Panalpina’s profits rise driven by control of losses at logistics business

Panalpina has continued its recovery through 2014 to see a doubling of profits for the year. Yet the increase in sales was much more modest with barely any increase in revenue and gross profit up only 2%.

Net revenue was flat at CHF6.7bn (€6.2bn) but ‘consolidated profit’ leapt from CHF11.7m last year to CHF86.5m (€80.8m) this year. EBIT was up over 50% to CHF 116.7m (€108m). However it should be noted that the 2013 numbers were depressed by write-offs and exceptional items.  

In wider terms the picture is a familiar one in terms of moderate demand growth but a tough pricing environment. However Panalpina is improving its cost structure and it is this that is driving profits higher.

Of its individual businesses the largest, Air Forwarding, saw volume increase by 4%. This was better than the market as a whole, yet gross profit was up only 1% as pricing in the market remained difficult. At the operational level, profits edged down with EBIT falling by CHF7m to CHF112m for the full year, although the company has adjusted the 2013 number upwards from CHF72.8m to CHF119m making comparisons less clear. Panalpina commented that these results were affected by continuing costs of investments in IT.

The position in Ocean Freight was not hugely different. Volumes grew at 7%, a couple of points above the market but gross profit was effectively unchanged at CHF491.5m due to soft rates. EBIT fell heavily to CHF12.9m due to a halving of margins as well investments in IT.

The big positive change was in Panalpina’s ‘Logistics’ business which saw losses reduced markedly. Through the elimination of loss making businesses as well as the success of products such as “Logistics Manufacturing Services” it saw a CHF8.2m loss, an improvement from 2013’s CHF49.9m loss. Gross profit was up 5%. Panalpina described itself as being “well ahead of schedule” in turning this business around.

Although the headline number looks impressive, the two main businesses of Panalpina have not prospered noticeably in 2014, having been hampered by weak rates and expenditure on new IT. What has made the difference has been stemming the losses at its logistics division. CEO Peter Ulber is clearly attempting to pull Panalpina into a more coherent entity, in part through investment in new ERP systems. If this is successful the logistics business ought to start making a positive contribution. However the company also needs to be able to grow more profitably in the tough market for air and sea forwarding if performance is to improve on a long-term basis.