Annual Report 2015 - Panalpina · Panalpina Annual Report 2015 panalpina.com 6. A connected global presence ... US and São Paulo, Brazil; service is expanded between Luxembourg and

Annual Report 2015

CONTENTS

Introduction 03

The year in brief 04

Panalpina at a glance 05

Letter to the shareholders 09

Facts and figures 13

Information for investors 15

Group report 17

Case study – Charter Network 18

Value creation and business model 20

Performance by product 22

Performance by region 30

Case study – Perishables 38

Industry know-how 40

Innovation 46

Information technology 47

Our people 48

Quality, health and safety performance 50

Environmental performance 54

Group financial performance 58

Investments 63

Corporate governance 64

Compensation report 74

49° 29’ N, 0° 6’ E / 13:00 CETLe Havre, France: Containers being unloaded from Singapore

2015

2014

2013

2012

2011

0 40 80 120 160 200 240

168

174

120

34

212

EBIDTA

Million CHF

2015

2014

2013

2012

2011

-120 -80 -40 0 40 80 120

88

87

12

-72

127

Profit

Million CHF

2015

2014

2013

2012

2011

-80 -40 0 40 80 120 160

117

117

48

-40

174

EBIT

Million CHF

2015

2014

2013

2012

2011

0 1,250 2,500 3,750 5,000 6,250 7,500

5,855

6,707

6,758

6,617

6,500

Net forwarding revenue

Million CHF

End-to-end solutions

INTRODUCTION

The Panalpina Group is one of the world’s leading providers of supply chain solutions. We combine our core products of Air Freight, Ocean Freight, Logistics and Energy Solutions to deliver globally integrated, tailor-made solutions to our customers.

Drawing on in-depth industry know-how and customized IT systems, we manage the needs of our customers’ supply chains, no matter how demanding they might be.

Panalpina has a truly global footprint that offers one of the broadest networks in the industry. With over 15,000 professionals in more than 75 countries, we provide end-to-end solutions to a wide range of industries.

OPERATIONAL HIGHLIGHTS

Charter Network celebrates 25 years Read more on page 18

New Logistics Manufacturing Services center goes live in Panama Read more on page 30

Panalpina agrees to acquire Airflo Read more on page 45

New offices open in Africa Read more on pages 36 and 63

FINANCIAL HIGHLIGHTS

Panalpina Annual Report 2015 panalpina.com 3

CONTENTS

Panalpina at a glance 05

Letter to the shareholders 09

Facts and figures 13

Information for investors 15

The year in brief


A balanced and diversified business

PANALPINA AT A GLANCE

Energy Solutions We offer integrated turnkey project logistics and forwarding management services to oil and gas customers and various other industries on a global scale. Read more on page 28

OUR PRODUCTS AND SERVICES

Air FreightFrom paperless flights to temperature-controlled shipments, our experts deliver tailored transport services, worldwide and end-to-end. Read more on page 22

LogisticsWe create more value for our customers’ supply chains through our integrated planning tools and Logistics Manufacturing Services. Read more on page 26

300+lean certifications from Cardiff University

90locations focused on Energy Solutions

Ocean Freight Panalpina is one of the world's largest providers of ocean freight services and is present in all major cities and ports. Read more on page 24

1,594thousand TEUs of ocean freight forwarded

836thousand tons of air freight forwarded

1. Air Freight 5842. Ocean Freight 4803. Logistics 409

Gross profit by product

Million CHF

1

2

3

1. Air Freight 2,6462. Ocean Freight 2,5873. Logistics 623


by product Million CHF

1

2

3


We focus on ten core industries

PANALPINA AT A GLANCE CONTINUED

We keep the customer at center stage through regular strategic engagement, round-table discussions and workshops, enabling us to develop industry- specific solutions.

AutomotiveThe automotive industry’s complex supply systems pose a particular challenge and require expertise in information design, process planning and operations efficiency. Delivery of components from numerous companies in different countries must be carefully coordinated to ensure a smooth manufacturing and assembly process. Read more on page 40

ManufacturingIn today’s constantly evolving manufacturing landscape, enhanced demand variability challenges manufacturers to increasingly streamline their processes in order to remain competitive and drive business growth. Read more on page 40

ChemicalsIn today’s competitive business environment, the chemical goods supply chain has become more complex, leading to increased logistics and transport spending due to rising labor costs, tightening security controls and environmental aspects. Read more on page 41

PerishablesIn an industry with demanding consumers who require a full range of products all year round, success relies on a logistics provider that can ensure optimized management of products all along the cool chain. Read more on page 45

TelecomThe growing importance of mobile high-bandwidth services – being connected anytime and anywhere, video communication, as well as media-driven enter-tainment – has stimulated and will continue to drive significant investments in wireless telecommunications infrastructures. Read more on page 44

Consumer and Retail

Today the supply chain environment and consequently the consumer and retail industry are facing different challenges than in the past. Sourcing has become global, distances longer and the economy more fragile. Furthermore, the industry is characterized by increasingly demanding and informed consumers. Read more on page 42

Hi-TechThe hi-tech industry requires fast and reliable logistics chains that link the industry’s key production sites with distribution channels throughout the world. We provide services to the semi-conductor, computer and electronics industries, alongside electronic manufacturing services. Read more on page 44

FashionThe fashion industry has sophisticated and demanding consumers who require multi-channel offering, brand experience, personalization and increased product differentiation. This leads to shorter product life and increased need for innovation, flexibility and improvements in order fulfillment. Read more on page 42

HealthcareWe offer end-to-end visibility and pro-active temperature monitoring and control to support the pharmaceutical industry including temperature controlled packaging solution, GDP validated processes with reliable transportation within our Charter Network and Supply Chain Optimization (SCO). Read more on page 43

Energy

We offer integrated turnkey project logistics and forwarding management services to Oil and Gas customers and various other industries on a global scale. We develop transportation solutions that are tailor-made for each project and allow fast and secure shipment.Read more on page 28

OUR INDUSTRIES


A connected global presence

We operate a global network with some 500 offices in more than 75 countries, and work with partner companies in a further 90 countries. Panalpina employs 15,000 people worldwide who deliver a comprehensive service to the highest quality standards – wherever and whenever.


HIGHLIGHTS OF THE YEAR

Expanded Charter Network New service is added between Huntsville, US and São Paulo, Brazil; service is expanded between Luxembourg and Shanghai.Read more on page 22

New chemical competency centerA specialized center in Houston, US offers expertise in supply chain management and hazardous materials handling for the US market.Read more on page 41

New centers for Logistics Manufacturing Services (LMS)New LMS centers in Panama and Dubai handle assembly, testing, repair and return of telecommunications equipment.Read more on pages 30 and 36

Acquisition of Airflo Panalpina agrees to acquire a majority share in Airflo, a freight forwarder for flowers and vegetables with offices in Kenya and the Netherlands.Read more on page 45

UNICEF relief flight to BurundiPanalpina charters and donates a flight to UNICEF with medical care goods and hospital equipment for Bujumbura, Burundi.Read more at newsroom.panalpina.com

Afifi acquisitionPanalpina acquires Afifi, its 20-year Egyptian partner with offices in Cairo, Alexandria and Suez.Read more on page 36


15,000 people worldwide

500offices worldwide

75+countries

EUROPE

2,339m NFR 4,779

NFR : Net forwarding revenue (CHF)

: Full-time equivalent employees

MEAC

395m NFR 1,604

ASIA PACIFIC

1,199m NFR 3,777

AMERICAS

1,922m NFR 4,763

Head office: Basel, Switzerland 417 employees


Partnership with Spread LogisticsPanalpina partners with Hong Kong company Spread Logistics to manage failure analysis and return of consumer electronics.Read more on page 44

New offices in Myanmar, Kenya and MoroccoNew offices in Myanmar, Kenya and Morocco offer air and ocean freight services in these expanding economies. Read more on pages 33 and 36

Research partnershipPanalpina partners with Cardiff University to explore 3D printing solutions.Read more on pages 26 and 46

1. Europe 37%2. Americas 30%3. APAC 24%4. MEAC 9%

Gross profit by region

2015

1

2

3

4


CHAIRMAN’S LETTER TO OUR SHAREHOLDERS

A robust and focused company

The company’s financial position remains strong and the Board is confident that Panalpina is well positioned to successfully execute on its strategy and deliver long-term value.

Rudolf W. HugChairman of the Board of Directors

3.5 CHF

dividend payment per share

3.1%dividend yield (based on 2015 year-end share price)

Dear Shareholders,

Since Panalpina became an independently listed company on the Swiss stock market in 2005, it has changed significantly and is now a sturdier company: it has become more focused on developing a differentiated portfolio of services and the vital competencies that are crucial for future growth. I have enjoyed being part of the leadership team that has contributed to Panalpina being the robust and stable company it is today.

At the 2016 General Assembly and after eleven years on the Board, including nine years as Chairman, I will not stand for re-election in accordance with the age limitation in the company’s bylaws. It has been a great privilege to lead Panalpina since 2007 and to help steer the company through the challenges of a more complex business environment, intensified regulatory legislation and an increasingly volatile macroeconomic environment.

Panalpina has weathered many storms in its long history and the economic situation during 2015 was no exception. The company’s financial position remains strong and the Board is confident that Panalpina is well positioned to successfully execute on its strategy and deliver long-term value.

Dividend payment

Based on the results of fiscal year 2015, the Board of Directors is going to propose a dividend payment of 3.5 CHF per share to the Annual General Meeting on May 10, 2016. This is equivalent to a dividend yield of 3.1 percent (based on the 2015 year-end share price).

Changes to the management

We announced a number of changes to the Board in 2015. We said good-bye to Hans-Peter Strodel, who after five years as Board member took his retirement. On behalf of the Board, I would like to thank him for his significant contributions and wish him well for the future. We also

welcomed two new Board members: Thomas E. Kern, a Swiss national, and Pamela Knapp, a German citizen. Together they bring decades of experience in managing international businesses.

This year saw a number of changes to the Executive Board: we welcomed Andy Weber to the position of Chief Operating Officer and Ralf Morawietz to the position of Chief Information Officer. Andy and Ralf bring a wealth of industry experience and expertise that will provide fresh perspectives to the leadership team.

Looking to the future

I am delighted that Peter Ulber has been proposed as Panalpina’s new Chairman. His extensive knowledge of the industry makes him a excellent choice and reflects the company’s commitment to long-term succession planning. I wish him every success in this role.

It has been a pleasure and an honor to serve as Panalpina’s Chairman, and I would like to thank you for the trust you have placed in me. I leave the company with tremendous optimism for the future, knowing that Panalpina will be in good hands under the leadership of our proposed new Chairman, Peter Ulber, and our CEO designate, Stefan Karlen, to deliver sustained value for all stakeholders.

Once more, I would like to thank our employees for the outstanding work they do every day, my fellow board members for their commitment, our customers and suppliers for their loyalty, and our shareholders for their continued confidence and trust.

I look forward to seeing you at the Annual General Meeting.

Basel, Switzerland, March 2016

Rudolf W. HugChairman of the Board of Directors


CHIEF EXECUTIVE OFFICER’S LETTER TO OUR SHAREHOLDERS

Demonstrating resilience and stability

Dear Shareholders,

Panalpina delivered stable profits throughout 2015 despite a difficult market environment and significant incremental investments in IT. Consolidated profit and EBIT improved slightly. Adjusting for currency, this represents an increase of 16.3 percent and 15.0 percent respectively over 2014. However, Air Freight volumes contracted by 2.5 percent, while Ocean Freight volumes contracted by 0.8 percent. Logistics recorded its fourth positive consecutive quarter in 2015.

These stable results demonstrate our resilience and ability to execute Panalpina’s strategy centered on providing end-to-end, value-added services tailored to the specific needs of its customers. During the year the company expanded its Air and Ocean Freight services, opened new centers for Logistics Manufacturing Services (LMS) and expanded into new countries and markets. In addition, our disciplined approach to working capital and productivity improvements allowed us to optimize costs and to generate solid free cash flow.

Our strategy and priorities for 2016 are clear: to focus on opportunities that will drive growth organically, by way of acquisitions and through innovation, and to continue to improve productivity and optimize costs across all businesses and geographies. Peter UlberChief Executive Officer

Macroeconomic environment

As expected, the macroeconomic environment in 2015 was marked by several key factors that put significant pressure on our margins. The Swiss National Bank’s decision in January led to an immediate strengthening of the Swiss franc and significantly impacted our profits. Likewise, the headwind from countries with slowing economies continued to have an effect throughout the year.

The record-low oil and gas prices heavily impacted the energy sector. Neither Panalpina nor its customers were spared the effects, which lead to fewer investments and projects being either postponed or cancelled. The extremely soft market in both ocean freight and air freight, combined with increased rate volatility, led to intensified speculation in the market and further exacerbated the situation.

In addition, this year was marked with a consolidation of the industry by both competition and carriers, while new competitors continued to enter the market.

88.2M CHF

Consolidated profit improved by 1%Currency adjusted: improved by 16.3%

117.2M CHF

EBIT improved by 1%Currency adjusted: improved by 15.0%


CHIEF EXECUTIVE OFFICER’S LETTER TO OUR SHAREHOLDERS CONTINUED

Highlights of 2015

During the year we continued to extend our footprint in emerging markets with the acquisition of our long-term agent in Egypt and the opening of a new office in Myanmar. The opening of new offices in Kenya and Morocco, announced in 2014, was completed in 2015.

We saw an important expansion of our value-added logistics services with several large and important contracts for Logistics Manufacturing Services (LMS), reverse logistics and advanced inventory forecasting in locations such as Panama, Dubai and Hong Kong.

We strengthened our focus on the perishables industry with the acquisition of Airflo, a specialized forwarder of freshly cut flowers and plants with offices in Kenya and the Netherlands. New competency centers were created in Norway, the UK and the Netherlands to complement our existing expertise in Chile, Columbia, Ecuador, Mexico and Peru. Perishables is a fast-growing sector with excellent potential for both Air and Ocean Freight and we plan to expand further in this industry over the coming years.

A special event in 2015 was the celebration of 25 years of our unique Charter Network. This service began in 1990 with the first scheduled cargo-only flight between Europe and the US and now represents one of the world’s key air cargo routes. We added a new service to Brazil and expanded our service to Shanghai in 2015, and today Panalpina operates over 1,000 scheduled and ad hoc charters a year all over the world.

None of these accomplishments would have been possible without our people all over the world who are absolutely committed to serving our customers and are often the difference between Panalpina and our competitors. Our customers have increasingly relied on us to solve their most difficult supply chain challenges and the following pages of the annual report provide a glimpse of several such examples.

The services we have developed and the productivity improvements we have implemented position us well for future growth, and I see great opportunities ahead to build continued success for our business. Peter UlberChief Executive Officer


CHIEF EXECUTIVE OFFICER’S LETTER TO OUR SHAREHOLDERS CONTINUED

In December, Singapore and Switzerland were the first two countries to go live with the latest version of SAP TM.Read more on page 47

Operations Transformation Program

In 2015, we reached an important milestone in the implementation of our ambitious global Operations Transformation Program (OTP). In December, Singapore and Switzerland were the first two countries to go live with the latest version of SAP TM. Although this was later than originally planned, we first wanted to ensure that we based the new system on top of efficient structures and processes. This meant undertaking several additional months of testing, system set-up and training to properly prepare for the SAP TM go-live.

More countries are planned for the second half of 2016. We know this will be a complex undertaking, and we are confident that this new platform is the foundation for future sustainable growth. Modern IT systems are crucial to gaining cost leadership, and by simplifying and strengthening our systems we will build the resilience needed to better respond to the new developments as they arise.

Priorities for 2016

Amid continued market uncertainty, our strategy and priorities for 2016 are clear: to focus on opportunities that will drive growth organically, by way of acquisitions and through innovation, and to continue to improve productivity and optimize costs across all businesses and geographies. OTP will remain a major component of this strategy.

In order to drive growth, we recently set up an Innovation Board to explore new ways of doing business and look for opportunities to add value for our customers in the future by gathering and recognizing ideas from within Panalpina; and by collaborating with universities, customers and partners. By acting as an enabler we can offer new, innovative services such as Demand Driven Inventory Dispositioning (D2ID), and further develop services such as LMS that will bring us even closer to our customer’s supply chains.

Likewise we plan to continue the expansion of our Charter Network, offer additional Managed Solutions in Ocean Freight, and increase our presence in industries such as chemicals, healthcare and perishables.

We operate in a global environment that will continue to undergo significant change. The services we have developed and the productivity improvements we have implemented position us well for future growth, and I see great opportunities ahead to build long-term success for our business.

This year will be a year of management transition: Dr Rudolf W. Hug will step down as Chairman of the Board after more than a decade of service to our company. Dr Hug has been instrumental to the growth and success of Panalpina, and I wish to express my appreciation for his vision and expertise in shaping our company into the most customer-focused and innovative global provider of freight forwarding and logistics solutions.

I am honored to have been proposed to succeed him as Chairman. I am also delighted to hand over the operational leadership of the company to the CEO designate, Stefan Karlen, whose proven track record will ensure the future success of our company.

Basel, Switzerland, March 2016

Peter UlberChief Executive Officer




2015

1

2

3

4

2015

2014

2013

2012

2011

0 150 0 150 0 150 150

836

858

825

801

848

Forwarding volumes in

Air Freight Thousand tons

2015

2014

2013

2012

2011

0 300 600 900 1,200 1,500 1,800

1,594

1,607

1,495

1,388

1,310

Forwarding volumes in

Ocean Freight Thousand TEU

1. Air Freight 39%2. Ocean Freight 33%3. Logistics 28%


2015

1

2

3

5,855M CHF


117M CHF

EBIT

88M CHF

Profit

1,474M CHF

Gross profit

Key figures

FACTS AND FIGURES


2015

2014

2013

2012

2011

0 1,250 2,500 3,750 5,000 6,250 7,500

5,855

6,707

6,758

6,617

6,500


Million CHF

2015

2014

2013

2012

2011

0 40 80 120 160 200 240

168

174

120

34

212

EBIDTA

Million CHF

2015

2014

2013

2012

2011

-120 -80 -40 0 40 80 120

88

87

12

-72

127

Profit

Million CHF

2015

2014

2013

2012

2011

1,000 1,150 1,300 1,450 1,600 1,750 1,900

1,474

1,586

1,561

1,465

1,477

Gross profit

Million CHF

2015

2014

2013

2012

2011

-80 -40 0 40 80 120 160

117

117

48

-40

174

EBIT

Million CHF

2015

2014

2013

2012

2011

0 150 300 450 600 750 900

653

733

709

743

928

Total equity

Million CHF

Five-year development

FACTS AND FIGURES CONTINUED


115%

110%

105%

100%

95%

90%

85%

80%

75%

Dec 31

2014

Mar 1 May 1 Jul 1 Sep 1 Nov 1 Dec 31

2015

Share price development in comparison to SPI

Mar 4

Full-year results

Apr 22

First-quarter results

Jul 23

Second-quarter results

Oct 20

Third-quarter results

Panalpina World TransportSwiss Performance Index (SPI)

INFORMATION FOR INVESTORS

Share price development

Panalpina’s business year and the performance of the share were shaped by the uncertainties in the global economy. The price quoted decreased by 15.73 percent, from CHF 133.50 at the last day of trading 2014 to CHF 112.50 on the last day of trading in the business year. The Swiss Performance Index (SPI), which includes more than 200 companies, rose by 2.68 percent in the same period, so Panalpina underperformed the index as a whole. The market capitalization at the end of the year amounted to CHF 2,672 million.

Share information

Share Symbol PWTN

Reuters PWTN.S

Bloomberg PWTN SW

Trading exchange SIX Swiss Exchange

Fiscal year ends December 31

Securities number 000216808

ISIN CH0002168083

Share register SIS Aktienregister AG, Olten, Switzerland

Number of registered shares 23,750,000


INFORMATION FOR INVESTORS CONTINUED

Share price development*

2011 2012 2013 2014 2015

Last day of trading previous year CHF 118.06 94.25 92.85 149.50 133.5

High CHF 128.94 107.28 151.80 154.20 146.9

Low CHF 71.87 77.30 82.40 134.90 106.1

Last day of trading current year CHF 94.25 92.85 149.50 133.50 112.5

Average trading volume CHF 51,764 40,917 33,306 19,807 18,301

Total shareholder return % –20.2 2.7 63.2 –9.2 –13.7

Market capitalization as per Dec 31 million CHF 2,356 2, 205 3,551 3,171 2,672

Earnings per share CHF 5.34 -3.05 0.5 3.68 3.69

* Restated due to the return of capital (CHF 1.90 per share) in 2012.

Ordinary gross dividend payments

2011 2012 2013 2014 2015

Amount million CHF 47.0 47.3 52.2 65.3 83.1

Per share CHF 2.00 2.00 2.20 2.75 3.5**

Return of capital per share CHF 1.9

Outstanding shares as per Dec 31 25,000,000 23,750,000 23,750,000 23,750,000 23,750,000

** Proposal to the Annual General Meeting.

Financial calendar 2016

April 21 First-quarter results

May 10 Annual General Meeting

May 12 Dividend ex-date

May 17 Dividend payment day

July 20 Second-quarter results

October 25 Third-quarter results


CONTENTS

Case study – Charter Network 18

Value creation and business model 20

Performance by product 22

Performance by region 30

Case study – Perishables 38

Industry know-how 40

Innovation 46

Information technology 47

Our people 48

Quality, health and safety performance 50

Environmental performance 54

Group financial performance 58

Investments 63

Group report


panalpina.com 18Panalpina Annual Report 2015

In 2015, Panalpina celebrated the 25th anniversary of its Charter Network. To this day, Panalpina remains the only major freight forwarder to operate its own fully integrated air freight service.The network provides the flexibility, visibility and security essential for delivering complex, special, critical and valuable goods efficiently, on time and intact. Meanwhile, Panalpina’s integrated control center manages the movement of temperature-sensitive shipments end-to-end.

The Charter Network serves customers in a huge variety of sectors, from oil and gas to pharmaceuticals and perishables, and the annual number of charter flights now tops 1,000.

Read more on page 22

A controlled environment from door to door


CASE STUDY: Dependable delivery across the globeA client needed to send 27 radiant outlet manifolds from Britain to Canada – fast. The Canadian purchaser was doing its routine, triennial factory shutdown, and if the cargo was late the factory would have to wait three years for another chance to install the manifolds. But the purchaser had also made last-minute changes in the manufacturing process that delayed production beyond the deadline for ocean container shipment.

With commercial flights into Canada few and far between, the obvious but costly solution was to charter an Antonov An-124. Instead, Panalpina proposed transporting the 90-ton shipment in six separate flights utilizing the Group’s Charter Network. The cargo was trucked from the UK to Luxembourg, flown to Huntsville, then trucked to Saskatchewan, Canada – arriving on time and under budget.

49° 37’ N, 6° 12’ E / 18:00 CETLuxembourg: Cargo is loaded onto the Spirit of Panalpina


VALUE CREATION AND BUSINESS MODEL

Centered on the customer

We leverage our people, products and expertise to develop innovative solutions for our customers.

Our peopleThe talent, dedication and insight of our professionals enable us to meet the needs of our customers every day.

Our global networkOur network of air, ocean and land-based freight services spans the globe and we serve our customers from 500 strategic offices in over 75 countries.

Our industry expertiseWe specialize in multiple industry verticals and understand their specific supply chain issues.

Our IT systemsWe provide sophisticated IT platforms that support our core business processes and integrate with our customers’ systems.

Our financial baseWe rely on a solid financial foundation and invest in products and services that will grow the company.

We provide end-to-end transportation and logistics services to ensure goods arrive at the right time and in the right place.

We optimize supply chains for our customers to increase speed and efficiency, reduce inventory, and reduce the environmental impact.

We provide sophisticated supply chain analytics to enable continuous improvement.

We help our customers respond quickly to market demand through last-minute assembly of semi-knocked down goods.

We enable a circular economy by managing repairs, diagnostics and return of goods.

We safeguard customer assets during transportation to reduce the risk of compromised shipments and stolen goods.

We ensure visibility of cargoes throughout their journey through track and trace services.

We take a long-term approach,building the products and services that will meet our customers' needs both now and in the future.

We adapt our footprint to leverage opportunities in growing economies and industries.

Through innovation, we aim to generate new products, business models and processes that will differentiate us from the competition, increase our productivity and scale, and boost both revenues and margins.

OUR ASSETS OUR CUSTOMER VALUE OUR SUSTAINABLE APPROACH

Advanced analytics

Supply chain network design

3D printing

Supply chain performance management

Supply chain network design

Inventory forecasting and optimization

ENABLE

Our customers

Semi- knocked down assembly

Panalpina Charter Network

Diagnostics and repairs

e-commerce

Out-of-gauge and capital projects

Transport planning and optimization

Logistics Manufacturing Services (LMS)

Offshore engineering

Local sourcing and procurement

Transport engineering

Temperature control services

Warranty management

Disposal

Distribution

CO2 optimization

FCL/LCL

International air and ocean transportation

Transport planning and optimi

Managed Solutions

Feeder service


…we deliver sustainable returns for our shareholders

VALUE CREATION AND BUSINESS MODEL CONTINUED

What we do

By designing tailored, end-to-end solutions for our customers...


Panalpina takes the lead in e-freight

In October 2015, Panalpina became the first global air freight forwarder to handle over half of its transactions using electronic air waybills (e-AWB). The International Air Transport Association has set ambitious goals for the use of e-AWB and tracks their usage throughout the airline industry. Panalpina works closely with business partners and stations to increase coverage and extend the range of eligible flights for paperless processing.

Market environment

For the air freight sector, 2015 was a challenging year. The market contracted by an estimated 1 percent while carrier capacity continued to rise. The energy sector remained depressed and low fuel prices curtailed investment. In Brazil, the economic situation decreased trade further, with the automotive sector being especially hard hit.

Asian markets remained broadly healthy, however, and Vietnam in particular continued to enjoy rapid growth. An artificial level of volume was created both by the port strike on the US West Coast, which led to a conversion from ocean to air freight, and by an automotive recall, which resulted in contracts to fly airbags from Japan to the US.

Highlights

The company continued to expand and optimize its Charter Network, a distinctive service with a comprehensive network of gateways and preferred partners that delivers end-to-end solutions. Under a new long-term agreement with Atlas Air, Panalpina switched one of its wet-leased aircraft to more than 200 scheduled charters per year. As part of this agreement, Panalpina launched Brazil Wings, a full-freighter service from Huntsville to São Paulo. This service extends Dragon Wings and achieves a record transit time from Hong Kong to São Paulo of under 40 hours.

Panalpina increased the frequency of its charter flights between Luxembourg and Shanghai. Operated by Silk Way West Airlines, the services are known as Panda Star (between Luxembourg and Shanghai) and Caspian Star (stop-over in Baku). The Silk Way freighters are particularly well suited to transport outsized oil and gas equipment and temperature-sensitive pharmaceuticals.

Customer focus

Panalpina celebrated the 25th anniversary of its Charter Network with events in Huntsville (US), Luxembourg, Mexico City and Guadalajara (Mexico), and Stansted (UK). As well as recognizing this unique service, the events helped to reinforce the relationships with over 140 customers across many sectors, in particular automotive, healthcare and perishables.

During the year, Air Freight operations received a series of awards recognizing the quality of its services, including six awards for Brazil Wings, the Lloyds Loading List award for Airfreight Solutions Provider of the Year, the Air Cargo News Global Freight Forwarder of the Year 2015, and “Best Partner” awards from two telecommunications companies.

Looking forward

The market is likely to remain challenging in 2016, with no significant rebound in the energy sector. Air freight carrier capacity is set to increase while demand remains flat. However, Panalpina aims to boost its market share by optimizing its Charter Network still further and building volumes in the perishables sector, which should lessen the dependence on cyclical business. The acquisition of Airflo, Kenya’s second largest air freight forwarder specializing in the export of flowers and vegetables, should not only increase Panalpina’s perishables tonnage but also ensure substantial volumes on routes from Africa northbound.

Air Freight

PERFORMANCE BY PRODUCT

PERFORMANCE BY PRODUCT CONTINUED


Launch of Brazil Wings service

Panalpina continued to expand and optimize its Charter Network. Under a new long-term agreement with Atlas Air, Panalpina launched Brazil Wings, a full-freighter service from Huntsville to São Paulo. This service extends Dragon Wings and achieves a record transit time from Hong Kong to São Paulo of under 40 hours.

23° 00’S /47° 13’W São Paulo, Brazil: Destination Viracopos airport

Air Freight


Market environment

In 2015, the ocean freight market grew by an estimated 1 percent, about half of what had been expected. The increase in the number and size of vessels meant that supply outstripped demand, forcing down rates and putting acute pressure on carriers’ margins during the second half of the year. Carriers struggled to maintain their market share, and the increased rates resulted in severe rate volatility.

Highlights

Despite these difficult conditions, Panalpina’s skilled team of specialists with extensive market knowledge and clearly defined processes enabled the company to respond to rate changes and to manage volatility successfully. At the end of 2014, correctly anticipating the turbulence that lay ahead, Ocean Freight aligned its organization, operations and pricing towards two of its major trade lanes: westbound (Asia to Europe) and eastbound (Asia to the US). This enabled the company to retain market share, avoid negative volume growth, and significantly increase profitability per unit in 2015.

During the year, the Ocean Freight product offering further increased its focus on perishables, achieving a boost in volume that helped compensate for the drop in volume across other trade lanes. Currently the main perishables trade lanes are from Latin America to the UK and the Netherlands. The successful acquisition of new customers in 2015, including market leaders in the consumer and automotive sectors, further strengthened Panalpina’s standing in the market.

Customer focus

Managed Solutions is a separate service within Panalpina that works in close partnership with customers to establish, operate and optimize order and freight management solutions.

Managed Solutions continued its evolution in 2015, transitioning from a focus on pure volume development to a more strategic approach in targeting customers where Panalpina can deliver value to their organization and enable higher gross profit. With a focus on profitable growth, the team re-evaluated its existing business portfolio, turning its attention to up-selling existing customers and streamlining the customer base.

Panalpina offers close to 500 less than container load (LCL) services throughout its network and launched 20 additional services in 2015, following the ongoing expansion and optimization of services both in terms of coverage and yield management. The new services focus on key markets and trade lanes, especially Asia outbound.

Looking forward

In this hostile environment the market is likely to consolidate and the number of carriers will probably decline sharply over the next few years. The key challenge for Panalpina will be maintaining growth without compromising profitability. In 2016, Ocean Freight will increase its emphasis on customer segmentation and its preferred carriers, and will continue to upgrade and strengthen its structure.

In 2016, Managed Solutions will continue to focus on opportunities that allow for cross-selling to Panalpina’s core products and leveraging its good standing with global key accounts to drive value into their organizations.

Ocean Freight

LCL services are expanded

Several of the additional services launched in 2015 focus on trade from Asia outbound to Asia, the US, Latin America and Europe:

• Singapore to Adelaide, Australia• Shenzhen, China to

Budapest, Hungary• Shenzhen, China to

Buenaventura, Colombia• Ningbo, China to Basel, Switzerland• Shanghai, China to New York, US




Optimizing the LCL network

Panalpina offers close to 500 less than container load (LCL) services throughout its network and launched 20 additional services in 2015, following the ongoing expansion and optimization of services both in terms of coverage and yield management. The new services focus on key markets and trade lanes, especially Asia outbound.

31° 14’ N, 121° 29’ E Shanghai, China: Port of Shanghai

Ocean Freight


Market environment

For traditional contract logistics providers, 2015 was a tough year, characterized by ever more commoditization and ever tighter margins. However, Panalpina improved its overall margins in logistics thanks to new services that respond to the market trends for nearshoring and mass personalization.

Speed and proximity to market are now becoming the deciding factors for customers, who need to be able to customize products with the latest version and deliver them immediately. To do this effectively, manufacturing needs to be as close to the end user as possible, which can be accomplished through distributed manufacturing and nearshoring. This trend is being further compounded by technological advances in areas such as robotics and additive manufacturing.

Highlights

Overall, 2015 saw a transformation of Panalpina’s logistics business. In response to the need for speed, Panalpina continued to shift the emphasis of its logistics business away from warehousing towards distribution and manufacturing. This involved developing tools and services that enable a rapid throughput of products and a minimal time in storage.

As a leader in Logistics Manufacturing Services (LMS), Panalpina has the ability to select components, manufacture finished products, and ship them in short lead times. The configure-to-order process customizes the product as late as possible in the supply chain, allowing materials to be allocated against orders only when required. This considerably reduces customers’ working capital requirements as well as their order fulfillment lead times. New LMS centers were opened in 2015 in Panama and Dubai, adding to the center in Brazil.

Customer focus

The Logistics strategy has always emphasized asset velocity – to keep a product moving – as storage is seen as a non-value added activity to Panalpina and its customers. In 2015, after two years of intensive research, in collaboration with Cardiff University, Panalpina launched a sophisticated inventory optimization tool known as Demand Driven Inventory Dispositioning (D2ID) to help predict the optimum inventory holding level to satisfy product demand. The tool was trialed during the second half of the year with outstanding results.

Panalpina also continued to roll out its standard Warehouse Management System (WMS) platform and by the end of 2015, 35 logistics facilities were running the JDA WMS system. This allows Panalpina to offer a leading-edge WMS platform but still maintain enough flexibility to provide a solution tailored to customer requirements.

Looking forward

The already established trends of distributed manufacturing and mass personalization will continue to gather momentum and be fueled by the need to have customized products delivered to the user with ever decreasing lead times. The growth in e-commerce and the ability to use new technologies such as 3D printing will further enable this to happen quicker. In this context new solutions have to be developed to meet these challenges, opening the door for more innovative opportunities.

Logistics

Mass personalization

We live in an age of mass personalization, where consumers demand products and services tailored to their individual needs. Advances in technology, instantaneous data interpretation and modularization are enabling consumers to have a greater choice. This puts extra pressure on manufacturers to ensure they have the most up-to-date versions of the relevant products or services that are fully configurable to individual demands.



Solutions for inventory handling

In 2015, in collaboration with Cardiff University, Panalpina launched a sophisticated inventory optimization tool known as Demand Driven Inventory and Dispositioning (D2ID) to help predict the optimum inventory holding level to satisfy product demand.

25° 12’ N, 55° 16’ E Dubai warehouse: Managing asset velocity

PERFORMANCE BY REGION CONTINUED

Logistics


Transport of large but delicate cargo

Panalpina managed the transport of 18 air cooled condensers (ACCs) from the factory in Vietnam to an LNG project near Darwin, Australia. Although the units measured up to 27 meters long, 14 meters wide, and 18 meters high and weighed about 210 tons each, they were extremely delicate and could have been damaged by excessive twisting or jolting. Panalpina’s in-house engineering teams planned for months in advance to ensure that the ACCs were handled safely from lifting to transport to lowering into place.

Market environment

2015 was a turbulent year for the energy market. Drastic falls in the price of oil led to a major downturn in the revenues of the oil companies, which in turn forced them to cut back substantially on capital projects. It further resulted in several mergers between oil and gas producers as well as between the sector’s service companies.

Meanwhile, the Middle East, Africa and Commonwealth of Independent States (MEAC) region was hit by a series of political conflicts, economic sanctions, and currency devaluations which further depressed the performance of the industry.

As most of the work Panalpina does with engineering companies comes traditionally from the oil and gas sector, the impact of these developments on the Energy Solutions business was considerable.

Highlights

Despite the difficult market environment, Panalpina was able to complete the merger of its Panprojects and Oil and Gas activities to form its specialized Energy Solutions service. By the end of the first quarter of 2015 the amalgamation was complete, and is delivering synergies and efficiencies to the benefit of both the company and its customers. In addition, by cutting costs and negotiating new agreements with many of its subcontractors, Energy Solutions was able to compensate substantially for the drop in business volume and revenue.

Customer focus

The creation of the Energy Solutions service put Panalpina in a stronger position to help customers mitigate the impact of the current low oil prices by assisting them to lower costs, reduce inventory and optimize their supply chains. During the year, the Energy Solutions team met with customers to listen to their concerns and respond to their needs. Customers were particularly interested in Panalpina’s footprint, experienced teams, and specialized customs and compliance knowledge.

Panalpina succeeded in winning “Project Heavy Lift Forwarder of the Year” at the Global Freight Awards for the second year running. The award went to Panalpina’s Energy Solutions team for the move of two very large machines from the manufacturer in the US to their installation in the UK.

Looking forward

Oil prices are expected to remain low for the foreseeable future. The slowdown in capital investment by the oil companies will probably continue, while little change is anticipated in the geopolitical situation.

In 2016, Panalpina will continue to focus on the energy sector and capital project solutions. The foundations for growth have been well laid, and Energy Solutions is now poised to win new customers and penetrate new markets – whether in North Africa, China, Latin America or elsewhere. To this end, it will leverage its IT platform, the exceptional level of expertise and experience offered by its global network, and such attractive value-added services as its ability to handle customs clearance in-house.

Energy SolutionsPERFORMANCE BY PRODUCT CONTINUED


Tailored Energy Solutions

Panalpina completed the merger of its Panprojects and Oil and Gas activities to form the specialized Energy Solutions service. This service put Panalpina in a stronger position to help customers mitigate the impact of the current low oil prices by assisting them to lower costs, reduce inventory and optimize their supply chains.

38° 55’ N, 28° 17’ EGördes, Turkey: Autoclave transport


Energy Solutions


Market environment

In 2015, the drastic decline in oil prices undermined opportunities for growth. In Canada, nearly all of the company’s energy projects were put on hold or cancelled. Meanwhile, in Brazil the collapse of the Real drove up the cost of imports, causing a sharp fall in the volumes arriving from North America, Europe and Asia.

Nevertheless, the relative strength of the US economy stimulated development in Mexico. The growth of near-shoring led to considerable foreign investment, which in turn generated significant new business for Panalpina. The company further prospered in the smaller Latin American markets – Argentina, Chile, Colombia and Peru.

Highlights

In February, Panalpina launched the Brazil Wings service between its US hub in Huntsville and São Paulo. The service, which is aimed at manufacturers of heavy machinery and equipment for agriculture and mining, enables the company to offer new solutions that do not depend on passing through Miami. In addition, Brazil Wings was integrated with the inbound Dragon Wings charter flights from Hong Kong, achieving a transit time from Hong Kong to São Paulo of under 40 hours. The Charter Network opened additional revenue streams in the perishables business, including importing berries and asparagus from Mexico into the UK.

On the ocean freight side, volume increased as the company benefited from its Managed Solutions and customer-focused applications. The Pantainer Express Line is firmly established in the region, offering comprehensive services for less than container local (LCL) shipments.

In Panama, Panalpina opened its second logistics manufacturing services (LMS) center in the region, adding to the LMS center in operation in Brazil since 2012.

In Brazil, Panalpina received six awards from the Airports Brazil Consortium in recognition of logistics efficiency.

The categories included best freight forwarder, best customs broker, and best performance in specialized customs procedures.

Customer focus

In line with Panalpina’s aim to be the world’s most customer-oriented logistics provider, the region centralized and standardized its account management structure, improving the quality of performance analytics and increasing its ability to deliver customized solutions. Regional teams contributed professional services for customs and compliance, trade regulations, classification and other regulatory procedures. Panalpina held its first Luxury Fashion and Beauty Products trade seminar in New York to promote exchange among key government officials, premium importers, and experts from trade compliance, operations and supply chain.

To meet the needs of an established automotive customer, Panalpina re-engineered a complex process involving multiple locations, factories and shipping routes. Panalpina further drew on its IT expertise to increase the efficiency and visibility of its solutions and to integrate its processes with those of the customer.

Looking forward

The US economy looks solid and in Latin America the company has a leading position in both air and ocean freight across most markets. The Panalpina Charter Network will help the company to take advantage of air freight opportunities, while Ocean Freight aims to grow further, with a focus on trans-Pacific trade.

The new chemical competency center in Houston, Texas will support Panalpina’s goal to increase its global presence in the chemicals sector. In response to the ever-increasing demand by the pharmaceutical industry for cold chain solutions, the company plans to expand its PanCool service for air freight and its reefer service for LCL shipments. Further opportunities for growth exist in the perishables sector.

Americas

PERFORMANCE BY REGION

LMS center in Panama

A new facility in Panama serves as both a manufacturing and distribution center for a leading telecommunications customer. Under Panalpina’s Logistics Manufacturing Services (LMS) concept, goods are shipped to Panama in a semi knocked-down stage and assembled only after an order is received from the customer, allowing faster response time and greater personalization. In addition, the center manages returns, rework and repair of products.



Panalpina sponsors trade seminarPanalpina held its first Luxury Fashion and

Beauty Products seminar in New York to

promote exchange among key government

officials, premiere importers, and experts

from trade compliance, operations and

supply chain.

45° 27’N , 9° 11’W Milan, Italy: Fashion goods destined for New York

Americas


Market environment

Across the Asia Pacific (APAC) region, the market was hit by the economic downturn in China, negative tonnage growth in the Asian export market, and overcapacity on all major lanes. While the air freight sector benefitted from lower spot market rates, it was simultaneously faced with unpredictable rate volatilities. In the ocean freight sector, too, capacity outstripped demand, causing increased volatility in rates. The energy market was hit heavily by low commodity prices not only in oil but also in coal, iron ore and metals. Resource owners cut back on infrastructure investment, which brought a decline in orders for the construction sector and the production supply chain.

The demand for high-end logistics and supply chain solutions increased, as customers sought to concentrate their resources on their business and rely more on third-party providers for their logistics needs.

Highlights

Panalpina’s Air Freight margins improved following procurement optimization initiatives, and the company successfully won new accounts and expanded on accounts, mainly in the technology and automotive industries. The Panda Star charter flights between Luxembourg and Shanghai increased to two frequencies a week, while the Dragon Wings service from Hong Kong to Huntsville linked up with the new Brazil Wings service into São Paulo.

In Ocean Freight, the Allocation and Trade Lane Management team exhibited great skill in maneuvering the company through turbulent economic weather. Panalpina succeeded in establishing a base with its reefer service. Additionally the marble trade between Italy, Turkey and China has helped to produce new revenue streams.

With its successful financial turnaround, Panalpina’s APAC Logistics business achieved positive EBIT in 2015. It strengthened its local capabilities and expanded the LogEx concept, Panalpina’s continuous improvement methodology. The Malaysia site achieved Bronze certification in LogEx and generated a positive return.

In Singapore, Panalpina received approval from the Economic Board for a built-to-suit warehouse and increased its portfolio in added-value service offerings.

In line with its policy of investing in emerging economies, Panalpina set up an office in Yangon, Myanmar. Following the establishment of a civilian government in 2011, the country is starting to invest in infrastructure and imports are rapidly increasing.

Customer focus

A series of roundtable discussions and workshops enabled Ocean and Air Freight teams to enhance rapport with customers, obtain feedback, and engage customers proactively to meet their expectations. These engagements increased customer understanding and allowed the company to tailor its service offerings more specifically.

In 2015, the company needed to adjust its Energy Solutions business and align it more closely with customer needs. With the slowdown in investment in energy, the team is now focusing on government infrastructure expenditure.

Looking forward

Air freight volumes are expected to remain soft for the first half of 2016, and overcapacity on major export trade lanes will continue. Panalpina will continue to develop its Dragon and Panda Star flights, part of the Charter Network, to increase profitability. The focus for the Ocean Freight operation will be on expanding reefer and marble business, as well as building fresh revenue streams from forestry goods. There will be an increased emphasis on customs brokerage and consultancy, and further development of Managed Solutions.

The Logistics team will take advantage of the opportunities offered by the growth of e-commerce and nearshoring, while Energy Solutions will capitalize on government infrastructure spending, especially in emerging markets.


Asia Pacific

Decathalon’s distribution hub in Singapore

Panalpina manages a 26,150-square meter distribution center in Singapore with the leading French sporting goods company Decathalon. The facility services stores in over 20 countries, primarily China, Taiwan, Russia, India, Brazil and Turkey, as well as e-commerce customers across Southeast Asia. Panalpina manages the full suite of services, including inbound flows, customs brokerage, haulage, inbound checking, scanning, inventory management, pick-and-pack and repair.



Expanding in growing economiesIn line with its policy of investing in

emerging economies, Panalpina set up

an office in Yangon, Myanmar. Following

the establishment of a civilian government

in 2011, the country is starting to

invest in infrastructure and imports

are rapidly increasing.

16° 51’N , 96° 11’EYangon: Capital city of Myanmar

Asia Pacific


Panalpina celebrates 25 years of the Charter Network

Luxembourg was the first stage in a world-wide celebration of Panalpina’s unique Charter Network. Key customers and partners, senior Panalpina management, local officials and airport authorities visited the Luxembourg hub and had the chance to climb on board the wet-leased 747-8F, The Spirit of Panalpina. Additional celebrations were held in Huntsville (US), Stansted (UK), Mexico City and Guadalajara (Mexico).

Market environment

For both air and ocean freight, the European market remained flat in 2015. There was a consolidation of the logistics industry worldwide and a number of acquisitions were completed, leading to increasing competition between companies.

Highlights

By focusing on its global accounts, especially in the UK, the Netherlands and Belgium, Panalpina’s European operation successfully increased its ocean freight Far East westbound lane volume. Although there was a drop in the volume of air freight business, 2015 saw the successful expansion of the Panda Star service between Luxembourg and Shanghai as part of the Charter Network. This service has been well received by customers.

The healthcare vertical won several new customers in Europe in 2015. The perishables business delivered outstanding results driven by the growth of air freight business in the UK and the Netherlands and a contract to transport salmon from Norway. Panalpina won a major contract to ship locomotives and railcars from France to the Middle East.

Air Freight was affected by a change in routing from air freight to ocean freight in the automotive sector. In addition, a number of customers’ automotive projects reached the end of their life cycle.

Panalpina is now starting to offer Logistics Manufacturing Services in Europe and won a three-year contract with a major telecommunications company for mobile phone distribution, including the return logistics enabling the repair of defective phones.

Customer focus

Panalpina held two highly successful workshops in Luxembourg to demonstrate how it manages the cool chain and discuss the customers’ needs.

In terms of events, Panalpina had a strong presence at the Transport Logistic 2015 trade fair in Munich and attended Fruit Logistica 2015 in Berlin for the first time.

To prepare for stricter customs procedures in Europe, Panalpina has launched a European customs project which will help to enhance its service offering around customs clearance services and consulting.

Looking forward

Panalpina Europe is optimistic about its Air Freight and Ocean Freight business, especially the development of the Charter Network service between Huntsville and Luxembourg.

In Logistics, Panalpina is strengthening customer-dedicated networks overland as well as focusing on trade corridors between Europe and China and within Europe. Particularly strong growth is expected in the perishables sector following the acquisition of a majority share in Airflo which has offices in the Netherlands and Kenya.

Europe


Growth in the perishables business



Growth in the perishables businessThe perishables business delivered

outstanding results in 2015 driven by

the growth of air freight business in the

UK and the Netherlands and a contract

to transport salmon from Norway.

60° 41’N , 5° 8’ENorway: Salmon farm

Europe


MEAC


Panalpina expands Logistics Manufacturing Services with Ericsson

The Ericsson Supply Center located in Panalpina’s Dubai South facility is Ericsson’s first distribution center globally that unites hardware assembly and software load under one roof. Panalpina engineers and technicians manage assembly of semi-knocked down units, configuration, testing, inspection, packing and delivery to Ericsson’s end customers in the region.

Market environment

2015 was a difficult year for the Middle East, Africa and Commonwealth of Independent States (MEAC) region, where a large part of Panalpina’s business is in the oil and gas sector. The oil price continued to fall, and there were conflicts in countries such as Syria, Iraq, Yemen and Ukraine, while across the Middle East the security situation remained uncertain. The region was further affected by currency devaluations in Russia, Turkey and Angola.

Highlights

Panalpina was particularly active in Africa. In January, offices were opened in Kenya and Morocco whose growth economies offer strong prospects, especially in the energy and infrastructure sectors. In May, Panalpina acquired its Egyptian agent, Afifi, which specializes in freight forwarding, customs clearance and logistics and benefits from a solid local customer base. By uniting with Afifi, the company has increased its foothold in a market that offers considerable opportunities for growth. In November, the company agreed to purchase a majority share in Airflo, Kenya’s second largest air freight forwarder, which specializes in the worldwide export of fresh-cut flowers, plant cuttings and vegetables.

In December, Dubai became the latest location where Panalpina offers customers Logistics Manufacturing Services (LMS). Rather than holding stock to cover every possible outcome, Panalpina assembles products from semi-knocked down units to specific customer requirements at the last possible stage before shipping them to the end customer.

Panalpina exited from Algeria due to the difficult economic environment and the restrictive monetary policy in the country. Shipments will now be handled through an agent in Algeria.

Customer focus

During the year, the MEAC team remained very close to its customers, especially in the oil and gas industry where its outstanding level of experience and know-how enabled Panalpina to respond effectively to the exceptionally difficult environment. As a result, though margins shrank, Panalpina retained all its customers.

Looking forward

The turbulence in the MEAC region is predicted to continue in 2016, with no upturn likely in the oil and gas sector. Panalpina will therefore continue to focus on new markets and aims to further grow its perishables operations in Africa, in line with its global strategy. The company sees potential for growth in the technology sector and is making plans to move to a much larger LMS facility in Dubai. The expansion of the Suez Canal offers additional potential for trade in the region.



Solidifying a foothold in EgyptPanalpina acquired its long-standing

Egyptian agent, Afifi, which specializes

in freight forwarding, customs clearance

and logistics and benefits from a solid

local customer base. By uniting with Afifi,

the company has increased its foothold

in a market that offers considerable

opportunities for growth.

30° 30’N , 32° 26’EEgypt: Suez Canal

MEAC

panalpina.com 38Panalpina Annual Report 2015

From field to shelf

The appeal of the perishables sector is compelling. The sector is high-volume, non-cyclical, and fast-growing.In addition, perishables are shipped in large quantities from South to North, counterbalancing the flow of dry cargo which is generally flown the other way, thus generating business for the Charter Network on back haul routes. To ensure that shipments arrive in the right place at the right time and in peak condition, Panalpina provides flexible transportation and logistics solutions. These include temperature-controlled air freight, ocean reefer freight and road and courier services, as well as cool chain management, consignment documentation and comprehensive forwarding procedures.

Read more on page 45


CASE STUDY: Fresh and timely, end-to-endOne of Panalpina’s long-term clients is a Dutch exporter that supplies bell peppers year round to customers in North America. Once the Dutch pepper season finishes the Spanish season kicks in, but delivering Spanish peppers to far-flung destinations is not always straightforward. Back in December 2015, not enough air freight space was available to transport a huge volume of Spanish peppers directly to Canada.

Panalpina’s response was to truck the peppers from Spain to its cool chain facility at Heathrow, scan, validate and repack them in smaller containers, and air freight them to Canada. The consignments arrived in Canada fresh and on time – managed end-to-end by Panalpina.

51° 28’ N, 0° 27’ W / 10:00 GMTSpain: Peppers intended for Canada


Market environment

The manufacturing and automotive verticals had a challenging year in 2015. In Brazil, where automotive and manufacturing are traditionally strong, economic growth was negative for the year. Elsewhere, Panalpina suffered from the knock-on effect of the conclusion of non-repeatable automotive projects in Europe.

Highlights

Despite these difficulties, the manufacturing and automotive verticals recorded significant wins in strategic markets, including Asia. In May, the automotive vertical established itself in Mexico with a significant contract that involves a large volume of air freight business and will help to offset the decline in the Brazilian market. Meanwhile, Panalpina’s Brazil Wings Charter Network was instrumental in securing business for several agricultural machinery manufacturers, offering a service that enhances supply chain efficiency by including customs clearance. In addition, the manufacturing vertical saw significant growth in both air and ocean freight business from a key agricultural sector customer, which involved introducing additional trade lanes between Europe and India.

Customer focus

Panalpina won a sophisticated supply chain contract from a major manufacturer in Asia that demonstrates its multimodal capabilities. The contract involves transporting finished vehicles by air, sea and feeder service.

Looking forward

In 2016, both verticals expect to achieve profitable and sustainable business growth, and the economic environment is particularly promising in Mexico and China.

Mexico now looks set to overtake Brazil in terms of both growth rate and customer investment, with an increasing number of European original equipment manufacturers opening operations that capitalize on the country’s infrastructure and easy access to the US market.

In China, the world’s largest car market, car sales are expected to grow at a respectable rate, stimulated by government incentives for small and energy-efficient vehicles.

These verticals will focus especially on the top global and SME accounts, and will leverage value-added services such as the Charter Network and Managed Solutions.

INDUSTRY KNOW-HOW

Automotive Manufacturing

Charter Network expansion

Panalpina has doubled its scheduled charters between Luxembourg and Shanghai from one to two flights per week, meeting the need to transport outsized equipment—for example, for the automotive and energy business—as well as temperature-sensitive pharmaceuticals. The charters are operated by Silk Way West Airlines and rely on 747- 8 freighters.


Chemical competency center

The chemical competency center brings together expertise in supply chain work process flows, know-how in the handling of hazardous materials, and people who can be cross-trained to handle multiple accounts.

Market environment

In 2015, capacity increased substantially across the chemical industry, especially in the petrochemical sector. The chemical supply chain continued to grow in complexity and there were major shifts in distribution patterns. There was greater regulation to deal with, particularly for hazardous products, leading to higher logistics and transportation costs. China accelerated its drive to become self-sufficient and import less, but this was more than offset by several investments to increase capacity across the Middle East and North America – much of it for export.

Highlights

This year saw Panalpina reaffirm its commitment to the chemicals industry through a range of initiatives. The Chemicals vertical invested heavily in personnel to strengthen its global team and salesforce, which was well received by current customers and also resulted in the on-boarding of new customers.

A chemical competency center was launched in Houston, Texas to service the US market. Three more centers are currently being set up in São Paulo, Brazil, Antwerp, Belgium and Singapore to cater to Latin America, Europe and Asia.Multinational customers are looking for both efficient freight management and greater transparency in the supply chain, and the centers will boost Panalpina’s ability to offer assistance with both work process documentation and transportation.

Customer focus

The chemical competency center demonstrated to customers that Panalpina aims to become a dominant player in chemical sector logistics. The message was further reinforced at a number of industry-focused trade shows such as LogiChem, a leading chemical supply chain and logistics event. Meanwhile, a series of road shows in the Americas, Europe and Asia informed existing and potential customers about the large increase the company is making in chemicals sector investment.

Looking forward

By the end of 2015 the vertical’s growth plan was already gaining traction, and includes ambitious growth targets for 2016. Some customers operating on a regional basis are preparing to expand worldwide; the chemicals vertical will work to ensure that customers extend their relationship with Panalpina to achieve supply chain transparency.

Chemicals

INDUSTRY KNOW-HOW CONTINUED


Radio frequency identification (RFID)

Radio frequency identification (RFID) tracking technology allows goods to be tracked at all stages of transport, from warehouse to distribution center to consumer and the reverse. Panalpina has implemented RFID tunnels in its fashion warehouses to reduce inbound handling time and improve inventory accuracy.

Market environment

Across the consumer and retail, and fashion markets, an erratic and fast-moving global environment, combined with the rise of e-commerce, resulted in shorter cycles and a decrease in consumer loyalty. The fashion sector in particular remained highly volatile. This put pressure on supply chain solution providers to become ever more agile, efficient and innovative in the services they offer.

Highlights

During the year Panalpina focused on delivering tailor-made, value-added solutions to its customers. The biggest successes involved global order and freight management for major companies in the consumer market, where Panalpina is moving from a third-party logistics provider to a lead logistics provider role.

This was a good year for the consumer and retail, and fashion verticals, Ocean Freight operations, with strong growth in the Far East westbound trade. There was significant growth in volume and gross profit with both its global accounts and SME accounts. Panalpina implemented combined order- and freight-management solutions with key customers in the entire segment, leading to increased visibility for customers. In parallel, the company focused on tailored consolidation of buyers to optimize cargo flow for customers.

Air Freight business has been very successful for these vertical’s in recent years. Panalpina won some major contracts, including 100 percent of the global air freight business from one major consumer company. Panalpina developed a solution to optimize air freight, adopting the most cost-efficient transport mode in accordance with the lead time. For the fashion industry, a high volume of luxury and high-fashion goods were delivered to the world’s key consumption areas in Asia, Europe and the Americas, mainly from Italy, France and Switzerland.

In 2015, Panalpina continued its focus on serving high-fashion and luxury customers with smart logistics solutions. Panalpina’s fashion hubs in Milan, Lugano, New York, Eindhoven, London and Hong Kong successfully provided major fashion houses with high visibility, end-to-end solutions such as radio frequency identification (RFID), order management solutions and other value-added services. The company started looking into e-commerce solutions, not only to fulfill orders but also to manage clients’ e-commerce sites.

Customer focus

As well as delivering key note speeches at a range of conferences and exhibitions, Panalpina ran a number of round-table discussions to explore trends including the impact and potential of technological developments such as RFID, 3D printing and e-commerce. Some of the most fruitful discussions looked at pragmatic issues such as local challenges and customs rules and regulations in emerging markets.

Looking forward

In 2016, the consumer and retail, and fashion verticals will continue to focus on optimizing the supply chain for its global accounts. It will combine order management solutions with buyers’ consolidation, both for its global accounts and for SME retailers and fashion companies. For the fashion industry, it will continue to develop its hub structures and end-to-end logistics solutions.


Consumer and Retail Fashion


Recognition by customers

Panalpina won the Customer Choice Award for Service, a new addition to the Cool Chain Excellence Awards held in January 2015. Held in association with Cold Chain IQ, the awards highlight best practices within the temperature control life science industry. Voters were asked to nominate the service partner that had provided them with the most exceptional customer experience in 2014.

Market environment

The global healthcare market expanded slightly in 2015, driven mainly by growth in trans-Pacific and Asian trade. The year witnessed a major consolidation of the healthcare sector with the conclusion of a series of high profile mergers and joint ventures, some of them involving Panalpina customers. For the healthcare vertical this is both an opportunity and a threat, offering the chance to increase its penetration of key players but also the risk of being cut out.

Highlights

To be prepared for the challenges of the next five years, in 2015 the healthcare vertical invested in infrastructure and people and is fast closing the gap with bigger competitors. It opened competency centers in Frankfurt and Shanghai and plans to open more in the US and Asia. Panalpina renewed its Good Distribution Practice (GDP) certification in Luxembourg, a major hub for transport of temperature-sensitive healthcare products. Simultaneously, it conducted GDP training for about 1,500 staff in Panalpina worldwide. Crucially, all these initiatives assure customers that their products are being transported in a 100 percent compliant GDP environment via a dedicated global network.

Meanwhile, another innovative and market-leading move saw the launch of a regular, temperature-controlled, fully GDP-compliant less than container (LCL) service from Antwerp, Belgium to Panama.

Customer focus

The healthcare vertical ran several well- attended workshops in Luxembourg and Shanghai on cool chain management. These workshops involved open discussions, directly engaging customers and providing a forum where supply chain issues can be jointly resolved and input received on how to further develop and enhance Panalpina’s service.

Panalpina was awarded with the Customer Choice Award for Service at the 14th annual Temperature Controlled Logistics Europe summit held in Frankfurt, Germany. The award is a particular achievement for Panalpina because it was voted for solely by customers.

Looking forward

The outlook for the healthcare sector is very positive. The world’s aging population and growing middle class are likely to increase the demand for healthcare products. Traditionally, production was based mainly in Europe and the US, but many players are increasingly moving production into the BRIC nations, especially China and India. In both countries Panalpina is positioning itself to handle exports as well as imports, and it expects its investments to start paying off soon. Additional workshops on cool chain management are planned in the US, as well as follow-up workshops in Europe and Asia.

The healthcare vertical is poised to seize opportunities to tender for contracts with major pharmaceutical companies in 2016. To achieve this, it will leverage on its unique combination of cool chain management know-how, its Charter Network and its hubs in Luxembourg, Shanghai and Huntsville.

Healthcare



Enabling reverse logistics

To complement its reverse logistics offering in the technology sector, Panalpina has entered into a strategic alliance with Hong Kong-based company Spread Logistics. Working closely together, the two companies now pick up faulty consumer electronics at origin, conduct failure analyses and – if need be – return them to the original manufacturer in mainland China. The first consolidation center has been set up in Dubai.

Market environment

Today, mobile devices are as powerful as PCs and laptops were a year ago. This has put pressure on manufacturers to add special features to their products to entice high-end buyers. Buyers, though, are not prepared to wait a long time, compelling manufacturers to dispatch goods by air rather than sea. In addition, as technology becomes more powerful and compact, products become smaller. Many consumers are jumping straight into smartphones, bypassing the intermediate stage of tablets. Thus, as processing power rises, air freight tonnage falls.

Nearshoring – long common in the desktop computing arena – is fast spreading throughout the entire technology sector. Though this means final assembly happens close to market, parts and sub-assemblies still have to be brought in from abroad, which involves a large number of consignments, most of them coming by sea.

Highlights

Throughout the year, the Technology team, which is made up from the Hi-Tech and Telecom verticals, continued to come up with high-performing, competitively priced products that gave customers the speed and visibility they wanted, with pick-up and delivery options at either end. Technology had the lift and capacity when customers needed them, and exploited the flexibility of its network to respond to sudden changes in supply and demand.

Panalpina’s new Logistics Manufacturing Services (LMS) centers in Dubai and Panama, in addition to the center in Brazil, provide last-minute assembly, software updates and testing for major telecommunications companies, allowing them to meet the fast-changing demands of consumers. In addition, the centers manage diagnostics and repairs to enable reverse logistics.

Customer focus

A major change in Technology’s approach to customers took place in 2015. It no longer positions itself just as a transactional freight forwarder and has begun building deeper relationships based around its understanding of the supply chain. This has improved its account strategies and boosted the ability of its sales professionals to deliver value to customers.

Looking forward

An even greater demand for rapid response times, supply chain visibility and flexibility, and the ability to switch freight forwarding modes is expected in 2016. Panalpina’s expertise with LMS and reverse logistics will allow customers to be more competitive and refresh their products faster.

Technology has now developed a much more diversified and targeted growth strategy. Regional and country sales teams will focus on global accounts by following an integrated approach. This will target middle-tier and sub-assembly companies as well as the telcos that are major buyers at the end of the supply chain.


Hi-Tech Telecom


Acquisition of Airflo

Panalpina has acquired a majority stake in Airflo, a company based in Kenya and the Netherlands specializing in the export of flowers and vegetables. This acquisition reflects Panalpina’s continued expansion in Africa and its increasing focus on the fast-growing perishables business. With a staff of over 160 in Nairobi, Kenya and Aalsmeer, the Netherlands, the company organizes up to 1,500 temperature-controlled shipments per week from Kenya.

Market environment

Perishables is a fast-growing market, benefiting from the rise of a middle class in developing countries around the world as well as increased expectations to have seasonal fruits and vegetables the year round. In addition, people are traveling further distances and become exposed to produce in new locations, which increases the desire to have this available in their home locations.

The perishables sector is less susceptible to global economic patterns, since there is always a demand for fresh products, and is therefore more insulated from cyclical downturns. This presents Panalpina with tremendous opportunities to develop new trade lanes and markets.

Highlights

After one year of implementing a global strategy for perishables, Panalpina is already managing a huge volume of transactions and rapidly building critical mass. It handles fruit, vegetables, meat, fish, flowers, plants – everything from fresh and frozen food to luxury perishable items. It is one of the few players to have both a global perspective and a global logistics network.

Going forward, the acquisition of Airflo will expand the company’s presence in Africa and make it an important player in the Kenyan flower market, which has an expected annual export growth rate of around 5 percent. In addition, the substantial air freight volumes Airflo exports on routes from South to North will nicely counterbalance the flow of dry cargo, which is typically flown the other way. The acquisition further offers Panalpina the chance to boost its vegetables business.

Another highlight of 2015 was a major contract to export salmon, awarded by one of Norway’s largest producers. In 2016, Panalpina expects to air freight a significant volume of salmon. In addition, its reefer footprint for ocean freight is growing.

In the UK, Panalpina is now the number one in flower distribution and number two in handling perishables imports, while its cold storage facility enables it to undertake onward distribution. It is one of the top three players in the Netherlands and expects to be one of the top three in Norway by the end of 2016.

Customer focus

Panalpina’s approach means going beyond kilos and boxes and seeking to build an understanding of both the customer and the product that sets the company apart from its competitors.

The aim in 2015 was for Panalpina to raise its profile in the market and to be recognized for the excellence of its services, which include temperature-controlled air freight, ocean reefer freight, road services, and value-added cool chain management. During the year Panalpina took part in a series of events such as the important Fruit Logistica trade fair in Berlin, which enabled the company to showcase its ability to deliver perishables solutions from field to shelf on a global scale.

Looking forward

Within the next few years, through a mixture of acquisitions and organic growth, the perishables vertical looks set to contribute a substantial and increasing percentage of Panalpina’s air freight business and to strengthen the company’s position in the air freight market.

To succeed, it is vitally important to keep abreast of market trends, and especially the impact of e-commerce on the perishables sector. Huge growth is expected in virtual retailing and Panalpina must be innovative to stay ahead of the curve.

Perishables


INNOVATION


Panalpina is working with academic experts at the University of Cardiff to develop a new industrial 3D printing solution for customers. 3D printing will have an effect on inventory holding and transportation, as spare parts can be printed to suit rather than shipped in quantity and held ready to be called off.

A driver for development

Innovation as a driver for development

The freight forwarding industry is highly commoditized and has low profit margins. Panalpina, however, is not a traditional operator and aims to harness the power of innovation to generate new services, business models and processes which will differentiate the company from its competitors, increase its productivity and boost both revenues and margins.

Panalpina is already the market leader in Logistics Manufacturing Services (LMS), part of its shift away from traditional warehousing towards manufacturing and distribution. Panalpina has the ability to select components, manufacture finished products, and ship them within a single day. The configure-to-order process customizes the product as late as possible in the supply chain, allowing materials to be allocated against orders only when required. This considerably reduces customers’ working capital requirements as well as their order fulfillment lead times.

Innovation from within

In 2015, Panalpina set up an Innovation Board chaired by the CEO, with the aim of providing an open platform to gather original ideas from within Panalpina.

The initial response to this initiative has been very exciting and several ideas are being assessed by special project groups. Panalpina is further looking to partner with academia and customers, as well as with start-up companies that have invented innovative IT platforms and business models.


Transformation through IT

In 2015 Panalpina pressed ahead with its Operations Transformation Program (OTP), which is designed to improve productivity via optimized, standardized and automated core business processes. For customers, this will result in better service through improved responsiveness and transparency. During the year the OTP focused on design and organizational changes, process improvements and extensive testing. The SAP Transportation Module (TM), a major element of OTP, went live in December with the first transactions in Singapore and Switzerland; and further deployments are planned in 2016 in up to 50 percent of its network.

Customer-facing systems

During the year, Panalpina linked up more customers than ever with myPanalpina and myPanalpina+, customer-facing systems that actively support high-quality supply chains and help customers reduce total logistics costs. Benefits include end-to-end visibility, system-to-system connectivity, proactive purchase order and freight management, and system-based transport optimization.

IT substantially increased its investments into research, development and innovation, leading to improvements in database acceleration, automation, data exploration and predictive analytics.

In the four Panalpina regions, IT teams successfully carried out several projects that involved linking the customer’s IT systems with Panalpina’s, increasing speed and transparency and reducing costs.

Outlook for 2016

In parallel to enabling the implementation of SAP, the goals for 2016 will be to increase customer focus and to develop IT solutions that are aligned with the products, regions and industry verticals to improve the company’s productivity and success.

Panalpina is deploying a single warehouse management system (WMS) across all of its logistics facilities throughout the world, enabling the company to optimize service levels and inventory for customers. In 2015, the JDA WMS was expanded to several additional sites, bringing the total number of sites to 35 by the end of the year.

Improved responsiveness and transparency

INFORMATION TECHNOLOGY

Panalpina Annual Report 2015Panalpina Annual Report 2015 panalpina.com 48

OUR PEOPLE

Using the foundations and infrastructure provided by PanLink, the global Human Resources Information System, and PanAcademy, Panalpina’s employee training and development platform, the company will further develop management systems and processes in the areas of talent management, learning and development, performance management, compensation and benefits and operational excellence. Together with the focus on compliance and ethics that are already a foundation of Panalpina’s organizational culture, these efforts will provide the ingredients required for a high-performing organization.

Mentoring high-potential employees

Panalpina has launched a global mentoring program to bring talented and high potential employees together with experienced members of the leadership team, in order to nurture their continued development as managers and leaders. This program is being implemented at the global, regional and country levels; it involves country level managers and heads of products, regional heads of functions and products and the top-level Executive Committee members who act as mentors to promising Panalpina employees. The mentors and participants meet on a regular basis to discuss career aspirations, define specific areas for each person to further develop their skills, and design a roadmap for their career development at Panalpina. Participants are nominated by their line managers, and the Human Resources team manages the process. In 2015, the 15 employees who took part in Panalpina’s talent development program, Navigating our Future, were assigned a mentor from the Executive Board or the Executive Committee. In the European region, 62 employees participated in the mentoring program and 27 managers were trained to be mentors.

Training and development

In a highly competitive market such as Panalpina’s, employees need to have skills and knowledge in a wide range of functions and products. Panalpina’s sophisticated e-learning platform allows employees to acquire these skills easily and efficiently, on a global platform that ensures a common level of understanding throughout the company. Courses can be taken

anywhere and at any time and the materials and lessons can be accessed after the course is complete for future reference.

In 2015, some of the most widely accessed courses in Panalpina’s e-Learning platform include IT security, Panalpina’s Code of Conduct, compliance refresher training, security, office safety, incident handling and training on Panalpina’s global environment program, PanGreen.

“Steering Success,” a long-standing program, has been re-designed and re-positioned as the flagship leadership development program of Panalpina, targeting all people managers in Panalpina. With situational leadership as the generic model, a number of Panalpina relevant topics such as change management, working in a matrix, and performance management have been added. In 2016, focus will be on deeper penetration of the program across Panalpina in order to create a common language.

Performance and talent management

Recognizing top performance is central to engaging and motivating employees. Panalpina’s focus is on creating processes and tools that enable performance differentiation and allows the company to recognize and reward top performers. As an example of the company’s efforts in this area, Panalpina implemented the “High-5” program in the Americas to recognize employees who demonstrate a commitment to Panalpina’s values and show passion for service to the company.

Focus on talent management has been strengthened so that all activities have been linked to one motto – “right person on the right job”. For example, the nomination process of the flagship talent development program, Navigating our Future, has been directly linked to the succession planning for the Top 150 leadership roles of Panalpina.

High-performing and engaged employees

In 2016, Panalpina’s approach to human resource management will focus on fostering a high performance culture centered on the principles of leadership, execution and discipline.

1. IT Security Awareness 11,4042. Code of Conduct 2015 10,6103. Compliance Refresher 8,274

Most popular e-learning

completed courses

1

2

3

At Panalpina, we believe continuous improvement is for everyone, not just for continuous improvement specialists.

Nadine AlbeckGlobal Head of the Lean training program

1. Female 6,7562. Male 7,3153. Not stated 40

Employees by gender

Other employees

1

3

2

1. Under 30 3,7782. 30 to 39 5,3773. 40 to 49 3,4784. 50 or over 2,236

Employees by age

1

2

3

4

1. Female 1472. Male 611

Employees by gender

Senior Management

1

2

Note: Charts are based on employee headcount.


Employee engagement

For Panalpina to become a truly high-performing organization, it is very important to understand how Panalpina employees view the organization, how this compares with other companies around the world, and where Panalpina currently stands in its journey of establishing a high-performance business culture. Starting in 2016, employee engagement surveys (EES) will be run globally on an annual basis to measure three main areas: manager effectiveness, employee engagement, and organizational effectiveness. Most importantly, the surveys will tell the company where its priorities for action should be and will provide an opportunity for employees to become involved in planning and implementing change.

In order to test the approach before the global survey, an EES was held in late 2015 in six countries, involving almost 10 percent of Panalpina employees.

19%of senior management are female

48%of other employees are female

25%employees under age of 30

All our activities and processes are guided by one test: Do they enable the creation of a truly high-performing organization?

Karsten BreumGlobal Head of Human Resources

OUR PEOPLE CONTINUED


Commitment to performance

QUALITY, HEALTH AND SAFETY PERFORMANCE

Health and safety performance in 2015

For the second year in a row, Panalpina achieved all global safety targets set to reduce accidents and improve near miss reporting. By continuing to improve on the health and safety foundations built over previous years, Panalpina increased awareness on specific safety topics and engaged management support to further enhance the culture of safety globally. The awareness campaigns, preventative measures and increased reporting have all contributed to a near 50 percent reduction in lost work days due to accidents from 2013 to 2015.

Trainings and certifications

The core of Panalpina’s health and safety programs is based upon its global certification according to the standards of OHSAS18001. Panalpina was the first logistics company to achieve such certification globally. In the spring of 2015, Panalpina underwent a global audit of its health and safety programs to ensure ongoing compliance with the processes, systems and documentation. The audit found no major non-conformities globally, and a substantial reduction in the number of minor issues that required attention. Corrective action plans were promptly developed for all non-conformances that were identified.

Another key part of Panalpina’s approach to health, safety and quality is its focus on identifying behavioral and systemic safety issues, and understanding the causes of the problems that do arise. In 2015, the country and regional QHSE teams and managers from other functions participated in root cause analysis trainings to strengthen their abilities to recognize, understand and ultimately prevent problems before they arise. Panalpina also continued its long-running program called O.O.P.S. (Observation of Performance Standard), which encourages staff to freely report any concerns or incidents regarding health and safety or compliance with workplace safety standards and regulations.

The company also places a strong emphasis on corrective action/preventive action (CAPA) trainings. Through defined training programs and workshops Panalpina’s employees can learn and adopt the methodology in their respective functions and focus on continual improvement programs. With dozens of CAPA trainings and workshops conducted throughout the world, Panalpina’s quality, health, safety and environment teams are equipped to take active steps to design appropriate and effective corrective actions that address the underlying root causes of problems.

HEALTH AND SAFETY PERFORMANCE

Total 2014 Total 2015 +/-

First-aid incidents 89 54 -35

Medical treatment incidents 49 35 -14

Restricted work cases 11 9 -2

Near misses 865 706 -159

Lost-time incidents 66 53 -13

Fatalities 0 0 –

Subcontractor HSE violations 188 172 -16

Inspections 3,036 2,892 -144

The importance of quality, health and safety performance was reinforced at Panalpina in 2015, with the goal of driving process improvements and ultimately supporting operational excellence for customers. While these subjects have always been important for Panalpina, the commitment of all employees to these important principles was reinvigorated.

In 2015 more than 30 external GDP audits and inspections were performed to ensure compliance with GDP certification.

2,892health and safety inspections


QUALITY, HEALTH AND SAFETY PERFORMANCE CONTINUED

Two years ago, Panalpina became the first global logistics company to gain accreditation for its Lean training program. In 2015, the training program at Panalpina was reaccredited, demonstrating the company’s leadership in the area of continuous improvement. Already more than 300 Panalpina employees have been awarded certification from Cardiff University, and more than 500 improvement projects have been initiated around the world.

Health and safety initiatives

A highlight of health and safety management at Panalpina in 2015 was Global Safety Week. Corporate-wide, the organization held workshops, trainings and awareness-raising events that focused on various health and safety topics – ranging from competitions, health and safety quizzes, and educational activities that discussed various safety rules including safe driving. There were also events that included collaborations with Panalpina subcontractors. Senior managers and executives were encouraged to take part and provide feedback for the activities and non-HSE staff were engaged to ensure their awareness of the importance of health and safety topics to their work.

Regular health and safety programs and training at Panalpina cover a wide range of topics that include not only workplace safety but also employee health and wellbeing. These trainings and workshops are offered on an ongoing basis to employees, including many that are part of courses offered through Panalpina’s e-learning platform.

In 2015, approximately 2,000 employees took part in online trainings regarding warehouse and office safety and hundreds more participated in courses on health and wellbeing topics. There were numerous other health campaigns organized for Panalpina employees. These included awareness efforts on breast and prostate cancer, and regular health exams for employees.

In Belgium, the Panalpina facility introduced a new safety principle called “LUEZ” (Loading, Unloading Exclusion Zones). Three principles outline this program for defining exclusion zones for areas where cargo loading and unloading occurs.

• Segregating forklifts and other equipment used for loading and unloading from drivers and pedestrians

• Ultimate responsibility for the area where loading and unloading is occurring resides with the forklift operator

• If the forklift operator loses his/her direct line of sight to the driver and others, then activity should immediately stop until line of sight is re-established.

It is programs such as this and others that have improved health and safety performance. For example, in 2015 at Panalpina’s Brazil facility, there was a 23 percent reduction in operational incidents. Panalpina Canada saw a reduction in workplace injuries from ten in 2014 to three in 2015.

Delivering quality

Panalpina’s success as a business is strongly dependent on the quality of the service it provides to its customers, and 2015 saw refocused attention to this issue. The internal systems and processes it has deployed to ensure the quality of service are critically important.

This attention to quality is highlighted by the establishment of the Regional Asia Pacific Quality Competence Center (QCC). The QCC includes the country quality organizations, operating within the matrix organization, who will work on four primary pillars: Incident Handling Analysis and Reporting, Audits, Continuous Improvement and Information Management Systems.

A new safety approach in Belgium defines exclusion areas for loading and unloading cargo.

2,000number of employees who took part in online trainings in warehouse and office safety in 2015

50%reduction in lost work days due to accidents from 2013 to 2015



The incident handling pillar in the QCC is focused on standardizing incident handling and reporting for each of the APAC countries. Reported incidents are analyzed and, where deemed appropriate, followed by a robust corrective action/preventive action (CAPA) process. The audit pillar consists of a program of internal quality, health, safety and environmental audits conducted by both internal and external parties, which is focused on Panalpina’s operations as well as those of its subcontractors. A team of professional auditors conduct over 150 audits per year. The continuous improvement pillar seeks to target quality hotspots in Panalpina operations in the region and design and implement improvement plans. Lastly, emphasis is given to the collection and centralization of data and information in Panalpina’s Information Management System to ensure solid record keeping and well-documented processes.

The emphasis on quality paid dividends in 2015, as evidenced by the numerous awards and recognitions given to Panalpina recognizing the high level of service they provided to customers. For example, in Brazil, the company received the coveted “Best Freight Forwarder” at the Viracopos airport, in addition to several other awards in different vertical segments.

Quality certifications

Panalpina has achieved global certification according to the ISO 9001 and 14001 frameworks (Quality and Environmental Management Systems respectively) and global certification according to the OSHAS 18001 health and safety management. In addition to these certifications, Panalpina also utilizes a variety of other quality-focused methodologies including 5S, QRQC (Quick Response Quality Control), Lean training and the Six Sigma methodology in its facilities worldwide.

The company has implemented corporate-wide the Logistics Excellence Program (LogEx) as an essential part of the corporate philosophy and strategy for quality performance. LogEx is an internal corporate continuous improvement program that increases productivity and reduces errors and reaction times for corrective actions. Ultimately this system can be a decisive advantage as it impacts competitiveness and productivity and in the long-term, the value of the company.

This past year, the European region started preparation for the implementation of a comprehensive continuous improvement concept for all products offered in Europe. Implementation of this system is scheduled to commence in early 2016. Panalpina Belgium will seek certification from the Centre of Excellence for Integrated Validators (CAIV) against performance standards for the shipment of pharmaceutical products. This audit took place in late 2015, with the results to be reported in early 2016. Achieving this certification also involved personnel taking courses and passing examinations on the subjects of Temperature Controlled-Cargo Operations and Risk, Quality and Audit of Temperature-controlled Cargo.

For the second year in a row, Panalpina achieved all global safety targets set to reduce accidents and improve near miss reporting.


In 2015, Panalpina’s country and regional QHSE teams participated in root cause analysis trainings to strengthen their abilities to recognize, understand and ultimately prevent health and safety problems before they arise.

Good Distribution Practice

Good Distribution Practice (GDP) ensures that the quality of the pharmaceutical product is maintained throughout the storage and distribution network and consequently protects the health of the patient. This rigorous set of standards requires extensive training for personnel involved in the handling of shipments containing pharmaceutical materials. In 2015, Panalpina continued its commitment to GDP compliance and signed an agreement with Concept Heidelberg Institute to develop an e-learning training on the subject. This module provides training to personnel involved in GDP operations worldwide, and during the year more than 1,500 Panalpina employees were properly trained and certified using this module.

GDP Certification for Pharmaceuticals is recognized by independent certification agencies, and demonstrates that the company meets the required standards for maintaining product quality and has proper safety procedures during distribution from manufacturer until final destination. In 2015, all of Panalpina’s GDP certified facilities successfully renewed their certifications. In addition, the business units in Barcelona and Roissy (Paris) in Europe successfully attained GDP certification for the first time.

Audits and verifications

In 2015, more than 30 GDP external audits and inspections were performed to ensure that not only was Panalpina complying with the requirements of GDP certification, but that all specific requirements of Panalpina’s customers were also being met. Fifty GDP audits were also performed on Panalpina’s critical subcontractors to ensure their ongoing compliance with the required standards.

In addition to the external audits, GDP certification requires that critical computer systems are validated regularly to ensure continuity of operations and system security. A strategy to validate GDP critical computer systems has been defined and validation will start early in 2016.

Leadership for GDP compliance

As part of the supply chain of pharmaceutical products and on behalf of its customers Panalpina must be in compliance with the GDP guidelines worldwide. To bolster the leadership and oversight in this critical function, this year the company created and filled the position of Corporate Healthcare Quality Assurance & Regulatory Manager, to provide guidance on GDP compliance and meet the exacting standards required by Panalpina’s customers.


Environmental impacts are managed under the framework of Panalpina’s ISO14001 certified global environmental management system. This extensive and comprehensive management system provides management and employees with clear procedures, guidelines and requirements for documentation regarding a variety of environmental performance and compliance issues. Preparations are under way to seek global certification in 2016 according to the latest ISO14001:2015 standards.

Panalpina is currently working towards implementing the latest 2015 version of the ISO14001 Environmental Management System.


ENVIRONMENTAL PERFORMANCE

Managing environmental impacts

Impacts from operations

Panalpina’s environmental impact is primarily attributable to the transport of customers’ products around the world on the ships, planes and trucks operated by its subcontractors. Regardless of the origin of the impacts, Panalpina’s customers increasingly expect that their logistics providers are actively engaged in efforts to reduce their environmental footprint. Therefore, it is imperative that Panalpina not only seeks to reduce the impacts from its own, directly controlled operations, but that it also engages in a robust dialogue with its vendors to identify all practical opportunities to minimize those impacts.

Tracking impacts

Twice yearly, Panalpina collects a variety of key performance indicators regarding environmental impacts from all facilities globally. These metrics include information regarding:

• Paper consumption• Electricity consumption• Heating• Fuel consumption• Water consumption• Business travel, primarily flights

These metrics are collected using an online, cloud-based data platform, and are analyzed for trends and opportunities to reduce impacts wherever possible.

In 2015, Panalpina continued to reduce its overall environmental footprint in almost every category measured. Electricity consumption decreased 5 percent from 255 terajoules in 2014 to 241 terajoules in 2015. Direct energy used for heating decreased slightly while the usage of district heating increased from 2014 figures to 11 terajoules. Energy usage by Panalpina-owned vehicles decreased by 15 percent to 144 terajoules. Overall CO2 emissions decreased by 4 percent from 2014 levels to 57,608 metric tons, with most of the reduction attributable to the reduction in vehicular fuel usage. Scope 2 emissions from indirect energy usage and Scope 3 emissions from business travel were essentially level. In 2015, there were 3.7 tons of CO2 equivalent emissions per full-time equivalent employee.

Electricity

Heating

Owned vehicles

0 25020015010050

224

17

142

1.4

11

91

Energy balance by energy category

Terajoule

Indirect energy

Indirect renewable energy

Direct energy

Direct renewable energy

Electricity

Heating

Owned vehicles

Business flights

0 32,50026,00019,50013,0006,500

32,322

0

0

8,255

0

10,342

5,238

1,452

CO2 emission by scope and activity

Tonnes of CO2 equivalent

Direct CO2 emission

Indirect CO2 emission


ENVIRONMENTAL PERFORMANCE CONTINUED

Paper usage decreased by 16 percent due to Panalpina’s increasing reliance on paperless processes as well as behavioral change on the part of employees, and water usage decreased 11 percent to 289,000 cubic meters.

In 2015, several initiatives were launched to reduce the energy and environmental impacts from Panalpina’s operations. Some were simple in concept but nonetheless an important part of instilling a culture of conservation and awareness among Panalpina’s employees. For example, in Ghana, a campaign titled “Dumsor: Do Your Bit” was introduced. “Dumsor” is a term in the local language which refers to switching things off to reduce energy consumption. This campaign utilized Panalpina’s behavioral change kit, a collection of educational materials to reduce energy consumption in Panalpina’s facilities. In Panalpina’s Iraq facility, attention was given to simple, yet highly impactful items such as installing energy efficient lighting, replacing dripping faucets in the toilets, replacing water heaters with more energy efficient models, and planting trees and bushes in the front of offices.

Reducing paper consumption was the target of campaigns in multiple Panalpina offices. Inspired by Panalpina’s shift to paperless shipping records, many offices were able to reduce their per capita paper consumption. In Poland, a program to maximize the loading of trucks destined for Russia was implemented. By introducing additional load analysis and optimization steps into the planning process, the team was able to load the trucks more efficiently and increase utilization of the vehicles by 13 percent, resulting in saving the load capacity of 235 trucks, increasing calculated profits for this route by over 650,000 euros and decreasing fuel consumption on this route by over 200,000 liters. In Brazil, Panalpina vehicles are only allowed to use ethanol, a fuel generated from renewable resources, that emits 89 percent less greenhouse gases compared to gasoline.

In 2015, Panalpina continued to provide on-demand reporting to customers regarding the environmental impacts of the services they provided. Using the EcoTransIT platform, integrated into Panalpina’s enterprise IT systems, key account managers and Panalpina’s QHSE team are able to quickly and efficiently generate detailed reports of the energy and greenhouse emissions associated with shipment services across multiple modes of transportation and trade lanes.

Recognitions for accomplishments

Panalpina annually reports its energy and greenhouse gas performance and policies to the Carbon Disclosure Project (CDP). Year over year, the company has shown improvements in the scores that it receives. In 2015, Panalpina received its highest Carbon Disclosure Project supply chain program score to date, 94 points out of 100 – significantly higher than the sector average score of 60 points – demonstrating the extent to which climate change is integrated into the company’s business strategy, its overall performance in greenhouse emissions and emission reductions, and its reporting methodology.

In spring 2015, at the Lufthansa Cargo Conference, Panalpina was awarded second place in the “Customer Care Towards Climate Change” category. Because of Panalpina’s internal initiatives for managing energy use and greenhouse gas emissions, as well as the employee engagement demonstrated in the Global Sustainable Action Day, Lufthansa recognized Panalpina as a leader among 12 major cargo carriers for its commitment to environmental performance.

A commitment to future performance

During the UN Climate Talks in Paris held in December 2015, it was announced that Panalpina was one of 114 international companies and the only logistics company so far to commit to set science-based emissions reduction targets as part of a global effort to mitigate climate change. These targets will be consistent with what the Intergovernmental Panel on Climate Change (IPCC) says is necessary to keep global warming below 2 degrees centigrade, a potentially dangerous threshold.


I feel honored to be a part of the recently conducted sustainable action day. From the feeding program to the games and the distribution of goods and supplies, I can say we did a great job. The joy that I felt after hearing the sincere appreciation of the people is truly priceless. Through this activity, we have proven that Panalpina is more than just a company because we change and touch lives.

Jizelle LiwagPanalpina, Philippines


According to the IPCC, global greenhouse gas emissions must be cut by up to 70 percent by 2050 in order to limit global warming to this 2-degree threshold and avert irreversible climate change. The Science-Based Targets initiative, a joint effort of CDP, the United Nations Global Compact, World Resources Institute and the World Wildlife Fund, only approves corporate targets that meet its strict criteria. The targets must cover a minimum of five years and companies are encouraged to develop long-term goals as well. Panalpina will establish its science-based emissions targets in the first half of 2016.

Global Sustainable Action Day

In 2015, Panalpina renamed its Global Environment Day to Global Sustainable Action Day, to reflect the breadth of activities undertaken by Panalpina employees. This corporate-wide event was a celebration of Panalpina’s commitments to protecting the environment and serving the communities where it operates. Around the world, over 500 activities were organized by the local Panalpina offices. The activities were planned with local environmental or community needs in mind, and consisted of a wide range of charitable, volunteer and educational programs.

Many offices organized donations to support local community organizations and charities. In Argentina, the Panalpina team organized the donation of computer and electronic equipment to a local school. In Canada, used clothing was collected and provided to local charities and organizations that support families in need. The Panalpina organization in Germany collected clothing to be donated to local refugee families, part of the large influx of people fleeing violence from the Middle East and other regions. The Panalpina US team organized a contest among all of the local offices for the best program for Global Sustainable Action Day. The winning office, Dallas, organized a food drive, collecting food for a local organization that supports needy families in their community.

In China, the teams made donations to a local school, including art and drawing supplies, and sports goods such as basketball, football, badminton and other athletic equipment. Several other Panalpina offices collected old cell phones with the goal of recycling the minerals contained within to avoid the need to continue mining these minerals from the habitats of endangered animals in sub-Saharan Africa.

Panalpina teams also volunteered hundreds of hours to environmental, educational and humanitarian organizations around the world. In Brazil Panalpina Brazil staff bought and delivered Christmas gifts to children who otherwise would not have received any. In Chile, employees visited the San Joaquin de Renca School, where they worked with students to make wallets and other items out of recyclable and reusable materials such as old milk containers, tires, plastic bottles and bottle caps. In India, employees worked with underprivileged children, spending time with mentally and physically challenged children and working with young girls in a local orphanage. In the Philippines, the Panalpina Cebu office is located on the island of Lapu-lapu. Panalpina employees partnered with CENRO (City Environment and Natural Resources Office) to strengthen the mangrove in the coastal area and help provide natural protection against typhoons. The Panalpina team in Mexico volunteered at the “Alimento para Todos” food bank, selecting and packing more than 12 tons of food in one day to be donated to various charity organizations.

+500activities were organized by the local Panalpina offices as part of Global Sustainable Action Day


Activities* Performance indicator UNIT 2014 2015

Energy and CO2

Electricity Consumption Terajoule 255 241

Heating Overall consumption Terajoule 104 103

District heating District heat Terajoule 10 11

Vehicle fuel Consumption (Panalpina-owned and leased vehicles only) Terajoule 168 144

CO2 emissions† Total emissions Tons 59,725 57,608

– Direct (Scope 1) Tons 17,566 15,579

– Indirect (Scope 2) Tons 33,836 33,774

– Indirect (Scope 3, business air travel) Tons 8,323 8,255

Relative emissions per FTE‡ Tons/FTE 3.7 3.7

Materials

Paper Consumption Tons 990 829

Water Consumption m3/1000 326 289

* For each indicator, data accuracy from many contributing countries was improved compared to the previous year. Several data gaps could be closed.

† CO2 emissions were calculated according to guidelines of the Greenhouse Gas Protocol. Emission factors for direct emissions were taken from IPCC, 2006.

Emission factors for indirect emissions were taken from the International Energy Agency (IEA) and from the UK Department for Environment, Food and Rural

Affairs (DEFRA).

‡ Calculated using 2015 average headcount.


Educational activities were also a major part of Panalpina’s Global Sustainable Action Day. In Ghana, employees organized and conducted an environmental quiz to help their colleagues understand how their actions impact the environment. In Poland, representatives of a local food bank met with Panalpina employees to discuss ways in which food waste can be prevented. In Germany, the operator of the Frankfurt Airport, Fraport, gave a presentation regarding how animals can play an important role in environmental education by sensitizing people to the importance of environmental protection.

Volunteers at the “Alimento para Todos” food bank in Mexico, selecting and packing more than 12 tons of food in one day to be donated to various charity organizations.



by region 2015

1

2

3

4

EUROPE

AMERICAS

APAC

MEAC

0 2,500 3,0002,0001,5001,000500

2,339

2,597

1,199

1,327

395

531

1,922

2,251


by region Million CHF

20152014



by product 2015

1

2

3

AIR FREIGHT

OCEAN FREIGHT

LOGISTICS

0 2,500 3,5003,0002,0001,5001,000500

2,646

3,142

623

730

2,587

2,835


by product Million CHF

20152014


Net Forwarding Revenue (NFR)

GROUP FINANCIAL PERFORMANCE

Net forwarding revenue in 2015 amounted to CHF 5,855 million, a decrease of 13 percent compared to CHF 6,707 million the year before.

At the regional level, net forwarding revenue in Europe — the Group’s largest region in terms of turnover — decreased 10 percent from CHF 2,597 million to CHF 2,339 million in 2015. In North, Central and South America (Americas), NFR decreased by 15 percent from CHF 2,251 million to CHF 1,922 million. Compared to 2014, Panalpina’s NFR in 2015 in Asia Pacific (APAC) decreased 10 percent from CHF 1,327 million to CHF 1,199 million. The Middle East, Africa and CIS (MEAC) saw a decrease in NFR of 26 percent from CHF 531 million to CHF 395 million.

In 2015, the Panalpina Group generated 40 percent of its net forwarding revenue in Europe, 33 percent in the Americas, 20 percent in APAC and 7 percent in MEAC.

On a product level, net forwarding revenue in Air Freight decreased 16 percent from CHF 3,142 million in 2014 to CHF 2,646 million in 2015. In Ocean Freight, NFR decreased by 9 percent from CHF 2,835 million to CHF 2,587 million. In Logistics, NFR saw a decrease of 15 percent from CHF 730 million to CHF 623 million.

In 2015, the Panalpina Group generated 45 percent of its net forwarding revenue with Air Freight, 44 percent with Ocean Freight and 11 percent with Logistics.

EUROPE

AMERICAS

APAC

MEAC

0 500 600 700400300200100

548

614

348

340

138

147

441

486


Million CHF

20152014

AIR FREIGHT

OCEAN FREIGHT

LOGISTICS

0 500 700600400300200100

584

636

409

458

480

492


Million CHF

20152014



2015

1

2

3

4



2015

1

2

3


Gross Profit (GP)

GROUP FINANCIAL PERFORMANCE CONTINUED

In 2015, the Panalpina Group generated 37 percent of its gross profit in Europe, 30 percent in Americas, 24 percent in APAC and the remaining 9 percent in MEAC.

In Air Freight, tonnage decreased by 3 percent or roughly 22,000 tons to a total of approximately 836,200 tons (2014: 857,800 tons). Increasing competitive pressure led to gross profit per ton of air freight decreasing by approximately 6 percent. In total, gross profit realized through Air Freight services posted a decrease of 8 percent from CHF 636 million in 2014 to CHF 584 million in 2015.

In Ocean Freight, volumes decreased by 1 percent, from 1,606,500 TEU in 2014 to 1,593,900 TEU in 2015. Gross profit per TEU came in 1 percent below the previous year’s level. Gross profit generated through Ocean Freight services was CHF 480 million versus CHF 492 in 2014.

Gross profit in Logistics saw a decrease of 11 percent from CHF 458 million in 2014 to CHF 409 million in 2015, which is mainly a result of exiting nonstrategic locations.

In 2015, Panalpina generated 39 percent of its gross profit with Air Freight, 33 percent with Ocean Freight and 28 percent with Logistics.

In the forwarding industry gross profit is considered a better measure of sales performance than net forwarding revenue as GP is less distorted by external factors such as movements in carrier freight rates and oil prices, which can materially inflate or deflate revenues.

Gross profit of the Group decreased by 7 percent to CHF 1,474 million in 2015 (2014: CHF 1,586 million). The translation of foreign currencies into Swiss francs had a negative impact on the Group’s GP in the amount of CHF 98 million or 7 percent.

With respect to regional performance, Europe remains the most important region for Panalpina in terms of gross profit generation. In 2015, gross profit in Europe decreased by 11 percent to CHF 548 million from CHF 614 million in the previous year; in Americas, gross profit decreased by 9 percent from CHF 486 million to CHF 441 million; APAC increased gross profit by 2 percent from CHF 340 million to CHF 348 million; in MEAC, gross profit decreased by 6 percent from CHF 147 million to CHF 138 million.

EUROPE

AMERICAS

APAC

MEAC

0 50 60 70 8040302010

25

7

65

68

12

11

15

31

EBIT by region

Million CHF

20152014

AIR FREIGHT

OCEAN FREIGHT

LOGISTICS

20 80 1201006040200

88

112

2

-8

27

13

EBIT by product

Million CHF

20152014

EBIT

EBIT

0 100 14012080604020

117

117

EBIT/GP MARGIN

EBIT/GP MARGIN

8%

7.4%

Overall development

Million CHF

20152014


Earnings Before Interest and Taxes (EBIT)

Management considers earnings before interest and taxes (EBIT) a key performance indicator for assessing the Group’s operating performance. The Group’s EBIT in 2015 amounted to CHF 117 million (2014: CHF 117 million). Panalpina achieved an EBIT/GP margin of 8 percent (2014: 7.4 percent).

The two main items included in operating expenses — personnel expenses and other operating expenses — developed as follows:• Personnel expenses amounted to

CHF 896 million in 2015 and showed a decrease of 8 percent from the previous year (2014: CHF 977 million). The decrease was mainly a result of currency exchange.

• Other operating expenses amounted to CHF 409 million in 2015 and thus came in approximately 6 percent lower compared to the previous year (2014: CHF 435 million). Other operating costs decreased despite an historically high incremental IT investment of CHF 18 million for the Operational Transformation Program / SAP TM.

Depreciation and amortization charges changed from CHF 57 million in 2014 to CHF 51 million in 2015.

With respect to regional EBIT performance, the largest contribution to Group EBIT comes from APAC with CHF 65 million (2014: CHF 68 million). In Europe, EBIT increased from CHF 7 million in 2014 to CHF 25 million in 2015. EBIT in the Americas decreased from CHF 31 million in 2014 to CHF 15 million in 2015. In MEAC, EBIT increased from CHF 11 million in 2014 to CHF 12 million in 2015.

In the products, Air Freight delivered the highest EBIT with CHF 88 million, a decrease compared to the CHF 112 million achieved in the previous year. In Ocean Freight, EBIT increased from CHF 13 million in 2014 to CHF 27 million in 2015. In Logistics, the EBIT result improved from a loss of CHF 8 million in 2014 to a positive result of CHF 2 million in 2015.


Non-current assets

Other current assets

Trade receivables and unbilled forwarding services

Cash and cash equivalents

0 1,000 1,200800600400200

274

329

954

1,124

392

372

106

104

Total assets

Million CHF

20152014

Equity

Other liabilities

Trade payables and accrued cost of services

0 800600400200

653

733

669

739

405

457

Total liabilities and equity

Million CHF

20152014


Balance sheet

Current assets

Panalpina’s cash and cash equivalents amounted to CHF 392 million on December 31, 2015 and thus increased by CHF 20 million from the year before (December 31, 2014: CHF 372 million). The cash increase can mainly be attributed to lower net working capital.

Trade receivables and unbilled forwarding services decreased by CHF 170 million, from CHF 1,124 million at the end of 2014 to CHF 954 million at the end of 2015. The decrease can be mainly attributed to lower turnover and improvement in the collection process.

The net working capital intensity (defined as net working capital as a percentage of gross forwarding revenue) at the end of 2015 was 1.8 percent, compared to 2.2 percent a year earlier.

Non-current assets

Panalpina’s non-current assets decreased by CHF 55 million and amounted to CHF 274 million on December 31, 2015 (December 31, 2014: CHF 329 million). The decrease can mainly be attributed to amortization of tangible and intangible assets.

Trade payables and accrued cost of services

Panalpina’s trade payables and accrued cost of services at year-end 2015 amounted to CHF 669 million compared to CHF 739 million at year-end 2014 and hence saw a reduction of CHF 70 million.

Other liabilities

Panalpina’s other liabilities decreased by CHF 52 million from CHF 457 million at year-end 2014 to CHF 405 million at year-end 2015.

Total equity

Total equity decreased by CHF 80 million during the reporting period, from CHF 733 million on December 31, 2014, to CHF 653 million on December 31, 2015.



Cash flow


Net cash from operating activities

Panalpina’s net cash from operating activities in the reporting period amounted to CHF 152 million (2014: CHF 123 million). A main contributor was the improvement in working capital.

Cash flow from investing activities

Expenditures on property, plant and equipment decreased to CHF 16 million (2014: CHF 19 million). Capital expenditures in 2015 amounted to 0.3 percent of net forwarding revenue (2014: 0.7 percent). Overall, the net cash outflow from investing activities decreased from CHF 36 million in 2014 to CHF 9 million in 2015.

Cash flow from financing activities

The company paid an ordinary dividend amounting to CHF 65 million in 2015. The net cash used in financing activities thus increased from CHF 55 million in 2014 to CHF 69 million in 2015.

Net Cash

Net cash increased by CHF 21 million during the year under review to CHF 392 on December 31, 2015 (December 31, 2014: CHF 371 million).

NET CASHDec 31

2014Dec 31

2015 Difference

Cash and cash equivalents 372.0 392.3 5%

Other current financial assets 0.0 0.0 0%

Short-term debt -0.5 -0.1 -73%

Long-term debt -0.1 0.0 -77%

Net cash 371.4 392.0 6%


Building for the future

A solid base in Egypt

In 2015 Panalpina acquired its long-time partner in Egypt, Afifi, with approximately 150 employees in Cairo, Alexandria and Suez. While all major industries are represented in the country, Panalpina sees the greatest growth potential in the oil and gas, capital projects, telecom, automotive and healthcare sectors.

Strategy for growth

During 2015 Panalpina pursued its strategy for growth based on three pillars: organic growth (growth from within), external growth (by acquisitions) and innovation.

The company expanded its air freight offerings further during the year, introducing the Brazil Wings service between Huntsville, Alabama and São Paulo, Brazil, and adding additional calls to the service between Luxembourg and Hong Kong with stops in Baku. Ocean Freight continued to optimize and expand its Managed Solutions and services for less than container load (LCL) shipments, especially in the Asia outbound markets to Asia, the US, Latin America and Europe.

Expansion in growing economies and industries

Supporting its growth strategy for northern and eastern Africa, Panalpina opened offices in Casablanca, Morocco and Nairobi, Kenya. In both economies, opportunities for growth exist in the energy and infrastructure sectors as well as in perishables and consumer goods. A new office was established in Yangon, Myanmar, where a new civil government is opening up new opportunities for industry and trade at the crossroads between Asia and Europe. The biggest opportunities for growth for Panalpina are in telecommunications, manufacturing, oil and gas, as well as capital projects.

As a further demonstration of its intention to expand in Africa, and to increase its share in the perishables sector, Panalpina agreed to acquire a majority share in Airflo, a freight forwarder specializing in the worldwide export of fresh cut flowers, plant cuttings and vegetables. The company has over 160 employees in Nairobi, Kenya and Aalsmeer, the Netherlands. Panalpina also acquired its Egyptian partner Afifi with offices in three locations.

The company made major investments in new centers in Panama and Dubai as part of its Logistics Manufacturing Services (LMS) approach, which brings Panalpina closer into its customers’ supply chains through last-minute assembly, testing, repairs and returns. The centers support major telecommunications companies and are now being expanded to encompass a wider range of services.

To enable growth through innovation, Panalpina is gathering ideas through an Innovation Board. Led directly by the CEO, the Board encourages input from employees, management, universities, partners and customers and focuses on proposals that will bring a business benefit.

INVESTMENTS

Corporate governance


Panalpina is committed to a transparent management structure that is governed by international principles. This Corporate Governance Report complies with the directive of the SIX Swiss Exchange and therefore provides investors with the corresponding key information.

Andy Weber, Chief Operating Officer, member of the EB since July 1, 2015.

Roderick Angwin, Chief Information Officer, served as EB member until June 30, 2015.

Hans Toggweiler, Head of Energy Solutions, served as ExCom member until December 31, 2015.

Ferdinand Kurt, Regional CEO Americas, served as ExCom member until December 31, 2015.

Ralf Morawietz, Chief Information Officer, member of the EB since October 15, 2015.

Frank Hercksen served as Head of Ocean Freight until December 31, 2015 and is Regional CEO Americas since January 1, 2016.

* ExCom member as of January 1, 2016.

GROUP MANAGEMENT STRUCTURE Executive Board (EB)

+ Executive Committee (ExCom)

Compliance

Markus Heyer

Corporate Development

Rafic Mecattaf

Board of Directors

Chief Executive Officer

Peter Ulber

Corporate governance report

CORPORATE GOVERNANCE

Corporate Audit

Daniel Trefzer

Air Freight

Lucas Kuehner

Logistics

Mike Wilson

Ocean Freight

Daryl Ridgway*

Europe

Volker Böhringer

Asia Pacific

Stefan Karlen

Americas

Frank Hercksen

Middle East ⁄Africa ⁄CIS

Peter Triebel

Energy Solutions

Michel Dubois*

Chief Operating Officer

Andy Weber

Chief Commercial Officer

Karl Weyeneth

Chief Human Resources Officer

Karsten Breum

Chief Information Officer

Ralf Morawietz

Chief Financial Officer

Robert Erni

Chief Legal Officer

Christoph Hess


1 Group structure and shareholders

1.1 Group structure

1.1.1 Operational Group structure

Panalpina’s business activities are primarily regionally oriented. The operating structure is divided into the following four regional segments:• Americas (North, Central and

South America)• Asia Pacific• Europe• MEAC (Middle East, Africa and CIS)

Secondly, the business activities are subdivided into the following business segments:• Air Freight• Ocean Freight• Logistics (value-added services,

distribution solutions)

Supplementary information can be taken from the segmental reporting section of the Consolidated Financial Statements.

1.1.2 Listed companies within the scope of consolidation

Panalpina World Transport (Holding) Ltd. (PWT), the ultimate holding company of the Panalpina Group, is the only listed company within the scope of consolidation. PWT has its registered office in Basel, Switzerland. The PWT shares are exclusively listed on the SIX Swiss Exchange. The market capitalization on the closing date amounted to CHF 2.67 billion (23,750,000 registered shares at CHF 112.50 per share).

The PWT shares are traded under Valor no. 216808, ISIN CH0002168083, symbol PWTN.

1.1.3 Non-listed companies within the scope of consolidation

The main subsidiaries and associated companies are disclosed in the Consolidated Financial Statements itemized by registered office, nominal capital, equity interest in percent, investment and method of consolidation.

1.2 Significant shareholders

On December 31, 2015 the Ernst Göhner Foundation, Zug, Switzerland, is the main shareholder of PWT, with an equity participation of 45.9 percent.

Cevian Capital II Master Fund LP held a share capital of 12.3 percent on closing date. Other significant shareholders according to their most recent disclosure notices are Artisan Partners Limited Partnership (≥10 percent) and Janus Capital Group (≥5 percent). During the reporting year the following disclosure notices (listed by shareholders and transaction date) were filed on the SIX online publication platform.

Janus Capital Group December 9, 2015: decrease of share ownership to 4.99 percent December 28, 2015: transfer in kind to 5.02 percent

1.3 Cross-shareholdings

No cross-shareholdings exist between PWT and any other company.

2 Capital structure

2.1 Capital

On the closing date, the ordinary share capital of PWT amounted to CHF 2,375,000 and is divided into 23,750,000 registered shares, with a nominal value of CHF 0.10 each.

2.2 Authorized and conditional share capital

The extraordinary Shareholders’ Meeting of PWT held on August 23, 2005 agreed with the Board of Directors’ proposal to create an authorized share capital up to a maximum aggregate amount of CHF 6,000,000 by issuing a maximum of 3,000,000 registered shares with a nominal value of CHF 2.00 each. At the Shareholders’ Meeting of May 10, 2011 the authorized share capital was renewed at the same value until May 2013. At the Shareholders’ Meeting of May 8, 2012, the authorized share capital was reduced in conjunction with the reduction of the share capital (see section 2.3 below) to a maximum aggregate amount of CHF 300,000 by issuing a maximum of 3,000,000 registered shares with a nominal value of CHF 0.10 each.

At the Shareholders’ Meeting of May 15, 2013, the authorized share capital was renewed at the same value until May 15, 2015.

At the Shareholders’ Meeting of May 12, 2015, the authorized share capital was renewed at the same value until May 12, 2017.

The Board of Directors is authorized to exclude the pre-emptive rights of shareholders and to convey them to third parties, provided that such new shares are to be used for the takeover of entire enterprises, divisions or assets of enterprises or participations or for the financing of such transactions. The Board of Directors has not yet made use of this authorization.

No decision has been made regarding the creation of conditional capital.

2.3 Change in capital over the past three years

No changes were made over the last three years.

2.4 Shares and participation certificates

On the closing date, 23,750,000 fully paid-in PWT registered shares with a nominal value of CHF 0.10 each were issued. On this date, no participation certificates were issued.

2.5 Dividend-right certificates

On the closing date, no dividend-right certificates had been issued.

CORPORATE GOVERNANCE CONTINUED


2.6 Limitations on transferability and nominee registrations

2.6.1 Limitations on transferability for each share category; indication of statutory group clauses and rules for granting exceptions

Acquirers of PWT shares are entered into the share register as shareholders with voting rights upon provision of proof of the acquisition of the shares and provided that they expressly declare that they hold the shares in their own name and for their own account.

The Articles of PWT specify that any shareholder may exercise voting rights to a maximum of 5 percent of the total number of shares recorded in the commercial register. This limitation for registration in the share register shall also apply to persons who hold shares fully or in part through nominees within the meaning of the Articles. Furthermore, this limitation for registration in the share register also applies to registered shares that are acquired through the exercising of pre-emptive rights, warrants and conversion rights. The Board of Directors is empowered to wallow exemptions from the limitation for registration in the share register in particular cases.

The Articles make provision for group clauses.

The limitations on transferability do not apply to the shares held by the Ernst Göhner Foundation because it held PWT shares prior to the implementation of the limitations (so-called grandfathering).

2.6.2 Reasons for granting exceptions in the year under review

No exceptions were granted during the reporting year.

2.6.3 Admissibility of nominee registrations; indication of any percent clauses and registration conditions

The Articles of PWT specify that the Board of Directors may register nominees with voting rights in the share register up to a maximum of 2 percent of the share capital recorded in the commercial register. Nominees are persons who do not expressly declare in their application that they hold the shares for their own account and with whom the company has entered into an agreement to this effect.

The Board of Directors is empowered to register nominees with voting rights exceeding 2 percent of the share capital recorded in the commercial register as long as the respective nominees inform PWT of the names, addresses, nationalities (registered office in the case of legal entities) and the shareholdings of those persons for whose account they hold 2 percent or more of the share capital recorded in the commercial register.

The Articles make provision for group clauses.

2.6.4 Procedure and conditions for canceling statutory privileges and limitations on transferability

A resolution of the General Shareholders Meeting of PWT on which at least two-thirds of the voting shares represented agree is required for any abolition or change of the provisions relating to transfer limitations.

2.7 Convertible bonds, warrants and options

There were no convertible bonds outstanding on the closing date.

The only issued options relate to the share and option participation program (Management Incentive Plan (MIP)) and are for currently 1,030 senior managers of Panalpina. As of 2009, the Board of Directors and the Executive Board have been excluded from participation in this program. As of 2011, the options under the MIP program have been replaced by a free share ratio scheme. Please refer to page 84 of the Compensation Report.

3 Board of Directors

3.1 Members of the Board of Directors

At the Annual General Meeting of May 12, 2015, Thomas E. Kern and Pamela Knapp were elected and Rudolf W. Hug, Beat Walti, Ilias Läber, Chris E. Muntwyler, Roger Schmid and Knud Elmholdt Stubkjær were re-elected to the Board of Directors for a one-year term, whereas Hans-Peter Strodel stepped down from the Board due to his retirement.

On the closing date, the Board was composed of eight persons.

Three members of the Board of Directors (Rudolf W. Hug, Roger Schmid and Beat Walti) are also members of the Board of Trustees (Stiftungsrat) of PWT’s main shareholder, the Ernst Göhner Foundation.

Ilias Läber is a member of the Board of Directors of Cevian Capital AG, the Swiss office of PWT’s second largest shareholder.

The biographies of the members are as follows:

Rudolf W. Hug, Chairman. Swiss citizen. Born in 1944. Re-elected in 2015 (until 2016).

Rudolf W. Hug holds a PhD in law from the University of Zurich and an MBA from INSEAD, Fontainebleau (France). In 1985, he participated in the Executive Program of the Graduate School of Business at Stanford University. From 1977 to 1997, he worked in several positions for Schweizerische Kreditanstalt (today Credit Suisse). During the period from 1987 to 1997, he ran the international division and served as a member of the Executive Board of Credit Suisse and Credit Suisse First Boston. Since 1998, Rudolf W. Hug has been active as an independent management consultant.

Rudolf W. Hug has been a member of the Board of Directors since 2005 and was appointed Chairman of the Board of Directors on May 15, 2007 following the retirement of his predecessor.



Beat Walti, Member of the Board of Directors since 2010. Swiss citizen. Born in 1968. Re-elected in 2015 (until 2016).

Beat Walti holds a PhD in law from the University of Zurich. From 1998 to 2001 he worked as a consultant and engagement manager with McKinsey & Company in Zurich. In 2001, he was a co-founder and project manager of a start-up company in the healthcare sector. Since 2002, Beat Walti has worked as a lawyer with Wenger & Vieli in Zurich specializing in corporate, commercial, contract, competition and antitrust law. He became a partner with Wenger & Vieli in 2007 and was the firm’s managing partner from 2012 to 2014.

Ilias Läber, Member of the Board of Directors since 2013. Swiss citizen. Born in 1974. Re-elected in 2015 (until 2016).

Ilias Läber holds a Master of Science from ETH Zurich and a PhD in Finance from the University of Zurich. From 2001 to 2008, Ilias Läber worked at McKinsey & Company, ultimately as an Associate Principal. During this time he was responsible for projects in the area of operational improvement and corporate finance for mid-sized and multinational companies in Europe, the US and South America. In 2008 he joined Cevian Capital AG. In his role as Partner and Managing Director he is responsible for Cevian’s Swiss office and investments in Switzerland and England.

Chris E. Muntwyler, Member of the Board of Directors since 2010. Swiss citizen. Born in 1952. Re-elected in 2015 (until 2016).

Chris E. Muntwyler attended the School of Commerce in Zurich and completed various executive programs at Harvard University, IMD in Lausanne and at the Wharton University. From 1972 to 1999 he held several positions at Swissair, until 1981 in various leadership functions in the Marketing Division, in 1982 as General Manager Marketing and Sales Scandinavia and from 1986 for North America. In 1990, he took over responsibility for the global Price and Distribution Policy and then led the development and introduction of the new Group IT strategy. Before leaving Swissair at the beginning of 1999, he was

Vice President Global Distribution. From 1999 to 2008, Chris E. Muntwyler held several executive positions at DHL Express, in 1999 as Managing Director Switzerland, in 2002 as Managing Director Germany, in 2003 as Chief Executive Central Europe, and in 2005 as Chief Executive United Kingdom.

Today Chris E. Muntwyler is President and CEO of the management consulting company Conlogic AG.

Roger Schmid, Member of the Board of Directors since 2003. Swiss citizen. Born in 1959. Re-elected in 2015 (until 2016).

Roger Schmid holds a university degree in law as well as a PhD in law from the University of Zurich. From 1991 to 1995, he was Legal Counsel and Director at Bank Leu (today Credit Suisse). Roger Schmid works as an Executive Director of the Ernst Göhner Foundation.

Knud Elmholdt Stubkjær, Member of the Board of Directors since 2011. Danish citizen. Born in 1956. Reelected in 2015 (until 2016).

Knud Elmholdt Stubkjær holds a shipping degree from the Mærsk International Shipping Academy, supplemented with various executive programs, e.g. from IMD and INSEAD. From 1977 through 2007, he held various positions within the A.P. Møller-Mærsk Group, including a number of postings in Asian and European countries. This included positions as Head of Mærsk Line United Kingdom, President of Mærsk K.K. Japan, CEO A.P. Møller-Mærsk Singapore and Regional Manager A.P. Møller Group Asia/Oceania/Middle East. In 1999, he became Head of Mærsk’s container business worldwide, based in Copenhagen, and the same year became one of five partners in the A.P. Møller-Mærsk Group. In 2008, he became a partner in the E.R. Capital Holding Group in Hamburg, serving as CEO of one of its subsidiaries, E.R. Schiffahrt GmbH, a leading maritime service provider within container, bulk and offshore shipping. Since July 30, 2012, Knud Elmholdt Stubkjær is acting as CEO and CSO of Carrix Inc., Seattle, Washington.

Thomas E. Kern, Member of the Board of Directors since 2015 (until 2016). Swiss citizen. Born in 1953.

Thomas E. Kern holds a university degree in law from the University of Zurich and an MBA from INSEAD, Fontainebleau (France).

Thomas E. Kern held various management positions in established organizations. From 2002 to 2006 Thomas E. Kern was Chief Executive Officer of Globus-Gruppe, Spreitenbach (Switzerland) and from 2008 to 2014 Chief Executive Officer of Zurich Airport AG, Zurich (Switzerland).

Pamela Knapp, Member of the Board of Directors since 2015 (until 2016). German citizen. Born in 1958.

Pamela Knapp holds a diploma degree in economy from the Freie Universität Berlin/Free University Berlin (Germany) and completed the Advanced Management Program (AMP) at Harvard University, Boston (USA).

Pamela Knapp held various management positions at Siemens AG, Munich (Germany) and was Chief Financial Officer of the Power Transmission & Distribution Division from 2004 to 2009. From 2009 to 2014 Pamela Knapp was a member of the Board of Directors and Chief Financial Officer of GfK SE, Nuremberg (Germany).

All members of the Board are non-executive members and do not actively perform any managerial functions at PWT or any of the Group companies. Nor have they held any executive positions within the past three years prior to this reporting year. None of the members of the Board of Directors has a substantial business relationship with PWT or any of its Group companies.



3.2 Other activities and vested interests

Rudolf W. Hug, Member of the Board of Trustees (Stiftungsrat) of the Ernst Göhner Foundation, Zug (Switzerland), Vice Chairman of the Board of Directors of Deutsche Bank (Schweiz) AG, Geneva (Switzerland), Member of the Board of Trustees of the Ernst von Siemens Musikstiftung, Zug (Switzerland) and Chairman of the Board of Trustees of Stiftung Hoffnung für Menschen in Not, Kerzers (Switzerland).

Beat Walti, Chairman of the Board of Trustees of the Ernst Göhner Foundation, Zug (Switzerland) and a member of the National Council (Swiss Federal Parliament).

Ilias Läber, Managing Director of Cevian Capital AG, Pfäffikon (Switzerland).

Chris E. Muntwyler, Member of the Board of Directors of Austrian Post in Vienna (Austria) and of National Express Group PLC, London (United Kingdom).

Roger Schmid, Member of the Board of Trustees and Executive Director of the Ernst Göhner Foundation, Zug (Switzerland).

Knud Elmholdt Stubkjær, Member of the Board of Directors of various Carrix, Inc.-related entities.

Thomas E. Kern, Member of the Board of Directors of Berne Airport, Berne (Switzerland); Chairman of the Board of Trustees of the Zoo Zurich Foundation, Zurich (Switzerland).

Pamela Knapp, Member of the Board of Directors of PSA Peugeot Citroën S.A., Paris (France), Compagnie de Saint-Gobain S.A., Courbevoie (France) and hkp group AG, Zurich, (Switzerland).

Other than these, the members of the Board of Directors do not hold other material offices, nor do they carry out any other principal activities that affect the Group.

3.3 Elections and terms of office

3.3.1 Principles of the election procedure and limitations on the terms of office

The Articles of PWT do not make provision for the general renewal of office for the Board of Directors. The members of the Board of Directors are elected at each General Meeting of Shareholders with a one-year period of office. They may be re-elected at any time. The Organizational Regulations of PWT specify an age limit of 72 years for the members of the Board of Directors.

3.3.2 The first election and remaining term of office for each member of the Board of Directors

The timing of the first election and the remaining term of office for each member of the Board of Directors is specified under section 3.1.

3.4 Internal organizational structure

The Board of Directors is responsible for the ultimate management of the company and monitoring of the Executive Board. It represents the company externally and is responsible for all matters which have not been transferred to another executive body of the company by the Swiss Code of Obligations or the Articles. In line with the Articles, the Board of Directors has established Organizational Regulations that transfer certain management responsibilities to the Executive Board.

3.4.1 Allocation of tasks within the Board of Directors

The Chairman of the Board of Directors is elected at each General Meeting of Shareholders with a one-year period of office. The Vice Chairman is appointed by the Board of Directors. The Chairman (in his absence the Vice Chairman) directly supervises the business affairs and activities of the Executive Board and is entitled to regularly attend Executive Board meetings. The Corporate Auditor as well as the Corporate Secretary, in his capacity as secretary to the Board of Directors, are directly subordinated to the Chairman of the Board of Directors.

3.4.2 Member list, tasks and areas of responsibility for each committee of the Board of Directors

Three committees exist under the Board of Directors.

The Audit Committee consists of the following members of the Board of Directors: Ilias Läber (Chairman), Pamela Knapp and Roger Schmid. The Audit Committee supports the Board of Directors with the review of the company’s financial statements, the supervision of the financial accounting standards and reporting, the review of the effectiveness of the internal control system and with the efficiency of external and internal audit procedures, including risk management. The Audit Committee reviews the consolidated annual financial statements as well as the published interim financial statements and submits an application to the Board of Directors for approval. It regularly maintains contact with the Group Auditors and the Corporate Auditor. On this basis, it adopts the detailed reports of the Group Auditors and semi-annual reports of Corporate Audit. It is therefore in the position to audit the quality, effectiveness and interaction between the control systems, to determine the audit priorities, to introduce proposed measures and to monitor their implementation. The Audit Committee determines the organization of Corporate Audit, adopts the internal audit charter and approves the annual planning and scope of internal audit.

In the field of risk management, the Audit Committee approves the detailed and weighted risk map of the Executive Board, adopts the necessary measures for risk control and risk mitigation and reports the respective outcome to the Board of Directors on a yearly basis. The risk map itself covers any strategic, financial, operational, legal and compliance risks that could significantly impact the company’s ability to achieve its business goals and financial targets. Identified risks are weighted and prioritized by the Executive Board according to their significance and likelihood of occurrence. For each risk, specific risk mitigation measures – including their current status – are defined and responsibilities are allocated. The risk map,



which is compiled by the Risk Review Committee, chaired by the Corporate Secretary, for review by the Executive Board and subsequent approval by the Audit Committee, contains risks identified and assessed by the respective corporate functions, Regional Management, Corporate Audit and the Group Auditors. The Group’s key risks are annually reported to the Board of Directors.

During the reporting year the Audit Committee held five half-day meetings. During Audit Committee meetings, direct discussions took place with representatives of the Group Auditors and Corporate Audit. Representatives from the Group Auditors were present at three of these meetings and the Corporate Auditor (being a permanent participant at the Audit Committee meetings since August 2010) attended all of the above-mentioned meetings. At these meetings, the Executive Board was regularly represented by the CEO, the CFO and the Corporate Secretary.

The Compensation and Nomination Committee consists of the following members of the Board of Directors: Rudolf W. Hug (Chairman), Thomas E. Kern, Chris E. Muntwyler and Knud Elmholdt Stubkjær. The members of the Committee are elected at each General Meeting of Shareholders with a one-year period of office. It monitors the selection process for members of the Board of Directors, the Executive Board and other selected senior management positions, determines the overall remuneration and terms of employment for members of the Board of Directors and the Executive Board as well as remuneration bands for highly compensated employees. Regarding the compensation of the members of the Executive Board, the Committee makes a decision subject to the final approval of the Board of Directors; applications for the compensation of the Board members are decided by the Committee and shared with the Board of Directors. Each year the Committee decides on the bonus compensation for the CEO and the other members of the Executive Board for the previous year, based on recommendations of the Chairman (for the CEO) and the CEO (for other Executive Board members). Furthermore, the Committee regularly

reviews the Board Stock Award Plan, the Executive Board Mid-Term and Long-Term Incentive Plans and the Group’s Management Incentive Plan and submits proposals for final approval to the Board of Directors. Moreover, it approves concepts and policies for the Group’s management performance assessment, succession planning and expat programs.

During the reporting year, the Compensation and Nomination Committee held four meetings of approximately two hours each. The Executive Board was regularly represented at these meetings by the CEO, the Chief HR Officer and the Corporate Secretary.

The Ethics and Compliance Committee consists of the following members of the Board of Directors: Rudolf W. Hug (Chairman), Roger Schmid and Beat Walti. It oversees the company’s business ethics program. It monitors the handling of major legal matters as well as the development of the company’s compliance policies and procedures.

During the reporting year, the Committee held four meetings. The Executive Board was represented at these meetings by the CEO and the Corporate Secretary.

The committees generally meet prior to Board of Directors meetings. The chairmen of the committees inform and update the Board of Directors on the topics discussed and decisions made during such meetings. They submit proposals for approval related to decisions that fall within the scope of the Board of Directors.

Objectives, organization, duties and cooperation with the Board of Directors are defined in the Terms of Reference of the respective committees which are reviewed and adopted by the Board of Directors.

The overall responsibility of the Board of Directors is not affected by these committees.

3.4.3 Working methods of the Board of Directors and its committees

During the reporting year, the Board of Directors held four full-day meetings. The Executive Board was represented by all its members at these meetings. In urgent cases, telephone conferences are organized in order for decisions to be taken.

At every meeting, the Executive Board updates the Board of Directors on business and key financial developments and main regional and segment developments. On a quarterly basis, detailed consolidated financial statements on the Group, regional and business segment levels are reported to the Board of Directors in accordance with International Financial Reporting Standards (IFRS). The Board of Directors is furnished in time with an agenda, detailed meeting documentation related to topics on the agenda and minutes.

3.5 Definition of areas of responsibility

In line with the law and the Articles, the Board of Directors has transferred the responsibility to develop and implement the Group strategy, as well as the responsibility to supervise business and financial development of the Group’s subsidiaries, to the Executive Board.

The Organizational Regulations adopted by the Board of Directors govern the cooperation between the Board of Directors, the Chairman and the Executive Board. They contain a detailed catalogue of duties and competencies which determine the financial thresholds within which the Board of Directors and the Executive Board can efficiently execute their daily business. The Organizational Regulations, which also contain the Group’s approval matrix with the related decision-making powers of the various bodies on corporate and regional level, are accessible on Panalpina’s website.



The main responsibilities of the Board of Directors at Group level include the determination of the business strategy on the basis of applications filed by the Executive Board, the approval of major Group policies and organizational structures, including topics related to Corporate Governance and Compliance, the approval of the annual operational and investment budgets, the approval of any extraordinary additional investment applications as well as financial planning. Further responsibilities include decisions regarding mergers and acquisitions and major management staff and remuneration decisions following the recommendations and preparatory work of its Compensation and Nomination Committee.

3.6 Information and control instruments vis-à-vis the senior management

The Executive Board informs the Board of Directors in a written format on a monthly basis on the current course of business, covering the Group’s consolidated monthly and year-to-date income statements, including deviation from budget and preceding year, regionaland product income statements, functional costs/FTE development, financial position, statements on cash flows and net working capital development.

A detailed update is provided at each Board of Directors’ meeting.

On a quarterly basis, the reporting covers the condensed consolidated interim financial statements including key developments, income statement, statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows and explanatory notes, IR presentations and media release.

Further information regarding personnel and organizational changes, extraordinary events and the activities of analysts, investors and competitors form part of the regular reporting. Moreover, the Board of Directors annually reviews and approves the Group’s targets for the individual regions and business segments and adopts the respective report of the Executive Board.

During the reporting year, the Chairman of the Board of Directors regularly receives the minutes of the Executive Board meetings. The members of the Executive Board regularly join meetings of the Board of Directors. In addition, individual senior executives attended specific topic discussions pertaining to their particular field of expertise. Furthermore, specific meetings of the Board of Directors are dedicated to a detailed review of major markets, business segments and the Group’s strategy according to a predefined schedule. For further details please refer to sections 3.4.2 and 3.4.3.

The Audit Committee of the Board of Directors monitors and assesses the activities of the Corporate Auditor as well as his cooperation with the Group Auditors.

The Audit Committee receives the Corporate Auditor’s half-year reports and also adopts the comprehensive annual risk map of the Executive Board. The Audit Committee approves the proposed risk control and risk mitigation measures as well as the annual planning and scope of the internal audit, which is also based on the risk map. For further details please refer to section 3.4.2.

4 Executive Board

4.1 Members of the Executive Board

On the closing date, the Executive Board was composed of six persons.

Peter Ulber, President and Chief Executive Officer since June 2013, German citizen. Born in 1960.

Following his studies at the International School of Logistics in Hamburg, Peter Ulber held various management positions from 1985 to 2011 at Kuehne + Nagel in Europe, as well as North and South America. During his tenure, Peter Ulber was responsible for both ocean freight and air freight, had overall responsibility for the global sales organization and joined the management board in 2008. As a result of a series of strategic acquisitions by Kuehne + Nagel, Peter Ulber was also heavily involved in the company’s expansion in Europe, Asia and America.

At the end of 2011 he co-founded Charleston Enterprise Group LLC, a strategic management consultancy that offers consulting, management and investment strategies for international logistics companies and private equity firms with a primary focus on mergers and acquisitions as well as growth strategies.

Robert Erni, Chief Financial Officer since January 2013, Swiss citizen. Born in 1966.

Robert Erni has worked in various finance positions at Kuehne + Nagel for more than 19 years. Prior to the head office functions such as Head of Corporate Controlling (2009 to 2012) and Head of Accounting and Treasury (2004 to 2009), he gained profound finance and managerial expertise through several senior postings in Asia Pacific (Hong Kong and India), in South America (Argentina) and in the USA. Robert Erni holds a degree in Economics and Business Administration of the University of Economics and Business Administration, Lucerne (Switzerland).

Christoph Hess, Chief Legal Officer and Corporate Secretary, Swiss citizen. Born in 1955. Member of the Executive Board since October 2006. Responsible for Corporate Legal Services and Insurance.

Christoph Hess joined the Group’s head office in 1994 as Secretary of the Board of Directors and the Executive Board. In this capacity he manages both the Group’s Legal and Insurance departments. He also managed Corporate Communications until August 2008. Christoph Hess holds a degree in law from the University of Basel and has been admitted to the bar in Switzerland.

Karl Weyeneth, Chief Commercial Officer, Swiss citizen. Born in 1964. Member of the Executive Board since April 2008. Responsible for Sales, Marketing and Communication, QHSE and Operations Transformation.

Karl Weyeneth joined the Group in 2007 as Regional CEO for North America, where he was responsible for the development and results of the subsidiaries in the USA and Canada. He is a professional with profound leadership and management experience



in logistics, including freight management, 3PL and contract logistics. Before joining Panalpina, he was President and CEO Americas of Hellmann Worldwide Logistics, Inc. (USA) and prior to this he was Executive Vice President and CFO of Danzas Management Latin America (USA), where he attained extensive experience in all finance matters. He holds a Bachelor in Economics and Business Administration from the University of Berne, Switzerland.

Karsten Breum, Chief Human Resources Officer, Danish citizen. Born in 1972. Member of the Executive Board since 2014. Responsible for Human Resources.

Karsten Breum, a Danish citizen, joined Panalpina’s Executive Board in 2014 as the company’s Chief Human Resources Officer. After receiving a Masters in economics and business administration from Aarhus School of Business, Denmark in 1998, Karsten Breum spent a decade working in various human resources positions at A.P. Møller-Mærsk in Copenhagen, Antwerp and Singapore. In 2008, he was appointed Vice President Global Head of Human Resources for Damco; during his time at the company he was a member of the Global Executive Leadership Team and, in addition, completed his MBA at the University of Chicago’s Booth School of Business. He was appointed Vice President Regional CEO of Damco in 2013, responsible and accountable for operational, as well as commercial activities in Asia Pacific.

Karsten Breum brings a wealth of expertise and knowledge to his role at Panalpina, gained from spending more than 14 years working internationally in all areas of human resources.

Roderick Angwin, Chief Information Officer, British citizen. Born in 1959. Member of the Executive Board as of January 1, 2014. Responsible for Information Technology; he left the company in June 2015.

Roderick Angwin joined Panalpina in 2012 as Chief Information Officer. He has extensive experience gained across a number of sectors and a broad range of international companies. His previous roles include five years as Group CIO for Wolseley plc, the international building materials distributor, and as IT Director on the Board of B&Q, part of the Kingfisher retail group. Other roles include ten years in various positions with Mars Inc., and as Group IT Director for Meyer plc, subsequently part of St. Gobain. Roderick Angwin holds a degree in Marine and Freshwater Biology from Stirling University Scotland.

Andy Weber, Chief Operating Officer, Swiss Citizen. Born in 1959. Member of the Executive Board as of July 1, 2015.

Andy Weber started his freight forwarding career in 1976 with Panalpina. He then moved to Kuehne + Nagel where he held a variety of management positions in South Africa, Iraq, the Ivory Coast, Japan, Taiwan, Hong Kong, Singapore and Dubai/UAE. From 1999 to 2013 Andy Weber was Kuehne + Nagel’s regional CEO for Asia Pacific. Before rejoining Panalpina, he was Kuehne + Nagel’s regional CEO for the Middle East, Africa and Central Asia.

Ralf Morawietz, Chief Information Officer, German citizen. Born in 1967. Member of the Executive Board as of October 15, 2015. Responsible for Information Technology.

Ralf Morawietz joined Panalpina as Chief Information Officer in 2015. A German citizen, he brings with him more than 15 years of leadership experience as well as IT development and operations expertise in various positions within the logistics industry. He spent five years on the global IT management team at Kuehne + Nagel. Prior to that, Ralf Morawietz served in different IT leadership positions for Deutsche Post DHL Group (DPDHL).

Ralf Morawietz holds an MBA from European Business School in Germany and Durham Business School in the UK.

4.2 Other activities and vested interests

Peter Ulber: Managing partner and co-founder of Charleston Enterprise Group LLC, Charleston, USA.

4.3 Management contracts

No management contracts exist with any third party outside the Group.

5 Compensation, shareholdings and loans

5.1 Content and method of determining the compensation and the share-ownership programs

Please refer to the Compensation Report on pages 73-83.

6 Shareholders’ participation

6.1 Voting rights and representation restrictions

Each share carries one vote at the General Meeting of Shareholders. The Articles state that when exercising voting rights, no shareholder may directly or indirectly represent more than 5 percent of the total shares issued by the company for own and represented shares.

The Articles provide for group clauses.

The voting right restrictions are not applicable to representatives of the independent proxy holder of voting rights (unabhängiger Stimmrechtsvertreter).

The voting restrictions do not apply to the shares held by the Ernst Göhner Foundation, because it held PWT shares prior to the introduction of the voting restrictions (grandfathering).

Any abolition or change of the provisions relating to the restrictions on voting rights requires a resolution of the General Meeting of Shareholders on which at least two-thirds of the voting shares represented agree.

A written proxy entitles a shareholder to be represented at the General Meeting of Shareholders by his or her legal representative, or by another shareholder with the right to vote, or by the independent proxy holder of voting rights (unabhängiger Stimmrechtsvertreter).



6.2 Statutory quorums

In principle, the legal rules on quorums apply. Supplementary to the quorums legally listed, a two-thirds majority of the shares represented at the General Meeting of Shareholders is required for the following resolutions:• any abolition or change of the provisions

relating to transfer restrictions;• any abolition or change of the provisions

relating to the restriction of voting rights;• the transformation of registered shares

into bearer shares;• the dissolution of the company by way

of liquidation;• the removal of two or more members

of the Board of Directors;• the abolition of the respective provision in

the Articles as well as the repeal or relief of the stated quorum. A resolution to increase the quorum as set forth in the Articles must be based on the consent of the increased quorum.

6.3 Convocation of the General Meeting of Shareholders

There are no provisions deviating from the law.

6.4 Agenda

Shareholders who individually or together with other shareholders represent shares in the nominal value of CHF 1 million may request that an item be placed on the agenda. Such a request must be made in writing to PWT at least 60 days prior to the General Meeting of Shareholders.

6.5 Inscriptions into the share register

Registered shares can only be represented by shareholders (or nominees) who have been entered into the PWT share register. Shareholders (or registered nominees) who cannot personally attend the General Meeting of Shareholders are entitled to nominate a representative according to the provisions in the Articles, who represents them by written proxy.

For the purpose of determining voting rights, the share register is closed for registration from the date upon which the General Meeting of Shareholders has been called (date of invitation) until the day after the General Meeting of Shareholders has taken place.

7 Changes of control and defense measures

7.1 Duty to make an offer

No opting-out or opting-up provisions exist.

7.2 Clauses on changes of control

Neither the contracts of the members of the Board of Directors nor of the Executive Board have a change-of-control clause.

8 Auditors

8.1 Duration of the mandate and term of office of the lead auditor

The mandate to act as statutory and Group Auditors is assumed by KPMG, Zurich on a yearly basis. Marc Ziegler, the lead auditor, took up office on January 1, 2014 for a seven-year term.

8.2 Auditing fees

According to financial accounting, invoices for auditing fees for the financial year amounted to CHF 2.7 million.

8.3 Additional fees

The auditors KPMG were compensated with an additional amount of CHF 1.2 million for further services rendered in the financial year.

8.4 Informational instruments pertaining to the external audit

The Group Auditors are supervised and controlled by the Audit Committee. The Group Auditors report to the Audit Committee and periodically the lead auditor participates in the meetings. During these meetings, the Group Auditors present a detailed audit plan for the current year including risk-based audit priorities, the audit scope, proposals regarding audit fees, organization and timing as well as updates

and status of the results of the internal control system. In subsequent meetings they present interim audit findings with respective statements and recommendations later followed by a detailed audit report. Presentations also contain references to upcoming changes in legislation and IFRS. The main criteria for the selection of Group Auditors include independence, network capabilities, industry and IT experience of the audit team, a risk-based audit approach, a central process management as well as the integration of Corporate Audit and risk management functions. The Audit Committee annually assesses the performance of the Group Auditors and determines the audit fees (refer to section 3.5).

9 Information policy

Panalpina regularly updates its website at www.panalpina.com, informing the public of any major events, organizational changes and (quarterly) financial results. Press releases are accessible to all visitors to the website; alternatively, subscriptions can be made so that the latest press releases are automatically forwarded via e-mail. Furthermore, all publications such as the Annual Report (including the Corporate Governance and Compensation Report), customer magazine and sales brochures are available online. The dates of the General Meeting of Shareholders as well as dates of publication of the quarterly financial results are published in the Annual Report and appear in the Financial Calendar on the website (under Investor Relations). The minutes of shareholder meetings are available online.



Compensation report



Compensation report

The Compensation Report describes the remuneration philosophy and principles, as well as the governance framework related to the compensation of the Board of Directors and the Executive Board of Panalpina. The report also provides details of the compensation programs and the remuneration related to the 2015 performance year.

The Compensation Report is based on sections 3.5 and 5 of the annex to the Corporate Governance Directive issued by SIX Swiss Exchange and Art. 13 to 16 of the Ordinance against Excessive Compensation in Listed Stock Companies (OaEC).

Compensation governance

Compensation and Nomination Committee (CNC)

The Compensation and Nomination Committee (CNC) consists of two or more members of the Board of Directors who are independent, insofar as they do not hold any executive position, nor act as consultant for the company and its subsidiaries. At the Annual General Meeting of Shareholders of May 12, 2015 the

following members of the Board of Directors were re-elected as members of the CNC for a one-year term: Rudolf W. Hug, Chris E. Muntwyler and Knud Elmholdt Stubkjær. Thomas E. Kern was elected as an additional member to the CNC. Rudolf W. Hug continues to act as the Chairman of the CNC.

With the exception of the election of the CNC Chairman by the Board of Directors, the CNC is self-constituting. It designates the secretary, who need not be a member of the CNC. If the CNC is not fully constituted, the Board of Directors appoints the missing members for the remaining term in office.

The CNC’s main duties comprise the development and regular review of the compensation policies, principles, and performance criteria of the Panalpina Group. In addition, they regularly review the presentation of motions and recommendations to the Board of Directors on these subjects. Furthermore, they cover the preparation of all relevant decisions of the Board of Directors in relation to the

compensation of the members of the Board of Directors and the Executive Board, and the presentation of respective motions and recommendations to the Board of Directors.

The CNC monitors the selection process for members of the Board of Directors, the Executive Board, and other key senior management positions. The CNC also determines the overall remuneration and terms of employment, and submits proposals for final approval to the Board of Directors for these positions.

The CNC regularly reviews the Group-wide compensation policy, including the incentive plans (i.e. the Board of Directors Restricted Stock Award Plan, the Executive Board Mid-Term and Long-Term Incentive Plans, the Performance Share Unit Plan and the Group’s Management Incentive Plan) and submits proposals for final approval to the Board of Directors.

Item Recommendation from Final approval from

Compensation principles including incentive & share-based programs and pension provisions Compensation and Nomination Committee Board of Directors

Remuneration of the Board of Directors Compensation and Nomination Committee Board of Directors

Remuneration (at target) for the CEO Chairman of the Board Board of Directors

Remuneration (at target) for the members of the Executive Board CEO Board of Directors

Incentive payouts for the CEO Chairman of the Board Compensation and Nomination Committee

Incentive payouts for the members of the Executive Board CEO Compensation and Nomination Committee

Nomination process for Executive Board and Board of Directors Compensation and Nomination Committee Board of Directors

External Board of Directors mandates for Executive Board and Board of Directors Compensation and Nomination Committee


COMPENSATION REPORT CONTINUED

The CNC holds its ordinary meetings normally one day before the meetings of the Board of Directors, typically four times per year. The Chairman of the CNC regularly updates the Board of Directors on the activities and decisions made during the CNC meetings and may call for further meetings as necessary.

During the 2015 reporting year, the CNC held four meetings. The Executive Board was regularly represented by the CEO, the CHRO and the CLO in his capacity as Secretary of the CNC. Members of the Executive Board do not attend discussions related to their own remuneration.

The Annual Shareholders’ Meeting votes separately each year on the approval of motions from the Board of Directors concerning the aggregate maximum amount of compensation for the Board of Directors until the following ordinary Shareholders’ Meeting; and for the Executive Board for the following financial year. The Board of Directors may subdivide the relevant maximum aggregate amount into fixed and variable compensation and present the corresponding motions to the Annual Shareholders’ Meeting separately for approval. If the Shareholders’ Meeting refuses to grant its approval, the Board of Directors may present a new motion or call an extraordinary Shareholders’ Meeting. According to the company’s Articles of Association, an additional amount is available to the maximum aggregate amount for the compensation of Executive Board members who are appointed after the Shareholders’ Meeting has approved the relevant maximum aggregate amount. Such additional amount is 40 percent for the CEO and 25 percent for each new member of the Executive Board respectively.

Method of determination of remuneration

The remuneration of the Executive Board members is reviewed yearly in order to ensure market competitiveness, performance-driven remuneration and alignment with shareholder interests.

The remuneration of the Executive Board members is benchmarked using the Switzerland Executive Remuneration Survey published by Mercer. This survey includes remuneration data of multinational companies in the general industry sector. No specific peer group is created; however each Panalpina role is evaluated using the Mercer job evaluation methodology in order to compare with roles of comparable size, scope and level of responsibilities. The median of the benchmark data is considered relevant for measuring market competitiveness.

On the basis of the external benchmark information, combined with internal peer comparisons, the CNC defines the targeted level of remuneration and the pay mix between fixed and variable remuneration for the CEO and the other members of the Executive Board, and submits its proposal to the Board of Directors for final approval.

The variable remuneration may contain a range of short- to long-term remuneration elements, and may be made dependent upon the achievement of one or more performance criteria. Performance criteria can include individual targets or targets relating to the Panalpina Group, the market or peer groups. Performance criteria may take into account the function and level of responsibility of the relevant member of the Board of Directors or the Executive Board. The CNC sets the applicable performance criteria, weighting, and achievement measurement.

If remuneration is provided in the form of shares, the Board of Directors or, if so delegated, the CNC determines the relevant conditions and prerequisites in one or more plans or regulations. This includes the date of allocation, fair valuation, holding, vesting and exercise periods (including acceleration, curtailment or annulment thereof in the event of predefined occurrences such as a change of control or the termination of an employment relationship), and any clawback mechanisms.

The remuneration paid out for a given business year depends on the actual financial performance of the Group and individual performance, assessed during the annual performance management process.

The performance management process including the performance assessment at year-end is conducted by the Chairman of the Board of Directors for the CEO and by the CEO for the other members of the Executive Board. The performance assessment consists of two elements, the “WHAT” (individual objectives) and the “HOW” (competencies and behaviors), resulting in one overall performance rating. Individual objectives and performance assessment for the CEO and the other members of the Executive Board are subject to the approval of the CNC.



Remuneration philosophy

In the volatile economy and the challenging business context in which Panalpina operates, it is critical to recruit, retain and develop a dedicated and capable team of employees with excellent skills, integrity and high ethical standards.

Remuneration at Panalpina is built around the fundamental objective to support the achievement of the strategic business objectives and demonstrate behaviors that are consistent with Panalpina’s values.

Remuneration principles

• Provide a competitive remuneration package compared to the relevant talent market

• Align with shareholders’ interests, especially in terms of long-term value creation

• Align performance orientation with the achievement of the company’s strategic objectives

• Encourage behaviors that are consistent with Panalpina’s values and high ethical standards

• Ensure fair and transparent application throughout the Group

The remuneration programs are designed to provide an appropriate balance between fixed and variable pay, as well as between short-term, mid-term and long-term incentives.

Principles of remuneration of the Board of Directors

The members of the Board of Directors receive a fixed annual compensation, which consists of a Board membership compensation of CHF 150,000, including committee memberships; an attendance compensation of CHF 500 per meeting; and a potential grant of free shares of the company in the amount of CHF 50,000 at the discretion of the CNC’s evaluation of the Group’s overall situation.

The Chairman of the Board of Directors receives a Board chairmanship compensation of CHF 450,000, an attendance compensation of CHF 500 per meeting, and a grant of shares of CHF 50,000 under the same conditions as the other Board members as defined above.

The Board membership/chairmanship compensation and the attendance compensation are paid out in cash in June and December for the compensation period from AGM to AGM. The shares are granted for the previous business year at the share’s closing price listed on the SIX Swiss Stock Exchange on April 30th. Any shares granted are blocked from trading for the duration of one year, except in the case of a change of control, liquidation, death or disability, when the shares are unblocked immediately. The shares remain blocked in all other instances.

The members of the Board of Directors do not participate in Panalpina’s employee benefit or incentive plans, except for social security where applicable.

Remuneration model for the Board of Directors

in CHF ChairmanBoard

member

Annual board membership fee (cash) 450,000 150,000

Annual grant of shares 50,000 50,000

Meeting fee (per meeting) 500 500

Principles of remuneration for the Executive Board

The remuneration of the members of the Executive Board consists of the following elements:

• Fixed compensation: annual base salary• Variable compensation: annual bonus,

mid-term incentive and long-term incentive (through performance share units)

• Benefits: pension, insurances and benefits in kind

Annual base salary

The annual base salary takes into consideration the scope and responsibilities of the role, its market value and the skills, experience and performance of the individual in the role. The annual base salary of the members of the Executive Board are reviewed every year, taking into consideration the company’s financial situation, the economic environment, comparative ratio versus benchmark and the individual performance.



Annual bonus

In 2015 a new annual bonus scheme was introduced that, similar to 2014, rewards the company’s financial performance (accounting for 70 percent of the total bonus) and the individual’s performance (accounting for 30 percent of the total bonus) over a period of one year. In contrast to 2014 where the company’s financial performance was measured on three components (Group Earnings Before Interest and Tax (EBIT) weighting 90 percent, and Days of Sales Outstanding (DSO) and Days of Payable Outstanding (DPO), both 5 percent), the company’s financial performance is fully measured on the Group’s EBIT.

Under the new bonus scheme, the company’s financial performance component for each member of the Executive Board was converted into an individual percentage (X percent) of the Group’s EBIT between threshold and target, plus a second percentage (Y percent) of EBIT above target up to the maximum.

The minimum EBIT achievement level, below which no bonus is paid out, is 60 percent of the target. The maximum EBIT, above which the bonus payout is capped, is 140 percent of the target. The payout for the company’s financial performance ranges from 0 percent to 200 percent, whereas the maximum payout was increased in 2015 from 150 percent to 200 percent.

The individual performance is assessed through the formal performance management process. The overall performance rating, Performance Evaluation Assessment Review (PEAR) rating, translates into a payout percentage for the individual portion of the annual incentive. The payout ranges from 0 percent to 150 percent of the target, whereas the maximum payout was increased in 2015 from 120 percent to 150 percent.

For communication purposes the annual bonus target is expressed as a percentage of annual base salary and amounts to 100 percent for the CEO and between 67 percent and 80 percent for the other members of the Executive Board depending on their function. The actual bonus payout may range from 0 percent to 185 percent for the members of the Executive Board and 0 percent to 200 percent for the CEO, depending on the effective performance achievement.

Remuneration for Executive BoardPurpose Instrument

Pension Benefits

Perquisites

Provide competitive retirement benefits and reward seniority and loyalty

Provide competitive and cost-effective benefits by leveraging company’s size

Pension fund and insurances

Perquisites and benefits in kind

Benefits

Fixed compensation

Annual Base Salary

Recognize market value of role and individual skills, experience and performance

Monthly cash payments

Annual Bonus

Mid-Term Incentive (MTIP)

Long-Term Incentive (PSU)

Variable compensation

Align short-term and long-term rewards through co-investment

Drive and reward long-term performance (TSR) over three years versus peer group

Compulsory deferral of 40 percent of annual bonus into blocked shares, with free matching shares (1:1) after a one-year period

Performance Share Unit Plan

Drive and reward short-term performance over one year

Annual cash incentive


Mid-Term Incentive Plan (MTIP)

The Mid-Term Incentive Plan (MTIP) was created in 2009 to foster the long-term success and prosperity of the company through co-investment, align with shareholders’ interest, and facilitate the retention of the executives. For members of the Executive Board, 60 percent of the annual bonus is payable in cash and 40 percent is converted into PWTN shares with a three-year fixed share price that is restricted for one year. After the restriction period, and subject to continuous employment, deferred bonus shares are matched with free shares that are restricted for one year.

X% + Y%

Overview of Annual Bonus Structure

Threshold Target Maximum Weight

Financial Objective EBIT Threshold Target Maximum 70%

“Bonus as % of EBIT”

Objective MeasurementTarget Performance

(indicative)

Individual Objectives 1 20%

2

3

4

5

Leadership Competencies 1 10%

2

3


The fixed share purchase price rewards the participants for a positive share price development, while a negative share price evolution reduces the value of the award.

The applicable share price for determining the number of deferred bonus shares related to the bonus paid in 2015 (performance year 2014) was defined for the three-year cycle (from 2015 to 2017) as the PWTN closing price on April 30, 2015, which amounted to CHF 130.70.

In case of voluntary resignation or termination for cause, the free matching shares will forfeit. The matching may be accelerated in case of termination without cause, retirement, death or disability. In case of change of control or liquidation, the CNC reserves the right to determine any appropriate measure with regard to the unvested free matching shares.

25% = Q1

TSR rank vs. peer index

Vesting in

% o

f Targ

et

Payo

ut

50% = Medium 75% = Q3 100% = Q40%

0

20

40

60

80

100

PSU vesting curve


Performance Share Units Plan

As of January 1, 2014, the members of the Executive Board participate in a Performance Share Units Plan (PSUP) that serves the purpose of rewarding executives for long-term shareholder value creation.

Performance Share Units (PSUs) will be delivered through an annual rolling grant with a cliff vesting after three years, dependent on the relative position of the Cumulative Total Shareholder Return (TSR) versus a peer group.

The peer group consists of a balanced selection of companies within the industry taking into consideration, among other factors, market capitalization, turnover and geographic distribution.

Panalpina World Transport (Holding) AG – TSR Peer Group

1 United Parcel Service, Inc. Class B

2 Deutsche Post AG

3 FedEx Corporation

4 Kuehne & Nagel International AG

5 C.H. Robinson Worldwide, Inc.

6 Expeditors International of Washington, Inc.

7 Nippon Yusen Kabushiki Kaisha

8 Nippon Express Co., Ltd.

9 DSV A/S

10 Agility Public Warehousing Co. K.S.C.

11 Kawasaki Kisen Kaisha, Ltd.

12 UTi Worldwide Inc.

13 Hitachi Transport System, Ltd.

14 Hub Group, Inc. Class A

15 Kintetsu World Express, Inc.

16 Forward Air Corporation

17 Sinotrans Air Transportation Development Co. Ltd. Class A

18 Aramex PJSC

19 Norbert Dentressangle SA

20 SITC International Holdings Co., Ltd.

21 Hanjin Shipping Co., Ltd

22 CWT Limited

The performance period related to the 2015 PSU grant started on January 1, 2015 and ends on December 31, 2017 (2014 PSUP started on January 1, 2014 and ends on December 31, 2016).

In case of retirement, disability or death, accelerated prorated vesting applies at the end of the respective performance year. The CNC has the right to apply discretion for special circumstances.

The vesting of the PSUs in case the TSR performance ranks below Q1 (25th percentile) versus the external peer group is 0 percent. Between Q1 and Q3 (75th percentile), a linear vesting from 0 percent up to the maximum of 100 percent vesting is applied.




Benefits

Executive Board members participate in the regular employee pension plans of the country where they have their employment contract. For Executive Board members employed in Switzerland, the company pension fund covers their annual base salary and the actual bonus up to an overall insured income of CHF 846,000. Pension fund contributions are equally split between employer and employee for insured income up to CHF 400,000. In the supplemental scheme covering income between CHF 400,000 and CHF 846,000 (current maximum under Swiss law), contributions are paid by the company. The benefits provided under the pension fund exceed the legal requirements of the Swiss Federal Law on Occupational Retirement, Survivors and Disability Pension Plans (BVG) and are in line with typical market practice of other multinational companies in Switzerland.

Certain Executive Board members participate in a non-Swiss pension fund scheme whose benefits and contributions are equivalent to those of the Swiss pension plan.

Members of the Executive Board do not receive any executive benefits. They are entitled to a company car allowance and a general expense allowance, in accordance with the expense rules applicable to all employees at management levels in Panalpina Switzerland.

Employment contracts

Employment agreements with Executive Board members stipulate a notice period of 12 months. They do not contain any “golden parachutes” in case of a change of control, or any severance provisions in case of termination of employment.

2015 versus 2014 remuneration of the Board of Directors and the Executive Board

Board of Directors

At the Annual General Meeting of May 12, 2015, Thomas E. Kern and Pamela Knapp were elected to the Board of Directors (BoD). Rudolf W. Hug, Beat Walt, Ilias Läber, Chris E. Muntwyler, Roger Schmid and Knud Elmholdt Stubkjaer were re-elected to the BoD. Hans-Peter Strodel stepped down from the Board of Directors due to retirement.

No changes have been made to the structure of remuneration of the BoD. The increased total remuneration of the BoD is the result of an additional board member.

For 2015 the PWTN share value per April 30, 2015 amounted to CHF 130.7; therefore the amount of CHF 50,000 to be distributed translates into 382 restricted share grants. The effective grant date per May 12, 2015 at a fair market value of CHF 131.0 resulted in a value of CHF 50,042.00. These restricted shares are blocked for one year as from the date of grant.



Remuneration of the Board of Directors and the Executive Board for 2015

2015 reward table

2015 in thousand CHF

Annual

remuneration

Meeting

attendance

fees

Other

long-term

benefits

Termination

benefits

Share-

based

payments

Employer

contributions

to social

security and

retirement

benefits

Total

compensation

2015

Board of Directors

Rudolf W. Hug, Chairman 450 4 0 0 50 58 562

Beat Walti, Vice Chairman 150 3 0 0 50 28 230

Ilias Läber, Member 150 5 0 0 50 27 232

Chris E. Muntwyler, Member 150 4 0 0 50 28 232

Roger Schmid, Member* 150 5 0 0 50 12 217

Knud Elmholdt Stubkjær, Member 150 3 0 0 50 1 204

Pamela Knapp, Member 75 4 0 0 0 11 90

Thomas Kern, Member 75 4 0 0 0 11 90

Board of Directors leaving

Hans-Peter Strodel, Member 75 2 0 0 50 14 141

Total remuneration of Board of Directors 1,425 32 0 0 350 190 1,998

Executive Board

Peter Ulber, Chief Executive Officer 1,848 0 0 0 1,274 371 3,493

Members of the Executive Board 4,459 0 0 0 1,328 980 6,766

Executive Management leaving 1,690 0 95 0 0 222 2,008

Total remuneration of Executive Board 7,998 0 95 0 2,602 1,573 12,267

Total remuneration of key management personnel 9,423 32 95 0 2,952 1,763 14,265

* Representative of Ernst Göhner Stiftung (employer of respective Board member) and the social security reported is actually VAT (as payments are made

to the Stiftung).



Remuneration of the Board of Directors and the Executive Board for 2014

2014 reward table

2014 in thousand CHF

Annual

remuneration

Meeting

attendance

fees

Other

long-term

benefits

Termination

benefits

Share-

based

payments

Employer

contributions

to social

security and

retirement

benefits

Total

compensation

2014

Board of Directors

Rudolf W. Hug, Chairman 450 4 0 0 50 58 562

Beat Walti, Vice Chairman 150 2 0 0 50 24 226

Ilias Läber, Member 150 5 0 0 50 24 229

Chris E. Muntwyler, Member 150 4 0 0 50 24 228

Roger Schmid, Member* 150 4 0 0 50 12 216

Hans-Peter Strodel, Member 150 4 0 0 50 20 224

Knud Elmholdt Stubkjær, Member 150 3 0 0 50 0 203

Board of Directors leaving

NA 0 0 0 0 0 0 0

Total remuneration of Board of Directors 1,350 25 0 0 350 163 1,888

Executive Board

Peter Ulber, Chief Executive Officer 1,828 0 0 0 946 264 3,039

Members of the Executive Board 4,111 0 0 0 1,936 830 6,878

Executive Management leaving 368 0 0 0 0 126 494

Total remuneration of Executive Board 6,308 0 0 0 2,883 1,221 10,411

Total remuneration of key management personnel 7,658 25 0 0 3,233 1,384 12,299

* Representative of Ernst Göhner Stiftung (employer of respective Board member) and the social security reported is actually VAT (as payments are made to

the Stiftung).

Executive Board

In 2015 no fundamental changes to the overall remuneration mix (i.e. fixed and variable remuneration, short- and long-term incentives) have been made. The new annual bonus scheme is based on the principles of profit sharing, direct accountability and focus on the bottom line.

The increased total remuneration of the Executive Board in 2015 is the result of an additional Board member.

2015 reward table comments:

1. Composition of the Executive Board:

The COO joined the Executive Board as per July 1, 2015.

The new CIO joined the company and the Executive Board per October 15, 2015.

2. Executive management leaving:

The previous CIO was employed until December 31, 2015.

3. Share-based payments:

The share-based payments for 2015 include the MTIP (value of the deferred bonus shares to be granted in May 2016 and matching free shares offered on May 12, 2015 to be granted in May 2016) and PSU grants (granted on May 12, 2015). The theoretical value of the PSUs is based on the company’s valuation model at grant date of CHF 43.22 (assuming median TSR performance versus peer group) versus a market value at grant date of CHF 131.00.

Measures Weight Outcomes relative to plan

Company performance 70.0% Threshold Target Maximum

Earnings Before Interest and Tax

Individual performance 30.0% Threshold Target Maximum

Key Performance Indicators

Overall outcome

2015 Annual Bonus outcomes



Annual bonus

The annual bonus payout amounts to 76 percent on average for the members of the Executive Board and 148 percent for the CEO. The bonus included in the 2015 reward table above is related to the cash bonus paid out in 2016, which related to the performance year 2015. The financial and individual objectives have been achieved as follows:

Other share-based or long-term incentive compensation plans for top executives and senior management

Top executives:

Some executives of the core business functions (eight executives in 2015), who are not members of the Executive Board, participate in the Performance Share Unit Plan (PSUP) and the Mid-Term Incentive Plan (MTIP) similar to the above described Executive Board plans but with the following details:

MTIP: For these executives, 80 percent of the annual bonus is payable in cash and 20 percent is converted into PWTN shares that are matched with one free matching share each at the end of the one-year restriction period. All other plan features are the same as for the Executive Board as described above.

MTIP grants in 2015 for these executives

On May 12, 2015, 2,126 deferred bonus shares in total were granted to these executives at a fair market value of CHF 131. This relates to the bonus paid in 2015 for performance in 2014. Based on the top executives in service per December 31, 2015, 2,126 free matching shares will be granted on May 12, 2016.

MTIP (part of share-based payments in the reward tables above)

In total 7,871 deferred bonus shares were granted on May 12, 2015 to the Executive Board, out of which the CEO received 4,139 deferred bonus shares, with a fair market value of CHF 131 per share. Based on the Executive Board members in service per December 31, 2015, 7,189 matching free shares will be granted on May 12, 2016.

For transparency and reconciliation purposes only, on May 14, 2015, a total of 4,943 matching free shares were granted to the Executive Board at a fair market value of CHF 128.4. This grant relates to the bonus paid in 2014 for performance in 2013.

PSU (part of share-based payments in the reward tables above)

On May 12, 2015, 4,000 PSUs were granted to the CEO and 7,942 PSUs to other Executive Board members. As per December 31, 2015, the TSR related to the 2015 Performance Share Unit Plan ranked slightly above the 25th percentile of the peer group and at present would result in an approximate vesting of 5 percent.

On May 14, 2016, 2,928 matching free shares in total were granted to these executives at a fair market value of CHF 128.4. This relates to the bonus paid in 2014 for performance in 2013.

PSU

On May 12, 2015, 10,250 PSUs in total were granted to these executives.

Senior management – MIP (Management Incentive Program)

Within this old plan the senior management had the option (voluntary) to invest part of their annual bonus in Panalpina shares with a discounted share price of 25 percent versus the moment of grant. These shares were blocked for one year. As a consequence Panalpina was matching these shares with stock options which had a vesting period of three years (one-third after one year, one-third after two years and the last third after 3 years). The total duration of the options amounts to six years from the date of grant. For the MIP 2010 there are still outstanding stock options on December 31, 2015 as per the table below. All options from previous years have expired.

This plan was changed in 2011, replacing the stock options with matching free shares. Within this plan the senior management had the option (voluntary) to invest part of their annual bonus in Panalpina shares with a discounted share price of 10 percent versus the moment of grant. These shares are blocked for one year. As a consequence Panalpina is matching these shares with free share grants based on a ratio of one free share for four shares bought by the participant (for the 2011, 2012 and 2013 plans) and based on a ratio of one free share matched for three shares bought by the participant (for the 2014 and 2015 plan). These free shares have a vesting period of three years (one-third per year). For senior management positions for the years 2011, 2012, 2013, 2014 and 2015, the grants are summarized on December 31, 2015 as per the following table.


To avoid overlaps, the members of the Executive Board and the top executives who participate in the MTIP and PSUP are not eligible for the MIP plan as described above.

Credits, loans or other monetary allowances

No contributions or other monetary allowances have been made to closely related parties of current or former members of the Board of Directors and Executive Board respectively.

Credits or loans in favor of members of the Board of Directors or Executive Board do not exist.

Report of the Statutory Auditor to the General Meeting of Panalpina World Transport (Holding) Ltd, Basel

We have audited the accompanying remuneration report of Panalpina World Transport (Holding) Ltd for the year ended December 31, 2015. The audit was limited to the information according to articles 14 to 16 of the Ordinance against Excessive Compensation in Stock Exchange Listed Companies contained in the table Remuneration of the Board of Directors and the Executive Board for 2015 on page 82 of the Compensation report.

Responsibility of the Board of Directors

The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.

Auditor’s responsibility

Our responsibility is to express an opinion on the accompanying remuneration report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14 – 16 of the Ordinance.

An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness


Management Incentive Plan (Option Plan)

YearNr of

participants Discount

Nr of shares

purchasedOptions granted

Exercise price

Exercise price for US participants

Options vested but not

exercised yetExpiry

date

2010 51 25% 13,453 13,453 95.65 87.75 1,762 Jun 14 2016

Management Incentive Plan (Free Share Plan)

YearNr of

participants DiscountNr of shares

purchasedFree share

ratio

Matching shares

grantedVested free

sharesForfeited

free sharesNon-vested free shares

2011 87 10% 28,444 1 to 4 7,124 6,423 701 0

2012 38 10% 11,242 1 to 4 2,816 2,478 338 0

2013 30 10% 6,768 1 to 4 1,698 1,070 193 435

2014 51 10% 9,995 1 to 3 3,342 1,112 308 1,922

2015 83 10% 12,819 1 to 3 4,289 171 56 4,062

of the methods applied to value components of remuneration, as well as assessing the overall presentation of the remuneration report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the remuneration report for the year ended December 31, 2015 of Panalpina World Transport (Holding) Ltd complies with Swiss law and articles 14 – 16 of the Ordinance.

KPMG AG

Marc ZieglerLicensed Audit Expert Auditor in Charge

Martin RohrbachLicensed Audit Expert

Zurich, February 26, 2016

Panalpina World Transport (Holding) Ltd.

Viaduktstrasse 42 P.O. Box CH-4002 Basel Phone: +41 61 226 11 11 Fax: +41 61 226 11 01 [email protected]

www.panalpina.com

Publisher

Panalpina World Transport

(Holding) Ltd

Concept and design

Photographers

Cai Dingyan, Mike Hall,

Julian Salinas

Documents

Annual Report 2015 - Panalpina · Panalpina Annual Report 2015 panalpina.com 6. A connected global presence ... US and São Paulo, Brazil; service is expanded between Luxembourg and