Panalpina with market share gain, profitability improvement and strong free cash flow in third quarter 2010

In the first nine months of 2010, the Panalpina Group recorded strong volume growth with a 27% increase in Air and a 16% increase in Ocean Freight year-on-year while continuing to outpace the market in both segments; profitability per freight unit (currency adjusted) continued to increase quarter-on-quarter. Gross profit increased in the third quarter by 13% year-on-year (19% in local currencies). Productivity remained at high levels with expenses growing moderately to accommodate increasing shipment volumes. A settlement in the U.S. anti-trust case has been reached and the final settlement of the FCPA case is expected before year end.
“These results confirm that we are on the right path with our focus on a product-driven organization led by our industry verticals. We are continuing to outgrow the market with above average volume growth in both Air and Ocean Freight”, stated CEO Monika Ribar. “With a gross profit increase of 13% compared to the third quarter 2009, our customer-oriented growth strategy is showing results”, she said.

Double digit volume growth, increased gross profit and strong generation of free cash flow
Panalpina increased its forwarding volumes by 27% in Air and 16% in Ocean Freight in the first nine months of 2010. These results clearly surpassed the average market growth of 24-25% in air and 12-13% in ocean freight. However the market began to slow in the third quarter and this was largely due to less restocking activity, a higher comparison base and a shorter-than-usual peak season in ocean freight. Compared to the third quarter of 2009, gross profit rose by 13% (19% in local currencies) to CHF 382 million. The overall increase in gross profit was supported by double digit growth across all regions in local currencies. The company recorded strong development in free cash flow generation amounting to CHF 79 million in the third quarter 2010 (vs. CHF 46 million in the third quarter 2009); supported by a record low net working capital intensity of 1.7%. Cash and cash equivalents as per September 30, 2010 amounted to CHF 526 million.

Productivity remains high, moderate increase in operating costs
Increased shipping volume resulted in a moderate growth in the company’s overall operating costs in the third quarter. In order to accommodate the increase in shipping volumes and business wins, the number of personnel increased primarily in Asia and North America. This strategy has proven effective as productivity has remained at high levels and EBITDA rose to CHF 59 million in the third quarter 2010 (vs. CHF 22 million in the third quarter 2009).

New products
In the third quarter Panalpina successfully launched its additional new own controlled regular air freight services connecting Luxembourg with the new Dubai World Central-Al Maktoum International Airport and as a result was the first ever scheduled freighter service to call at the new state-of-the-art airport. Dubai is now being regularly served as part of Panalpina’s new round the world rotation connecting Luxembourg, Dubai, South Africa, Hong Kong, North America and Latin America. The service enables the company to offer its customers a unique and highly flexible solution for time sensitive airfreight, including fast turnaround times from cargo arrival to delivery. At the same time, Panalpina introduced a new express service to Brazil with an airport-to-airport transit time of 30 hours from Hong Kong via Huntsville, Alabama to São Paulo in order to meet the high demand for fast and reliable connections from Asia to Brazil.

Settlements with U.S. authorities nearing closure
The U.S. antitrust case was settled in the third quarter and Panalpina will pay a related fine of USD 12 million to U.S. authorities. The U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) FCPA-related investigations have been completed and finalization of the settlement formalities is expected by the end of the year. Both cases in the U.S. are covered by the CHF 128 million provision which was charged to the 2010 second quarter financial statements. This amount does not include any provisions for ongoing anti-trust investigations in Switzerland, the EU, New Zealand and Brazil as Panalpina is unable to predict the amount of any potential fine. A statement of objections was received from EU competition authorities in February 2010 and Panalpina submitted a written response at the end of April. An oral hearing before the Commission’s case team took place in July and no decision is expected before mid-2011.

Panalpina Group: Key figures for the third quarter of 2010

(CHF million) Q3 2010 Q3 2009 YTD 2010 YTD 2009
Forwarding services 2,258 1,765 6,510 5,471
Net revenue from forwarding services 1,874 1,415 5,355 4,389
Gross profit 382 338 1,089 1,065
EBITDA 59 22 6 73
Compliance provision 128
EBITDA (adjusted) 59 22 134 73
EBIT 50 11 (29) 38
Compliance provision 128
EBIT (adjusted) 50 11 99 38
Consolidated profit 34 5 (59) 22
Compliance provision 128
Consolidated profit (adjusted) 34 5 69 22
2010 Third Quarter Review – Datasheet (English) 518 Kb
Investor presentation 3Q10final.pdf 489 Kb

Entering the final quarter of 2010, CEO Monika Ribar comments that “our targets for 2010 are well on track for full achievement in 2010. We have further strengthened the organization with the appointment of 3 new product heads (Air Freight, Ocean Freight, Logistics) who will join the company in early 2011. Fulfilling these key positions with recognised industry leaders marks the completion of the adaptations to our organization which we announced earlier this year. I believe that our focus on customers, products and industry verticals will support our goal to continuously expand our market share. I am very pleased with our increase in profitability which will remain a priority going forward.”

In the fourth quarter 2010, Ms. Ribar is expecting a deceleration of volume growth rates and does not see a peak season shaping up as it has in the past. The peak season for air freight will only be moderate and in ocean freight, the peak season is already over with restocking having taken place early as businesses attempted to avoid shortages and anticipated peak season rates.

Based on the strong year-to-date volume development, Panalpina reiterates its forecasted market growth of at least 15% in air freight and 10% in ocean freight in 2010.

The Panalpina Group
The Panalpina Group is one of the world’s leading suppliers of forwarding and logistics services, specializing in global supply chain management solutions and intercontinental air freight and ocean freight shipments and associated supply chain management solutions. Thanks to its in-depth industry know-how and state-of-the-art IT systems, Panalpina provides globally integrated door-to-door forwarding solutions tailored to its customers’ individual needs. The Panalpina Group operates a close-knit network with some 500 branches in 80 countries. In a further 80 countries, it cooperates closely with partner companies. The company has about 15,000 employees.

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