Panalpina reports stable results as volumes surge

Panalpina’s nine month finances show that the company has been able to maintain stable profits during its turnaround of the Logistics division and drive towards higher volumes, despite falling unit profitability due to margin pressure and currency effects.

Panalpina’s volumes have climbed significantly over and above the market, recording year-on-year growth in air freight volumes of 4% and even more impressive growth in sea freight volumes of 8%. Panalpina attributed the improvement in sea freight volumes to growth in the market of approximately 4% and new business in the area of managed solutions.

However declining freight rates have meant that these surging volumes have not been sufficient to sustain revenue growth over the first three quarters of 2014. Net forwarding revenue declined by 1.44% over the period to CHF1.73bn. Meanwhile the company’s gross profit and EBIT both increased by 1% on the first nine months of 2013, reaching CHF1.18bn and CHF94.4m respectively. These figures constitute what Panalpina has called a stable result.

The net forwarding revenue result for Q3 is more heartening, with growth of 1.5% recorded over the third quarter of 2013, matched by a similar increase of 1.1% in EBITDA. Panalpina states that these figures show that its profitability strategy is bearing fruit.

In the Air Freight division the profit result was basically unchanged as gross profit per ton decreased by 5% year-on-year and volumes grew by 4%. Ocean freight told the same story, with gross profit per TEU declining by 8% to CHF309. Again this mirrored volume growth and led to a flat profit result.

These results were checked by the ever present negative impact of currency fluctuations on Swiss companies. When currency adjusted Panalpina recorded gross profit growth of 6% and EBIT growth of 4%.

The contract logistics division of Panalpina showed the most positive result of the period. It increased gross profit by 5% to CHF339.3m and cut its EBIT loss to CHF6.9m, an improvement on the loss of CHF26.8m from the first nine months of 2013. This was the result of the company’s efforts to introduce more efficient IT systems and develop warehousing activities into value added services.

This positive development led Peter Ulber, Panalpina’s CEO to comment, “With our Logistics business likely to reach break-even far earlier than anticipated, our main focus has now clearly shifted to improving our performance in Ocean Freight. We already produce high volumes, but we have to reengineer processes and roll out the next generation IT platform.” Such a change of emphasis could well be timely, with freight forwarding after all accounting for 89.81% of Panalpina’s revenue and 96.12% of EBITDA.

With high volume growth and stable results Panalpina has a strong platform on which to build profits. The crucial battle in the coming months will be trying to convert that volume growth into higher rates and subsequently higher profits.