Panalpina controls costs in dull market

Another forwarder battered by the rise of the Swiss Franc, Panalpina appeared to have inched ahead in terms of underlying profits over the past half-year.

In results released last week overall ‘consolidated profit’ was up 2.8% year-on-year at CHF45.3m (US$47.3/€42.7), however allowing for currency appreciation Panalpina calculated that this represented a 9.7% increase. On the same adjusted basis EBIT was up 7.1% whilst gross profit increased 2.2%.

Panalpina’s air freight forwarding business saw volumes fall noticeably at 5% in the second quarter of the year after a modest rise of 1% in the first quarter. This compared with a market which, Panalpina assessed, was rising at around 1-2% year-on-year. The yield from the business also edged down, with gross profit and gross profit per tonne falling. However lower costs delivered a sharp rise in margins in the second quarter, even if they remain below last years levels. As with the headline results the performance of the division has been heavily affected by currency effects. However the underlying picture appears to be one where Panalpina has been hit by falling demand, particularly in oil and gas related business where it is traditionally strong.

The picture in the ocean forwarding business is fairly similar. Although volumes tracked the market, in Swiss Franc terms gross profit fell. Yet the quality of earnings improved as EBIT/gross profit bounced back in the second quarter to 8.3% compared to a negative result in Q4 2014. The modest sized logistics business remained in the black but gross profit continued to fall back, in part due to contract rationalisation.

The position of Panalpina is slightly obscured by the effects of the strength of the Swiss Franc. However judging by the dynamics of volumes handled by the company, the business is subdued and Peter Ulber, Panalpina’s CEO, appears cautious about the market generally. Fairly central to its prospects in the short-term has been the ability to control costs, not least by shrinking the workforce, as well as through improving productivity through IT. This may deliver higher income for the next few quarters.