Panalpina Annual Report 2011

6
Report of the Executive Board
Focused execution leads to solid financial results
The year 2011 was characterized by widespread uncertainty of economic prospects,
resulting in nervous market behavior and high volatility. Growth slowed, particularly in
the debt-burdened economies of the eurozone and the United States, where consumer
confidence slid to very low levels. However, robust growth continued in many emerging
markets, led in size by China, India and Brazil. Furthermore, the Company’s reporting
currency, the Swiss franc, appreciated significantly against all major currencies during
the reporting year and impacted the Group’s financial results materially. In this challenging
environment, Panalpina achieved solid organic gross profit growth and further
solidified its position within the industry. Sticking to its focused strategy of going for
sustainable and profitable growth, the Group managed to increase its profitability, further
expanded its profit margins and generated a substantial amount of free cash flow.
Market development
After a period of strong growth in 2010, world trade and
global freight markets were characterized by the uncertainty
of economic prospects around the world in 2011.
The International Monetary Fund estimates that global trade
volumes rose approximately 7 % in 2011 – only about half
of the 13 % growth rate posted the year before, which had
been boosted by the restocking of inventories. In addition,
and in contrast to 2010, growth in 2011 was relatively
unevenly distributed across geographical trade lanes and
transport modes. The amount of international cargo moved
by air freight in 2011 slightly declined compared to the year
before and thus once again fell short of the record volumes
reached in 2007. In contrast, the global ocean freight
market developed more robustly, growing by more than
5 %, making 2011 a new record year with some 160 million
TEUs transported on the ocean globally.
Freight moved on two of Panalpina’s major trade lanes,
the far east westbound and transpacific eastbound routes –
jointly comprising around one quarter (Air) and one third
(Ocean) of the Group’s volumes – developed under-proportionately
in 2011 in comparison with cargo moved on other
trade lanes due to relatively lackluster imports into Europe
and North America. In Japan, the world’s fourth largest
economy, the devastating earthquake and tsunami in March
led to a major disruption of economic activity for several
weeks, although, fortunately, with no major adverse consequences
for either Panalpina employees or for the Group’s
business.
Panalpina Annual Report 2011
At the same time, above-average growth was recorded for
trade lanes connecting some of the largest emerging
markets, such as China, India and Brazil – markets in which
Panalpina continued to invest and further expanded its
presence during the year under review. As such, in 2011,
three new offices were opened in India (Ahmedabad,
Jaipur and Ludhiana). In China, Panalpina complemented
its increasing footprint in the central part of the country
through the opening of an office in Chongqing at the beginning
of the year, adding to the two branches in Wuhan
and Chengdu, bringing the total number of offices in the
Greater China region to 20. In addition, Panalpina also
opened a logistics center in Tianjin, which marked an important
milestone in the Group’s forward strategy to extend
its Value-Added Logistics Services capabilities.
Strengthening of the corporate platform
Throughout the year, notwithstanding an increasingly
cloudy economic environment, Panalpina kept its focus on
further strengthening its corporate platform and setting the
ground for leveraging future growth. During the first half
of the year, the Group also reviewed, clarified and refined
its strategy for the years to come and, in this context, in
June, the Group announced a mid-term target of raising the
EBITDA-to-gross profit conversion ratio to 20 % by 2014.
Panalpina’s ambition is to offer comprehensive end-to-end
supply chain solutions to its customers, with the core
service offering in Air and Ocean Freight complemented
by Supply Chain Services and Value-Added Logistics
Services.