Panalpina – a leading asset-light forwarding and logistics provider
Zurich, 27th August 2009UBS Swiss Small & Mid Cap Summit
UBS Swiss Small & Mid Cap Summit
27th August 2009 2
Comprehensive global network
� Worldwide no. 3 in Air freight, no. 4 in Ocean freight
� Among top 15 in Supply Chain Management
� 500 own offices in over 80 countries
� > 13’000 employees
Financial highlights (2008)
� Net forwarding revenue: CHF 8.9 billion (€ 5.6 billion)
� Gross profit: CHF 1.7 billion (€ 1.1 billion)
� EBITDA: CHF 241 million (€ 152 million)
� Net earnings: CHF 114 million (€ 72 million)
Panalpina at a glance
Air Freight
Three business segments
Six industry verticals
AutomotiveHealthcare &
ChemicalsRetail & Fashion Hi-Tech Telecom Oil & Gas
Ocean Freight Supply Chain Management
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Air freight Ocean freight Non-containerized*
1.35 million tons (2008)
*non-containerized break bulk cargo from Oil & Gas and Special Project forwarding
791 000
2005
1 233 000
2007
923 000
2005
947 000
2007
901 000 tons (2008)
874 000
2006
1 278 000 TEU (2008)
1 084 000
2006
901 000
2008
1 278 000
2008 20082007
1.20
1.35
20062005
0.70
0.95
Many years with above-market growth…
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27th August 2009 4
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
ROCE (1999-2008)*
Source: Panalpina
• Long history of delivering attractive returns, in line with industry top performers
• Value creation through consistently exceeding the cost of capital
• Long history of delivering attractive returns, in line with industry top performers
• Value creation through consistently exceeding the cost of capital
…and industry-leading returns
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Expeditors
Kühne +
Nagel
Panalpina
UTI
Agility
DSV
Toll Holdings
CEVA
Logistics
Return on Capital Employed (ROCE)* in 2008
Source: Annual reports
*ROCE defined as EBIT before special items less taxesin % of average equity plus net debt
*2007/08 on the basis of EBIT before special items
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Regions
Central and South America (10%)
Asia / Pacific (16%)
Europe / Africa / Middle East / CIS (56%)
North America (18%)
Gross profit 2008:
CHF 1’742 million
Business segments
Supply Chain Management (25%)
Air Freight (43%)
Ocean Freight (32%)
Gross profit distribution per region and business segment
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Panalpina stands for global presence and complex supply chain solutions – with ambitions to grow further
DBSchenkerAGLT
CEVA
EXPD
UTIW
CHRW
KWE
TOLL
PWTN2015
KNINDHL GF
Global network
Complexity of service offering
Bubble size refers to turnover (in $bn) in 2008.
PWTN2008
DSV
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Source: IMF, World Bank, U.S. Census Bureau (August 2009)
Precedent years
• High GDP growth, driven by emerging markets
• Trade growing at a 1.5 multiple of GDP
• Sales growing faster than inventories
Present
• Trade forecasted to shrink much more than GDP in 2009
• Investments into emerging markets decreasing
• Inventories falling, but due to collapse of demand 50% of U.S. shippers do not expect restocking to occur before 2010.*
Future
• Is a major short-term boost from restocking activity on the horizon?
• Will we get back to the growth figures seen in recent years?
• Will trade still outpace GDP growth as a rule?
Currently, trade is being hit much harder than production…
World trade and GDP growth forecasts (%)
Forecast
Total U.S. business inventories/sales ratio
*Source: Wolfe Research Shipper Survey, August 2009
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
2010E
YoY change in %
Global real GDP growth World trade growth
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…as a result, 2009 volumes are tracking far below 2008…
Panalpina air freight volumes(absolute and % y/y)
Panalpina ocean freight volumes(absolute and % y/y)
• Volumes double-digit below prior year in all months for both air and ocean
• Visibility of business environment remains low, although there are recent signs of improvement.
• Volumes double-digit below prior year in all months for both air and ocean
• Visibility of business environment remains low, although there are recent signs of improvement.
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Tons 2009 y/y in %
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
TEUs 2009 y/y in %
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…partially compensated by GP margins at record levels…
10%
15%
20%
25%
30%
35%
40%
45%
Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009
Air Ocean SCM
Gross profit margins business segments
GP margins have reached historically high levels as a result of:
•Declining freight rates to record low levels
•Falling oil prices, resulting in lower fuel surcharges
•Focus on profitable business, resulting in high GP per cargo unit
GP margins have reached historically high levels as a result of:
•Declining freight rates to record low levels
•Falling oil prices, resulting in lower fuel surcharges
•Focus on profitable business, resulting in high GP per cargo unit
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…and productivity improvements through FTE reduction
Development of FTE’s and FTE productivity (shipments handled per FTE)
• Productivity declined sharply as a result of strongly falling volumes towards year-end 2008
• FTE reduction initiated in March 2009 helped to improve productivity
• Positive recent trend reinforced through customers’ tendency to opt for smaller shipment sizes
• Productivity declined sharply as a result of strongly falling volumes towards year-end 2008
• FTE reduction initiated in March 2009 helped to improve productivity
• Positive recent trend reinforced through customers’ tendency to opt for smaller shipment sizes
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
FTE SHI/FTE
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The fundamental growth drivers are intact…
• Shippers will continue to expand their reliance on
leading logistics partners as SCM complexity and cost
pressure continue to challenge int’l freight movements.
• Further consolidation of the market is likely, given the
high fragmentation, financial constraints of smaller
competitors and the importance of economies of scale.
• Forwarding and logistics companies continue to grow
their share of the market pie as asset owners
concentrate on their core competences.
• Economic growth will come back at some point and –
coupled with the ongoing globalization process – will
spur international trade.
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…however a U-shaped scenario is assessed by Panalpina to be the most probable one
• Optimistic scenario• Economy close to hit bottom• Fiscal stimulus leading to rebound already before 2010• Quick recovery, similar speed as decline
• Base scenario: long U-shape• Bottom to be reached towards year end• Recession lasting well into 2010• Gradual recovery of markets and turnaround during 2nd
half of 2010 with reviving trade flows and globalization
• Air volumes back at 07 levels in 2013 and ocean in 2012
• Worst case: L-shaped, similar to “lost decade” in Japan• Still long way until bottom is reached• Depression to last 3-5 years or longer• Downward spiral resulting from mass layoffs, collapse of consumer spending, protectionism and reversed globalization
2010
today
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Sales and earnings growth peer group Profit margins (conversion ratio) peer group
Median for Panalpina, Kühne & Nagel, Expeditors, UTiWorldwide, CH Robinson, DSV
Median for Panalpina, Kühne & Nagel, Expeditors, UTiWorldwide, CH Robinson, DSV
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E
YoY change
Net forwarding revenue Gross profit EBITDA
?-5%
0%
5%
10%
15%
20%
25%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E
Conversion ratio in %
EBITDA/GP margin EBIT/GP margin
?
Forwarding proved to be resilient to margin pressure during past down cycles
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The company is well positioned to weather the storm…
Panalpina is well positioned:
• People business: motivated staff, ‘can do’ attitude
• Global network
• Diversified across industries and trade lanes
• Asset-light (most asset-light of any publicly listed logistics companies)
• Strong balance sheet
Key success factors in freight forwarding:
• Be globally present
• Be responsive to customer needs
• Deliver constantly high quality
• Be able to provide complex logistics solutions beyond transportation
• Manage subcontractors
• Continued focus on expense control
• Be able to work in a network and exploit synergies
• Have an impeccable image and compliant underlying procedures
• Be innovative
• Have sufficient financial strength
• Have an integrated IT
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…and is on track to achieve its short- and mid-term targets
2009 financial targets
� Downsize global FTEs by ~1‘500 (10% of workforce)
� Reduce operating expenses by CHF 130 million (seebelow for details)
� Adapt cost structure in line with volume development
� Preserve cash (tight NWC management, low capex, travel ban, no share buybacks)
Status quo
� Number of FTE‘s reduced by >1‘700 as per 30 June
� Full financial benefits (‚run rate‘) from personnel costsavings will be visible in second half of 2009
� Contingency plans in place in case that volumedevelopment in second half-year deviates materiallyfrom internal assumptions
40 Net organic savings
50 Organic savings (resulting from FTE reduction and other implemented cost measures)
-10 Severance provisions (booked in 1Q09 due to FTE reduction)
48 One-time costs incurred in 2008 (risk provisions, liquidation Nigerian subsidiary)
37 Reduced cost base as a result of discontinued business as of 1 Oct 2008
5 Reduction in anticipated legal fees in 2009 vs. 2008
130 Cost reduction target in 2009
Other targets
� Continue to gain market share
� Implementation of various long-term efficiencyimprovement initiatives
� Resolve pending investigations
Recap of 2009 cost reduction target (vs. 2008, figures in CHF million):
Status quo
� Large number of new business wins in recent weeks
� Automation and consolidation of variousadministrative processes in progress
� FCPA: completion of investigations in Q4 remainstarget; Anti-trust: likely to stretch into 2010
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Panalpina’s way to sustainably maintain global leadership
� Refocus sales activities on strategic products and customer segments while maintaining leadership with Global Accounts
� Build on existing expertise to provide global Supply Chain Management solutions in key industries
� Focus on growth opportunities in ocean freight
� Leverage air freight competence
� Reach cost competitiveness
� Drive process discipline and quality
� Continually invest in our people
� Commit to our global network
� Continually invest in integrated and standardized IT systems
Growth
Cost control
People &
systems
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Market leadership in
freight forwarding
and supply chain
solutionsLimited cyclicality
and high returns on
capital due to asset-
light business model
Long-term industry
growth prospects
with goal to gain
market shareDifferentiation
through customer-
focused approach
and specialist
industry expertise
Strong net cash
position and
potential to improve
profitability
Leading global
network and
leverage through
size and scale of
operations
Recap of investment highlights
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First half 2009 – Executive summary
-21%
-28%
Volumes
Ocean (TEU)
Air (tons)
Growth (y/y)
-7%-8%
-15%-18%
GP (excl. FX)GP
1H09: development of volumes vs. gross profit
• Gross profit for the Group declined 9% on a like-for-like basis
• Targeted CHF 130m savings on track – underlying operating expenses declined 4%
• Number of FTEs reduced by 11% during first half-year, ahead of target
• Group performance impacted by legal fees, FX, discontinued business:
• Strong cash flow generation (free cash flow of CHF 155m, up 175%), resulting in net cash position of CHF 433m (>20% of market cap)
• Year-on-year volumes and gross profit impacted by continued weak market environment; quarter-on-quarter volume improvement:
-4.3%-3.5%-6.7%675.9Operating expenses
16.9
51.5
727.4
2’973.4
Result 1H09
(CHF million)
-79.5%-77.9%Net earnings
-56.9%
-11.5%
-28.1%
Growth y/y 1H09
(local currencies)
-8.8%-15.0%Gross profit
-34.4%-60.9%EBITDA
-31.6%Net forwarding revenue
Growth y/y 1H09
(like-for-like)
Growth y/y 1H09
(actual)
+3%
+8%
Volume growth by quarter:
2Q09 vs. 2Q08: 2Q09 vs. 1Q09:
-28%
-20%
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1H08 1H09
Gross profit declined 9% on a like-for-like basis
831
30
757
727
856
-25
1H08 restated discontinued
business*
1H08 actual 1H09 actual FX effect 1Q09 adjusted
-9%
* Adjustment for discontinued business for which GP was still recorded during 2008 (refer to Appendix for details)
(Figures in CHF million)
-15%
Reported
growth:
Like-for-like
growth:
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Total expense overview reveals cost base on track to achieve targeted CHF 130m savings in 2009*
-11%-1’74015’27013’530FTE
% ∆∆31 Dec 0830 Jun 09
(CHF million)
•Reduction of more than 1’700 FTEs over the last six months, ahead of target
•Resulting cost savings started at the end of Q1 – major effect expected in second half-year
•Strict cost control to continue – cost structure / FTEs adapted in line with volume declines
•Reduction of more than 1’700 FTEs over the last six months, ahead of target
•Resulting cost savings started at the end of Q1 – major effect expected in second half-year
•Strict cost control to continue – cost structure / FTEs adapted in line with volume declines
359
381
396
361
315
351
333
301
365
342338
346
280
300
320
340
360
380
400
420
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09
Opex reported Opex adjusted
* based on originally guided CHF 40m legal fees
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Outlook for current business year – review of Guidance
StatusGuidance 2009 Assessment
•Reduction of 1’400 – 1’600 FTEs
•Substantially lower volumes with larger customers, especially in Automotive / Hi-Tech. Recent business wins should have positive impact in 2nd half-year.
•Reduce operating expenses by CHF 130m*
•Full financial benefits (‘run rate’) from personnel cost savings will be visible in second half of 2009
•Market share gains
•Ahead of target – continue to adapt cost structure in line with volume development.
•CHF 40m legal fees related to pending investigations
•Likely to exceed guided amount – fees can be influenced by the Group only to a limited extent
•Tax rate 26 – 27% •On track
YoY volume declines should lessen in H2, however no substantial short-term recovery expected:
•Strict cost control and tight cash management continue and remain a high priority
•Focus on growth opportunities and continually invest in people & systems
YoY volume declines should lessen in H2, however no substantial short-term recovery expected:
•Strict cost control and tight cash management continue and remain a high priority
•Focus on growth opportunities and continually invest in people & systems
* based on originally guided CHF 40m legal fees