Panalpina improves profitability in flat market

Panalpina’s 2015 has not be hugely exciting but the company has still managed to drive-up its profits in the face of an unpleasant market.

The Basel-based forwarder had mixed top line numbers for the year, with revenue down 12.7% at CHF5,855m and Gross Profit down 7.1% CHF1,473.8m. However, after stripping-out the effects of the still strengthening Swiss Franc, revenue fell by 7.4% and gross profit by 0.9%. Profits were up 2% at CHF 88.2m, which represented a 16.3% increase after currency effects, whilst EBIT (Earnings Before Interest and Tax) rose by 15% after currency effects to CHF117.2m.

Many of the underlying measures were negative. Air freight volumes in tonnes fell by 2.5%, which Panalpina blames on lower demand in the oil and gas exploration logistics market, which is hardly surprising, but also in the automotive logistics market which is more surprising. Overall the air freight market shrank by 1%. Sea freight as measured by Twenty Foot Equivalent Units (TEUs) also fell slightly by 0.8% in a market which saw an estimated rise of 1% in volume.

These muted demand conditions resulted in lower rates, with the airfreight forwarding operation seeing gross profit down from CHF636.3m 2014 to CHF584.1m in 2015. This represented a 5.8% fall in in gross profit per tonne, itself compressing profit margins by around 2% and resulting in Earnings Before Interest and Tax (EBIT) falling from CHF 112m in 2014 to CHF88.5m in 2015. The EBIT to gross profit margin was down 2% to 15.4%.

In the sea freight business gross profit also fell from CHF491.5m in 2014 to CHF480.4m in 2015 whilst gross profit per TEU fell by 1.5%. Yet EBIT doubled to CHF26.6m, with profit margins rising by the same amount. The improvement in sea forwarding appears to be down to an emphasis on improving the quality of business, something that may explain the lower than market rate of growth.

A similar trend can be seen in the ‘logistics’ business with gross profit falling by 10.7% over the year yet breaking into positive territory with an EBIT of CHF2.1m as compared to a loss of CHF8.2m in 2014. Again this appears to have been achieved by continuing the policy of withdrawing from unprofitable contracts and rationalising fixed costs.

The message from Peter Ulber, Panalpina’s CEO and shortly to be Chairman, was that demand in forwarding 2016 would rise by 1-3%, with the first half of the year being particularly muted. However, Panalpina will look to grow faster than the market yet focus on higher margin and stable business combined with an emphasis on increased productivity through Information Technology.

1 CHF= 1US$

Source: Transport Intelligence, 2nd February 2016

Author: Thomas Cullen