up-to-date, consistent and in
     high quality.


     Standardised IT systems increase customer benefit
     In seafreight, standardised application software provides the greatest possible
     transparency and data security, as well as a consistently high level of quality
     throughout the world. The meanwhile globally available order management
     system enables visualisation and monitoring of purchase orders, offering cus-
     tomers individual access to detailed information down to item level.


        In airfreight, Kuehne & Nagel’s standardised process and system architecture
     supported the fast global implementation of Cargo 2000 Phase 2 functionality.
     The integration of applications allows to actively monitor consignments from door
     to door on a worldwide scale, resulting in cost and quality benefits.


        Significant progress has been made in standardising warehouse management
     systems. Warehouse facilities on all continents are now equipped with the
     modern standard CIEL warehouse management system. Thanks to the functional
     scope of the system, all customer requirements ranging from simple warehouse
     management functions to radio frequency identification and barcode technology-
     based operations can be fulfilled.


     New mobile logistics solution in pilot phase
     A seamless portrayal of the shipment process would not be complete without
     POD (proof of delivery) documentation, which even today is often paper-based
     and only available electronically with delay. To offer customers faster data
     availability, Kuehne & Nagel has developed a new internet-based mobile logistics
     system, which allows a wide range of functions to be performed by a single
     portable computer. These include barcode scanning and POD with automatic
     data transfer to central information systems, GPS / satellite-based location and
Status Report:   Information Technology                                            63




navigation support, plus transmission of transportation orders and the possibility
to quickly amend travel routes. After successfully piloting this solution in Greater
London, the system will initially be launched in continental Europe before being
introduced globally.


Central data availability
Every Kuehne & Nagel branch throughout the world can access central informa-
tion systems to retrieve or record data. One of these, for example, is the stand-
ardised global sales support program KN VAST. It is already used by over 1,500
sales and management staff in order to better support customers worldwide.
The global management information system provides the up-to-date information
needed for the management and monitoring of key processes across the company
and its business units.


Focus on efficient information management and IT innovation
Challenges in the coming years will be the handling and processing of a signi-
ficantly increased quantity of data and making it available to customers and
employees through efficient and high quality channels. After a threefold rise in
the volume of electronic data exchange to and from customers in 2003 alone,
the trend is expected to continue in the current year. For this reason further
expansion and investment in communication infrastructure will be made.


   Kuehne & Nagel’s IT division pursues the policy of providing IT innovations to
benefit customers. Operational systems will be successively changed to internet
technology and the IT architecture aligned to real-time processing capabilities.
This will make working together with customers and business partners even more
effective.
64




600 BRANCH OFFICES IN 96 COUNTRIES   A Afghanistan     Bolivia          D Denmark             H Hungary
                                       Albania         Brazil
                                       Angola          Bulgaria         E Ecuador             I   India
                                       Argentina                          Egypt                   Indonesia
                                       Australia     C Cambodia           El Salvador             Iran
                                       Austria         Canada             Estonia                 Iraq
                                       Azerbaijan      Chile              Equatorial Guinea       Ireland
                                                       China                                      Israel
                                     B Bahrain         Colombia         F Finland                 Italy
                                       Bangladesh      Costa Rica         France
                                       Belarus         Croatia                                J   Japan
                                       Belgium         Cyprus           G Germany                 Jordan
                                                       Czech Republic     Greece
                                                                          Guatemala
                               Global Network                                                 65




K Kazakhstan     Mauritius            Peru                  Spain            United Arab
  Kenya          Mexico               Philippines           Sri Lanka        Emirates
  Korea          Morocco              Poland                Sweden           United Kingdom
                 Mozambique           Portugal              Switzerland      Uruguay
L Latvia                                                                     USA
  Lebanon      N Namibia           R Romania              T Taiwan           Uzbekistan
  Lithuania      Netherlands         Russian Federation     Tanzania
  Luxembourg     New Zealand                                Thailand       V Venezuela
                 Nigeria           S Saudi-Arabia           Turkey           Vietnam
M Macedonia      Norway              Serbia-Montenegro      Turkmenistan
  Malaysia                           Singapore                             Z Zambia
  Malta        P Pakistan            Slovakia             U Uganda           Zimbabwe
                 Panama              South Africa           Ukraine
66
Reports of the Business Units:   Contents    67




Reports of the
Business Units




        68        International Forwarding
        80        Contract Logistics
        84        Insurance Broker
68




Seafreight   |
                 Above average growth strengthens global market leadership
In seafreight, declines in margins and adverse currency effects were compensated through
substantial volume growth. The total of 1.25 million TEU handled exceeded the previous year’s
high level by 25 per cent and extended the company’s leading position.



                                  Container market and rate structure
                                  The global container market grew by 7.1 per cent in 2003, with China’s booming
                                  trade in particular generating the highest demand. Resulting capacity bottlenecks
                                  plus increasing transport volumes in other regions in the second half of 2003
                                  pushed up seafreight rates on virtually all shipping routes, with a particularly
                                  strong increase on Asia–Europe and Europe–USA trade lanes. Only in export
                                  traffic to South America vessels ran at half capacity, which initially led to reduc-
                                  tions in the rate structure.


                                  Rapid increase in Kuehne & Nagel transport volumes
                                  The boom in container traffic in Asia, especially China, was decisive for
                                  Kuehne & Nagel’s above average growth. In Far East to Europe operations, the
                                  company realised an increase in handled volumes of 40 per cent, far higher
                                  than the 13 per cent market average.
                                  In transatlantic and transpacific business, Kuehne & Nagel gained further market
                                  shares and raised volumes by 12 and 18 per cent respectively. Moreover, the
                                  year under review saw the results from efforts to expand intra-Asian operations in
                                  the form of a 42 per cent growth rate. Contrary to the general trend, Kuehne &
                                  Nagel also raised volumes to and from Latin America, a consequence of its
                                  regional network of operationally linked national companies.


                                     Significant productivity increases helped Kuehne & Nagel keep costs
                                  within limits despite the high growth in volume. This had a positive effect on
                                  the operational result.


                                  Investments assure competitive advantages
                                  In the year under review, Kuehne & Nagel invested significantly in the expansion
                                  of its global key account management programme. Major customers in all parts
                                  of the world recognised the benefits of competent industry-specific consulting
                                  and globally coordinated support by the logistics partner. The strategy brought
                                  considerable new business and contract extensions.
International Forwarding:   Seafreight                                             69




    Additionally, Kuehne & Nagel’s investment in expanding the functionality of
its information logistics products proved successful. Global availability of the
order management system, which supports detailed consignment tracking to item
level and therefore control and management possibilities across the entire supply
chain, met with interest from key accounts from all targeted industries and also
contributed to the conclusion of new contracts.


Specialisation in niche products
In order to meet specific customer demands, Kuehne & Nagel has been concen-
trating on various niche products and in 2003 intensified sales on a worldwide
scale.
In the shipment of forestry products (paper, cellulose and wood), high growth
rates could be achieved above all in Germany. An increase of almost 50 per
cent confirmed Kuehne & Nagel’s specific know-how in the segment of reefer
container traffic.
70




     PERFORMANCE SEAFREIGHT                                                                                    Variance
                                                                                                            2003/2002
     CHF million                                       2003        per cent        2002         per cent       per cent

     Turnover                                       4,492.5        100.0        4,028.5         100.0             11.5
     Gross profit                                     632.9          14.1         588.8           14.6              7.5
     EBITA                                            152.8           3.4         131.8            3.3            15.9
     Number of operational staff                      4,006              –        3,740               –             7.1




                                   Special knowledge and services are also required in the wine and spirits niche
                                   sector, in which Kuehne & Nagel has engaged since 2002 and is represented
                                   with specialists in the principal markets Australia, South America, USA and
                                   Europe. By taking over Seabrook & Smith, a worldwide provider of logistics
                                   services for wine, beer and spirits importers, Kuehne & Nagel boosted its activi-
                                   ties in Great Britain in 2003, and exceeded volume expectations by far.


                                   LCL business
                                   Tough competitive conditions and the dynamic growth of FCL (full container
                                   load) shipments had adverse effects on the global LCL (less than container load)
                                   market. Nevertheless, due to product and process optimisations and its global
                                   organisational network, Kuehne & Nagel was able to register a 20 per cent volume
                                   growth in its LCL business. “Multi Country Consolidation”, which guarantees fast
                                   and secure shipment of LCL freight, will lead to further growth in this field of
                                   activity in the current year.


                                   River shipping
                                   Kuehne & Nagel is well positioned in the European river shipping market. In
                                   spite of a six-month low water phase the result could be held at the previous
                                   year’s level. This was largely due to Kuehne & Nagel’s river shipping network and
                                   presence at important traffic hubs, which opened opportunities for development
                                   of alternative solutions, such as intermodal operations. Thus all contracts could
                                   be punctually fulfilled.


                                   Aid and relief logistics
                                   Once again Kuehne & Nagel supported the activities of reputable international
                                   relief organisations and private companies across various crisis regions in 2003.
                                   Large volumes of aid and relief goods were shipped by sea, air and overland
                                   to their destinations under the guidance of Kuehne & Nagel. Faced with most
                                   difficult conditions, the specialist team ensured that all goods reached their
                                   destinations safely, undamaged and on time.
                                   In the year under review, these special services were concentrated in crisis
                                   regions spanning the Middle East, East Africa and Central Asia. As with the
                                   reconstruction of Afghanistan, Kuehne & Nagel’s logistics capabilities and
                                   expertise are proving extremely valuable in Iraq too.
International Forwarding:   Seafreight                                              71




    Prior to the war, Kuehne & Nagel was involved in the “Food for Oil” program-
me through the company’s organisations in the ports of Jordan, Kuwait, Turkey,
Syria and in Baghdad. At the end of the war, global aid and relief organisations
were quickly able to draw upon Kuehne & Nagel’s infrastructure and services.


Oil, energy and project services
In these fields of activity, Kuehne & Nagel trebled its incoming orders in 2003.
New large-scale projects were started in the Middle East, in New Caledonia, on
Sakhalin, in South Africa and Central Asia.


    On Sakhalin, for example, the contract for supplying an offshore oil rig was
continued in the second year with a substantial rise in turnover, and new major
logistics projects started around the exploitation of oil and gas fields. In New
Caledonia, South Pacific, Kuehne & Nagel was selected to provide logistics
support for a comprehensive nickel mining project. In South Africa and Central
Asia as well, renowned companies in the oil and energy industry chose Kuehne &
Nagel as logistics partner. Particularly worth mentioning here is the complex
transport of pipeline deliveries from the Caspian to the Black Sea.


    The reconstruction of Iraq demands know-how and proven expertise in several
segments, including oil, energy and project services, in addition to global sourc-
ing processes. Kuehne & Nagel’s industry competence and extensive network
make it very well positioned to logistically support the reconstruction of Iraq. On
the basis of major contracts, the company has already taken on complex projects
and the transport of heavy goods components, which involve great challenges
with respect to infrastructure and safety of people and cargo.


Ambitious targets
According to forecasts, the global container market will grow by between 8 and
10 per cent in 2004. Kuehne & Nagel’s goal is to realise a growth in volume far
higher than the market average. Thanks to close partnerships with leading global
carriers, the company is in a position to guarantee freight capacities through
contractual agreements and adapt to growing trade volumes.


    Particular attention for the current year will be paid on providing a further
increase in value to customers. Satisfied customers, benefiting from IT-supported
process optimisation and value added services, are the guarantee for sustained
growth in Kuehne & Nagel’s seafreight business field in the future.
72




Airfreight   |
                 Profitable growth
In a continuing volatile and highly competitive environment, Kuehne & Nagel was able to
enlarge its market share and achieve excellent results. Overall tonnage rose by 13 per cent over the
previous year, therefore meeting the target of almost 500,000 tonnes. The operational result of
CHF 95.6 million illustrates a significant increase in profitability by 23.2 per cent.
International Forwarding:   Airfreight                                             73




Business development
After a moderate start, virtually all regions reported strong growth in the second
half of 2003. Stronger industry-specific support to global key accounts led to
new contracts, especially in the automotive, retail and pharmaceutical sectors.
Effective cost management and improved productivity were responsible for the
remarkable increase in profitability in this business field.


    Asia and especially China proved to be the growth engine for Kuehne &
Nagel’s airfreight operations as well, achieving a 35 per cent increase in cargo
handling in this region. The high volumes Kuehne & Nagel had to manage
could only be flown out by using additional dedicated charters. Good performance
was also seen in the transpacific business, especially in exports from the USA
to Asia.


    In Europe, the national companies in Benelux and the United Kingdom
registered significant rises in volume.
The German airfreight business was particularly successful, with a further
12 per cent increase in exports over the previous year’s high level. Responsible
for the significantly higher returns were improved productivity, stringent cost
control and intensified hub activities in the new airfreight terminal at Frankfurt’s
CargoCity South.


Charter activities
Charter activities in the year under review were further extended by the imple-
mentation of dedicated charter flights into crisis areas and to overcome capacity
bottlenecks in Asia Pacific.


    In addition to the far more than 500 dedicated charters, in the fourth quarter
Kuehne & Nagel established a charter service from Shanghai to Europe and back,
which met with high market acceptance.


Strategic partnership with Kintetsu World Express in Latin and Central America
Since October 2003 Kuehne & Nagel has been cooperating with Kintetsu World
Express in Brazil, Peru, Venezuela and Mexico. The partnership offers favourable
conditions for expanding the customer base and developing additional business
opportunities.
74




     PERFORMANCE AIRFREIGHT                                                                                    Variance
                                                                                                             2003/2002
     CHF million                                        2003       per cent          2002        per cent      per cent

     Turnover                                       2,092.9         100.0         2,098.6        100.0            (0,3)
     Gross profit                                    415.2            19.8         392.3           18.7           5.8
     EBITA                                              95.6           4.6          77.6            3.7          23.2
     Number of operational staff                     2,633               –         2,474               –          6.4




                                   GF-X participation
                                   Kuehne & Nagel belongs to the group of airfreight forwarders that has supported
                                   the GF-X electronic reservation portal from the beginning. This commitment was
                                   underlined by the purchase of an equity stake in 2003. The company sees the
                                   GF-X system as a leading solution for the air cargo industry and efficient link
                                   between forwarders and carriers.


                                   Cargo 2000 implemented
                                   Following Kuehne & Nagel’s status in becoming the first logistics provider to be
                                   awarded certification for Phase 2 of the Cargo 2000 programme in the year
                                   2002, the new IT-supported process handling has been rolled out worldwide.


                                      Cargo 2000 functionality enables Kuehne & Nagel to manage and monitor the
                                   approximately 90,000 monthly consignments across the entire door-to-door pro-
                                   cess chain. In the event of any deviation from the route map proactive measures
                                   can be taken to ensure delivery as agreed. Through process streamlining and
                                   transparency this system creates added value in customers’ supply chains. At the
                                   same time, it forms the basis for the development of new, time-defined products
                                   that will contribute to further growth.


                                   Niche products: aviation and hotel logistics
                                   In the past year, the results of the niche product aviation logistics, which pro-
                                   vides highly specialised transport solutions for the aviation industry, improved
                                   again and additional customers were attracted. Kuehne & Nagel has 39 so-called
                                   aviation gateways and supports around 70 customers in the industry. New
                                   markets in the Middle East are being targeted for the product in the current
                                   business year.
International Forwarding:   Airfreight                                            75




    In hotel logistics, the positive business development continued as well.
Successful handling of logistics projects relating to the opening of new hotels in
the Middle East resulted in an increase in market shares and higher awareness of
this niche product. The strategy of meeting the individual and comprehensive
logistics needs of renowned hotel chains with tailor-made solutions will also
prove successful in 2004 and lead to more contracts in this innovative field of
activity.


Close cooperation with airlines
In the year 2003, close strategic cooperations were upheld with all major airlines,
a key element of Kuehne & Nagel’s airfreight strategy.


Recovering airfreight business
According to a market study, in 2004 the global airfreight market will again
achieve growth rates experienced in the late nineties. Reasons for a forecasted
6 per cent rise in volume are continued strong growth in the Asian markets
and the economic recovery in North America.
For the current year Kuehne & Nagel plans an increase in tonnage far above the
market average. The more efficient handling of freight as a result of the Cargo
2000 system and new products will contribute to this objective as much as the
intensive sales support to customers in all target industries.
76




Overland transport   |
                         Strategy implementation
Kuehne & Nagel can look back on a successful year in regard to its overland transportation
activities, which show a positive development in results. At the same time, further expansion of
this business field in Germany proceeded with the acquisition of Pracht Spedition + Logistik
GmbH located in Haiger/Hesse, and a stake in the WM Group, Bocholt, as of January 2004.
                              International Forwarding:   Overland Transport                                      77




PERFORMANCE INTERNATIONAL OVERLAND TRANSPORT                                                               Variance
                                                                                                       2003/2002
CHF million                                         2003        per cent        2002       per cent        per cent

Turnover                                           749.8         100.0         514.3       100.0             45.8
Gross profit                                       127.1          17.0          86.7         16.9            46.6
EBITA                                               15.2           2.0          12.5          2.4            21.6
Number of operational staff                          904              –         868              –            4.1




                              The European market for road transport was characterised more than ever by
                              fierce competition and significant pressure on margins. Nevertheless, Kuehne &
                              Nagel was able to assert its position, extending profitable businesses and
                              winning new customers.


                                  In particular, the national companies in Benelux, Germany and Switzerland
                              contributed to the favourable business development. Their offer of tailor-made
                              cross-border solutions met with high acceptance amongst customers. In the
                              Northern European countries, the deterioration in margins was countered by cost
                              reductions and restructuring measures.


                                  In order to integrate overland transportation more strongly in complex logis-
                              tics and supply chain management solutions, access to a system-driven groupage
                              network is essential. In this respect, the acquisition of Pracht Spedition +
                              Logistik GmbH and a 40 per cent stake in WM Cargonet GmbH & Co. KG, both
                              members of Germany’s leading groupage network, IDS, will give Kuehne & Nagel
                              access to a successful overland transport concept. Furthermore, the membership
                              of both companies in ELIX European Logistix GmbH and ILS Gesellschaft für
                              Osteuropa-Verkehre mbH links Kuehne & Nagel to a pan-European groupage
                              network.


                                  Kuehne & Nagel will concentrate on exploiting synergy potential in Germany
                              as well as creating and optimising interfaces to its traditional business. Thus the
                              company has already begun pursuing the realisation of its ambitious development
                              programme in European overland transportation.
78




Rail   |
           Expansion of rail logistics structures
The Kuehne & Nagel Group is pushing usage of rail transportation through its wholly owned
subsidiary Ferroviasped. Turnover improved by 11.3 per cent. However, high start-up costs for a
new product affected the operational result.



                                             Network expansion
                                             In 2003, rail logistics structures were particularly developed in the Nordic
                                             countries. A national company in Sweden, as well as agencies in Finland and
                                             Denmark, will be on hand in future to expand rail transportation in this region.


                                             New major orders
                                             In addition to supplying numerous major customers with raw materials by rail,
                                             especially the distribution of finished products via rail-connected logistics
                                             warehouses was expanded, using rail as the sole mode of transport from the
                                             production site to the warehouse. In this way, 5,000 full truckloads to Germany
                                             could be avoided for Italian customers. In project logistics, emphasis was placed
                                             on block train traffic with car spares to the CIS, as well as the loading of
                                             300 rail vehicles.


                                             Growing intermodal transport
                                             In the year under review, intermodal traffic was successfully further developed,
                                             especially on trans-Alpine and Eastern European routes.


                                             KN Nordic Rail
                                             Start-up costs for the new product, KN Nordic Rail, offering transport activities
                                             from Finland to Central and Southern Europe via Travemünde, Germany, using
                                             the railship system, turned out far higher than anticipated. Restructuring meas-
                                             ures are now being implemented to improve the product and raise efficiency.




               PERFORMANCE RAIL                                                                                             Variance
                                                                                                                       2003/2002
               CHF million                                         2003      per cent         2002         per cent          per cent

               Turnover                                           277.0       100.0         248.9          100.0               11.3
               Gross profit                                        24.5         8.8           24.6            9.9              (0.4)
               EBITA                                                3.9         1.4            8.9            3.6             (56.2)
               Number of operational staff                         215             –          220                –             (2.3)
International Forwarding:   Rail                                                  79




Business potential
Eastward enlargement of the European Union will significantly boost demand for
logistics and transportation services in this economic area. Greater transport dis-
tances and, in comparison with roads, the well developed rail infrastructure in
Central and Eastern European countries present new market opportunities for the
coming years. In addition, Ferroviasped will concentrate on intermodal activities
in cooperation with the Kuehne & Nagel Group and extending logistics services
for the automotive sector.
80




Contract Logistics   |
                         Operational result improved by 34.5 per cent
Contributing significantly to the positive development of results in 2003 were the turnaround
in North America, stringent cost management and the standardisation of processes and IT
applications.
Reports of the Business Units:   Contract Logistics                                 81




Rising customer requirements
Increasingly companies are outsourcing processes to logistics service providers
within the supply chain that go far beyond traditional warehousing and distribution
functions. Their needs range from logistics consulting, material flow optimisation,
inventory and order management, through to final assembly, quality control and
returns management. The search for a financially sound logistics provider with
genuine global capability, who can offer a complete range of services from a single
source, accompanies the growing complexity of customers’ requirements.


   Kuehne & Nagel continually adapts its contract logistics offering to market
trends. In the past year, the breadth of services was further increased, regional
capacities extended and the development of industry-specific and value added
services intensified. This resulted both in contract extensions and new business
gains. Stringent cost management and productivity increases raised the profit
margin from 2.0 to 2.6 per cent.


Regional developments
In the year 2003, Kuehne & Nagel invested primarily in the expansion of its
logistics facilities in Europe, with new distribution centres opening in Milan,
Munich and Paris and extensions being undertaken at existing sites in Duisburg,
Hamburg, Zagreb and Kiev.


   Comprehensive restructuring measures in North America led to a stabilisation
of results. The low inventory levels during the first three quarters, a consequence
of the economic situation, were countered by a reduction of both empty space and
the number of sites, as well as the integration of USCO activities in Canada and
Mexico into the respective Kuehne & Nagel national companies.


   In Asia Pacific, Kuehne & Nagel successfully established value added services
for the retail industry, for which the company installed dedicated logistics centres
in Shanghai, Xiamen and Yantian as ideal platforms for future growth. Additionally,
together with the company’s strategic partner, SembCorp Logistics, comprehensive
distribution services are offered in China.


Process standardisation
In 2003, Kuehne & Nagel globally continued to drive the standardisation of
processes for new customer implementation, as well as for operational and organ-
isational structures in its logistics centres, with particular focus on activities in
the USA and a number of European countries. The process improvements and
82




     PERFORMANCE CONTRACT LOGISTICS                                                                            Variance
                                                                                                             2003/2002
     CHF million                                       2003        per cent         2002        per cent       per cent

     Turnover                                      1,167.1         100.0        1,157.2          100.0             0.9
     Gross profit                                    778.2           66.7         715.0           61.8             8.8
     EBITA                                            30.8            2.6          22.9            2.0           34.5
     Number of operational staff                     6,306                –       5,756               –            9.6




                                   modifications achieved led to productivity increases and cost reductions, creating
                                   higher value and benefiting customers and Kuehne & Nagel equally.
                                   For new multinational projects a team of logistics specialists ensures smooth and
                                   rapid implementation. Furthermore, operational audits are conducted at regular
                                   intervals on a local, regional and global scale, in order to assure high and consist-
                                   ent quality around the world.


                                   Global standardisation of IT systems
                                   Progress was also made in the standardisation of contract logistics applications.
                                   Logistics centres on all continents have been equipped with a modern standard
                                   warehouse management system. The functional scope of the system facilitates
                                   paperless processes, automated retrieval, the operation of vendor hubs and ulti-
                                   mately wireless data transmission. In the current year, the standardised warehouse
                                   management system will be implemented in further locations, especially in the
                                   Asia Pacific region and Central America.


                                      In the area of transportation management applications, Kuehne & Nagel has
                                   also opted for global standardisation. In 2003 pilot projects were begun in the USA
                                   and Belgium, and for the current year further projects are planned in several
                                   European countries. The objective is for all local or national solutions to have been
                                   replaced by a standardised application within the next three years.


                                      Kuehne & Nagel has also invested in providing global transparency of orders,
                                   consignments, inventory movements, and deliveries across the entire supply chain.
                                   In the year under review, the integration of information systems for contract logis-
                                   tics and international forwarding was accelerated. With respect to their logistics
                                   processes, customers can thus be provided with complete transparency at any time
                                   via one worldwide-integrated system.
Reports of the Business Units:   Contract Logistics                               83




Extension of service offering
The Kuehne & Nagel offering was supplemented by further services in the areas
of transportation management, reverse logistics, final assembly and product
completion. As lead logistics provider, the company consolidates and optimises
freight volumes for key accounts, reducing costs, avoiding dead freight and,
not least, reducing the impact on the environment.


   In a number of European countries, Kuehne & Nagel assumed management of
product returns for customers in the high-tech and electronics sector. Due to tight-
ening regulations for manufacturers, especially in the European Union, further
business growth is expected in this field.


   The need to reduce capital employed and increase responsiveness to demand
fluctuations increasingly prompts companies to seek product integration and
country-specific final assembly by the logistics provider before distribution to the
end customer. Kuehne & Nagel has been particularly successful in securing
new business in these fields of activity and is investing to expand its capabilities
for the high-tech industry.


Exploit business potential
Currently Kuehne & Nagel is one of the top 10 global players in the contract
logistics market, which is worth an estimated 510 billion US dollars worldwide.
The company is well positioned and ready to benefit from business opportunities
arising from continued globalisation and the anticipated economic upswing.
The short-term goal is to raise the profit margin and achieve organic growth in
China, Eastern Europe and the United States. Moreover, possibilities are being
examined to accelerate growth in specific industry segments through selective
acquisitions.
84




Insurance Broker    |
                        Specialisation creates sustained growth
The globally operating Nacora Group achieved excellent results in 2003. Continued network
expansion and focus on the area of cargo insurance have proved successful. Above all, customers
value the high service level of Nacora insurance brokers.




                                          Insurance markets in the year 2003 were characterised by selective approaches
                                          to risks and high premiums. It was only in the second half that a trend reversal
                                          could be identified, as a consequence of which competition amongst insurance
                                          companies intensified.


                                          Expansion of network
                                          The opening of sales offices in Buenos Aires and Shenzhen, China, marked an
                                          extension of the Nacora Group’s geographic reach. It is now represented in
                                          22 countries with a total of 25 offices in the world’s most important trade and
                                          finance centres. All branches are staffed by small specialist teams with industry
                                          expertise and well acquainted with local and global rules and regulations.


                                          Specialisation in cargo insurance
                                          Representing Nacora’s traditional core area of competence, cargo insurance is
                                          at the centre of business activities. In 2003, the highest growth was recorded
                                          by this division, notably in the highly specialised field of logistics solutions and
                                          projects. Additionally, Nacora develops integrated insurance solutions for cus-
                                          tomers in trade and industry. Smaller to mid-sized companies with international
                                          business activities in particular take advantage of Nacora’s consulting and
                                          brokerage competence.




            PERFORMANCE INSURANCE BROKER                                                                               Variance
                                                                                                                     2003/2002
            CHF million                                       2003         per cent         2002         per cent       per cent

            Turnover                                          86.2         100.0           68.2          100.0            26.4
            Gross profit                                      29.8            34.6         26.9            39.4           10.8
            EBITA                                             15.4            17.9         13.7            20.1           12.4
            Number of operational staff                       131                –          124                –           5.6
Reports of the Business Units:   Insurance Broker                                85




High service level guaranteed
Risk management and tailor-made customer solutions are in the foreground of
Nacora’s service. Customers are accompanied and proficiently supported, from
requirements’ analyses to realisation through to claims’ handling. Substantial
investment in the service component was undertaken in 2003, amongst others
through taking on more qualified personnel and sales staff in the national
organisations.


   For 2004, further expansion of the international network and the gain of
additional market shares are intended.
86
                                Reports of the Business Units:   Corporate Governance                                87




Corporate Governance
Good corporate governance is an important and integral part of the management culture of
the Kuehne & Nagel Group. The principles of corporate governance, as defined in the Directive
on Information Relating to Corporate Governance of the SWX Swiss Exchange, are laid down
in the Company Statutes, the Organisational Rules and the Committee Regulations of the holding
company of the Group, Kuehne & Nagel International AG, Schindellegi, Switzerland.




                                Company structure and shareholders
                                The operational structure of the Group is organised into the business units
                                International Forwarding, Contract Logistics and Insurance Broker. The business
                                unit International Forwarding is structured into five business fields: seafreight,
                                airfreight, international overland, rail, and customs broker. The two business
                                fields of the business unit Contract Logistics are warehousing and distribution.
                                Further information on the business units can be found in the sections Reports
                                of the Business Units and the Consolidated Financial Statements respectively.


                                   Kuehne & Nagel International AG is the only listed company within the
                                scope of the Group consolidation. The company has its registered office in
                                Schindellegi, Switzerland. The Kuehne & Nagel shares are listed on the SWX
                                Swiss Exchange (Valor No 1254181 / ISIN CH0012541816, symbol KNIN).


                                   Significant Group subsidiaries and associated companies are disclosed
                                in the appendix to the Consolidated Financial Statements on pages 130–133,
                                together with domicile, share capital and capital share.


                                   The main shareholder of the Kuehne & Nagel Group continues to be
                                Klaus-Michael Kuehne, who holds 55.75 per cent of the share capital. A cross
                                participation exists between the holding company Kuehne & Nagel International
                                AG and SembCorp Logistics Ltd, Singapore. Kuehne & Nagel International AG
                                holds 5 per cent of SembCorp Logistics Ltd, which in turn holds a 20 per
                                cent stake in the company. Per December 31, 2003, the company held 3.37 per
                                cent of treasury shares. The remaining 20.88 per cent are spread among the
                                general public.
88




     Capital structure
     Capital
     The share capital of the company amounts to CHF 120,000,000 divided into
     24,000,000 registered shares of CHF 5 nominal value each. All shares have
     equal voting rights and no preferential rights or similar entitlements exist. The
     Company Statutes do not provide for any limitations on the transfer of shares.
     Nominees are entered into the share register only when they agree in writing to
     declare the names, addresses and shareholdings of the respective persons on
     whose account they are holding shares. Participating certificates, convertible
     bonds, options, authorised or conditional capital do not exist.


     Change in capital over the past three years
     Following a decision taken at the Annual General Meeting held on May 15,
     2000, the 181,000 bearer shares with a nominal value of CHF 100 which existed
     at the time were converted through a 2 for 1 split into registered shares with a
     nominal value of CHF 50.


        On the same date, the Board of Directors was officially authorised by the
     shareholders to increase the company’s share capital by up to CHF 20 million
     by emitting a maximum of 400,000 registered shares with a nominal value of
     CHF 50. The Board of Directors made use of this authority in a resolution
     passed on December 8, 2000.


        By decision of the Annual General Meeting on May 15, 2001, each share
     with a nominal value of CHF 50 was split into 10 shares with a nominal value
     of CHF 5.


        For information on the development of reserves and available earnings in the
     past two years refer to the balance sheet of Kuehne & Nagel International AG on
     page 137; for the year 2001 please consult the Annual Report 2001.


     Board of Directors
     Organisation of the Board of Directors
     The Board of Directors is elected by the shareholders and as such holds the ulti-
     mate decision-making authority of the Group for all matters except those reserved
     by law or statutes to the shareholders.


        The Board of Directors has elected the Executive Chairman and the Vice
     Chairman from its members. All remaining members hold non-executive
     positions. Their respective authorities are defined in the Organisational Rules.
Reports of the Business Units:   Corporate Governance                             89




The Board of Directors consists of the following members 1:

                                                              Director        Term
Name                                                Age         since       expires

Klaus-Michael Kuehne (Executive Chairman)           66         1975          2006
Bernd Wrede (Vice Chairman)                         60         1999          2005
Prof. Dr. Otto Gellert                              74         1992          2006
Dr. Joachim Hausser                                 59         1992          2006
Dr. Willy Kissling                                  59         2003          2006
Koh Soo Keong                                       52         2001          2004
Dr. Georg Obermeier                                 62         1992          2006
Dr. Alfred Pfeiffer                                 71         1994          2006
Bruno Salzmann                                      69         1999          2005
Dr. Thomas Staehelin                                56         1978          2006
Wong Kok Siew                                       57         2001          2004

1
    See also the biographical information on pages 94 ff.



      The Board members are each elected for a period of three years by the share-
holders. There are no limits regarding the number of terms of service or regarding
age.


      No non-executive member of the Board of Directors has held a position in
the company’s Management Board or any Group company in the three years prior
to 2003 or is in any integral business relation with the company or any Group
company.


      The CEO of the Group, Klaus Herms, is a member of the Board of Directors
of SembCorp Logistics Ltd, Singapore, which in turn is represented also on
the company’s Board of Directors by Messrs Wong and Koh. No further cross-
involvements exist.


      During 2003, the Board of Directors met four times in an all-day session.
Further decisions can be taken with the written approval of all Board members.


Committees
The full Board of Directors has formed an Audit Committee as well as a
Nomination and Compensation Committee, whose areas of responsibility and
procedures are laid down in the Committees’ Regulations. The Committees
meet several times a year and prepare decisions for the full Board of Directors
in accordance with their areas of responsibility.
90




        Management Board members, other senior executives and, if required, external
     advisors may be invited to the respective meetings.


     Audit Committee
     The Audit Committee is composed of the following directors: Prof. Dr. Otto Gellert
     (Chairman), Bruno Salzmann, Dr. Thomas Staehelin, and Bernd Wrede. In 2003,
     the Audit Committee met five times. The Committee ensures a comprehensive
     and efficient auditing concept for the company and submits its independent
     appraisal of the quality of the external audit, the internal control system and
     the annual financial statements.


     Nomination and Compensation Committee
     The Nomination and Compensation Committee is composed the following
     directors: Klaus-Michael Kuehne (Chairman), Dr. Georg Obermeier, and Bernd
     Wrede. In 2003, the Committee met three times. The Committee secures
     competent staffing of Management Board positions and defines the principles
     for compensating the members of the Board of Directors and the Management
     Board, including share purchase and option plans.


     Scope of powers
     According to statutes and Swiss corporate law, the main tasks of the Board of
     Directors comprise strategic direction and management of the company, accoun-
     ting matters, financial control and planning, appointing and dismissing of
     Management Board members and other senior executives, supervisory control
     of the business operations and submission of proposals to the Annual General
     Meeting, including the financial statements of Kuehne & Nagel International AG
     as well as the Group’s consolidated financial statements.


        The Board of Directors has assigned specified powers to the Executive
     Chairman of the Board of Directors, particularly in the areas of investment, finance
     and accounting as well as personnel. The entire Board of Directors, however, is
     responsible for decisions on such before-mentioned aspects that are of significant
     importance to the company. The scope of the Board and the Executive Chairman
     are stipulated in the Organisational Rules.


        The Board of Directors has delegated the responsibility for the development,
     execution and supervision of the day-to-day business operations of the Group and
     its associated companies to the Management Board except those reserved by
     law, by statutes or the Organisational Rules to the Annual General Meeting, the
     Audit Committee, the Board of Directors or the Executive Chairman of the Board
     of Directors.
Reports of the Business Units:   Corporate Governance                              91




Information and control instruments for the Management Board
A Catalogue of Competences based on a risk management approach governs
the authority and the competences of the Management Board and the senior
executives. All members of the Board of Directors receive monthly updates by
a management information system (MIS) on core financial data (consolidated turn-
over, operational result, as well as Group income of the regions, the countries,
the business units and the business fields). The internal audit is assigned to
examine the compliance of management with their duties and their adherence to
Group guidelines and reports directly to the Executive Chairman of the Board
of Directors on a regular basis.


Management Board
The Management Board, led by the Chief Executive Officer of the Group,
Klaus Herms, assumes its duties as assigned by the Board of Directors and in
accordance with the Organisational Rules. Biographical information on members
of the Management Board is found on page 97 of the Annual Report. Mandates
or management contracts other than those mentioned there do not exist.


Compensation
Remuneration
The Board of Directors regulates the compensation, allocation of shares
and granting of loans to the Board of Directors, whereas the Board of Directors’
Nomination and Compensation Committee regulates such matters for the
Management Board.


   The incumbent members of the Board of Directors receive a total remuneration
amounting to 1 per cent of the net profit of Kuehne & Nagel International AG.
Each member is guaranteed an annual compensation amounting to CHF 30,000.


   The total remuneration paid to members of the Board of Directors and the
Management Board in the financial year amounted to CHF 10,153,527, out of
which CHF 9,563,626 were paid to the executive member of the Board of
Directors and the members of the Management Board, and CHF 589,901 to the
non-executive members of the Board of Directors. The member of the Board with
the highest total remuneration received CHF 3,187,647.


   No remuneration was paid to former members of the Board of Directors or of
the Management Board in the year under review.
92




        Additionally, in the year 2003, further remuneration requiring disclosure
     was paid to members of the Board of Directors for other services rendered to
     the company and an associated company as follows: Prof. Dr. Otto Gellert
     received CHF 234,841, Bruno Salzmann CHF 143,000, and Bernd Wrede
     CHF 143,750.


        The members of the Management Board receive an income with a fixed
     and a profit-linked component and have the possibility to participate in a share
     purchase and option programme.


        Three members of the Management Board are provided with open unsecured
     loans amounting to CHF 453,750 in total at 4 per cent interest p.a. to finance
     the share purchase and option programme.


     Shares and options
     In the year under review, no company shares were allocated to the members
     of the Board of Directors, the Management Board members, or parties closely
     linked to them.


        As of December 31, 2003, the total number of company shares owned by
     the executive member of the Board of Directors and members of the Management
     Board and parties closely linked to them was 13,451,517. On the same date,
     the total number of company shares held by the non-executive members of the
     Board of Directors and parties closely linked to them was 2,521.


     In the year 2001, the company introduced a share purchase and option pro-
     gramme for members of the Management Board by which the members of the
     Management Board have the option to purchase a maximum of 37,125 registered
     shares. To date, the Management Board members have acquired all 37,125
     shares at the agreed purchase price of 90 per cent of the average share closing
     price at the SWX Swiss Exchange in the months of April to June of the respective
     year. A further subscription possibility for members of the Management Board
     may occur in mid 2004. The sale of the shares acquired under this scheme is
     blocked for a period of three years. Each share bought combines two options with
     the right to buy one company share each at the aforementioned average price.
     The option is blocked for three years from the date of subscription and thereafter
     can be exercised in the period of the three subsequent years, after which it
     expires.
Reports of the Business Units:   Corporate Governance                             93




The members of the Management Board and parties closely linked to them hold
the following options per deadline:

                                           Allocation    Number of    End of waiting
Name                                            date        options           period

Thomas Engel                                  2001         4,000             2004
                                              2002         5,000             2005
                                              2003         2,250             2006
Klaus Herms                                   2001        12,000             2004
                                              2002         3,000             2005
                                              2003         3,000             2006
Gerard van Kesteren                           2001         9,000             2004
                                              2002         2,250             2005
                                              2003         2,250             2006
Reinhard Lange                                2001         4,000             2004
                                              2003         5,000             2006
Dirk Reich                                    2001         4,000             2004
                                              2003         7,250             2006
Klaus Dieter Pietsch                          2001         6,000             2004
                                              2002         3,000             2005
                                              2003         2,250             2006
Total options allocated                                   74,250



Shareholders’ right of participation, changes of control and defence measures
There are no voting restrictions. The legal rules on quorums and terms apply.
Shareholders holding shares with a total nominal value of at least CHF 1 million
can demand that items be added to the agenda up to 45 days prior to the meet-
ing by submitting details of the proposals. There are no opting-out or opting-up
rules. No member of the Board of Directors or the Management Board or other
senior management employees has clauses on changes of control in their
contracts.


Statutory auditors
KPMG Fides Peat, Zurich, adopted the mandate initially for the business year
2002 as per declaration of acceptance dated May 8, 2002. The re-election for
the business year 2003 was confirmed with the declaration of acceptance dated
May 15, 2003. The head auditor responsible for the mandate, Mr R. Neininger,
entered into office on July 1, 2002.


    According to the company’s financial records, the fees charged for auditing
services for the year under review amounted to CHF 2,506,400. In addition, CHF
41,200 were paid to the statutory auditors for other consulting services within
the year under review.
94




        External auditing is supervised and controlled by the Board of Directors’ Audit
     Committee. The statutory auditors also report to the Audit Committee and attend
     Audit Committee meetings regularly / on specific request.


     Information policy
     The company regularly publishes news on fundamental business developments,
     organisational changes, new major contracts, etc. on its website. Financial
     information also is published on a quarterly basis on www.kuehne-nagel.com.




     Board of Directors of Kuehne & Nagel International AG


     Klaus-Michael Kuehne, Executive Chairman                          German, age 66
     Trained as banker. Klaus-Michael Kuehne entred into the family business in
     1958 and was CEO of the Kuehne & Nagel Group from 1966 to 1975. He has
     been a member and Delegate of the Board of Directors since 1975, Executive
     Chairman of the Board of Directors since 1992, and is elected until the Annual
     General Meeting 2006. Klaus-Michael Kuehne is Chairman of the company’s
     Nomination and Compensation Committee.


     Bernd Wrede, Vice Chairman                                        German, age 60
     Studied at the Universities of Würzburg and Hamburg and holds an MBA. From
     1982 to 2001, Bernd Wrede was a member of the Board of Hapag-Lloyd AG,
     Hamburg, and as of 1993 its Chairman. Currently management consultant. He
     further is a member of the Supervisory Board of the following companies:
     Bankgesellschaft Berlin AG, Berlin; ERGO Versicherungsgruppe AG, Düsseldorf;
     Goldschmidt AG, Essen; Landesbank Berlin, Berlin; Weberbank Privatbankiers
     KGaA, Berlin. Additionally, Bernd Wrede is a member of the Board of Trustees of
     ZEIT-Stiftung, Hamburg. He has been a member of the Board of Kuehne & Nagel
     International AG since 1999 and is elected until the Annual General Meeting
     2005. Bernd Wrede is a member of the company’s Audit Committee as well as
     the Nomination and Compensation Committee.


     Prof. Dr. Otto Gellert                                            German, age 74
     Holds a PhD and was promoted professor in business administration from the
     University of Hamburg. Since 1960, independent activities as accountant and tax
     consultant. Other significant positions are: member of the Supervisory Board and
     Shareholders’ Committee of M.M. Warburg & CO KGaA-Group, Hamburg; Vice
     Chairman of the Board of Directors of BvS Bundesanstalt für vereinigungs-
     bedingte Sonderaufgaben, Berlin; member of the Supervisory Board of FRoSTA
     AG, Bremerhaven. Otto Gellert has been a member of the Board of Kuehne &
     Nagel International AG since 1992 and is elected until the Annual General
     Meeting 2006. He is Chairman of the company’s Audit Committee.
Reports of the Business Units:   Corporate Governance                              95




Dr. Joachim Hausser                                               German, age 59
Holds a PhD in economics from the Université de Genève. Retired bank executive,
currently an independent financial consultant. Other significant positions are:
Chairman of the Supervisory Board of Ludwig Beck am Rathauseck Textilhaus
Feldmeier AG, Munich; member of the Advisory Board of GETRAG Getriebe- und
Zahnradfabrik Hermann Hagenmeyer GmbH & Cie, Ludwigsburg. Joachim
Hausser has been a member of the Board of Kuehne & Nagel International AG
since 1992 and is elected until the Annual General Meeting 2006.


Dr. Willy Kissling                                                   Swiss, age 59
Holds a PhD in business administration from the University of Berne, PMD
Harvard Business School, Cambridge, USA. Formerly President and CEO of
Landis & Gyr Corporation (1987–1996). Since 1998, Chairman and until May
2002 CEO of Unaxis Corporation, Pfäffikon. Other significant positions are:
Chairman of the Board of Directors of SIG Holding Ltd, Schaffhausen; Vice
Chairman of the Board of Directors of Forbo Holding AG, Eglisau, and of Holcim
Ltd, Jona; member of the Board of Directors of Schneider Electric S.A., Paris.
Willy Kissling has been a member of the Board of Kuehne & Nagel International
AG since 2003. He is elected until the Annual General Meeting 2006.


Koh Soo Keong                                                 Singaporean, age 52
Graduated in business law and holds an MBA as well as a bachelor of engineer-
ing from the National University of Singapore. 20 years of experience in the
logistics industry, key project manager for defence material organisation in the
Singapore Ministry of Defence. Since 1987, Koh Soo Keong is President and
Chief Executive Officer of SemCorp Logistics Ltd, Singapore. He has been a
member of the Board of Kuehne & Nagel Internatioal AG since 2001 and is
elected until the Annual General Meeting 2004.


Dr. Georg Obermeier                                               German, age 62
Holds a PhD in business administration from the University of Munich. Georg
Obermeier has been on the management board in listed companies for 12 years,
6 of which as Chairman. Currently an independent business consultant. He
further is member of the Supervisory Committees of the following companies:
E-Control, Vienna; Illbruck Building Systems, Leverkusen; Rheinhold und Mahla
AG, Munich; Spaten-Franziskaner KGaA, Munich. Georg Obermeier has been a
member of the Board of Kuehne & Nagel International AG since 1992 and is
elected until the Annual General Meeting 2006. He is a member of the company’s
Nomination and Compensation Committee.
96




     Dr. Alfred Pfeiffer                                               German, age 71
     Holds a PhD in business administration from the University of Munich. Formerly
     Chairman of the Board of VIAG AG, Munich, and Chairman of the Supervisory
     Board for several major industrial companies. Other significant positions:
     member of the Board of Administration of Gerling AG, Cologne; Honorary
     President of the Advisory Council of Union e.V., Munich. Alfred Pfeiffer has been
     a member of the Board of Kuehne & Nagel International AG since 1994 and
     is elected until the Annual General Meeting 2006.


     Bruno Salzmann                                                      Swiss, age 69
     Education and employment as auditor. Bruno Salzmann held the position of
     General Director Finance and Controlling with the Kuehne & Nagel Group from
     1983 until retirement in 1999. He is currently a consultant. A member of the
     Board of Kuehne & Nagel International AG since 1999, Bruno Salzmann is
     elected until the Annual General Meeting 2005. He is a member of the company’s
     Audit Committee.


     Dr. Thomas Staehelin                                                Swiss, age 56
     Holds a PhD in law from the University of Basel. Lawyer. Other significant
     positions: Vice Chairman of the Board of Directors of Siegfried Holding AG,
     Zofingen; member of the Board and President of the Audit Committee of Inficon
     Holding AG, Bad Ragaz; member of the Bank Council of Basler Kantonalbank,
     Basel; Chairman of the Board of Directors of Swissport International SA, Opfikon,
     and of Rothornbahn & Scalottas AG, Vaz / Obervaz; member of the Board of
     Directors of Lantal Textiles, Langenthal; member of the Board and Commission
     President of economiesuisse; President of the Basel Chamber of Commerce;
     Delegate to the Board of Directors at Vereinigung der Privaten Aktiengesell-
     schaften; member of the Swiss Foundation for Accounting and Reporting
     Recommendations (FER-SWISS GAAP FER). Thomas Staehelin has been a
     member of the Board of Kuehne & Nagel International AG since 1978 and is
     elected until the Annual General Meeting 2006. He is a member of the
     company’s Audit Committee.


     Wong Kok Siew                                                Singaporean, age 57
     Bachelor in mechanical engineering from McGill University, Canada, and holds
     an MBA from McMaster University, Canada. Currently Deputy Chairman and
     Chief Executive Officer of SembCorp Industries Ltd, Singapore. Other significant
     positions: Chairman of Nomura Singapore Ltd, Singapore; Director of British
     American Tobacco plc, London, and of Port of Singapore Authority Corporation
     Ltd; Chairman of the International Enterprise Singapore (formerly Trade
     Development Board of Singapore). Wong Kok Siew has been a member of the
     Board of Kuehne & Nagel International AG since 2001 and is elected until the
     Annual General Meeting 2004.
Reports of the Business Units:   Corporate Governance                              97




Management Board of Kuehne & Nagel Group


Klaus Herms                                                        German, age 62
Graduated in business administration from DAV, Bremen. Held various positions
within the Kuehne & Nagel Group since 1968, last as Head of the Group’s Asia-
Pacific organisation. Since 1999 Chairman of the Management Board and Chief
Executive Officer of the Group. Other significant positions: since 2001 member
of the Board of Directors of SembCorp Logistics Ltd, Singapore.


Thomas Engel                                                         Swiss, age 49
Dipl. EL. Ing. ETH. Held various IT positions including Divisional Director IT at
Metro International AG, Baar, and Head of IT and Logistics at AMC International
AG, Risch. Chief Information Officer of the Kuehne & Nagel Group. Other signifi-
cant positions: member of the Board of Directors of TQ3 Travel Solutions Suisse
AG, Zurich.


Dr. Axel Hansen                                                    German, age 60
Law graduate and Doctor of jurisprudence. Studied at the Universities of Kiel,
Berlin and Paris. Management and Board positions in steel trade, industrial plant
construction and the real estate sector. General Counsel of the Kuehne & Nagel
Group and Secretary of the Board of Directors.


Gerard van Kesteren                                                  Dutch, age 54
Chartered accountant. 17 years at Sara Lee Corporation in various management
positions in finance, last as Director of Financial Planning and Analysis. Chief
Financial Officer of the Kuehne & Nagel Group.


Reinhard Lange                                                     German, age 54
Trained freight forwarder. Since 1971 in various positions in the Kuehne & Nagel
Group, including Head of Seafreight and of the Canadian Kuehne & Nagel
organisation. Chief Operating Officer International Forwarding of the Kuehne &
Nagel Group.


Klaus-Dieter Pietsch                                               German, age 62
Graduated in business administration. Various positions in industry in the areas
of human resources and information technology. Executive Vice President Human
Resources / Quality Management of the Kuehne & Nagel Group.


Dirk Reich                                                         German, age 40
Graduated from Koblenz School of Corporate Management in Germany. Various
positions at Lufthansa AG and VIAG AG. Joined Kuehne & Nagel in 1994
as Senior Vice President Corporate Development. Since 2001 Executive Vice
President Contract Logistics of the Kuehne & Nagel Group.
98
Consolidated Financial Statements:   Contents         99




     Consolidated
         Financial
       Statements




        101       Income Statement
        102       Balance Sheet
        104       Statement of Changes in Equity
        105       Cash Flow Statement
        106       Notes to the Financial Statements
        130       Main Consolidated Companies,
                  Associates and Joint Ventures
100
                              Consolidated Financial Statements:             Income Statement                                         101




Income Statement

       CHF million                                                                                  Note                2003        2002

       Invoiced turnover                                                                                             9,548.0     8,805.0
       Customs duties and taxes                                                                                      (2,015.7)   (1,858.3)
       Net invoiced turnover                                                                                         7,532.3     6,946.7
       Net expense for services from third parties                                                                   (5,468.0)   (5,035.5)
       Gross profit                                                                                                  2,064.3     1,911.2
       Personnel expense                                                                             15              (1,130.1)   (1,042.8)
       Selling, general and administrative expense                                                   16               (523.6)     (510.8)
       Income from associates and joint ventures                                                                          4.3         4.3
       Other operating income                                                                        17                   3.3       17.9
       EBITDA                                                                                                          418.2       379.8
       Depreciation of fixed assets and amortisation IT software                                     18               (102.3)     (103.0)1
       EBITA                                                                                                           315.9       276.8
       Amortisation of goodwill                                                                      23                 (34.9)      (53.1)1
       Impairment of goodwill                                                                        23                     –     (206.4)
       EBIT                                                                                                            281.0        17.3
       Finance result                                                                                19                   5.1       (12.8)
       Earnings before tax                                                                                             286.1          4.5
       Income tax                                                                                    20                 (89.3)       (3.3)
       Earnings after tax                                                                                              196.8          1.2
       Minority share                                                                                                    (1.1)       (1.1)
       Net earnings for the year                                                                                       195.7          0.1


       Basic earnings per share                                                                      21                8.446       0.006
       Diluted earnings per share                                                                    21                8.438       0.006

       1
           Restated for comparison purpose (Reclassification of amortisation IT software CHF 26.9 million in 2002)
102




      Balance Sheet

              CHF million                                    Note   31/12/2003   31/12/2002
              ASSETS


              Non current assets
              Fixed assets and IT software                    22        550.9        471.2
              Goodwill                                        23        133.3        180.9
              Investments in associates and joint ventures    24         18.2         19.1
              Investments in affiliated companies             24         30.0         19.5
              Deferred tax assets                             20         37.9         57.1
                                                                        770.3        747.8
              Current assets
              Prepayments and deposits                                   35.7         33.4
              Work in progress                                25        159.1        166.8
              Trade receivables                               26        975.4        874.3
              Other receivables                               27         46.1         51.0
              Marketable securities                           28         26.3         43.8
              Cash and cash equivalents                       29        707.0        776.8
                                                                      1,949.6      1,946.1




              Total assets                                            2,719.9      2.693.9
                    Consolidated Financial Statements:   Balance Sheet                              103




CHF million                                                          Note    31/12/2003       31/12/2002
EQUITY, MINORITY INTEREST AND LIABILITIES


Equity
Share capital                                                         30         120.0           120.0
Reserves and cumulative retained earnings                             31         697.0           756.9
Net earnings for the year                                                        195.7              0.1
                                                                               1,012.7           877.0


Minority interest                                                     32           5.4              4.7


Long term liabilities and provisions
Provisions for pension
plans and severance payments                                          33         167.1           147.5
Deferred tax liabilities                                              20          10.5              8.3
Bank liabilities                                                      34           0.7              8.7
Finance lease obligations                                             35             –              6.2
                                                                                 178.3           170.7
Short term liabilities
Bank liabilities                                                      29         299.8           534.7
Trade liabilities / Accrued trade expenses /
Deferred trade income                                                 36         931.1           860.3
Current tax liabilities                                               20          40.7            28.7
Other liabilities                                                     37         251.9           217.8
                                                                               1,523.5         1,641.5


Total equity, minority interest and liabilities                                2,719.9         2,693.9




                                                               Schindellegi, March 25, 2004


                                                               KUEHNE & NAGEL INTERNATIONAL AG
                                                               Klaus Herms        Gerard van Kesteren
                                                               CEO                CFO
104




Statement of Changes in Equity

CHF million                                    Share capital             Share       Net unreali-      Revaluation           Treasury       Cumulative          Retained             Total
                                                                      premium          sed (loss)/        reserve 1           shares 2       translation        earnings      shareholders
                                                                                    gain on avail-                                          adjustment                              equity
                                                                                    able for sale
                                                                                    investments3

Balance 1/1/2002                                      120.0             452.8                1.1                9.3            (69.6)           (23.9)            495.4             985.1
Change in accounting policy 1                                                                                  (9.3)                                                                   (9.3)
Unrealised gain on 5% SembCorp
investment                                                                                   8.5                                                                                        8.5
Foreign exchange differences                                                                                                                    (46.2)                               (46.2)
Total gains and losses
recognised directly in equity                             0.0               0.0              8.5               (9.3)              0.0           (46.2)                 0.0           (47.0)
Disposal of treasury shares 2                                               0.9                                                   4.9                                                   5.8
Dividend paid                                                                                                                                                       (67.0)           (67.0)
Net earnings for the year                                                                                                                                              0.1              0.1
Balance 31/12/2002                                    120.0             453.7                9.6                0.0            (64.7)           (70.1)              428.5           877.0




Balance 1/1/2003                                      120.0             453.7                9.6                0.0            (64.7)           (70.1)            428.5             877.0
Unrealised gain on 5% SembCorp
investments                                                                                10.5                                                                                       10.5
Foreign exchange differences                                                                                                                      (1.8)                                (1.8)
Total gains and losses
recognised directly in equity                             0.0               0.0            10.5                 0.0               0.0             (1.8)               0.0               8.7
Disposal of treasury shares           2
                                                                                                                                  0.3                                 0.4               0.7
Dividend paid 4                                                                                                                                                    (69.4)            (69.4)
Net earnings for the year                                                                                                                                         195.7             195.7
Balance 31/12/2003                                    120.0             453.7              20.1                 0.0            (64.4)           (71.9)            555.2           1,012.7


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 carrying
    amounts of the properties concerned.
2
    In 2003 the company sold under the stock option scheme 46,290 shares at a nominal of CHF 5 each for a total consideration of CHF 3.5 million and adjusted the initial value of the
    Treasury shares bought in 2000 by CHF 3.2 million.
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, and because transfer are restricted until February 2006. 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 into account the impact of these restrictions.
4
    The proposed dividend payment, subject to approval by the Annual General Meeting is as follows:
    Dividend                                Per share CHF million
    2003                                         3.50 81.1
    The legal basis 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      105




Cash Flow Statement
CHF million                                                                      Note      2003      2002
Cash flow from operating activities
Net earnings for the year                                                                 195.7        0.1
Non cash related transactions:
Minority share of net earnings for the year                                       32        1.1        1.1
Income from associates and joint ventures                                                  (0.8)      (1.4)
Depreciation of fixed assets and amortisation of IT software                      18      102.3     103.0
Profit/(loss) on disposal of fixed assets, net                                             (0.1)      (5.4)
Profit/(loss) on disposal of associates, net                                                3.1        3.7
Amortisation of goodwill                                                          23       34.9      53.1
Impairment of goodwill                                                            23          –     206.4
Net addition to provision for pension plans and severance payments                          9.4        3.9
Total operational cash flow                                                               345.6     364.5
(Increase)/decrease work in process                                                        11.3      (34.2)
(Increase)/decrease receivables, prepayments and deposits                                 (89.4)     (78.9)
Increase/(decrease) tax liabilities less tax assets                                         9.9      (49.3)
Increase/(decrease) other liabilities                                                      13.0      12.9
Increase/(decrease) trade liabilities/accrued trade expenses                               67.9      70.9
Total cash flow from operating activities                                                 358.3     285.9
Cash flow from investing activities
Capital expenditures
– Fixed assets                                                                    22     (163.7)    (126.4)
– IT software                                                                     22      (14.6)     (26.9)
Goodwill on purchase of consolidated companies                                    23       (3.7)     (27.0)
Increase/(decrease) minority interest                                             32        0.3        2.8
Disposals of fixed assets                                                                  12.9      17.4
Disposals of marketable securities                                                         17.5      12.1
Total cash flow from investing activities                                                (151.3)    (148.0)
Cash flow from financing activities
Increase/(decrease) bank liabilities                                                      (12.1)     (48.2)
Disposals of treasury shares                                                                0.3        5.9
Dividends paid to Kuehne & Nagel shareholders                                             (69.4)     (67.0)
Profit distribution to minority shareholders                                      32       (0.7)      (0.6)
Total cash flow from financing activities                                                 (81.9)    (109.9)
Exchange difference on cash and cash equivalents                                           40.0      23.4
Increase/(decrease) in cash and cash equivalents                                          165.1      51.4
Cash and cash equivalents at the beginning of the year, net                       29      242.1     190.7
Cash and cash equivalents at the end of the year, net                             29      407.2     242.1
Tax paid for previous years                                                                12.8      14.5
Tax paid for current year                                                                  51.4      39.7
Dividends received from affiliates, associates and joint ventures                           3.1        5.9
Interest received                                                                           9.5      13.1
Interest paid                                                                              10.5      12.1
106




      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, 2003. The 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 derivatives 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.


                                          The financial statements under IFRS contain certain assumptions and estimates
                                    which affect the figures shown in the present report. The actual result may differ from
                                    these estimates.


                                           Certain comparative information has been reclassified to conform to the current
                                    year’s presentation.



         2 Scope of consolidation   The main consolidated companies, associates and joint ventures are listed on pages
                                    130– 133. The material changes in the scope of consolidation in 2003 relate to the
                                    following companies:
                                                                                            KN voting and
                                                                                              capital share         Share capital
                                                                                       acquired in per cent             in 1,000
                                    Acquisitions
                                    Nacora, Sweden                                                     40     SEK            100
                                    Team Logistic, Belgium                                             50     EUR            125
                                    Nacora, Brazil                                                     30     BRL            103


                                    Incorporation
                                    Pact, Germany                                                     100     EUR             50
                                    Ferroviasped, Sweden                                              100     SEK         1,000
                                    Kuehne & Nagel Servicios Administrativos,
                                    Mexico                                                            100     MXP             50
                                    OOO Kuehne & Nagel, Russia                                        100     RUR         4,107
                                    OOO Kuehne & Nagel Sakhalin, Russia                               100     RUR            500
                                Consolidated Financial Statements:   Notes                                                107




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 where 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 consoli-
                                dation. 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 and amortised over its estimated useful life.


                                      The minority interest in equity and net income or loss is reported separately in the
                                consolidated accounts.


                                Associates and joint ventures
                                Associates are those companies over which the Group is able to exercise significant
                                influence over the financial and operational policies, but does not control. 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. 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, which approximate actual rates. 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.
108




                                 The major foreign currency conversion rates applied are as follows:

                                 INCOME STATEMENT AND CASH FLOW

                                 (Average rates for the year)

                                                                        2003         Variance            2002          Variance
                                 Currency                                CHF         per cent             CHF          per cent

                                 EURO 1.–                            1.5192              3.5           1.4677                (2.8)
                                 USD    1.–                          1.3414            (13.9)          1.5583                (7.7)


                                 BALANCE SHEET   (year end rates)

                                                                        2003         Variance            2002          Variance
                                 Currency                                CHF         per cent             CHF          per cent

                                 EURO 1.–                            1.5595              7.2           1.4546                (1.8)
                                 USD    1.–                          1.2423            (10.5)          1.3875            (17.3)



      4 Financial assets and     The accounting policy applied to financial instruments depends on how they are classified.
                   liabilities   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.


                                        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.


                                 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.
                      Consolidated Financial Statements:   Notes                                                   109




                      Impairment of financial assets
                      If there is any indication that a financial asset available for sale or originated by the
                      enterprise may be impaired its recoverable amount is calculated.


                            The recoverable amount of the Group’s 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 allo-
                      wance for bad debts is determined based on an ageing analysis and considering previous
                      experience of bad debts.


                            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.



     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                                                                      331/3
                      Office machines                                                                               25
                      IT hardware                                                                                 331/3
                      Office furniture                                                                              20
110




                                    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   a) IT software
                                    IT software is carried at cost less accumulated amortisation and accumulated impairment
                                    losses. IT software is amortised over its estimated useful life.


                                    b) Goodwill
                                    Goodwill from acquisitions is recognised at cost, less accumulated amortisation and
                                    accumulated impairment losses. Goodwill is amortised over its estimated useful life.



      9 Cash and cash equivalents   Cash and cash equivalents comprise of cash at bank and in hand, short term deposits
                                    and bank overdrafts with an original maturity of three months or less. This definition also
                                    applies for the purpose of the consolidated cash flow statement.



                  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.
                               Consolidated Financial Statements:   Notes                                                 111




                               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 appropri-
                               ate, the risks specific to the liability.



12 Pension plans, severance    Some subsidiaries maintain pension plans in favour of their personnel in addition to the
        payments and share     legally imposed social insurance schemes. The pension plans partly exist as independent
         participation plans   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 separa-
                               tely 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 dis-
                               count 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.


                                      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.
112




      13 Revenue recognition   The income statement presentation reflects the unique nature of the income generated
                               by an entity operating in the logistics and forwarding business. Turnover from services
                               rendered is recognised in the income statement when the related services are performed.


                                     In the logistic and forwarding industry gross profit, which represents the difference
                               between the turnover and the services rended by third party, provides a better indication of
                               performance than turnover.



                   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 are recognised in the income statement, except to the
                               extent that it relates to items recognised directly in 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 profit distributions by
                               subsidiaries is 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.




                               NOTES TO THE INCOME STATEMENT


       15 Personnel expense    CHF million                                                              2003              2002
                               Salaries and wages                                                     838.5              793.6
                               Social expense and employee benefits                                   256.6              218.8
                               Pension plan expense
                               – Defined benefit plan                                                   19.6              16.3
                               – Defined contribution plan                                              11.0              11.9
                               – Others                                                                  4.4               2.2
                                                                                                    1,130.1         1,042.8
                                   Consolidated Financial Statements:         Notes                                       113




        16 Selling, general and    CHF million                                                          2003            2002
                  administrative   Administrative expense                                               85.9            87.7
                        expense    Communication expense                                                59.6            62.0
                                   Travel and promotion expense                                         53.3            54.7
                                   Vehicle expense                                                      46.8            43.5
                                   Operational expense                                                  56.4            42.2
                                   Facility expense                                                    213.1          211.1
                                   Provision for bad debts
                                   and collection expense 1                                               8.5            9.6
                                                                                                       523.6          510.8



                                   1
                                       Specification provision for bad debts and collection expense
                                                                                                        2003            2002
                                   Addition to provision for bad debts
                                   (note 26)                                                              8.7            6.9
                                   Recovery of receivables previously written-off                        (2.5)          (1.9)
                                   Credit inquires                                                        1.2            1.3
                                   Premiums to credit insurers net of recoveries                          0.2            3.3
                                   Collection expense                                                     0.9              –
                                                                                                          8.5            9.6



             17 Other operating    CHF million                                                          2003            2002
                         income    Gain on sale of fixed assets                                           1.2            6.4
                                   Loss on sale of fixed assets                                          (1.3)           (0.9)
                                   Dividends received from affiliated companies                           3.5            3.3
                                   Profit on sale of consolidated companies, net                            –            7.9
                                   Other                                                                 (0.1)           1.2
                                                                                                          3.3           17.9



18 Depreciation and amortisation   The depreciation of fixed assets and amortisation of IT software and goodwill are shown in
                                   the notes 22 and 23.



              19 Finance result    CHF million                                                          2003            2002
                                   Interest income                                                        9.5           13.1
                                   Interest expense                                                     (10.5)         (12.1)
                                   Exchange difference, net                                               6.1          (13.8)
                                   Income/(Expense)                                                       5.1          (12.8)
114




      20 Income tax   CHF million                                                       31/12/2003      31/12/2002
                      Deferred tax assets
                      – on provision for pension plans                                        10.1               7.4
                      – on losses carried forward                                              9.6               6.6
                      – on other provisions                                                    6.1               2.7
                      – impairment of goodwill                                                12.1              40.4
                                                                                              37.9              57.1



                      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 2005 at the latest.



                      CHF million                                                       31/12/2003      31/12/2002
                      Unrecognised deferred tax assets
                      – on losses carried forward                                             21.1              23.8
                      – on temporary differences                                              57.6              31.9
                                                                                              78.7              55.7


                      In view of the fact that the realisation of the above deferred tax assets is considered to be
                      unlikely, the assets were not recognised.



                      The unrecognised deferred tax assets relating to tax losses carried forward expire by the
                      end of the following years:

                      Year                                                                              CHF million
                      2004                                                                                       0.7
                      2005                                                                                       0.4
                      2006                                                                                       0.4
                      2007                                                                                       0.7
                      2008 and later                                                                            18.9
                                                                                                                21.1



                      CHF million                                                       31/12/2003      31/12/2002
                      Deferred tax liabilities
                      – on non recoverable withholding tax
                        relating to anticipated distributions from
                        subsidiaries                                                           1.0               0.7
                      – on impairment of financial investments                                 6.0               4.9
                      – on depreciation of fixed assets
                        and provision for bad debts                                            3.5               2.7
                                                                                              10.5               8.3
                        Consolidated Financial Statements:   Notes                                            115




                        CHF million                                                          2003           2002
                        Current tax expense
                        – current year                                                       75.9           61.4
                        – under/(over) provided in prior years                               (8.2)           (6.9)
                                                                                             67.7           54.5
                        Deferred tax expense
                        – on changes in temporary differences                                24.6          (49.0)
                        – on changes in tax losses recognized                                (3.0)           (2.2)
                                                                                             21.6          (51.2)
                        Income tax expense in income statement                               89.3            3.3



                        Reconciliation of the applicable tax rate
                        CHF million                                                          2003           2002
                        Earnings before tax according to the income
                        statement as of December 31                                        286.1             4.5
                        Income tax – expected tax rate 26.0%        (2003)                   74.3           72.4
                        Tax effect of:
                        – non-deductible expenses                                            (0.7)           3.2
                        – tax losses utilized                                                (3.1)           (3.0)
                        – allowance of deferred tax assets                                   21.9          (64.0)
                        – under/(over) provision in prior years and other                    (3.1)           (5.3)
                        Income tax – effective tax rate 31.2%       (2003)                   89.3            3.3




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 million                                                          2003           2002
                        Net earnings                                                       195.7             0.1
                        Weighted average number of ordinary shares
                        outstanding during the year                                  23,169,070      23,120,278
                        Effect of dilutive securities:
                        Share options                                                     20,678           2,254
                        Adjusted weighted number of ordinary
                        shares applicable to diluted
                        earnings per share                                           23,189,748      23,122,532
                        Basic earnings per share in CHF                                    8.446           0.006
                        Diluted earnings per share in CHF                                  8.438           0.006
116




Notes to the Balance Sheet


22 Fixed assets and software


CHF million                                                         Properties,   Properties,   Other fixed   IT software      Total
                                                                     including     buildings        assets,
                                                                     buildings          under     operating
                                                                       on third     financial    and office
                                                                        parties        leases   equipment
Cost                                                                       land
Balance at 1 January 2003                                              437.0           51.2        367.5           67.1      922.8
Acquisitions through business combinations                                   –             –             –             –           -
Other acquisitions                                                       63.1           0.1          96.6          14.8      174.6
Disposals                                                               (14.4)             –        (54.1)        (21.2)      (89.7)
Additions from initial consolidation                                      1.1              –           1.0             –        2.1
Adjustments/transfers                                                     4.3              –           0.1             –        4.4
Effect of movements in foreign exchange                                  18.8           3.7            0.5             –      23.0
Balance at 31 December 2003                                            509.9           55.0        411.6           60.7     1,037.2


Depreciation and impairment losses
Balance at 1 January 2003                                              105.8           30.0        248.7           67.1      451.6
Depreciation charge for the year                                         10.9           1.6          75.2          14.6      102.3
Disposals                                                                 (8.9)            –        (47.1)        (21.2)      (77.2)
Additions from initial consolidation                                         –             –           0.7             –        0.7
Adjustments/transfers                                                     0.3              –           0.1             –        0.4
Effect of movements in foreign exchange                                   5.2           2.2            0.9           0.2        8.5
Balance at 31 December 2003                                            113.3           33.8        278.5           60.7      486.3


Carrying amount
At 1 January 2003                                                      331.2           21.2        118.8               –     471.2
At 31 December 2003                                                    396.6           21.2        133.1               –     550.91

1
    fire insurance value as of December 31, 2003 CHF 644 million.
                                                                Consolidated Financial Statements:   Notes                                            117




23 Goodwill



CHF million                                   1/1/2003            Exchange          Additions    Disposals        Additions       Adjust-    31/12/2003
                                                                 differences                                    from initial      ments/
                                                                                                              consolidation     Transfers
Goodwill from acquisitions
of consolidated companies                        447.3               (41.4)              3.7             –                –             –        409.6
At cost                                          447.3               (41.4)              3.7             –                –             –        409.6
Goodwill from acquisitions
of consolidated companies                          82.6                (5.8)           34.9              –                –             –        111.7
Accumulated amortisation                           82.6                (5.8)           34.9              –                –             –        111.7
Impairment goodwill                              183.8               (19.2)                –             –                –             –        164.6
Net book value                                   180.9               (16.4)           (31.2)             –                –             –        133.3



24 Financial investments


CHF million                                   1/1/2003            Exchange          Additions   Disposals 1       Additions       Adjust-    31/12/2003
                                                                 differences                                    from initial      ments/
                                                                                                              consolidation    Transfers 2
Investments in associates
and joint ventures                                 21.7                  0.9             3.9         (3.1)                –        (5.2)          18.2
Investments in affiliated
companies 3                                        19.5                     –          10.5              –                –              –        30.0
Total                                              41.2                  0.9           14.4          (3.1)                –        (5.2)          48.2
Investments in associates
and joint ventures                                  2.6                     –              –             –                –        (2.6)             –
Investments in affiliated
companies                                              –                    –              –             –                –             –            –
Accumulated write-downs                             2.6                     –              –             –                –        (2.6)             –
Net book value                                     38.6                  0.9           14.4          (3.1)                –        (2.6)          48.2


1
    Dividends received Mio CHF 3.1
2
    transfer to consolidated investments due to purchase of remaining 50 per cent
3
    see note 3 in the Statements of Change 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 before Feb, 2006. 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 30.0 million, whereas the
market value is CHF 62.2 million as per December 31, 2003. Changes in value are credited to the equity.
118




      25 Work in progress    This position decreased from CHF 166.8 million in 2002 to CHF 159.1 million in 2003
                             which represents a billing delay of 5.1 working days (basis: 240 working days per year)
                             against the previous year’s 5.8 days.



      26 Trade receivables   Trade receivables outstanding as of year end averaged 38.6 days (2002: 37.7 days).
                             The ageing of the receivables outstanding changed as follows:

                             Ageing outstanding account                                          2003           2002
                                                                                               per cent       per cent
                             0–90 days                                                           93.3             92.3
                             91–180 days                                                           3.8             4.1
                             181–360 days                                                          0.9             0.9
                             over 360 days                                                         0.3             0.4
                             Doubtful accounts                                                     1.7             2.3
                                                                                                100.0          100.0



                             The provision for bad debts increased in 2003 by CHF 3.0 million to CHF 49.6 million
                             and represents 4.8 per cent of outstanding receivables as at December 31, 2003
                             (2002: 5.1 per cent).


                                     An amount of CHF 106.3 million represents receivables pledged to secure own bank
                             liabilities in the United States.


                             The movements in the provision for bad debts were as follows:


                             CHF million                                                         2003             2002
                             Balance 1/1                                                         46.6             49.6
                             add/less exchange differences                                          4.1           (1.5)
                             less write-off of non collectible receivables                        (9.8)           (8.4)
                             add addition to provision (note 16)                                   8.7             6.9
                             Balance 31/12                                                       49.6             46.6
                               Consolidated Financial Statements:               Notes                                                       119




        27 Other receivables   CHF million                                                                           31/12/2003      31/12/2002
                               Receivables from associates, joint ventures
                               and affiliates                                                                                  4.6        15.0
                               Advances to employees                                                                           2.5         2.3
                               Receivables from tax authorities
                               – refundable withholding tax                                                                    2.6         5.0
                               – refundable VAT                                                                              14.6         14.8
                               – advance payments of tax                                                                       9.7         2.3
                               Receivables from social security authorities                                                    3.2         1.9
                               Receivables from insurance companies                                                            0.4         1.7
                               Foreign currency contracts (positiv fair value)1                                                0.4         0.8
                               Other receivables                                                                               8.1         7.2
                                                                                                                             46.1         51.0

                               1
                                   The underlying amount of the contract is EUR 5.0 million (in 2002 EUR 10.6 million)




    28 Marketable securities   96 per cent of marketable securities are in custody at major Swiss and German banks.
                               The portfolio consists mainly of fixed rate bonds with high credit ratings. The marketable
                               securities have been valued at fair market value. All marketable securities are classified
                               as trading financial assets.



                               CHF million                                                                           31/12/2003      31/12/2002
                               Marketable securities are denominated in
                               following currencies:
                               – Swiss Francs                                                                                  6.5         5.1
                               – Euro                                                                                        13.6         36.9
                               – others                                                                                        6.2         1,8
                                                                                                                             26.3         43.8



29 Cash and cash equivalents   a. Cash and short term bank accounts

                               CHF million                                                                           31/12/2003      31/12/2002
                               Cash on hand                                                                                    2.2         1.7
                               Current and deposit accounts with banks                                                     704.81        775.1
                                                                                                                           707.0         776.8

                               1
                                   of which CHF 87.7 million is deposited in a bank account as collateral for a US$ bank overdraft



                               b. Short term bank liabilities

                               CHF million                                                                           31/12/2003      31/12/2002
                               Short term bank liabilities                                                                 299.8         534.7
                                                                                                                           299.8         534.7


                               CHF million                                                                           31/12/2003      31/12/2002
                               Net cash and cash equivalents                                                               407.2         242.1
120




      30 Share capital                                                         Balance 31/12/2003                       1/1/2003
                                                            Registered                    Capital       Voting         Registered
                                                                shares                     share         share             shares
                                                            of nominal                                                 of nominal
                                                           CHF 5 each         CHF                                     CHF 5 each
                                                               Number       million   per cent      per cent              Number

                                                       24,000,000           120.0                                24,000,000
                         Main shareholders
                         K.M. Kuehne, Schindellegi     13,380,000            66.9         55.75         57.69    13,380,000
                         SembCorp Logistics Ltd.,
                         Singapore                      4,800,000            24.0         20.00         20.70         4,800,000
                         Public shareholders            5,012,215            25.1         20.88         21.61         4,965,925
                         entitled to voting rights
                         and dividend                  23,192,215           116.0         96.63     100.00       23,145,925
                         Treasury shares                    807,785           4.0          3.37             –          854,075
                         Total                         24,000,000           120.0     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 three having taken
                         place on July 1, 2001, July 1, 2002 and July 1, 2003, the last offering will be made on
                         July 1, 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 summarises information about share options outstanding at
                         December 31, 2003:

                         Exercise period                           Strike   Number as         Number       Number      Number as
                                                                    price    of Jan 1,         issued     exercised    of Dec 31,
                                                                     CHF         2003                                       2003
                         July 1, 2004 – June 30, 2007             92.60       87,800                –            –       87,800
                         July 1, 2005 – June 30, 2008           111.00        77,650                –            –       77,650
                         July 1, 2006 – June 30, 2009             94.50               –      92,580              –       92,580

                         To date no options have lapsed.
                                    Consolidated Financial Statements:     Notes                                             121




31 Reserves and retained earnings   The development of the reserves and retained earnings in 2002 and 2003 is recorded in
                                    the consolidated statement of changes in equity on page 104.



             32 Minority interest   CHF million                                                          2003           2002
                                    Balance 1/1                                                            4.7               1.7
                                    Dividends paid                                                        (0.7)          (0.6)
                                    Additions                                                              0.3               2.8
                                    Disposals                                                                –          (0.3)
                                    Share in net earnings for the year                                     1.1               1.1
                                    Balance 31/12                                                          5.4               4.7



        33 Provisions for pension   CHF million                                        Pension       Severance           Total
              plans and severance                                                        plans       payments
                        payments    Balance 1/1/2003                                   138.3               9.2         147.5
                                    Exchange differences                                  9.8              0.3          10.1
                                    Amounts used                                        (13.1)            (1.4)        (14.5)
                                    Additions                                            19.6              4.4          24.0
                                    Balance 31/12/2003                                 154.6             12.5          167.1



                                    Pension plans
                                    The Group maintains defined benefit pension plans predominantly in Germany and Benelux,
                                    as well as defined contribution plans in some other countries. Retirement 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 funded status of CHF 168.5 million, as included below, includes an amount
                                    of CHF 149.1 million in Germany where the assets are not allocated specifically to the
                                    pension plan.


                                          The principal assumptions used in determining pension obligations for the Group’s
                                    plans are shown below:


                                    Principal assumptions used in determining                            2003           2002
                                    pension obligation                                                 per cent       per cent
                                    Discount rate                                                     2.0–8.0        2.0–7.0
                                    Expected rate of return on plan assets                            1.5–4.0        1.5–4.0
                                    Future compensation and pension increases                         2.0–2.5        2.0–2.5
122




                                     Development in CHF million
                                                                                                           2003            2002
                                     Net benefit expense
                                     – Current service cost                                                  6.8            6.4
                                     – Interest cost                                                       11.3            10.1
                                     – Actuarial (gains)/losses                                              3.7            0.5
                                     – Expected return on plan assets                                       (2.2)          (0.7)
                                     Net benefit expense                                                   19.6            16.3
                                     Benefit liability
                                     – Present value of benefit obligation                                210.4          184.2
                                     – Fair value of plan assets                                          (41.9)          (37.3)
                                     – Funded status                                                      168.5          146.9
                                     – Unrecognized actuarial gains / (losses) – net                      (13.9)           (8.6)
                                     Benefit liability                                                    154.6          138.3
                                     Movement in net benefit liability
                                     – Opening benefit liability                                          138.3          131.7
                                     – Net benefit expense (as above)                                      19.6            16.3
                                     – Exchange differences                                                  9.8           (1.5)
                                     – Benefits paid                                                      (13.1)           (8.2)
                                     Closing benefit liability (as above)                                 154.6          138.3



                                     Severance payments
                                     In certain countries such as Austria, Italy 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.



               34 Bank liabilities   CHF million                                                     31/12/2003      31/12/2002
                                     – Between 2–5 years                                                     0.3            6.7
                                     – After 5 years                                                         0.4            2.0
                                                                                                             0.7            8.7
                                     Of which secured by mortgages                                             –            5.6



      35 Finance lease obligations   CHF million                                                     31/12/2003      31/12/2002
                                     – Between 2–5 years                                                       –            6.2
                                     – After 5 years                                                           –                 –
                                                                                                               –            6.2
                                                  Consolidated Financial Statements:               Notes                                        123




36 Trade liabilities / Accrued trade expenses /   CHF million                                                              31/12/2003    31/12/2002
                        Deferred trade income     – Trade liabilities                                                          498.0         455.5
                                                  – Accrued trade expenses                                                     384.2         346.7
                                                  – Deferred trade income                                                       48.9          58.1
                                                                                                                               931.1         860.3



                           37 Other liabilities   CHF million                                                              31/12/2003    31/12/2002
                                                  – Personnel expense including profit participation
                                                      and untaken annual leave                                                 105.9          91.4
                                                  – Other operational expense                                                   59.3          53.2
                                                  – Interest payable                                                             5.5           8.7
                                                  – Pending claims         1
                                                                                                                                23.0          24.0
                                                  – Liabilities due to associates and affiliates companies                       4.5           3.7
                                                  – Bills of exchange payable                                                    0.8           1.4
                                                  – Other liabilities                                                           52.9          35.4
                                                                                                                               251.9         217.8



                                                  1
                                                      The movements in the provision for pending claims were as follows:



                                                  CHF million                                                              31/12/2003    31/12/2002
                                                  Specification of pending claims
                                                  Balance 1/1                                                                   24.0          30.2
                                                  – Amount used                                                                  (4.5)         (8.1)
                                                  – Release of provision                                                         (3.1)         (3.6)
                                                  – Additions                                                                    6.6           5.5
                                                  Balance 31/12                                                                 23.0          24.0




                                                  Some companies are involved in 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. Disclosure of the timing of the corresponding settlements is not practicable, as the
                                                  timing of final court decisions is unknown and dependent on legal procedures. Some legal
                                                  cases have been settled in the reporting period and corresponding payments have been
                                                  made.
124




38 Segment reporting



a) Primary reporting            Invoiced turnover          Gross profit                  EBITA                    EBIT

CHF million                   2003            2002     2003               2002    2003            2002    2003            2002
Seafreight                  4,492.5       4,028.5     632.9          588.8       152.8           131.8   147.7           120.7
Airfreight                  2,092.9       2,098.6     415.2          392.3        95.6            77.6    93.6            69.4
International Overland       749.8          514.3     127.1           86.7        15.2            12.5    14.1            10.7
Rail                         277.0          248.9      24.5           24.6         3.9             8.9     3.4              7.6
Customs Brokerage            682.5          637.4      56.6           57.8         2.2             2.8     2.2              2.6
International Forwarding    8,294.7       7,527.7    1,256.3      1,150.2        269.7           233.6   261.0           211.0
Warehousing                  818.9          779.0     675.5          623.5        20.2            17.2    (5.4)          (219.4)
Distribution                 348.2          378.2     102.7           91.5        10.6             5.7    10.5              5.7
Contract Logistics          1,167.1       1,157.2     778.2          715.0        30.8            22.9     5.1           (213.7)
Special Logistics                 –           51.9         –          19.1           –             6.6       –              6.6
Insurance Broker              86.2            68.2     29.8           26.9        15.4            13.7    14.9            13.4
Total KN Group              9,548.0       8,805.0    2,064.3      1,911.2        315.9           276.8   281.0            17.3




b) Secondary reporting          Invoiced turnover          Gross profit                  EBITA                    EBIT

CHF million                   2003            2002     2003               2002    2003            2002    2003            2002
Europe                      5,353.8       4,695.5    1,051.7         934.3       167.1           154.3   163.6           151.5
Americas                    2,607.4       2,657.8     706.4          699.4        46.6            33.4    15.1           (219.4)
Asia Pacific                1,003.0         893.5     236.0          218.4        95.0            83.7    95.0            83.6
Middle East, Central Asia
and Africa                   583.8          558.2      70.2           59.1         7.2             5.4     7.3              1.6
Total KN Group              9,548.0       8,805.0    2,064.3      1,911.2        315.9           276.8   281.0            17.3
                                      Consolidated Financial Statements:     Notes                                                  125




                                 Assets               Liabilities           Investments          Depreciation/         Other non cash
                                                                                                 amortisation             expense

CHF million                   2003         2002     2003            2002    2003      2002       2003       2002       2003      2002
Seafreight                   633.9        609.2    490.2       427.7        10.5      32.1       11.8       31.5        5.8        5.1
Airfreight                   389.7        374.0    283.4       279.2        18.6      18.0       18.1       20.7        2.7        1.9
International Overland       138.6         94.5    122.5            84.6     6.3          6.0     5.2            4.6    1.3        0.5
Rail                          45.1         44.7     45.2            41.6     1.3          3.1     2.4            2.7    0.8        0.3
Customs Brokerage             58.3         26.9     14.5            20.5     1.2          1.3     0.9            1.4    0.1        0.3
International Forwarding    1,265.6   1,149.3      955.8       853.6        37.9      60.5       38.4       60.9       10.7        8.1
Warehousing                  536.3        512.4    307.6       259.7       132.8    101.2        92.8      294.3       11.0        2.6
Distribution                 102.9        114.8     74.2            81.9     6.6          7.7     5.1            6.0    1.7        1.0
Contract Logistics           639.2        627.2    381.8       341.6       139.4    108.9        97.9      300.3       12.7        3.6
Special Logistics                 –        15.5         –           19.7       –          1.1        –           0.4      –        0.1
Insurance Broker              36.4         30.3     17.9            15.4     1.0          0.5     0.9            0.9      –        0.1
Unallocated corporate        778.7        871.6   1,364.4   1,463.6            –            –        –             –      –             –
Total KN Group              2,719.9   2,693.9     2,719.9   2,693.9        178.3    171.0       137.2      362.5       23.4      11.9




                                 Assets               Liabilities           Investments          Depreciation/         Other non cash
                                                                                                 amortisation             expense

CHF million                   2003         2002     2003            2002    2003      2002       2003       2002       2003      2002
Europe                      1,092.7       949.4    959.4       848.5       111.1      88.8       59.2       55.4       20.8        8.1
Americas                     533.7        589.7    188.1       192.5        56.6      69.8       67.5      293.5        2.2        3.1
Asia Pacific Region          223.4        204.9    146.8       131.9         6.6          4.7     7.2            6.4    0.1        0.6
Middle East, Central Asia
and Africa                    91.4         78.3     61.2            57.4     4.0          7.7     3.3            7.2    0.3        0.1
Unallocated corporate        778.7        871.6   1,364.4   1,463.6            –            –        –             –      –             –
Total KN Group              2,719.9   2,693.9     2,719.9   2,693.9        178.3    171.0       137.2      362.5       23.4      11.9
126




                                  OTHER NOTES



                 39 Personnel     As of year end the number                                        31/12/2003    31/12/2002
                                  of employees was as follows:                                         Number        Number
                                  Europe                                                               9,156         8,740
                                  Americas                                                             5,894         5,514
                                  Asia Pacific                                                         2,546         2,182
                                  Middle East, Central Asia and Africa                                 1,408         1,253
                                                                                                      19,004        17,689



      40 Contingent liabilities   As of year end the following contingent                          31/12/2003    31/12/2002
                                  liabilities existed:                                             CHF million   CHF million
                                  Guarantees in favour of third parties                                   7.6           7.2
                                  Contingent liabilities under unrecorded claims                         36.5          37.2
                                                                                                         44.1          44.4


                                  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 37) of CHF 23.0 million
                                  (2002: CHF 24.0 million).


                                        In addition, under a global logistic outsourcing contract guaranteed payments may
                                  occur, if Kuehne & Nagel does not meet certain future criteria.



           41 Other financial     As of year end the following financial commitments existed in respect of non cancellable
                 commitments      long term operating leases and rental contracts.



                                                                           Year       Properties     Operating        TOTAL
                                                                                   and buildings    and office
                                  CHF million                                                       equipment
                                                                          2004           113.2          25.9         139.1
                                                                          2005            86.1          17.4         103.5
                                                                          2006            62.1            6.2          68.3
                                                                          2007            50.9            2.0          52.9
                                                                          2008            42.8            1.5          44.3
                                                                 2009–2013               171.8            0.5        172.3
                                  Total                                                  526.9          53.5         580.4



                                  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.
                                 Consolidated Financial Statements:   Notes                                                127




        42 Other information     The total remuneration paid to the members of the Board of Directors and of the
                                 Management Board of Kuehne & Nagel International AG, Schindellegi, Switzerland
                                 amounted in 2003 to:


                                 – Board of Directors      CHF 3.8 million
                                 – Management Board        CHF 6.4 million


                                       As of December 31, 2003 neither loans nor any other commitments were outstanding
                                 towards members of the Board of Directors. Three members of the Management Board
                                 received interest bearing loans amounting to CHF 0.5 million to be repaid in May 2004.



43 Financial risk management     The Group is exposed to market risk, including primarily changes in interest rates and
       objectives and policies   currency exchange rates and uses foreign exchange contracts in connection with its risk
                                 management activities. The Group does not hold or issue derivative financial instruments
                                 for trading purposes.


                                 Interest rate risks
                                 The Group’s exposure to market risk for changes in interest rates relates primarily to
                                 the Group’s investment portfolio. The Group’s interest rate exposure on its liabilities is
                                 limited due to the short term nature of most of these borrowings. The Group does not use
                                 derivative financial instruments to hedge its interest rate risk in the investment portfolio.
                                 The portfolio includes mainly bonds traded in active markets to ensure portfolio liquidity.


                                 Currency risks
                                 The Group sells its services on a worldwide basis and, as a result, is exposed to movements
                                 in foreign currency exchange rates. Derivative financial instruments (foreign exchange
                                 contracts) are in use to hedge the foreign exchange exposure on recognised monetary
                                 items. Monthly payments are conducted through a Group clearing system in Euro, which
                                 facilitates monitoring and control of Group-wide exchange exposures. Forecast transactions
                                 are not hedged.


                                 Market risks
                                 Changes of fair values in financial assets or liabilities may have an impact on the earnings
                                 and the equity of the group. The exposures are not significant because the Group does not
                                 conduct significant financial or investing activities.


                                 Credit risks
                                 The Group considers its credit risk to be minimal as excess liquidity is invested in bonds
                                 and short term deposits with first class financial institutions.


                                        The Group has strict credit approval and monitoring procedures in place. Credit
                                 approval is necessary before credit is given to any customer. The Group conducts business
                                 on a worldwide basis and there are no significant concentrations of credit risks. In respect
                                 of trade receivables, it is considered that the level of bad debt provision and/or the credit
                                 insurance is sufficient to cover potential credit risk concentrations.
128




          44 Fair value of financial    The fair values of financial assets and liabilities are not material different from their net
               assets and liabilities   book values.



      45 Related party transactions     Freight forwarding and logistic transactions with associated companies are conducted at
                                        arm’s length.


                                             For other related parties refer to note 30 outlining shareholder’s structure and page
                                        130 to 133 listing the main consolidated companies, associates and joint ventures.



      46 Post balance sheet events      The company Pracht Spedition + Logistic GmbH (Pracht) with headquarter in Haiger/
                                        Germany was acquired by Kuehne & Nagel (AG & Co.) KG, Germany, as of 1.1.2004 from
                                        Hapag-Lloyd AG. Pracht is a member of the German IDS network. The main activity is over-
                                        land transport and logistics services. The company will be fully consolidated – 100% of
                                        the voting shares have been acquired. It was agreed between the parties that the purchase
                                        price will not be disclosed. Any goodwill arising from this transaction will be amortised
                                        over the estimated lifetime.


                                        Resolution of the Board of Directors
                                        The consolidated financial statements of Kuehne & Nagel International AG were authorised
                                        for issue by the Board of Directors on March 25, 2004. A resolution to approve the
                                        financial statements will be proposed at the Annual General Meeting of shareholders on
                                        May 12, 2004.
                                 Consolidated Financial Statements:    Report of the Group auditors                          129




 Report of the Group auditors    As Group auditors, we have audited the consolidated financial statements (consisting of
to the Annual General Meeting    the consolidated income statement, consolidated balance sheet, consolidated statement of
           of Kuehne & Nagel     changes in equity, consolidated cash flow statement and the notes to the consolidated
             International AG,   financial statements on pages 101 to 133) of Kuehne & Nagel International AG for the
     Schindellegi, Switzerland   year ended December 31, 2003.


                                        These consolidated financial statements are the responsibility of the Board of Direc-
                                 tors. Our responsibility is to express an opinion on these consolidated financial statements
                                 based on our audit. We confirm that we meet the legal requirements concerning profes-
                                 sional qualification and independence.


                                       Our audit was conducted in accordance with auditing standards promulgated by the
                                 Swiss profession and with International Standards on Auditing (ISA), which require that
                                 an audit be planned and performed to obtain reasonable assurance about whether the
                                 consolidated financial statements are free from material misstatement. We have examined
                                 on a test basis evidence supporting the amounts and disclosures in the consolidated
                                 financial statements. We have also assessed the accounting principles used, significant
                                 estimates made and the overall consolidated financial statement presentation. We believe
                                 that our audit provides a reasonable basis for our opinion.


                                        In our opinion, the consolidated financial statements give a true and fair view of
                                 the financial position, the results of operations and the cash flows in accordance with
                                 International Financial Reporting Standards (IFRS) and comply with the Swiss law.


                                       We recommend that the consolidated financial statements submitted to you be
                                 approved.




                                 KPMG Fides Peat

                                 Roger Neininger                      Regula Wallimann
                                 Swiss Certified Accountant           Swiss Certified Accountant
                                 Auditor in Charge



                                 Zurich, March 25, 2004
130




Main Consolidated Companies, Associates and Joint Ventures*
                                                                                         Share capital               KN share
Country                 Name of the company                               Location       in 1000                   in per cent



HOLDING- AND MANAGEMENT COMPANIES


Switzerland             Kuehne & Nagel International AG                   Schindellegi   CHF             120,000         100
                        Kuehne & Nagel Management AG                      Schindellegi   CHF               1,000         100
                        Kuehne & Nagel Internationale Transporte AG       Schindellegi   CHF                 750         100
                        Kuehne & Nagel Liegenschaften AG                  Schindellegi   CHF                 500         100
                        Kuehne & Nagel Treasury AG                        Schindellegi   CHF               1,500         100
                        Nacora Holding AG                                 Schindellegi   CHF                 500         100
                        Nacora Agencies AG                                Schindellegi   CHF                 400         100
                        Ferroviasped Holding AG                           Schindellegi   CHF               1,500         100
                        Kuehne & Nagel Asia Pacific Holding AG            Schindellegi   CHF               2,500         100

OPERATING COMPANIES


Europe

Albania                 Transalbania Ltd.                                 Tirana         ALL               9,300          51
Austria                 Kuehne & Nagel Speditions-AG                      Vienna         EUR               1,090         100
                        Kuehne & Nagel Ges.m.b.H.                         Vienna         EUR               1,820         100
                        Ferroviasped Internationale Transporte Ges.m.b.H. Vienna         EUR                  73         100
Belgium                 Kuehne & Nagel NV                                 Antwerpen      EUR               6,337         100
                        Stute-Montan BVBA                                 Antwerpen      EUR                  25         100
                        Ferroviasped Benelux NV                           Antwerpen      EUR                  75         100
                        Team Logistic NV                                  Antwerpen      EUR                 125         100
Bulgaria                Kuehne & Nagel e.o.o.d.                           Sofia          BGL                 365         100
                        Ferroviasped e.o.o.d.                             Sofia          BGL                 120         100
Croatia                 Kuehne & Nagel d.o.o.                             Zagreb         HRK               4,300         100
Cyprus                  Nakufreight Ltd.                                  Nicosia        CYP                  10          70
Czech Republic          Kuehne & Nagel spol. s.r.o.                       Prague         CZK              11,000         100
                        NHN spol.s.r.o.                                   Olomouc        CZK               5,000          60
Denmark                 Kuehne & Nagel A/S                                Copenhagen     DKK               5,000         100
Estonia                 Kuehne & Nagel Eesti OÜ                           Tallinn        EEK                 800         100
Finland                 OY Kuehne & Nagel Ltd.                            Helsinki       EUR                 200         100
France                  Kuehne & Nagel (France) S.A.                      Paris          EUR               7,000         100
                        Sodetair S.A.                                     Paris          EUR                 460         100
                        Kuehne & Nagel S.A.                               Paris          EUR                  38         100
                        Transalfra S.A.R.L.                               Paris          EUR                  45         100
Germany                 Cargopack Verpackungsgesellschaft
                        für Industriegüter                                Bremen         EUR                 307         100
                        KN Airlift GmbH                                   Kelsterbach    EUR                 256         100
                        Kuehne & Nagel (AG & Co.) KG                      Bremen         EUR              15,000         100
                        Kuehne & Nagel Beteiligungs-AG                    Bremen         EUR              10,277         100
                        Kuehne & Nagel Euroshipping GmbH                  Regensburg     EUR                 256         100
                        Stute Verkehrs GmbH                               Bremen         EUR               1,023         100
                        Transcharter GmbH                                 Munich         EUR                  51         100
                        Ferroviasped GmbH                                 Hamburg        EUR                 358         100
                        Pact GmbH                                         Hamburg        EUR                  50         100
                        CS Parts GmbH                                     Bremen         EUR               1,550          50
Greece                * Arion Real Estate & Commercial S.A.               Athens         EUR                 411          50
                      * Hellenic & Intern. Transport Company
                        ‘Proodos’ S.A.                                    Athens         EUR               3,900          50
                      * Sindos S.A. Warehousing & Logistics               Thessaloniki   EUR               4,549          50
Hungary                 Kuehne & Nagel Kft.                               Budapest       HUF             130,000         100
                        Ferroviasped Speditions GmbH                      Budapest       HUF               5,000         100
Ireland                 Kuehne & Nagel (Ireland) Ltd.                     Dublin         EUR                 500         100
Italy                   Kuehne & Nagel S.p.A.                             Milan          EUR               4,589         100
                        Ferroviasped S.r.L.                               Milan          EUR                 100         100
                                              Consolidated Financial Statements:   Investments                                 131




                                                                                                 Share capital              KN share
Country                     Name of the company                              Location            in 1000                  in per cent



Latvia                      Kuehne & Nagel Latvia SIA                        Riga                LVL               100          100
Luxembourg                  Kuehne & Nagel Spedition S.a.r.l.                Luxembourg          EUR             5,750          100
                            Kuehne & Nagel AG                                Luxembourg          EUR                31          100
                            Transfluvia GmbH                                 Luxembourg          EUR               250          100
Macedonia                   Kuehne & Nagel d.o.o.                            Skopje              MKD             8,232          100
Malta                       Kuehne & Nagel Malta Ltd.                        Hamrun              MTL                 6          100
Netherlands                 Kuehne & Nagel N.V.                              Rotterdam           EUR             3,313          100
                            KN Europe Holding B.V.                           Rotterdam           EUR                18          100
                            Stute International (Benelux) B.V.               Rotterdam           EUR                19          100
                            Stute Logistics Netherland B.V.                  Rotterdam           EUR               250          100
Norway                      Kuehne & Nagel A/S                               Oslo                NOK             3,100          100
Poland                      Faaberg Shipping Poland Ltd.                     Szczecin            PLZ                 4          100
                            Ferroviasped sp.z.oo                             Warszawa            PLZ             1,300          100
                            Kuehne & Nagel sp.z.o.o.                         Poznan              PLZ            18’350          100
                            Nakutrans-Poland sp.z.o.o.                       Poznan              PLZ                10          100
Portugal                    Kuehne & Nagel Lda.                              Porto               EUR               160          100
Romania                     Kuehne & Nagel Transport SRL                     Bucharest           ROL         1,000,000          100
Russia                      ZAO Kuehne & Nagel                               Moscow              RUR               274          100
                            OOO Kuehne & Nagel                               Moscow              RUR             4,107          100
                            OOO Kuehne & Nagel                               Sakhalin            RUR               500          100
                            OOO Nakutrans                                    Moscow              RUR               278          100
Serbia – Montenegro         Kuehne & Nagel d.o.o.                            Beograd             YUM             3,039          100
Slovakia                    Kuehne & Nagel spol.s.r.o.                       Bratislava          SKK             9,150          100
Spain                       Kuehne & Nagel S.A.                              Madrid              EUR             3,191          100
Sweden                      Kuehne & Nagel A/B                               Stockholm           SEK               500          100
                            Ferroviasped A/B                                 Stockholm           SEK             1,000          100
Switzerland                 Kuehne & Nagel AG                                Embrach             CHF             3,000          100
                            Ferroviasped Bahnmarketing & Speditions AG       Buchs               CHF             2,000          100
Ukraine                     Kuehne & Nagel Ltd.                              Kiev                UAK            21,997          100
                            Ferroviasped Ltd.                                Kiev                UAK               232          100
United Kingdom              Kuehne & Nagel (UK) Ltd.                         London              GBP             5,120          100
                            Kuehne & Nagel Ltd.                              London              GBP             4,000          100
                            Kuehne & Nagel (NI) Ltd.                         Belfast             GBP                10          100



North and Central America

Canada                      Kuehne & Nagel Canada Holding Inc.               Toronto             CAD              2,910         100
                            Kuehne & Nagel International Ltd.                Toronto             CAD              8,022         100
                            USCO Inc.                                        Montreal            CAD                  –         100
                            USCO Logistics Services (Canada) Inc.            Calgary             CAD                  –         100
Costa Rica                  Kuehne & Nagel S.A.                              San Jose            CRC                  1         100
El Salvador                 Kuehne & Nagel S.A. de C.V.                      San Salvador        USD                 69         100
Guatemala                   Kuehne & Nagel S.A.                              Guatemala           GTQ                291         100
Mexico                      Kuehne & Nagel S.A. de C.V.                      México’ D.F.        MXP             24,447         100
                            Almacenadora Kuehne & Nagel S.A. de C.V.         México’ D.F.        MXP             35,440         100
                            Kuehne & Nagel Servicios Administrativos
                            S.A. de C.V.                                     México’ D.F.        MXP                 50         100
Panama                      Kuehne & Nagel S.A.                              Panama              USD                  1         100
USA                         Kuehne & Nagel Investment Inc.                   Jersey City         USD              1,400         100
                            Kuehne & Nagel Inc.                              Jersey City         USD              1,668         100
                            USCO Distribution Services                       Naugatuck           USD                192         100
                            KN LeadLogistics Inc.                            Raleigh             USD                  1         100
132




                                                                                                     Share capital               KN share
Country                    Name of the company                                    Location           in 1000                   in per cent



South America

Argentina                  Kuehne & Nagel S.A.                                    Buenos Aires       ARS             2,000           100
                           Kuehne & Nagel (South America) Mgt. S.A.               Buenos Aires       ARS                12           100
Bolivia                    Kuehne & Nagel Bolivia Ltda.                           Santa Cruz         BOB               260           100
Brazil                     KN Servicios de Logistica Ltda.                        Sao Paulo          BRL             8,728           100
Chile                      Kuehne & Nagel Ltda.                                   Santiago           CLP           575,000           100
Colombia                   Kuehne & Nagel S.A.                                    Bogotá             COP         1,200,000           100
                           KN Colombia Aduana Sia S.A.                            Bogotá             COP           595,000           100
Ecuador                    Kuehne & Nagel S.A.                                    Quito              USD                 7           100
Peru                       Kuehne & Nagel S.A.                                    Lima               PEN               481           100
                           KN Peru Aduanas S.A.                                   Lima               PEN               173           100
Uruguay                    KN Cargo Systems International S.A.                    Montevideo         UYU             3,840           100
Venezuela                  Kuehne & Nagel S.A.                                    Caracas            VEB         1,000,000           100
                           KN Venezuela Aduanas C.A.                              Caracas            VEB             2,000           100

Asia Pacific

Australia                 Kuehne & Nagel Pty Ltd.                                 Sydney             AUD               2,900         100
Bangladesh                Kuehne & Nagel Ltd.                                     Dhaka              BDT              10,000         100
Cambodia                  Kuehne & Nagel Ltd.                                     Phnom Penh         USD                   5         100
China                     Kuehne & Nagel Ltd.                                     Hong Kong          HKD               1,560         100
                          Kuehne & Nagel (Asia Pacific) Management Ltd.           Hong Kong          HKD                 100         100
                          Transpac Container System Ltd.                          Hong Kong          HKD                 100         100
                          Kuehne & Nagel Ltd.                                     Macau              HKD                 971         100
India                     Kuehne & Nagel Pvt. Ltd.                                New Delhi          INR              40,000         100
Indonesia               * PT. KN –Sigma Trans                                     Jakarta            IDR             865,000          50
Japan                     Kuehne & Nagel Ltd.                                     Tokyo              JPY              80,000         100
Korea                     Kuehne & Nagel Ltd.                                     Seoul              KRW             500,000         100
Malaysia                  Kuehne & Nagel Sdn. Bhd.                                Kuala Lumpur       MYR               1,521         100
New Zealand               Kuehne & Nagel Ltd.                                     Auckland           NZD                 201         100
Pakistan                  Kuehne & Nagel (Pvt) Ltd.                               Karachi            PKR               2,000         100
Philippines               Kuehne & Nagel Inc.                                     Manila             PHP               2,500         100
Singapore                 Kuehne & Nagel Pte. Ltd.                                Singapore          SGD                 500         100
                          ST – KN PTE Ltd.                                        Singapore          SGD                 200          51
Sri Lanka                 Kuehne & Nagel (Pvt) Ltd.                               Colombo            LKR               2,502         100
Taiwan                    Kuehne & Nagel Ltd.                                     Taipei             TWD              20,000         100
Thailand                  Kuehne & Nagel Ltd.                                     Bangkok            THB              10,000         100

Middle East and Central Asia

Bahrain                   KN Mars W.L.L.                                          Manama             BHD                 100         100
Egypt                     Kuehne & Nagel Ltd.                                     Cairo              EGP               1,000         100
Israel                    Amex Ltd.                                               Tel Aviv           NIS                   2          75
Iran                      Kala Navgan Shargh Co. Ltd.                             Teheran            IRR               2,000          60
                          Sahand Tarabar International Transport &
                          Shipping Co. Ltd.                                       Teheran            IRR         5,000               54
Jordan                    Orient Transport Company Ltd.                           Amman              JOD           200            50.25
Lebanon                 * KN-ITS S.A.L.                                           Beirut             LBP       113,000               50
Saudi Arabia            * Orient Transport Company Ltd.                           Jeddah             SAR         1,000               50
Turkey                    Kuehne & Nagel Nakliyat Ltd. Sti.                       Istanbul           TRL 1,445,000,000              100
                          Kuehne & Nagel Tasimacilik Lojistik ve Tic. Ltd. Sti.   Istanbul           TRL     5,000,000              100
                          Ibrakom Deniz ve Tasim. Hizmetl. Ltd./Sti.              Istanbul           TRL     9,000,000               60
UAE                       Kuehne & Nagel L.L.C.                                   Dubai              AED         1,000              100
                          Kuehne & Nagel L.L.C..                                  Abu Dhabi          AED         1,000              100
                          KN Ibrakom FZCo., Jebel Ali Free Zone                   Dubai              USD           273               60
                          Ibrakom Cargo L.L.C.                                    Dubai              USD            82               60
                          Lloyds Maritime & Trading Ltd.                          London             USD             –               60
                          Ibrakom Logistics Ltd.                                  Isle of Guernsey   USD             –               60
                                      Consolidated Financial Statements:   Investments                                  133




                                                                                         Share capital               KN share
Country            Name of the company                               Location            in 1000                   in per cent



Africa

Angola             Kuehne & Nagel (Angola) Transitarios Lda          Luanda              AON               1,020         100
Kenya              Kuehne & Nagel Ltd.                               Nairobi             KES              63,995         100
Malawi             Kuehne & Nagel Ltd.                               Blantyre            MWK                 500         100
Mauritius          Nakufreight (Mauritius) Ltd.                      Port Louis          MUR               4,000          51
Mozambique         Kuehne & Nagel Mocambique Lda.                    Beira               MZM             132,600         100
Namibia            Kuehne & Nagel (Pty) Ltd.                         Windhoek            NAD                 340         100
South Africa       Kuehne & Nagel (Pty) Ltd.                         Johannesburg        ZAR               3,625         100
                   KN Tsepisa Logistics (Pty) Ltd.                   Johannesburg        ZAR                 100          60
Tanzania           DAL Forwarding (T) Ltd.                           Dar es Salaam       TZS              25,000         100
Uganda             Kuehne & Nagel Ltd.                               Kampala             UGX             418,000         100
Zambia             Kuehne & Nagel (Zambia) Ltd.                      Lusaka              ZMK              85,000         100
Zimbabwe           Kuehne & Nagel (Zimbabwe) (Pvt) Ltd.              Harare              ZWD                   –         100



INSURANCE BROKER


Europe

Belgium            Nacora Insurance Brokers NV                       Brussels            EUR                155          100
France             Nacora (France) S.A.                              Paris               EUR                 40          100
Germany            Nacora Versicherungsmakler GmbH                   Hamburg             EUR                 77          100
                   Gustav F. Hübener GmbH                            Hamburg             EUR                 26          100
Netherlands        Nacora Assurantiekantoor B.V.                     Rotterdam           EUR                 45          100
Spain              Nacora Correduria de Seguros SA                   Barcelona           EUR                150          100
Sweden             Nacora Assurans Finans Service AB                 Stockholm           SEK                100          100
Switzerland        Nacora Insurance Brokers AG                       Embrach             CHF                100          100
United Kingdom     Nacora Insurance Brokers Ltd.                     London              GBP                150          100

North America

Canada             Nacora Insurance Brokers Ltd.                     Toronto             CAD                  –          100
USA                Nacora Insurance Brokers’ Inc.                    Wilmington          USD                 25          100

Asia Pacific

China              Nacora   Insurance Brokers Ltd.                   Hong Kong           HKD                 500          70
                   Nacora   Insurance Brokers Ltd.                   Macau               HKD                  53          51
Malaysia           Nacora   (Malaysia) Sdn. Bhd.                     Kuala Lumpur        MYR                 100          70
Singapore          Nacora   Insurance Agency Pte. Ltd.               Singapore           SGD                 100         100
Taiwan             Nacora   Insurance Brokers Ltd.                   Taipei              TWD               2,000          70

Africa

South Africa       Nacora Insurance Brokers (Pty) Ltd.               Johannesburg        ZAR                 35          100

South America

Brazil             Nacora Weichert Corretagens de Seguros Ltda.      Sao Paulo           BRL                344          100
134                          Financial Statements:   Contents




Financial
Statements




135   Income Statement
136   Balance Sheet
138   Notes to the Financial Statements
                        Financial Statements:   Income Statement                     135




Income Statement

       CHF million                                                 Note    2003     2002

       Income
       Income from investments
       in consolidated companies                                     1     89.6     81.6
       Income from investments
       in associates and joint ventures                                     2.5      2.4
       Income from investments
       in affiliated companies                                              0.8      1.2
       Income from marketable securities                                    7.9      8.2
       Income from treasury shares                                          0.4        –
       Interest on loans receivable from consolidated companies      2      1.2     17.2
       Other interest income                                                2.2      4.2
       Exchange gains                                                       4.7      0.9
       Income on sale of consolidated companies                             0.1      0.4
       Income from recovery of receivables from
       consolidated companies previously written-down                       0.1      1.9
                                                                          109.5    118.0
       Expense
       Other operating expense                                             (1.7)    (2.1)
       Write-down of investments
       in consolidated companies                                     3    (14.1)   (22.9)
       Write-down of goodwill                                              (5.7)    (6.0)
       Interest on liabilities towards
       consolidated companies                                              (1.6)    (2.8)
       Other interest expense                                              (0.6)    (0.6)
       Exchange losses                                                     (5.2)   (17.3)
                                                                          (28.9)   (51.7)
       Income before tax                                                   80.6     66.3
       Tax income net                                                4      0.7      2.7
       Net earnings for the year                                           81.3     69.0
136




      Balance Sheet

              CHF million                                      Note   31/12/2003   31/12/2002
              ASSETS


              Non current assets                                 5
              Intangible assets                                               –          5.7
              Financial investments
              – Investments in consolidated companies            6        280.0        142.4
              – Loans receivable from consolidated companies                1.4          2.0
                                                                          281.4        150.1
              Current assets
              Prepayments and deposits                                      0.3          1.0
              Receivables from consolidated companies                      66.9         51.4
              Other receivables                                             2.9          3.3
              Marketable securities                              7         90.6        105.7
              Cash                                               8        365.8        500.7
                                                                          526.5        662.1




              Total Assets                                                807.9        812.2
                    Financial Statements:   Balance Sheet                                        137




CHF million                                                       Note    31/12/2003       31/12/2002
LIABILITIES


Equity
Share capital                                                       9         120.0           120.0
Reserves                                                           10         415.0           415.0
Reserve for treasury shares                                        11          64.4            64.7
Retained earnings brought forward                                  12           0.6              0.7
Net earnings for the year                                          13          81.3            69.0
                                                                              681.3           669.4


Provisions
Provision for tax                                                               0.1              0.9
Other provisions and accruals                                                   5.0              1.7
                                                                                5.1              2.6


Liabilities
Liabilities towards consolidated companies                                    121.5            75.2
Bank liabilities                                                                  –            65.0
                                                                              121.5           140.2




Total Liabilities                                                             807.9           812.2




                                                            Schindellegi, March 25, 2004


                                                            KUEHNE & NAGEL INTERNATIONAL AG
                                                            Klaus Herms        Gerard van Kesteren
                                                            CEO                CFO
138




      Notes to the Financial Statements 2003



                       GENERAL REMARKS


                       Kuehne & Nagel International AG directly or indirectly controls all of the companies which
                       are fully consolidated in the Group financial statements. For financial and economic assess-
                       ment purposes, the Group financial statements are of overriding importance. The financial
                       statements of Kuehne & Nagel International AG included in this part of the annual report
                       were prepared in accordance with the provisions of Swiss commercial law and serve as
                       complementary information to the Group financial statements.



                       FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES OF VALUATION


                       Financial investments
                       – The investments in consolidated companies and associates and joint ventures are
                         recorded in the balance sheet at cost. Write-downs are effected using the maximum
                         depreciation as allowed under Swiss commercial law. Once a write-down has been
                         recorded, it is not reversed, even if the earning power and/or the year-end equity position
                         subsequently improves.


                       – Loans receivable from consolidated companies are translated into CHF at year-end
                         exchange rates.


                       Receivables
                       – From consolidated companies
                         The balances outstanding are recorded at their nominal value at year-end.
                       – Other
                         Other receivables are recorded at their nominal value at year-end.


                       Marketable securities
                       Marketable securities are valued at market value. Unrealised gains and losses are recogni-
                       sed in the income statement.


                       Provision for tax
                       All taxes on income, profit, capital and real estate are provided for.


                       Liabilities
                       – Towards consolidated companies
                         Liabilities due to consolidated companies are recorded at their nominal value at year-end.
                       – Other
                         The other liabilities are recorded at their nominal value at year-end.
                                 Financial Statements:   Cash Flow Notes                                                   139




                                 NOTES TO THE INCOME STATEMENT


1 Income from investments in     The income from investments in consolidated companies mainly consists of dividends
      consolidated companies     received.



2 Interest on loans receivable   Interest income on loans receivable from consolidated companies relates to loans
 from consolidated companies     included under financial investments (see note 8) and current accounts with consolidated
                                 companies.



 3 Write-down of investments     The write-down of investments in consolidated companies is shown in the development of
   in consolidated companies     financial investments (note 7).



                        4 Tax    CHF million                                                             2003            2002
                                 Income tax                                                                0.7            2.9
                                 Non recoverable foreign withholding tax                                     –            (0.2)
                                 Tax income net                                                            0.7            2.7


                                 The company received legally binding tax assessments up to and including the tax year
                                 2002. The provision for tax covers all unpaid income and capital taxes related to the net
                                 income, capital, reserve, retained earnings as well as to the reserve for treasury shares for
                                 the year 2003 based on the company’s own calculation of the remaining tax liability.




                                 NOTES TO THE BALANCE SHEET


        5 Non current assets     The company’s non current assets consist entirely of financial investments and intangible
                                 assets. The analysis of financial investments and their development in 2003 is shown on
                                 page 140.


                                       Disclosure of significant matters is included in the footnotes on the above mentioned
                                 pages.


                                       The schedule containing the Group’s major investments with indications of the
                                 paid-in share capital and Kuehne & Nagel’s share in the respective equity is shown on
                                 pages 130–133 of this annual report.
140




  6 Development investments   CHF million                                                                                         Additions         Adjust-
                                                                                 Exchange                                       initial con-        ments/
                                                                  01/01/03      differences       Additions       Disposals      solidation       Transfers       31/12/03
                              Investments in:
                              – Consolidated companies               361.0                  –        151.1                  –               –              –         512.1
                              – Associates and joint
                                ventures                                 3.2                –               –         (0.1)                 –              –            3.1
                              – Affiliated companies                   98.4                 –            0.6                –               –              –          99.0
                              Total                                  462.6                  –        151.7            (0.1)                 –              –         614.2
                              – Consolidated companies               218.6                  –          13.5                 –               –              –         232.1
                              – Associates and joint
                                ventures                                 3.2                –               –         (0.1)                 –              –            3.1
                              – Affiliated companies                   98.4                 –            0.6                –               –              –          99.0
                              Accumulated write-downs                320.2                  –          14.1           (0.1)                 –              –         334.2
                              Net book value                         142.4                  –        137.6                  –               –              –         280.0



                     7 Marketable securities    CHF million                                                                               31/12/2003           31/12/2002
                                                Marketable securities are denominated
                                                in following currencies: 1
                                                – Swiss Francs                                                                                      6.5                     5.1
                                                – Euro                                                                                            13.5                 35.9
                                                – others                                                                                            6.2                       –
                                                Total marketable securities                                                                       26.2                 41.0
                                                Treasury shares 2                                                                                 64.4                 64.7
                                                                                                                                                  90.6               105.7

                                                1
                                                    Marketable securities consist of fixed rate interest bearing bonds due from first class debtors in Euro as well as of
                                                    shares of a major bank in Swiss Francs. The securities are deposited at two Swiss banks and one German bank.
                                                2
                                                    In 2003 the company sold under the stock option scheme 46,290 shares at a nominal of CHF 5 each for a
                                                    total consideration of CHF 3.5 million and adjusted the initial value of the Treasury shares bought in 2000 by
                                                    CHF 3.2 million.




                                      8 Cash    CHF million                                                                               31/12/2003           31/12/2002
                                                The deposits are in the following currencies:
                                                – Swiss Francs                                                                                  348.8                373.1
                                                – Euro                                                                                            16.5                 91.2
                                                – US Dollars                                                                                        0.5                36.4
                                                                                                                                                365.8                500.7
                                 Financial Statements:         Notes                                                                                 141




              9 Share capital                                                                     Registered
                                                                                                   shares at
                                                                                              nominal CHF 5
                                                                                               each Number                               CHF million
                                 Balance 31/12/2003                                           24,000,000                                            120

                                 For details refer to note 30 of the consolidated accounts on page 120 of the annual report.




                 10 Reserves                                                                           Capital               Legal             Capital
                                                                                                       reserve             reserve           and legal
                                 CHF million                                                                                                  reserves
                                 Balance 31/12/2003
                                 (before appropriation of profits)                                    355.0                    60.0            415.0




11 Reserve for treasury shares                                                                                                           CHF million
                                 Balance 1/1/2003           854,075 treasury shares                                                                 64.7
                                 Subsequent purchase price for own shares                                                                            3.2
                                 Disposal of 46,290 shares related to stock option scheme                                                           (3.5)
                                 Balance 31/12/2003            807,785 treasury shares                                                              64.4

                                 In agreement with the provisions of Swiss commercial law regarding the valuation of treasury shares, the company
                                 formed a reserve equivalent to the purchase price of the treasury shares (see note 7).



                                 Movements                                                                                     Sale
                                 treasury shares                                                                          Number   CHF per share

                                 Third quarter 2003                                                                       46,290               75.80
142




            12 Retained earnings                                                                                                       CHF million
                                     Balance 1/1/2003 (before income of the previous year)                                                    0.7
                                     Net earnings 2002                                                                                      69.0
                                     Distribution of earnings 2002 (according to the resolution
                                     of the ordinary shareholder’s meeting of 15/5/2003):
                                     Reclassification to Reserve for Treasury shares                                                         (3.2)
                                     Increase due to disposal of 46,290 shares
                                     related to stock option scheme                                                                           3.5
                                     Distribution to the shareholders                                                                       (69.4)
                                     Balance 1/1/2003 (after appropriation of profits)                                                        0.6




      13 Proposal of the Board of                                                                                                      CHF million
                  Directors to the   Balance 1/1/2003 (before income for the year)                                                            0.6
          Annual General Meeting     Net earnings 2003                                                                                      81.3
                   12/5/2004 re:
                                     Available earnings 31/12/2003                                                                          81.9
              appropriation of the
                                     Distribution to the shareholders
          available earnings 2003
                                     representing a 70 per cent dividend on the
                                     share capital of CHF 116.0 million 1                                                                   (81.1)
                                     Balance 1/1/2004 (after appropriation of available earnings)                                             0.8

                                     1
                                         Treasury shares with nominal value of CHF 4.0 million bear no dividend rights.




                                     OTHER NOTES


                    14 Personnel     The company has no personnel of its own and therefore utilises the central services
                                     of Kuehne & Nagel Management AG, Schindellegi, for its administrative requirements.
                                     The respective costs are included in other operating expense.



         15 Contingent liabilities   CHF million                                                                          31/12/2003   31/12/2002
                                     As at year end the following contingent
                                     liabilities existed:
                                     – Guarantees in favour of third parties                                                    0.2           0.2
                                     – Pending claims                                                                          36.5         37.2
                                                                                                                               36.7         37.4
                   Financial Statements:    Report of the statutory auditors                                   143




        Report of the statutory   As statutory auditors, we have audited the accounting records and the financial
auditors to the Annual General    statements (income statement, balance sheet and notes on pages 135 to 142)
   Meeting of Kuehne & Nagel      of Kuehne & Nagel International AG for the year ended December 31, 2003.
International AG, Schindellegi,
                   Switzerland          These financial statements are the responsibility of the Board of Directors.
                                  Our responsibility is to express an opinion on these financial statements based
                                  on our audit. We confirm that we meet the legal requirements concerning
                                  professional qualification and independence.


                                        Our audit was conducted in accordance with auditing standards
                                  promulgated by the Swiss profession, which require that an audit be planned
                                  and performed to obtain reasonable assurance about whether the financial
                                  statements are free from material misstatement. We have examined on a test
                                  basis evidence supporting the amounts and disclosures in the financial
                                  statements. We have also assessed the accounting principles used, significant
                                  estimates made and the overall financial statement presentation. We believe
                                  that our audit provides a reasonable basis for our opinion.


                                        In our opinion, the accounting records, financial statements and the
                                  proposed appropriation of available earnings comply with Swiss law and the
                                  company’s articles of incorporation.


                                        We recommend that the financial statements submitted to you be
                                  approved.




                                  KPMG Fides Peat

                                  Roger Neininger                     Regula Wallimann
                                  Swiss Certified Accountant          Swiss Certified Accountant
                                  Auditor in Charge



                                  Zurich, March 25, 2004
Corporate Timetable 2004


29.03.2004   Press Conference 2003 result
             Analyst Conference 2003 result

26.04.2004   Announcement Q1 2004 result

12.05.2004   Annual General Meeting

26.07.2004   Announcement Q2 2004 result

26.10.2004   Announcement Q3 2004 result
Kuehne & Nagel International AG
Kuehne & Nagel House
P.O. Box 67
CH-8834 Schindellegi
Telephone +41 (44) 786 95 11
Fax      +41 (44) 786 95 95
Email: kn.headoffice@kuehne-nagel.com
www.kuehne-nagel.com

								
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