Flattish performance as Panalpina edges away from oil and gas

The collapse in the oil price has led to the bottom falling-out of the market for many types of logistics services. The problem is that the impact of the reduction activity in the oil and gas sector has not been even. Mature fields in the Middle East continue to produce, however investment in developing new production in complex offshore fields has taken a severe hit.

It was these types of projects that provided a disproportionate demand for logistics services, either project cargoes, land-side supply or engineering support. It is unclear if these types of projects will return. Possibly there is insufficient capital expenditure to provide for greater oil demand in the medium-term, however such demand could be supported from either ‘nonconventional’ production in North America and beyond, or from the expansion of existing offshore capacity in Brazil, the Gulf of Mexico or Africa. It is very hard to guess this.

In such conditions of uncertainty Panalpina has moved to shrink its oil and gas logistics support business. The company’s CEO, Peter Ulber commented in its just released half-yearly results, “During the second quarter it became evident that the oil and gas business will not bounce back any time soon. Therefore, we decided to realign our capacities with the current volumes and not wait for the market to recover. We took the full restructuring costs in the second quarter instead of later”.

This has cost the company CHF26m in restructuring costs in the second quarter.

Despite this Ulber asserted, “the rest of the business continued to show considerable robustness against the backdrop of receding markets in air and ocean freight. The underlying profitability remained stable for the first half year.”

Certainly revenue fell significantly, from CHF2.9bn in the first half of 2015 to CHF2.6bn in the same period of 2016, but gross profit was flat and reported profit halved from CHF45m to CHF21.8m. Yet this fall in profit was accounted for by the restructuring costs. The underlying performance saw an improved performance by the air freight forwarding business, with second quarter volumes tonnage up 11%, although margins were slightly weaker. The sea forwarding division saw volumes fall due to a combination of lower oil and gas volumes and the loss of a big customer. Underlying margins were also weaker. ‘Adjusted’ Earnings Before Interest and Tax for Ocean Forwarding was CHF10.9m in the first half of 2016, as compared with CHF12.8m in the first half of 2015.

What Panalpina appears to be doing is realigning its business towards faster growing sectors through small acquisitions. Certainly the jump in air freight volumes owed a good deal to the purchase of a specialist in flowers between Kenya and Europe. Panalpina has indicated that such movements are likely to continue.

More Insight?

Source: Transport Intelligence, 27 July 2016

Author: Thomas Cullen