Panalpina with strong free cash flow generation and stringent cost control but lower volumes and gross profit

Mar 11, 2010

In 2009, Panalpina, the global forwarding and logistics service provider, has transported lower volumes and generated a smaller gross profit, compared to 2008, for a variety of reasons, including a harsh economic environment and a very volatile market. Trade global volumes dropped at an unprecedented rate, affecting most core markets. Net forwarding revenue decreased by 32.9%, gross profit by 20.9% (16.9% in local currencies) and consolidated profit by 90.8%. The company reacted early to the difficult situation, downsizing its cost base by 14% and thus over-achieved its cost reduction target. The focus on cash generation resulted in a free cash flow increase of 33% to CHF 226 million. Panalpina also adapts its organizational structure due to the changed market environment.

“2009 could hardly have been a more turbulent and challenging year, both for the forwarding and logistics industry as well as for Panalpina”, says CEO Monika Ribar. “Although we reacted quickly on the cost side and increased productivity, the measures taken could not compensate for the sharp fall in volumes and a rapid increase in buying rates in the second half of the year. However, we have taken appropriate actions on the procurement and sales side as well as on the organizational structure of the company which will positively influence our performance in 2010. We are confident to grow at least at market level this year”, she comments further.

Panalpina Group: consolidated results 2009

in CHF million20092008Q409Q408
Forwarding services7,34010,5971,8692,570
Net forwarding revenue5,9588,8781,5692,158
Gross profit1,3771,742311434
Consolidated profit10114-119
Free cash flow2261706554
Dividend per share in CHF-*1.9  

*Proposal for submission to the Annual General Meeting on 4 May 2010

Development of air freight and ocean freight

Overall, Panalpina transported 731,000 tons of air freight (-19% compared to 2008) and 1,103,000 TEU (Twenty foot equivalent unit) in ocean freight (-14%). On some trade lanes the development of capacity and the volatility of freight rates were underestimated. The company suffered due to its relatively high proportion of business with large companies which have reduced trade volumes considerably in 2009. Some business was lost as a consequence of the ongoing FCPA investigation by the US Department of Justice.

Gross profit development

Gross profit declined to CHF 1,377 million. Apart from lower transport volumes and the very volatile rate-development, gross profit was in addition negatively affected in the EMEA and North America regions by the full-year impact of the discontinuation of the Nigerian business, amounting to approximately CHF 42 million.

EBITDA development

The group’s EBITDA decreased from CHF 241 million in 2008 to CHF 80 million in 2009. The development of EBITDA was positively impacted by lower personnel expenses which decreased from CHF 992 million in 2008 to CHF 879 million in 2009. The substantial savings in personnel expenses mainly came from the cost-reduction program which the Group implemented at the end of the first quarter in reaction to the sharp volume declines and which resulted in the company reducing its workforce by some 12% or approx. 1,800 FTE.

Other operating expenses dropped from CHF 509 million in 2008 to CHF 419 million in 2009. Figures for the fiscal years 2009 and 2008 comprise expenses related to the ongoing FCPA and anti-trust investigations. Legal and consulting fees negatively impacted EBITDA by CHF 45 million in 2008 and by CHF 55 million in 2009.

Change of the organizational structure

In order to react with increased speed and determination to changing market conditions and accelerate growth across all products and industry verticals, Panalpina restructures its organization by combining the sales, procurement and operations functions under the leadership of the COO, Karl Weyeneth. Dominik Tichelkamp (former Chief Product & Procurement Officer) has decided to leave the Group. The future tasks of Sandro Knecht (former Chief Marketing & Sales and Supply Chain Management Officer) will be communicated in due course.

Compliance organization and new products

Panalpina has considerably invested into building up a rigorous and industry-leading compliance structure over the last two years, providing the Group with an additional competitive edge in the medium-term. Furthermore, the company has achieved various milestones in further strengthening its sales and product structure. During the course of the year, Panalpina has not only extended the service offering by defining and launching a range of new, group-wide supply chain management products, but has also worked out a trade lane concept with the goal to propel sales and improve profitability. Another important milestone in 2009 includes a new management information system (MIS) which greatly improves the level of visibility and transparency on customer, tradelane and core product level. Panalpina believes that there is considerable growth potential in the segment of end-to-end less than container load services (LCL) in ocean freight. The company therefore initiated over 20 new services on different trade routes, among them new seamless connections between Belgium and the USA as well as between China and Poland.

FCPA (‘Foreign Corrupt Practices Act’) investigation

The investigation has been substantially completed, and in December 2009, Panalpina commenced settlement discussions with the respective US authorities. This process may take several months until finalization. As of December 31, 2009, no provisions have been made, as management does not have sufficient information to reliably estimate the related financial impact.

Industry-wide antitrust investigation

Investigation activities are ongoing in Switzerland, the EU, the USA, and New Zealand. In Canada and Australia, the competition bureaus have closed their investigations due to a lack of evidence. Panalpina is fully cooperating with the competition authorities in jurisdictions which are still being investigated. In February 2010, Panalpina was served with a Statement of Objections by the European Commission (EC), which contains the EC’s preliminary view with respect to alleged anticompetitive behavior in the freight forwarding industry. It is not possible to predict the outcome and related potential fines of these proceedings at this stage. Therefore, no related provisions have been made.

No dividend distribution and new BoD members

Based on the results for fiscal 2009, the Board of Directors of Panalpina World Transport (Holding) Ltd. proposes to the Annual General Meeting to refrain from distributing a dividend. At the upcoming General Assembly of 4 May 2010 three present members of the Board of Directors – Wilfried Rutz, Yuichi Ishimaru and Glen R. Pringle – will not run for reelection. In exchange Beat Walti (born 1968, Swiss citizen, partner with lawfirm Wenger & Vieli AG / Switzerland), Hans-Peter Strodel (born 1943, Swiss citizen, former CFO of Swiss Post) and Chris E. Muntwyler (born 1952, Swiss citizen, former CEO of DHL Express (UK) Ltd.) will stand for election.


“The overall visibility for 2010 remains low”, explains CEO Monika Ribar. “However, Panalpina believes in a moderate recovery of both the air freight and ocean freight markets with mid single-digit growth rates”, she added. The company is confident to grow at least with the market. “In order to strengthen the company’s competitiveness, we shall put a lot of focus on growing profitably and to continue to tightly manage our cost base and cash generation. In the future, we also commit ourselves to better balance profitability versus pure volume gains”, Monika Ribar elaborates. “We will leverage our leadership in the field of compliance which will be crucial to gain back lost business and to generate new business in the future, particularly in the oil and gas industry and in the industrial projects vertical”, she says. Other key elements concern the strengthening of the global sales organization and the expansion of the supply chain management product portfolio.

About Panalpina

The Panalpina Group is one of the world's leading providers of supply chain solutions. The company combines its core products of Air Freight, Ocean Freight, and Logistics to deliver globally integrated, tailor-made end-to-end solutions. Drawing on in-depth industry know-how and customized IT systems, Panalpina manages the needs of its customers' supply chains, no matter how demanding they might be. Energy Solutions is a specialized service for the energy and capital projects sector. The Panalpina Group operates a global network with some 500 offices in more than 75 countries, and it works with partner companies in a further 90 countries. Panalpina employs 15,000 people worldwide who deliver a comprehensive service to the highest quality standards – wherever and whenever.