Panalpina Annual Report 2007 Interview with Rudolf W

A global leader in asset-light air and ocean freight and logistics

Panalpina World Transport solutions... (Holding) Ltd. Panalpina is one of the world’s leading providers of inter- Viaduktstrasse 42 Panalpina P. O. Box continental air and ocean freight forwarding services and CH-4002 Basel Annual Report 2007 associated supply chain management solutions which are offered based on its consistent asset-light business model.

Phone +41 61 226 11 11 Annual Report 2007 Fax +41 61 226 11 01 A Passion for Solutions The Group serves a wide range of sectors, but has particular [email protected] expertise in the strategic key industries of telecom, hi-tech, www.panalpina.com automotive, healthcare and retail and fashion. For many

Panalpina years, it has been the global market leader in the provision of logistics solutions for the worldwide oil and gas industry’s supply chain. Panalpina’s in-depth knowledge of the industry enables it to offer intelligent, efficient solutions tailored to the customers’ needs – even for the most demanding forwarding and logistics challenges. With this attractive service offering, the Group has achieved a sustained, mostly organic growth for years.

... with convincing competitive strengths

Global network with detailed knowledge of local markets Strong brand recognition throughout the world Group-wide implemented Code of Business Conduct, ensuring high ethical values and integrity throughout all business areas Asset-light business model that ensures high operational and financial flexibility together with reduced exposure to fluctuations in sector conditions Healthy balance between major global customers and internationally operating SMEs Centralized purchasing and management of air and ocean freight capacities Substantial volume mass, ensuring partnership agreements with leading carriers Differentiation through specialist know-how in strategic key industries Global market leader in logistics solutions for the oil and gas industry Best-in-class IT platforms to increase operational efficiency and cater to individual customer requirements Continued training and development programs for staff on all levels Management team with long-term industry experience

www.panalpina.com/facts WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd A global leader in asset-light air and ocean freight and logistics

... with convincing competitive strengths

www.panalpina.com/facts WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 5-year development 2007 at a Glance in million CHF Net forwarding revenue Net forwarding revenue increased by 12.3% to CHF 8,684 million

7,500 684 8, 6,250 35 Net earnings increased by 14.8% to CHF 211 million 49 7,7 5,000 0 6,9 12 62 3,750 6,

5,3 Substantially improved profitability 2,500 1,250 0 Air freight and ocean freight activities clearly outperformed the respective 2003 2004 2005 2006 2007 market growth rates

Contribution margin (gross profit) 947,000 air freight tons (+8.4%) and 1.233 million ocean freight TEUs (+13.7%)

1,900 transported 1,750 3

1,600 80 1, 1,000 new jobs created worldwide 1,450 1 59 1,

1,300 8 7 40 1, 9 1,150 32 1, 23

1,000 1, 2003 2004 2005 2006 2007

Ebit Net forwarding revenue per core activity Net forwarding revenue per region in million CHF 320 Asia/Pacific, 13% 290 Air freight, 47% 1,119 9 4,129

260 29 North America, 19% 1 1,684

230 26 200 Ocean freight, 38% 3,280 170

140 6 Central and South America, 9% 16 818 9 8 Supply chain management, 15% 110 1,275 13 13 Europe/Africa/Middle East/CIS, 59% 5,063 80 2003 2004 2005 2006 2007

Net earnings Returns Share price development in comparison to SPI in percent Panalpina World Transport 210 SPI Swiss Performance Index 1

175 21

4 2007 2006

140 18 60% 105 0 12

0 40% 70 98 10 Return on equity (ROE) 21.3 20.2 35 20% 0 Return on capital employed (ROCE) 36.44 31.96 2003 2004 2005 2006 2007 0%

–20% 1 Jan 07 1 Mar 1 May 1 Jul 1 Sep 1 Nov 1 Jan 08 Shareholders’ equity

1,000 7 8

875 01 1, 97

750 8 7 85 0 625 78 74 500 375 250 125 0 2003 2004 2005 2006 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 5-year development 2007 at a Glance in million CHF Net forwarding revenue Net forwarding revenue increased by 12.3% to CHF 8,684 million

7,500 684 8, 6,250 35 Net earnings increased by 14.8% to CHF 211 million 49 7,7 5,000 0 6,9 12 62 3,750 6,

5,3 Substantially improved profitability 2,500 1,250 0 Air freight and ocean freight activities clearly outperformed the respective 2003 2004 2005 2006 2007 market growth rates

Contribution margin (gross profit) 947,000 air freight tons (+8.4%) and 1.233 million ocean freight TEUs (+13.7%)

1,900 transported 1,750 3

1,600 80 1, 1,000 new jobs created worldwide 1,450 1 59 1,

1,300 8 7 40 1, 9 1,150 32 1, 23

1,000 1, 2003 2004 2005 2006 2007

Ebit Net forwarding revenue per core activity Net forwarding revenue per region in million CHF 320 Asia/Pacific, 13% 290 Air freight, 47% 1,119 9 4,129

260 29 North America, 19% 1 1,684

230 26 200 Ocean freight, 38% 3,280 170

140 6 Central and South America, 9% 16 818 9 8 Supply chain management, 15% 110 1,275 13 13 Europe/Africa/Middle East/CIS, 59% 5,063 80 2003 2004 2005 2006 2007

Net earnings Returns Share price development in comparison to SPI in percent Panalpina World Transport 210 SPI Swiss Performance Index 1

175 21

4 2007 2006

140 18 60% 105 0 12

0 40% 70 98 10 Return on equity (ROE) 21.3 20.2 35 20% 0 Return on capital employed (ROCE) 36.44 31.96 2003 2004 2005 2006 2007 0%

–20% 1 Jan 07 1 Mar 1 May 1 Jul 1 Sep 1 Nov 1 Jan 08 Shareholders’ equity

1,000 7 8

875 01 1, 97

750 8 7 85 0 625 78 74 500 375 250 125 0 2003 2004 2005 2006 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Contents

04 Interview Interview with the Chairman Conversation with Chairman Rudolf W. Hug and the CEO 4 and CEO Monika Ribar about success and Report of the Board of Directors 9 challenges in 2007 and the future outlook of the transport and logistics Group. Group Management Structure 10 Business year 2007 12

Reporting Regions 26 26 Reporting Regions Europe /Africa / Middle East / CIS 28 During the year 2007, all four reporting regions North America 30 contributed to the Group’s 12.3% increase in net forwarding revenue except North America, Central and South America 31 which remained at the same level but doubled Asia / Pacific 32 its Ebit nevertheless.

Core Activities 34 Air Freight 37 34 Core Activities Ocean Freight 38 By again growing faster than the respective Supply Chain Management 40 markets, Panalpina maintains its position as the global number 3 in air freight and number 4 in ocean freight. In supply chain management, Customer Groups 46 the Group was able to even further increase its growth rate. Sustainable Growth 52 Quality, Security and HSE 55 40 Supply Chain Management Employees 58 The global trend towards outsourcing logistics Information Technology 60 processes is a typical instance of globalized Social Commitment 61 business and is carrying on undiminished in all major sectors of industry. For some years Corporate Culture 62 now, Panalpina has been achieving double-digit Global Reporting Initiative 64 growth rates in this interesting market. Corporate Governance 65

46 Customer Groups Consolidated and Annual Panalpina successfully brings its in-depth Financial Statements 2007 75 specialist knowledge and many years of experience to selected strategic key indus- Consolidated Financial Statement 76 tries, all of which have heavily globalized Annual Financial Statement 131 supply chains and significant growth potential.

Information for Investors 138 Main Offices Worldwide 140 52 Sustainable Growth For Panalpina, sustainability is a prerequisite Imprint 142 for entrepreneurial achievement. Beyond this, the Group is determined to contribute towards a global transportation industry that is aware of its responsibilities. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 Interview with Rudolf W. Hug and Monika Ribar Setting the course for the future after another record result

A conversation with the Chairman of the Board and the Chief Executive Officer of the Panalpina “Major new business wins in all Group about the successes and challenges of key industries” 2007 and the forwarding and logistics Company’s future prospects. What is the main reason for this growth? How would you assess the first complete financial Monika Ribar: Freight volumes rose as a consequence year under your chairmanship? of the continuing boom in the global economy, espe- Rudolf W. Hug: I am very pleased with the financial cially in the first half of the year. This momentum, results. The Group posted another record result in together with the excellent range of services we offer, 2007, with double-digit growth rates for all the major enabled us to significantly expand our business with key figures. A 12.3% rise in net forwarding revenue existing and new customers and win major new shows that we have achieved solid growth once business in all our key industries. The performance again – and on a purely organic basis! We increased by the telecommunication and automotive sectors our market shares both in air and ocean freight, fur- was particularly pleasing. The biggest growth drivers ther strengthening our global no. 3 and no. 4 rankings were again exports from Asia (particularly from respectively. Supply chain management also saw China) – the source of more and more consumer another marked acceleration in growth. goods and product components for global manu facturers. However, regions such as the Middle East, CIS and Africa are also assuming increased importance, thanks to the growing number of major infra- “Double-digit growth rates for all structure projects being carried out there – projects major key figures” that have extended beyond the traditional oil and gas industry for quite some time now. Business in Europe, where we additionally benefited from the So you have achieved the financial targets strength of the euro, demonstrated very respectable you set? growth once again. Monika Ribar: Yes, we have increased our profitabil- On the other hand, the soaring share price ity again and met our announced financial guidance. flattened out significantly from mid-2007. Gross profit growth was well above our target of “at least 9%”, and we also met our goal of achieving Rudolf W. Hug: The year under review was a difficult an Ebitda / gross profit margin of 20 to 22%, although one for all stock markets. Given increasing global at the lower end of the stated range. This is a satis- fears of recession plus a number of negative head- factory result, given the negative impact of the sus- lines for Panalpina in 2007, I think we can certainly pended services in Nigeria on the operating result. be proud of our share’s annual performance of With the exception of this problem area, all regions +18.1% (compared with a slight drop in the Swiss produced a satisfactory to excellent performance, Performance Index). The sharp fall in March 2008, and the growth posted by our three core activities following the news of the definite reduction of our has been very gratifying, as Mr. Hug has already service portfolio and its impact on our financial targets mentioned. for 2008, was naturally not very pleasant, but was only to be expected. I am, however, indeed convinced that our shareholders who take a long-term view have no doubts about the Group’s very solid basis, our successful strategy as well as the sustainability of the WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 Interview with the Chairman and the CEO

measures we have introduced in the area of compli ance. The Ernst Göhner Foundation, at any rate, “Compliance programs and continues to be fully committed to its role as principal structures of a very high level” shareholder, and has welcomed Panalpina’s forward- looking efforts. Monika Ribar: That is why we regard expenditure Do you intend to turn compliance into a “compe on our compliance program, which will have a signif- titive advantage”? icant impact on our 2008 results, as a good investment for the future. We have now achieved a very high Rudolf W. Hug: Yes, and thus into a part of our future level of compliance, thanks to the project launched strategy. Full observance of international compliance in 2007 to enhance our compliance programs and regulations is becoming ever more important for structures under the professional guidance of the globally active companies. The trend for supervisory renowned Basel Institute on Governance. Wherever authorities to insist on interpreting the relevant legis- in the world we offer our services, we do so without lation with increasing rigor – which is certainly to be any respective risks for ourselves and our customers. welcomed in terms of good corporate citizenship – I know from many conversations with customers that requires internal codes of conduct to be constantly this can be a real competitive advantage. added to and amended. Today, ethically irreproach- able business practices are a central requirement of sustainability – not only because they ensure legal security for our own Company, but mainly because they safeguard the interests of the customers. Our business partners need to know that Panalpina is 100% reliable in this area too. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 Interview with the Chairman and the CEO

Does this mean you are adjusting your strategy? Alleged price fixing posed another reputation problem to Panalpina Rudolf W. Hug: Our Company is currently undergoing a change of culture during which aspects of our very Rudolf W. Hug: On this topic I would like to make successful strategy are also being put to the test clear once again that this investigation is not about without taboos. When we decided to make improve- the alleged fixing of prices, but of the passing-on of ments in the area of compliance, we set ourselves fuel and other surcharges imposed by carriers. From clear goals, worked out how to get there and then took a reputation point of view, such investigations by decisive action. Both management and staff were competition authorities are naturally undesirable – for left in absolutely no doubt that from now on adherence Panalpina as well as for the other forwarding com to the very latest compliance regulations has top panies affected; they can unsettle shareholders, cus- priority at Panalpina, and that any breaches of our tomers and staff. We therefore take them seriously Code of Conduct will be systematically penalized. and are cooperating closely with the authorities to ensure a clarification as quickly as possible. However, What does this mean with regard to your oil and I am not greatly worried about the allegation itself, gas activities, for example? and our internal investigations have confirmed this assessment thus far. Furthermore, we are also increas Monika Ribar: Compliance is a particularly significant ingly addressing this aspect in our compliance- issue in this globally active sector, which operates related staff trainings, which are being updated on in many countries which are perceived as “challeng- a continuous basis. ing”. Now that we have done our homework, I am very confident that we will be able to retain and further expand our market leadership in this key industry, which is a very important one for us. Ongoing customer contact and the many new contracts signed in 2007 – including with US companies – confirm that we continue to be a partner of first choice, thanks to our vast experience and attractive range of services. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 Interview with the Chairman and the CEO

There have also been two regrettable departures from the Executive Board recently. “We want to continue our above- Monika Ribar: Of course we could hardly be pleased market growth” about the resignations of Jürg Honegger and John Klompers, both of whom left for personal reasons. So what are your growth targets for the future? However, both the Finance and the mainly regionally- based Marketing & Sales organizations are staffed Monika Ribar: We want to continue our above-market by employees with many years’ experience and have growth and expand our market positions further. In continued to run smoothly ever since these two terms of results, 2008 will be a challenging year for the departures. Meanwhile, we have been able to find an Group – on the one hand because of our increased exceptionally well qualified financial expert to fill the efforts in the area of compliance and the associated post of CFO – Marco Gadola, who will take office in external costs, and on the other because of the autumn 2008. Regarding the post of Chief Marketing possible economic slowdown in some countries. We & Sales Officer, I am confident that we will be ready have therefore set our 2008 financial targets signifi- to make a suitable appointment later this year, once cantly lower than in recent years, and are now aiming the current streamlining of our Group structures has to achieve a gross profit growth of at least 4% and been completed. an Ebitda / gross profit margin of between 17.5 and 18.5%. However, we are confident that we will be Rudolf W. Hug: In addition, we will be bringing the able to return to our previous growth rates soon, and Board of Directors back to its original size of seven we are forecasting that our Ebitda / gross profit margin members by a new election. In proposing that the will be back to at least 21% in 2009. Annual General Meeting elects Günter Rohrmann, we are putting forward a personality with an exceptionally thorough understanding of the forwarding and logistics industry, who will further strengthen the Board’s expertise and industry know-how. His many years of experience with reputable international forwarding companies will be very useful to us as we implement our growth strategy in the future. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 Interview with the Chairman and the CEO

How do you intend to achieve this? So possible acquisitions are still part of the strategy? Monika Ribar: In order to cushion the financial con- sequences of our service portfolio reduction and Rudolf W. Hug: Absolutely – nothing has changed. implementing strengthened compliance measures, Only recently, the Board of Directors yet again we have launched a short-term cost optimization declared its backing for our successful growth strat- program which should deliver substantial results egy, which is primarily organic but is also supported already this year. This program, however, is only one by selected bolt-on acquisitions. We will therefore be element of a new and comprehensive initiative taking a closer look at suitable acquisition projects aimed at supporting the Group’s future development. in future, and – if they fit in with our tried-and-tested Enhanced value and deliver continued sustainable asset-light business model – pursue them without growth through streamlining the organization, further delay. We have the necessary financial resources standardizing and optimizing processes on a global available in case objects conforming to this strategy scale and more aggressively exploring both organic will be found in the market, which is still highly as well as external growth potential, are the three fragmented. pillars of this initiative. The Board of Directors and the Executive Board regard this initiative as a very high priority, setting the course for Panalpina’s future development. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 Business year 2007 Report of the Board of Directors

Results and business development Compliance The Panalpina Group increased gross profit by During 2007, Panalpina completed a review of its 13.4% to CHF 1.803 billion, Ebitda by 15.4% entire range of services and simultaneously imple- to CHF 361 million and net earnings by 14.8% to mented its Group-wide and standardized Code of CHF 211 million. The purely organic 12.3% growth Business Conduct including intensive training pro- in net forwarding revenue was contributed to by grams on all staff levels. These efforts were designed all regions except North America, which remained at to bring, on a going-forward basis, all Group com the same level but doubled its Ebit nevertheless. panies into full compliance with the US Foreign By above-market growth in both air freight (+8.4% to Corrupt Practices Act (FCPA). As Panalpina has cer- 947,000 tons) and ocean freight (+13.7% to 1.233 tain indications that, in the past, violations of the billion TEUs) Panalpina further increased its market FCPA may have occurred, the Audit Committee has shares and maintained its position as global No. 3 instructed an external law firm to investigate the in air and No. 4 in ocean freight. In supply chain Group’s past compliance with the FCPA and has management, the Group further accelerated its net agreed with the US Department of Justice on inves- forward revenue growth from 4.7% to 6.6%. All tigation plans in a limited number of selected coun- strategic customer key industries showed a dynamic tries. The establishment of state-of-the-art compliance development and numerous substantial business policies and structures with the support of the wins. These pleasing results are proof of the success renowned Basel Institute on Governance has been of Panalpina’s asset-light business model, according progressing according to plan. These effective mea- to which the Group provides its services as much sures represent a key cornerstone of the future as possible without capital-tying own infrastructure, strategy and corporate culture and will be instrumen- but based on the management of first-class sub-con- tal in helping to actively promote compliance as one tractors. At the same time, they confirm the funda- of Panalpina’s key competitive strengths. Against mental soundness of the strategy of primarily organic the backdrop of a globally increasing demand for growth supported by selected bolt-on acquisitions services that meet the highest compliance standards, if required. the Group sees an interesting market potential in this respect. In August 2007, Panalpina suspended Shareholder structure parts of its service offering in Nigeria. The Group will, however, maintain its growth strategy in the oil The Ernst Göhner Foundation remains Panalpina’s and gas industry, in which it holds a leading position major shareholder with more than 42% of the equity. globally. In 2007, the total impact of the suspension As of the reporting date, two institutional investors on Panalpina’s global network and customer relations held just over 5% of the share capital each (for details was CHF 23.8 million on Ebitda level and thus con- see page 66). The Company itself held a total of fined to the earlier communicated bandwidth. 2.16% treasury shares, including those purchased as a result of Panalpina’s share buyback program Dividend increase started in August 2007 and those for its share and option programs. In line with the solid result for the business year 2007, the Board of Directors of Panalpina World Transport Board of Directors (Holding) Ltd. has decided to propose to the Annual General Meeting that an increased gross dividend of After the retirement of Panalpina’s long-standing CHF 3.20 (2006: CHF 3.00) per share be paid. Chairman Gerhard Fischer, Rudolf W. Hug was elected new Chairman of the Group on 15 May 2007. With the proposal to the Annual General Meeting of Rudolf W. Hug 6 May 2008 to elect Guenter Rohrmann, the Board Chairman of the Board of Directors will again consist of seven members and thus further strengthen its industry know-how. www.panalpina.com/bod Executive Board In November 2007, Jürg Honegger stepped back from his function as Chief Financial Officer, and in January 2008 Chief Marketing & Sales Officer John Klompers left the Company. Marco Gadola, an experienced finance professional could be won for the position of Chief Financial Officer. He will take office in autumn 2008. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 Group Management Structure as of April 2008

Audit Committee Board of Directors Compensation & Nomination Committee Chairman Günther Casjens Rudolf W. Hug Yuichi Ishimaru Internal Auditor Glen R. Pringle Corporate Compliance Vice Chairman Günter Rohrmann* Wilfried Rutz Roger Schmid Corporate Secretary Corporate Development Christoph Hess

Corporate Communications Chief Executive Officer Human Resources Corporate Legal Services Monika Ribar

Chief Financial Officer Chief Marketing & Sales Officer Regional CEO Europe Chief Operations Officer Marco Gadola** t.b.a Sandro Knecht 1 Jörg Eggenberger

Corporate Finance Sales & Account Management Regional CEO Amec Operations Air & Ocean Controlling Marketing & CRM Mario Kropf 1 Procurement Air & Ocean Investor Relations Supply Chain Management Information Technology Regional CEO Noram Oil and Gas Karl Weyeneth 2 Panprojects Business Processes & Quality Board of Directors Financial reporting regions: 1 Europe /Africa/Middle East /CIS Regional CEO Latam Executive Board 2 North America Josef Zech 3 3 Central and South America Corporate functions 4 Asia /Pacific Regional CEO Apac * Subject to his election by the Annual Lukas Fischer 4 General Meeting of 6 May 2008. ** To take office in autumn 2008. Regional CEO China/Taiwan Robert Timmerman 4

www.panalpina.com/organization WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 10 Panalpina Annual Report 2007 Executive Board and Management Team

From the left:

Regional CEOs: Executive Board: Extended Management Team:

Josef Zech (Latam) Christoph Hess (Corporate Secretary) Dominik Tichelkamp (Ocean Freight) Mario Kropf (Amec) Monika Ribar (Chief Executive Officer) Stephan Weilbächer (Sales & Account Management) Sandro Knecht (Europe) Jörg Eggenberger (Chief Operations Officer) Joachim Schäfer (Corporate Development) Karl Weyeneth (Noram) Günther Denk (IT) Robert Timmerman (China / Taiwan) Robert Frei (Air Freight) Lukas Fischer (Apac) Erik Hutter (Oil and Gas) Mike Krieg (Operations) Markus Heyer (Compliance) Alastair Robertson (Human Resources) WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 11 Report of the Executive Board Business year 2007: convincing results and continued above-market growth By continuing its pure organic growth throughout 2007 and further increasing its profitability, Panalpina posted convincing annual results in line with its financial targets. The Group increased gross profit by 13.4%, Ebitda by 15.4% and net earnings by 14.8%.

Overview of the Group and Strategic business priorities its business Based on its primary strategic focus as a pure-play global air and ocean freight forwarder, the Group is: Panalpina is one of the world’s leading providers of forwarding and related logistics services, specializing Leveraging continuous growth in Asian trade flows in intercontinental air and ocean freight and associ- The Asia – Europe – Asia trade lane represents the ated supply chain management solutions. Panalpina Group’s most important market and its share of the believes that it is the market leader in the provision volumes transported on this lane is significantly of freight forwarding services for the oil and gas indus higher in both air and ocean freight than its respec- try globally and that it also maintains leading exper- tive average global market shares. The Group intends tise and capabilities in the forwarding markets for the to capitalize on its strong presence in Asia, where telecom, hi-tech, automotive, retail and fashion and demand for transportation is expected to grow faster healthcare sectors. than in other regions of the world. Through some 500 offices in 90 countries and addi- The liberalization of trade services in China paved tional representation in 60 countries with partner the way for the Group to obtain the license for a companies, the Group operates one of the largest wholly owned enterprise in Shanghai in 2004. Since networks in air and ocean freight forwarding globally. then, several branches have been established along As a group, Panalpina utilizes its global network, the coast as well as in the hinterland. best-in-class technology systems, well-tried relation- Further strengthening specialist capabilities in ships with transportation providers and comple- selected target industries mentary logistics services to assist over 100,000 cus- The Group will further strengthen the industry-spe- tomers with the management of their global supply cific competence centers it has established in order chains. The Group serves a large and diverse base to provide tailor-made services to the hi-tech, auto- of global and SME (small and medium enterprises) motive, retail and fashion, healthcare, and the oil and customers, many of which operate in industries that gas industries and to create new competence cen- the Group believes will experience above-average ters. In 2007 Panalpina defined the additional indus- growth. try vertical of telecom to better service its customers. The Group is primarily organized by regions and the These key industries offer promising growth and secondary segmentation is based on its business require industry-specific transportation services. core activities. The risks and returns of the Group’s Maintaining a balanced customer mix of SMEs and operations are primarily determined by the geo- global accounts graphical location of the Group’s operations. This Management estimates that approximately 25% and is reflected in the Group’s management and organi 75% of the Group’s net forwarding revenues are zational structure. derived from its global accounts and SME custom- In 2007, the Group generated 58.3% of its net for- ers respectively. Retaining a well-balanced customer warding revenues in Europe /Africa / Middle East / CIS, mix is essential and of a high priority for the Group. 19.4% in North America, 12.9% in Asia /Pacific On the one hand, global accounts have a significant and 9.4% in Central and South America. The Group volume on certain trade lanes, which enables the has a particularly strong presence in the major Group to optimize the procurement of transportation Asia – Europe – Asia and transatlantic trade lanes. capacity and foster the expansion of its operations. On the other hand, maintaining a highly diversified The Group’s principal sources of revenue are from portfolio of SME customers is mitigating the Group’s air freight, ocean freight, and supply chain manage- exposure to any individual global account. Manage- ment services. In 2007, the Group derived 47.5% ment believes that its customer mix strategy balances of its revenues from air freight forwarding, 37.8% from the Group’s growth, limits the risk and creates bene- ocean freight forwarding and 14.7% from associated fits for its customers. supply chain management services. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 12 Panalpina Annual Report 2007 Report of the Executive Board

Improving efficiency and service quality Employer-of-choice The Group will continue to lower its cost base by Panalpina considers itself to be an employer-of-choice further optimizing internal processes, by developing in the industry. In order to achieve its corporate shared service centers for its regional operations, objectives, the Group is strongly committed to attract and by consequently utilizing the economies of scale some of the best talent in the market and to retain created by its increasing volumes. Management its internal high performers. The Group rewards out- believes that its ongoing drive to improve efficiency standing achievements with performance-based and reduce costs allows Panalpina to out-balance incentive plans whilst offering global career options the potentially negative impacts of increasing price and provides a continuous learning environment, competition in some of its markets. equal opportunities, empowerment, training, and development to its workforce in order to meet the Achieving strong organic growth supported by business requirements. Share and option programs selected bolt-on acquisitions for management create an additional performance The Group’s acquisition strategy is based on the and growth incentive. following three pillars: • Scale expansion to further strengthen its position Core activities in the fast growing trade lanes out of Asia and The Group engages in the following core activities: to improve the Group’s market position in areas where the Group is underrepresented compared Air freight forwarding to its global position. These efforts are concen- Through its own offices and partner companies, the trated in the Far and Middle East and some coun- Panalpina Group provides air freight forwarding ser- tries in Eastern Europe. vices in 150 countries. In 2007, air freight forwarding services accounted for approximately 47.5% of the • Network expansion to acquire well known partner Group’s net forwarding revenue. The Group oper- companies in strategic markets in order to have ates a system of hubs and gateways (e.g. Frankfurt, direct control of the customer base and enable Luxembourg, Paris, Chicago, Huntsville, Los Angeles, customers to fully benefit from the services the Miami, Dubai, Hong Kong and Shanghai). Approxi- Group provides globally. mately 70% of the total air transport capacity • Skill expansion to add and strengthen its capability are purchased short term and without financial risk. in selected key industries in specific geographic Approximately 25% are contracted medium term areas. This is concentrated predominantly in the oil (up to six months in advance) and contain limited and gas and mining sectors, where the Group has financial risks represented by potential dead freight a leading position in the Americas, Europe and payments. The remaining 5% of the total air trans- Africa and will achieve the same throughout Asia. port capacity are contracted long term (more than The current strategy does not contemplate any six months), whereby management believes that the diversification into areas where the Group does associated financial risk is more than offset by the not have a specific competence. lower costs of this purchased capacity. The described procurement mix ensures a balance between capac- Focusing and alignment on a clear asset-light ity access guarantees and financial risks and is fine- approach for supplementary supply chain services tuned in each trade lane according to the specific The Group is providing its freight-forwarding cus- supply and demand situation. tomers with logistics and supply chain management solutions, thereby complementing its core air and Ocean freight forwarding ocean freight service offering. Management believes The Group itself provides ocean freight forwarding that such services lead to closer cooperation with services in 90 countries and, through its partner key customers in the longer term and provide opportu companies, in an additional 60 countries. Ocean nities for profitable growth. The Group will maintain freight forwarding services accounted for 37.8% of its asset-light business model for logistics services the Group’s net forwarding revenue in 2007. The and therefore will focus on the service aspects of Group has tailored its services to the transportation such businesses. As a lead logistics provider, the needs of its customers. For customers who trans- Group will concentrate on the management and port full container loads, it offers FCL (Full Container coordination of such services and keep investments Load) services. In contrast, for customers who ship and operation of assets (such as warehouses and smaller consignments, the Group offers a competi- related equipment) to a minimum by sub-contracting tively priced consolidation product with its LCL (Less to best-in-class partners. This allows the development than Container Load) service. As customers can of custom-made solutions for each customer as the combine these products with standardized service Group has no constraint from own assets that need options, such as door-to-door, door-to-port, port-to- to be utilized. door and port-to-port deliveries, the services the Group offers in the ocean freight area can easily be tailored to each customer’s needs. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 13 Report of the Executive Board

Supply chain management Historically, the Group’s results have been subject to In 2007, supply chain management services account- seasonal trends. The first fiscal quarter is traditionally ed for 14.7% of the Group’s net forwarding revenue. the weakest and the third and fourth fiscal quarters The Group offers a whole range of services and have generally been the strongest. This seasonality logistics solutions designed to improve its customers’ is based on many factors, including holiday seasons, supply chain management. For customers who run consumer demand, climate and economic condi- supply chain management in-house, the Group offers tions. In particular, a substantial portion of the Group’s consulting services related to both the planning of revenues are derived from customers in industries logistics processes and the selection and manage- whose shipping patterns are tied closely to con- ment of logistics service suppliers. For clients who sumer demand or are based on just-in-time produc- outsource supply chain management, the Group also tion schedules. provides warehousing and distribution services, In 2006, the Group had reported a rather unusual including order-fulfillment, invoicing, and reporting. In accelerated start to the year, the first quarter showing this way, the Group combines its traditional forward- higher revenues than in previous years. In 2007, the ing services with logistics services tailored to cus- more familiar pattern in the quarterly revenues could tomers’ needs, offering customers complete supply be recorded again: every quarter showed an increase chain solutions. in revenue over the previous one between 6.0 – 8.5%. In a year-on-year comparison of each quarter, Results of the year 2007 Panalpina observes a constant acceleration of the growth almost throughout the full year. Significant impacts of currency fluctuations The fourth quarter shows a very slight deceleration 2007 has seen currency movements never recorded compared to the previous year, which the manage- before: all the world currencies have achieved ment explains by various factors influencing the extraordinary rate levels against the US dollar. The Group’s revenue. On the one hand the drastic short- Panalpina results have accordingly been impacted fall of the USD in the last part of the year pulled by these movements, as the US dollar is still an impor- down the freight rates from the carriers as well as tant transaction currency in the forwarding industry. all the Group’s revenues generated in US dollars. At the same time, with Europe being the largest At the same time the reduction of the service portfolio contributor within the Panalpina Group, the strong in Nigeria also had a negative impact of approxi- euro had a favorable influence on the Group’s results mately CHF 70 million on the net forwarding revenue. as it gained not only against the US dollar but also These two factors were nonetheless compensated strengthened against the Swiss franc. by higher fuel surcharges that Panalpina in general passes through to the customer, though with slight Yearly average currency exchange rate development delays due to contractual agreements.

2007 2006 Illustrated below is the quarterly development of the USD / CHF 1.1997 1.2415 – 3.4% net forwarding revenue and the trends of seasonality EUR / CHF 1.6427 1.5777 4.1% including 2007 compared to the previous year:

% of share per quarter of total net forwarding revenue Forwarding revenue in million CHF 2,500 The net forwarding revenue of the Group increased 2,400 27.7% in 2007 by 12.3% from CHF 7,735 million in 2006 to 2,300 25.9% 8,684 million in 2007. The currency impact at this 2,200 level of the Income Statement is calculated to be 2,100 24.0% 27.2% 240 basis points; in other words, the increase of the 2,000 25.1% Group’s net forwarding revenue in 2007 would be 22.5% 1,900 9.9% currency adjusted. 24.0% 1,800 23.7% The Group’s growth over the previous year was 1,700 purely organic, as no acquisition was performed 1,600 neither during the course of 2006 nor 2007. Q1 Q2 Q3 Q4 2007 1,955 2,080 2,253 2,396 Volumes pushed by the growth of existing customers, 2006 1,834 1,858 1,944 2,099 the oil and gas environment being still very active thanks to the high energy prices, the acquisition of new accounts, large and small, the commodity prices encouraging the mining industries to increase their developments and last but not least a booming world economy – all these factors contributed to the double digit growth of the net forwarding revenue in 2007. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 14 Panalpina Annual Report 2007 Report of the Executive Board

Regional development • Asia / Pacific was the main engine for growth within the Group, following the same pattern as the Net forwarding revenue share per region world development. Panalpina’s customers source constantly more out of Asia and in particular out Asia/Pacific 12.9% of China. The net forwarding revenue increased from CHF 948 million in 2006 to CHF 1,119 million North America 19.4% in the current year, representing an increase of 18.0%. This increase reflects also the growing impor tance of Asian customers and manufacturers exporting Asian goods into the world and becom- Central and South America 9.4% ing crucial trade partners in the world economy. Europe/Africa/Middle East/CIS 58.3% • The most important growth was recorded in Cen- tral and South America. The net forwarding revenue increased by 22.1% over the previous year to During the year 2007, all regions contributed to the achieve CHF 818 compared to 670 million in 2006. 12.3% increase in net forwarding revenue except the Not only is this region an indispensable partner within North America region, which remained at the same the Panalpina network for businesses awarded in level than in the previous year. Europe and North America, but also the fast grow- Significant developments in the geographic regions ing imports from Asia as well as the development were as follows: of local logistics solutions to complete the supply chain of existing customers contributed to this • The most important contributing region remains impressive growth of revenues. This performance is Europe /Africa/Middle East / CIS with its share of even more significant as certain local currencies 58.3% of the total net forwarding revenue. This were developing in the opposite way against the region expanded even further its overall share from Swiss franc. CHF 4,418 to 5,063 million or an increase of 14.6% thanks to various factors, such as important volume increases, especially on the Asia-to-Europe Net forwarding revenue development per region trade lane. The economic growth, a high consumer 2007 2006 demand as well as the currency strength in the in million CHF

European Union were important contributors to the 6,000 double digit increase of revenue. Not negligible is 5,000

also the ever growing CIS and African demand for 63

4,000 8 5,0

consumer and industrial goods, next to the still very 41 buoyant oil and gas industry. The reduction of the 3,000 4, service portfolio in Nigeria had its main impact in 2,000 4 this region, touching also North America and to 1,000 9 68 69 9 8 8 1, 0 a lesser extent Central and South America and Asia. 1, 94 1,11 81 67 Europe/Africa North Central and Asia/Pacific • The region that achieved the same level of net Middle East/CIS America South America forwarding revenue as in the previous year was North America, closing the year at CHF 1,684 Core activities overview versus 1,699 million in 2006. Not only the region performed a selective adjustment of its customer During the year 2007, the Panalpina Group derived portfolio after its turnaround in 2006, but in 2007 the 47.5% of its revenue (48.0% in the previous year) constantly decline of the US currency against the from air freight forwarding activities, 37.8% (36.5%) majority of the world currencies and in particular from ocean freight forwarding and 14.7% (15.5%) against the Swiss franc impacted the American from associated supply chain management services. imports and the revenues of the Panalpina US sub The ocean freight activities are further increasing sidiary. Additionally, a negative influence on the their share of the overall group revenues. This trend sales figures was recorded due to the reduction of was also recorded in the previous year and rein- the service portfolio in Nigeria. forced in 2007. Net forwarding revenues from air freight increased by 11.2% from CHF 3,713 million in 2006 to CHF 4,129 million in 2007, from ocean freight they increased by an impressive 16.1% from CHF 2,826 to 3,280 million and from supply chain management they increased by 6.6% from CHF 1,196 to 1,275 million. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 15 Report of the Executive Board

Net forwarding revenue Central and South America, North America with

2007 2006 Central and South America and finally Asia to Cen-

in million CHF tral and South America, a lane which was already outperforming in 2006. 4,500

4,000 On the other hand, certain lanes showed even a 9

12 decrease compared to 2006 due to some conscious 4, 3,500 3

71 customer portfolio decisions, reducing extensively 3, 3,000 0

28 the tonnage flown. Another reason for a slow down 6 2,500 3,

82 on further lanes, mainly imports into North America, 2,000 2, is the lower US currency, impacting on the demand 1,500 from the USA. 5 1,000 6 Looking at the quarterly development, the last quarter ,27 1 500 1,19 of the year shows not only the highest amount of net forwarding revenue, but also the highest increase Air freight Ocean freight Supply chain when comparing the quarters year-on-year. On the management one side it reflects the highest volumes flown due to the peak season (high volumes approaching fiscal Air freight review year-end for certain companies, but mainly fueling the The overall international air freight market is said to economies with retail goods for the Holiday Season), have grown between 4% and 5% over 2006. but mostly the highest rates on the ad hoc market According to IATA, the International Air Transport due to the tremendous demand for cargo capacity, Association, international freight transportation driving the purchase prices up. grew in 2007 by 4.3% in FTKs (freight ton kilometers measuring the actual freight traffic). This growth Ocean freight review represents a slight slow-down as the freight traffic The net forwarding revenue produced by the ocean grew 4.6% in 2006 versus previous year. Industry freight activity has recorded, for the second year sources have attributed the continued downturn in in a row, the fastest growth rate from all three core freight tonnages to high oil prices that are dampen- activities. The reasons thereof are the following: ing economic activities. • In a market estimated to have grown approximately The Panalpina Group closed the year 2007 by show- 9 –10%, Panalpina managed to outpace the mar- ing a double digit increase in net forwarding revenue ket. Panalpina grew its volumes shipped by 13.7% mainly due to the following factors: over the previous year; in 2007, the Group handled • Transported tonnages grew by 8.4%, increasing to 1,233,000 TEUs (Twenty-foot container Equivalent 947,000 tons in 2007, clearly outpacing the mar- Units). ket growth. In 2007, the Group banked on large • Analyzing the various trade lanes in more detail, accounts gained during 2006, further developing also in ocean freight the main traffic developments its strategic key industries in 2007, but a slight were on the Asia – to – Europe westbound and slow-down to the previous year could be observed eastbound lanes, representing over 35% of the total due to some active management of the customer ocean freight volumes shipped by the Group. In portfolio. The high demand level of the world econ- Asia, particularly in China, the production engine of omy also helped sustain high volumes. the current world economy, the growth recorded • The air freight activity was also further inflated by by Panalpina in 2007 reflects these trends. Next to the continuously growing level of fuel surcharges this most important traffic flow, the transpacific lane that reflected directly in the net forwarding revenue is the second largest for the Group, also achieving as a pass-through item. On the other hand, certain very decent double digit growth rates. The volumes overcapacity supplied on specific trade lanes handled over the north transatlantic westbound created pressure on the carrier rates and therefore lane showed the slowest increases, partly due to the slowed down the revenue increase. currency situation between the USA and the EU. Same as in the previous year, the single most impor- • The containerized ocean freight rate market experi- tant trade lane for the Panalpina Group, namely Asia enced some turmoil during the year 2007 because to Europe westbound, further developed its leading for the different imbalances within the market. The position in 2007 by outpacing the market growth. most significant imbalance came from the demand However the highest increase in rates could be ob- for containerized capacity outpacing the supply served on the lanes involving Central and South on the fastest growing trade lane, namely Asia to America, i. e. Europe /Africa / Middle East / CIS with Europe westbound. After having experienced the WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 16 Panalpina Annual Report 2007 Report of the Executive Board

exact opposite situation in the year 2006, the rapidly Quarterly development of the core activities

changing market conditions triggered an important Air freight Ocean freight Supply chain management

upward pressure on the purchase prices, leading to in million CHF various consecutive general rate increases through 2,500 out 2007. As this trade lane is also the strongest 2,250

lane for Panalpina as stated earlier, the net forward 8 31 ing revenue grew rapidly in parallel with the carrier 2,000 0 4 32 8 27 9 32

rate increases. 1,750 5 2 30 5 31 29 • During the first three quarters of the year, the reve- 1,500 31 5 1,250 nue growth accelerated by increasing double digit 85 5 6 75 4 89 7 each quarter (on quarter), whereas the revenue 1,000 9 5 805 72 71 67 of the fourth quarter was the result of a freight rate 750 67 deceleration along with a more moderate growth 500 in volumes caused by an active customer portfolio 250 management during the previous two quarters. 8 4 2 7 7 2 222 03 070 84 92 88 94 91 1, 1, 1, • Next to the containerized market, the break-bulk 6 6 6 7 /0 07 /06 /07 /0 /07 /0 /0 ocean freight market was buoyant in 2007 by Q1 Q1/ Q2 Q2 Q3 Q3 Q4 Q4 relatively stable rate conditions. Volumes increased further thanks to the flourishing project business Contribution margin (gross profit) across the world, driven by the booming energy and mining industries. Overview The most significant driver of freight forwarding prof- Supply chain management review itability is the contribution margin (gross profit). Supply chain management (SCM) services are offered This margin is basically the difference between the in specific geographical areas and as integrated buying and selling rate on a per-unit-of-weight-or- solutions for targeted key industries in order to meet volume (i.e. kilograms, tons, TEUs) basis. The contri- the entire range of the customer’s requirements. bution margin (gross profit) per unit-of-weight-or- The offering of supply chain management services volume basis is generally driven by available capacity, also supports cross-selling opportunities for existing competition, supply/demand imbalances and the customer segments in air and ocean freight. market rate fluctuations. In 2007, the net forwarding revenue increased by An important factor that influences the contribution 6.6% over 2006, realizing a stronger performance margin (gross profit) is changes in buying rates that than the year before, where the growth was only have a direct impact on the cost of forwarding ser- 4.7%. Further innovative solutions could be offered vices from third parties. Management believes that to Panalpina’s customers, providing added value cyclical trends in freight capacity tend to be shorter services and thereby covering the whole supply chain. for air freight than for ocean freight. The time span Focusing on specific key industries and developing before additional capacities are realized and released the expertise have contributed to increase the value- in ocean freight is, due to the nature of the business, add to the ever growing demand from Panalpina’s longer than those in air freight. In 2007 though, after customers. The volumes handled by the Group in- an eased period in 2006, ocean freight carriers exer- creased steadily across the whole globe. cised a certain amount of strategic capacity management by releasing new and retiring old vessels, A slight decrease of the net forwarding revenue could thereby controlling the supply on the market and con be registered in the fourth quarter of the year, also sequently the rate levels. The cycle in ocean freight attributable in part to the reduced service portfolio of had shortened in a way that caught the industry by the Nigerian subsidiary. However, the revenue short- surprise. fall was partly compensated by the increased services sold in the rest of the Group. During a period of accelerated demand for freight services, owners of freight capacity impose substantial rate increases, taking advantage of their enhanced pricing power. In turn, freight forwarders attempt to pass on these rate increases to their customers. However, there is typically a lag between these two events, leading to a short-term rise in capacity costs that are absorbed by the forwarders. This leads to a temporary margin pressure that persists until freight rate increases can be fully passed on to customers. Pressure on the contribution margin (gross profit) is eased as additional capacities are released and /or WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 17 Report of the Executive Board

forwarders successfully pass on rate increases to Regional development of contribution margin their customers. In the Group’s experience, the (gross profit) converse applies in periods of declining freight rates, Contribution margin (gross profit) share per region when the lag effect leads to temporary margin improvements. Asia/Pacific 14.9% The Group’s contribution margin (gross profit) increased by 13.4% from CHF 1,591 million in 2006 North America 18.7% to CHF 1,803 million in 2007. The currency devel opment during 2007 had a favorable impact of 160 basis points representing CHF 26 million. The Central and South America 8.3% contribution margin (gross profit) as a percentage of net forwarding revenues improved slightly from Europe/Africa/Middle East/CIS 58.1% 20.6% to 20.8%.

The development of the share of gross profit in 2007 was relatively Change in contribution margin (gross profit) balanced across the regions. Europe/Africa/Middle East/CIS (Emea) gained further share of the Group’s Change vs. contribution margin, increasing by 50 bps from 57.6% to 58.1%. Previous year Asia/Pacific also increased its share of the Group’s total gross profit, in million CHF 2007 2006 in % in line with the business development out of Asia. These gains happened to the detriment of the Americas, mostly North Net forwarding but also Central and South to a lesser extent. revenues 8,684 7,735 12.3 Contribution margin (gross profit) 1,803 1,591 13.4 Panalpina invoices a service based on customer As percentage of net 0.2 percentage requirements. For example, air freight services sold forwarding revenues 20.8% 20.6% point and invoiced in Europe may cover the transport of goods from Asia to Europe. Invoiced revenues in such The Group’s contribution margin (gross profit) was a case are fully reflected within Europe. However, impacted by several factors during 2007, namely: a portion of the contribution margin (gross profit) is shared with Asia in line with revenue-sharing agree- • Substantial efforts were invested in managing the ments and responsibilities. Therefore, when com- customer portfolio to increase profitability. paring Panalpina’s geographic region reporting, no • Extreme buying rate fluctuations due to capacity final conclusions can be drawn based solely on changes on specific trade lanes had an important the amount of revenues or contribution margin (gross impact on margins. profit) derived from the regions and various trade lanes. However, management believes that compar- • Unusual currency developments affected the gross ing a geographic region’s revenues year-on-year profit margins positively and negatively, depending reveals trends within that region and helps explain on which side of the Atlantic the performance is business development. being measured. The following table shows the percentage shares • The growth in the reporting year was purely and growth rates of the contribution margin (gross organic. profit) as well as the contribution margin (gross profit) as a percentage of net forwarding revenue per Forwarding services/ Contribution margin expenses (gross profit) region for the years 2006 and 2007.

in million CHF

2007 6,880 1,803 2006 6,144 1,591

Full year GPM* [ per year share Full year GPM* share in million CHF 2007 in % in % in % 2006 in % in %

Europe /Africa / Middle East / CIS 1,047 20.7 14.3 58.1 916 20.7 57.6 North America 338 20.1 10.1 18.7 307 18.1 19.3 Central and South America 149 18.2 8.8 8.3 137 20.4 8.6 Asia / Pacific 269 24.0 16.5 14.9 231 24.4 14.5

Total 1,803 20.8 13.4 100.0 1,591 20.6 100.0

* GPM: gross profit margin (gross profit in percent of net forwarding revenues) WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 18 Panalpina Annual Report 2007 Report of the Executive Board

Europe /Africa / Middle East / CIS (Emea) keeps on In Central and South America, the economic envi- being the front runner among all regions. In 2007 ronment exercised an important pressure on the again it widened the gap to the second largest con- margins. The US dollar is the most commonly used tributing region. The contribution margin (gross profit) currency within the forwarding industry when deal- grew by 14.3% over the 2006 level. Different reasons ing in this region. Due to its unusual weakness, the can be enumerated for this development, starting margins melted away in the same proportion, despite with the very favorable economical climate in the the important volume growth. At the same time, European Union. The consumer demand in Europe the mining projects that contributed positively to the and ever-growing Russia fueled the imports mainly previous year’s performance were completed at the out of Asia, in particular out of China. At the same very beginning of 2007. time the Eastern European countries expanded their The Asia / Pacific region developed very strongly in production facilities and helped increase the export the reporting year. The gross profit increased by 16.5% statistics. Topping up all these good trade conditions, compared to previous year, gaining further share in the extremely strong euro contributed to the greater the Group’s total contribution margin at the price of a volumes and constantly high gross profit margins slightly lower profitability. Not only is China the pro- after conversion to the Swiss franc. duction engine of the world, but also the large Asian On the other hand, the still excellent market condi- market procuring in China itself enabled the trade tions for commodities trigger mining exploration volumes to grow rapidly on all China export lanes. projects which impact positively the margins of this The intra-Asian trade is one of the fastest growing region: the mining sites might not be physically lanes in the world. In addition, Chinese companies located within the Europe /Africa / Middle East / CIS export more and more of their goods and technol- region, but the mining companies in charge of the ogy around the world thereby increasing the propor- explorations are. In this context, one should not forget tion of so-called Asian-controlled business versus to mention the record oil prices that further favor Western-(European or North American)-controlled investments within the oil and gas sector: the West trade. The competition is fierce and the capacities African countries are still recording large volumes are not always coping with the fast changing environ- from the oil and gas industry. At this stage, the impact ment, all of which impacts negatively on the margins. created by the reduction of the service portfolio in Nigeria needs to be mentioned as well. The shortfall Contribution margin review per core activity of gross profit for this region in 2007 has been quan- The Panalpina Group saw its share of air freight con- tified to approximately CHF 14 million. tribution margin (gross profit) expand anew after North America’s contribution margin has also grown a slight reduction in 2006. 44.0% of the total gross double digit in 2007. After the turnaround achieved profit derived from air freight activities to the detri- in 2006, the reporting year was a consolidation year, ment of ocean freight that lost substantial ground to building on the solid ground created in the previous end up at 29.3% from 30.9% the previous year, year and improving profitability by actively managing whereas supply chain management (SCM) increased the customer portfolio. The gross profit margin also its share to the contribution margin to reach increased from 18.1% in 2006 to 20.1%. This region 26.7%. has also been affected by the reduction of the service portfolio in Panalpina’s subsidiary in Nigeria. The shortfall of contribution margin amounts to approximately CHF 3 million due to the loss of some businesses.

Full year GPM* [ per year share Full year GPM* share in million CHF 2007 in % in % in % 2006 in % in %

Air freight 793 19.2 15.4 44.0 687 18.5 43.2 Ocean freight 528 16.1 7.3 29.3 492 17.4 30.9 Supply chain management 482 37.8 17.0 26.7 412 34.4 25.9

Total 1,803 20.8 13.4 100.0 1,591 20.6 100.0

* GPM: gross profit margin (gross profit in percent of net forwarding revenues) WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 19 Report of the Executive Board

Contribution margin (gross profit) profit margin could not be compensated before

2007 2006 year-end despite the first signs of a stabilization of

in million CHF the rate situation in the fourth quarter. Additionally, this last quarter recorded a deceleration of the volume 800 growth due to a shift of the peak season from the 3

700 79 fourth quarter to the third compared to previous year, 7

600 68 where the highest volumes had been transported in

500 the last three months of the year. Simultaneously, the 8 2 2 52 active customer portfolio management performed

400 49 48 2 during the second and third quarter showed its effect 300 41 in the last quarter of the year. 200

100 Supply chain management activities developed in a very positive way by increasing from CHF 412

Air freight Ocean freight Supply chain to 482 million or 17.0% over 2006, expanding their management share to the Group’s total contribution margin from 25.9% to 26.7%. The demand for value-added The Group’s gross profit realized through forwarding services completing the supply chain of Panalpina’s services by air increased in 2007 by a solid 15.4%, customers keeps growing: more and more of the reaching CHF 793 versus 687 million in the previous existing client base requires services beyond the year. This excellent development can be explained pure international freight transportation. After having by, on the one side, the tonnage growth over 2006 performed a certain amount of customer portfolio of 8.4%, but also by a gain in margins that manage- management, the Group has grown the providing of ment believes could be achieved thanks to some services with high gross profit margin. The fourth active customer portfolio management as well as quarter mainly saw the impact caused by the service favorable capacity and a consequently buying-rate portfolio reduction in the Nigerian subsidiary during situation. In view of the increasing demand for air the third quarter of 2007. freight capacity out of Asia / China, new carriers entered the market adding substantial amounts of cargo space. This created an imbalance of supply over Quarterly development of the core activities demand during the first two quarters of 2007. As of Air freight Ocean freight Supply chain management the third quarter, the market buying rates started in million CHF

to expand and the increase of the oil price drove the 500

fuel surcharges up: this created significant pressure 450 4 6 9

on the gross profit margin due to the time-delay in 12 3 12 11 400 2 11 11 2

passing on those increases to the customers because 7 10

350 10

of contractual agreements. The highly expected 91 1 1 4

300 2 14 0

peak season was very unusual: it only lasted a very 13 13 8 12 13 8 12

250 6 short period of time but was extremely intense. This 11 11 provoked a fierce demand on the available capacity, 200 1 7 7 8

driving the purchase prices up to high levels in the 7 20 4 19 19 19

150 9 18 7 17 fourth quarter. High volumes were flown at high prices, 16 100 15 explaining the level of net forwarding revenue. Not being able to pass on all those rapidly changing rates 50 to the customers, this resulted for Panalpina in 6 7 6 6 7 6 7 an important pressure on the gross profit margins. /0 /0 /0 /07 /0 /0 /0 /0 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 The ocean freight activity had also to deal with important capacity issues during the course of 2007. The contribution margin of the Group increased from Operating result CHF 492 to 528 million, representing an increase of 7.3%. The situation in the ocean freight market was Overall development the exact opposite to the air freight market described Consolidated Ebitda Cash flow from earlier. The carriers monitored the capacity on spe- net earnings operating activities cific lanes to avoid the same easing of the rate situa- in million CHF tion that happened in 2006. The supply of container- capable capacity experienced such high demand 211 2007 361 that the purchasing rates increased at high speed. 291 The rates kept increasing throughout the year, leaving 184 little chance to the forwarder to adjust his rates to 2006 313 the customers in parallel. The rate increment was then 338 absorbed by Panalpina, and this decrease in gross WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 20 Panalpina Annual Report 2007 Report of the Executive Board

The Group’s Ebit increased by 14.7% from CHF • The further expansion of the Panalpina network 261.0 million in 2006 to CHF 299.4 million in 2007, into fast growing geographical areas like mainland respectively 13.2% currency adjusted. The currency China and Eastern Europe, as well as the expan- impact was substantial in this reporting period due sion of the service palette offered to Panalpina’s to the strong euro that gained some 4.1% against the customer in the domain of supply chain manage- Swiss franc, overcompensating for the weakening ment, more precisely into contract logistics, had the of the US dollar against the Swiss franc of approxi- consequence of increasing the rent and lease mately 3.4%. The overcompensation of the euro expenses for additional or larger facilities, not for- is due to Europe being the major contributor to the getting the maintenance thereof. This is in line with Group result. Furthermore, the operative result was the asset light strategy of the Group. influenced by the increases in the following income / • Same as in 2006, the updated actuarial calcula- expense categories during 2007: tion on the Group’s captive insurance company • The personnel expenses increased from CHF 887 positively impacted this year’s result by CHF 8.9 to 1,002 million representing an increase of 13.0% million (CHF 5.4 million in 2006). These actuarial or 11.5% currency adjusted. The currency effect revisions require the adjustment of the claims pro- represents an additional CHF 13 million. The in- vision by this amount. crease is explained through the hiring of additional • The Ebit has further been impacted by the impair- staff around the world: the headcount grew shy ment of goodwill performed during the third quarter of 1,000 or 7.1% to reach 15,301 employees. of 2007, after the reduction of the service portfolio Europe /Africa / Middle East / CIS and North America in the Nigerian subsidiary. The impairment amounted increased their headcount at the same rate of to CHF 11.3 million. 6.1%, Central and South America actually slightly reduced their headcount and new jobs were Normalized Ebitda (calculated by excluding the mainly created in Asia / Pacific, more precisely in impact of gain on sale of non-current assets) China, to handle the business growth. increased from CHF 313 to 359 million in 2007 or by 15.0% as follows: • Next to the increase in headcount to cope with the additional business, Panalpina was faced with in thousand CHF YE 2007 YE 2006 shortage of skilled staff in many countries. The booming economic situation, especially in Europe with unemployment rates at their lowest since many Ebitda as per annual report 360,839 312,669 years, created a very tight labor market: talents are in % of contribution margin scarce and therefore more expensive. This situa- (gross profit) 20.0 19.7 tion could even be observed in China to a certain degree, as local employees are being recruited Normalized Ebitda* 359,741 312,768 by other companies just for their English language in % of contribution margin skills, driving the price tag for labor upwards. (gross profit) 19.9 19.7 * Calculated excluding impact of gain on sale of non-current assets • Other operative expenses grew by 12.8% (11.0% currency adjusted) to reach CHF 441 million. This Normalized Ebit (calculated by excluding the impact category of expenses includes special items that of gain on sale of non-current assets and the impair- need to be isolated to qualify the performance of ment of goodwill and financial assets) increased the reporting period. Let’s bear in mind that in from CHF 261.6 million to CHF 309.6 million in 2007 2006 a one-time adjustment of CHF 11 million im- or by 18.3% as follows: pacted positively the other operative expenses: this amount had been recorded in accordance with in thousand CHF YE 2007 YE 2006 the change in estimations of allowance for trade receivables as described in the notes of the consolidated financial statements. Furthermore, 2007 Ebit per annual report 299,363 260,998 figures comprise additional expenses related to Gain on sale of non-current assets (1,098) 99 the investigation of the US Department of Justice Goodwill impairment 11,294 – related to compliance with the US Foreign Corrupt Impairment of financial assets – 511 Practices Act. This event has so far engendered CHF 5.6 million additional legal and consulting fees. Normalized Ebit* 309,560 261,608 in % of contribution margin (gross profit) 17.2 16.4 * Calculated excluding impact of gain on sale of non-current assets and impairment of financial assets WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 21 Report of the Executive Board

Regional development of the operating result Normalized Ebit versus reported Ebit per region was as follows:

2007 2006

in % in % Reported Normalized of contribution Reported Normalized of contribution in million CHF Ebit Ebit* margin Ebit Ebit* margin

Europe /Africa / Middle East / CIS 182 192 18.3 163 163 17.8 North America 22 22 6.5 11 11 3.6 Central and South America 16 16 10.7 19 19 13.9 Asia / Pacific 80 80 29.7 68 68 29.4

Total 299 310 17.2 261 261 16.4

* Calculated excluding impact of gain on sale of non-current assets and impairment of financial assets

In addition to the factors that have impacted the region could handle the additional volumes contribution margin (gross profit), the following oper- acquired during the year and thereby support ating cost items had a significant influence on the the whole Group network. operating results (Ebit) by region during the reporting • Last but not least, Asia/Pacific sustained its high period: profitability levels, even though margins are under • The region Europe /Africa / Middle East / CIS is also pressure due to high competition. Impressive vol- on Ebit level the largest contributor to the Group’s ume increases could be handled without interrup- operative result. The growth is reflected in these tion while setting up a new infrastructure across results too, supported by non-operating profits mainland China. The proportion of business con- stemming from the Group’s own captive insurance trolled out of Asia instead of Europe or North company amounting to CHF 8.9 million. In order America is increasing, requiring closer monitoring to handle the high volume increases traded espe- of trade receivables and credit risk. The rest of cially with Asia, additional staff in a dry labor mar- the Asian countries are confronted with the com- ket as well as infrastructure was necessary, eating petition of the cheaper Chinese market as a pro- up rapidly the newly produced margins. A further duction site and need to adapt their infrastructure negative impact on these results came from the rapidly after the relocation of factories. Value added service portfolio reduction in Nigeria, having con- services are in greater demand in those countries, siderable repercussions on the Panalpina network, which now also source out of China. The oil and amounting for this region alone approximately to gas as well as the mining sectors are also growing CHF 26 million, including legal and consulting fees fast in specific countries, requiring another kind of as well as goodwill impairment. expertise. • North America improved its performance by con- centrating on profitable growth after the successful Ebit per region turnaround of the USA achieved in 2006. The 2007 2006 region closed the year with a doubling of the previ- in million CHF

ous year’s result generated equally in the USA and 200

in Canada. This region has also been affected by 180 the reduction of the service portfolio in Panalpina’s 2 160 18 subsidiary in Nigeria. This resulted in some short- 3 fall of revenue and gross profit, but also consider- 140 16 able sums had to be spent in legal and consulting 120 fees. These events were recorded mainly in the 100

fourth quarter and added up to approximately CHF 80

7 million on Ebit level. 80 60 68 • Central and South America has suffered in 2007 40

from external economic influences, such as cur- 20 22

rency fluctuations: the weakening of the US dollar 19 16 11 impacting negatively on the income side and the Europe/Africa Asia/Pacific North Central and strengthening of their local currency impacting Middle East/CIS America South America negatively the expense side. Thanks to stringent cost control and further productivity gains, the WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 22 Panalpina Annual Report 2007 Report of the Executive Board

Financial positions Balance sheet

Liabilities Assets Net assets (equity) in million CHF in million CHF

2007 (1,249) 2,266 2007 1,017

2006 (1,131) 2,108 2006 978 0

31 December 31 December 2007 2006 Condensed consolidated balance sheet in million CHF in million CHF % change

Cash and financial assets 352 374 –6 Other current assets 1,570 1,399 12 Property, plant and equipment 168 162 4 Intangible assets 86 102 –16 Other non-current assets 90 71 27 Total assets 2,266 2,108 7

Debt (current and non-current) (33) (27) 22 Other current liabilities (1,082) (987) 10 Other non-current liabilities (134) (117) 14 Total liabilities (1,249) (1,131) 10

Total net assets 1,017 978 4

Capital and reserves attributable to Panalpina shareholders 1,010 970 4 Equity attributable to minority interests 7 8 –13 Total equity 1,017 978 4

A full consolidated balance sheet is presented on page 77 of the Consolidated Financial Statements

Current assets Unbilled forwarding services increased by 6.3% to CHF 144 million compared to CHF 135 million The Group’s current assets increased by 8.4% from on 31 December 2006. The increase is mainly the CHF 1,773 million on 31 December 2006 to CHF reflection of the continued growth in the business. 1,922 million on 31 December 2007. The increase in current assets is primarily attributed to the increase Non-current assets in trade receivables. The Group’s non-current assets increased by 2.4% The total balance of cash and financial assets from CHF 335.6 million on 31 December 2006 to decreased by CHF 20 million as a result of an increase CHF 343.7 million on 31 December 2007, primarily in net working capital, net investments and the as a result of the impact in financial assets and other repurchase of own shares. The Group’s net cash assets which increased from CHF 44.4 million on position decreased from CHF 371 to 351 million 31 December 2006 to CHF 65,4 million on 31 Decem- end of 2007. ber 2007. The increase accrues mainly from a money Trade receivables, which comprise approximately market investment of CHF 15 million. Property, 59% of total assets, increased 12.8% from CHF plant and equipment increased primarily form capital 1,185 million on 31 December 2006 to CHF 1,337 mil- expenditure in IT equipment from CHF 161.5 million lion on 31 December 2007. The increase in trade on 31 December 2006 to CHF 167.6 million on receivables was below the increase of 13.9% in for- 31 December 2007. warding services and in coherence with the growth of the business. Trade receivables as a percentage of forwarding services of the preceding twelve months decreased marginally from 12.7% on 31 December 2006 to 12.6% on 31 December 2007. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 23 Report of the Executive Board

Current liabilities Liquidity and Capital Resources The Group’s current liabilities increased by 10.1% Cash flow from CHF 1,010.1 million on 31 December 2006 to CHF 1,111.7 million on 31 December 2007. The Cash flow from operating activities

development can be mainly attributed to the trade in million CHF payables, which have grown by 26.3% or CHF

131.7 million to CHF 632.8 million. The increase in 2007 316 trade payables is the result of growth in business and an improved payables management. 2006 338

Non-current liabilities The Group’s non-current liabilities increased by Operating cash flows 14.1% from CHF 120.5 million on 31 December 2006 The Group’s business operations continued to show to CHF 137.4 million on 31 December 2007. This strong cash generation of CHF 381.2 million (2006: was primarily a result of increased provision for claims CHF 321.3 million), driven by continued growth in and other post-employment benefits. Ebitda. The development of the business led to an increase in the working capital by CHF 73.4 million Total net assets /equity which negatively impacted the operating cash flows The most significant movements in shareholders’ decreasing from CHF 338.2 million on 31 December equity were the income of CHF 210.6 million, the 2006 to CHF 315.9 million on 31 December 2007. Panalpina dividend payments of CHF 74.3 million The payments of higher income taxes of CHF 8.6 (2006: CHF 49.4 million) and the share buy back million (totaling CHF 61.5 million) and the utilization program of CHF 86.4 million amounting to a total of other liabilities of CHF 32.2 million let drop the of CHF 101.4 million. Currency translation losses net operating cash flow from CHF 240.9 million on mainly arose from investments in foreign operations 31 December 2006 to CHF 209.5 million on and amount to CHF 9.0 million in 2007 (2006: 31 December 2007. CHF 8.1 Million). Working capital management The net working capital increased from CHF 414.4 million on 31 December 2006 to CHF 487.8 million on 31 December 2007. The increase is mainly driven by a reduction in the accrued cost of services (CHF 42.2 million) and a higher balance of trade receivables and payables (net CHF 19.7 million). A comparison of the net working capital development to the gross forwarding revenue reveals a marginal growth of the net working capital intensity of 0.1 percentage point from 4.5% on 31 December 2006 to 4.6% on 31 December 2007.

Cash Flow from investing activities The largest investing cash flows in 2007 are for expenditure on property, plant and equipment of CHF 43.0 million (mainly in IT equipment). Investing cash flows also include the long term investment in the money market. The net cash flow from investing activities, including purchases and sales of property, plant and equipment as well as the sales of marketable securities, was CHF 71.4 compared to 54.9 million. All capital expenditures were financed by the operational cash flow of CHF 209.5 million generated during the current year. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 24 Panalpina Annual Report 2007 Report of the Executive Board

Cash Flow from financing activities Significant financing cash flow in 2007 relates to the repurchase of own equity instruments amounting to total CHF 86.4 million (2006: disposal of own equity instruments of CHF 3.3 million) and to dividend payments in 2007 and 2006. Dividends paid in 2007 were CHF 74.3 compared to 49.4 million in 2006.

Net cash

31 Dec 31 Dec 2007 2006 % (mCHF) (mCHF) change

Cash and cash equivalents 352 371 –5 Marketable securities 1 3 –67 Short-term debt (30) (24) 25 Long-term debt (3) (3) 0 Net cash 320 347 –8

Net cash decreased by CHF 27 million during 2007. The cash inflow from net operating activities of CHF 209.5 million was used for the capital expen diture of CHF 71.4 million (net) and the dividend payments of CHF 74.3 million. The repurchases of own equity instruments reduced the net cash by CHF 102.1 million, which was partly offset by CHF 14.1 million received from the exercise of employees stock option.

Employees

Region 2007 2006

Europe /Africa / Middle East / CIS 7,990 7,529 North America 2,378 2,241 Central and South America 1,958 1,988 Asia / Pacific 2,975 2,546 Total 15,301 14,304

The headcount increased in all the regions except Central and South America, which concentrated on consolidating operations and improving productivity. In accordance with the market development and the Group’s network expansion on the Asian continent, the number of employees in Asia / Pacific increased by 16.8% during the year 2007.

www.panalpina.com/news WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 25 Reporting Regions

During the year 2007, all four reporting regions contributed to the Group’s 12.3% increase in net forwarding revenue except North America, which remained at the same level but doubled its Ebit nevertheless. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 2 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 27 Reporting Regions

Europe / Africa / Middle East / CIS Further growth in revenue and earnings thanks to strong demand Despite the negative impact of the service portfolio reduction in Nigeria, Panalpina increased the gross profit in its largest reporting region by 14.3%, thus again impressively demonstrating its strong market position and its continued capability to benefit from the multiform opportunities of globalized trade flows.

A buoyant and stable economic environment through European Regional Competence Center out Europe has yet again propelled Panalpina to Based in Basel convincing results in this sub-region. All major Euro- pean economies continued to grow in the course Amec Regional Competence Center of 2007, thus creating a positive landscape for inter- Based in Dubai national business.

Net revenue: CHF 5,063 million Western Europe Headcount: 7,990 Whilst the inbound flow of goods particularly from Branches: 276 China was again very dominant, the export volumes showed an equally encouraging growth. Consumer confidence remained high until late into the year resulting in another busy but relatively short air freight peak season mainly from China and the Far East. The same principle – thorough industry competence During some extremely busy periods Panalpina – in and a solid skill-base – applies to the retail and fash- addition to its normal procured capacity – operated ion industry, where Panalpina in Spain successfully 20 full-cargo supplementary flights from China to grew its share of business with a Spanish customer Europe per week. Ocean freight from the Far East to belonging to the world’s largest fashion distributors. Europe grew by an impressive 35%. On both air and In Italy, Panalpina’s long-standing reputation as a ocean freight Panalpina Europe grew by double digit successful partner to the high-end fashion industry percentage and above the market growth rate. Most was further highlighted by a famous Italian fashion sales activities and customer solutions covered the group extending its substantial contract with Group’s strategic industry verticals hi-tech, retail and Panalpina for another two years. fashion, automotive, healthcare/chemicals, and oil and gas. In the automotive industry, Panalpina Germany in particular was successful with a tailor-made solution Particularly in focus were solutions provided for the for a German car manufacturer’s air freight cargo telecommunications sector, which in the year under to the United States. Panalpina’s unique Dixie-Jet review Panalpina defined as its sixth strategic key full-cargo service from Luxembourg to Huntsville industry. Comprehensive transportation and supply is at the core of this reliable transportation and sup- chain management solutions were provided to sev- ply chain management solution. eral of the globally leading manufacturers based in Europe. All of these end-to-end solutions were Central and Eastern Europe successfully offered by drawing from the vast competence and skill-base the Panalpina Group provides Markets in Central and Eastern Europe continued to to this booming sector. Panalpina Sweden in par show strong signs of growth and Panalpina is plan- ticular proved instrumental in the coordination and ning further steps to solidify their solution offerings in development of this industry vertical. those markets. In particular, the Group identifies an interesting potential in further efforts to target the segment of small to medium-sized companies in this area. Interesting new logistics business could be contracted for a global mobile phone manufacturer in Hungary and Romania and for a major Germany- based fashion group in Turkey. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 28 Panalpina Annual Report 2007 Reporting Regions

North Africa Middle East The further development of the North African organ This region is undergoing a spectacular economic ization was largely completed in 2007. In Algeria, the boom, driven by high crude oil prices and strong subsidiary company has now been registered and infrastructure expansion in the United Arab Emirates. fully licensed, and a large logistics distribution center Dubai in particular is becoming ever more impor- has come into operation. Similar structures are being tant as a financial center and a hub for the global flows set up in Libya in cooperation with a partner. Busi- of goods into the entire region. In the year under ness is growing well in both countries, with Panalpina review, Panalpina registered another big increase in keeping a close eye on costs and risk control. In orders from the oil and gas sector, and is therefore the year under review, a total of six complete onshore currently expanding its organization in the UAE. oil and gas rigs were transported; there was also Rapid progress is being made with preparations to solid growth in air freight from Algeria to Libya. bring a major new logistics center in Dubai Logistics City into operation on schedule. West Africa Central Asia Despite increasing investment by West African countries in a variety of infrastructure projects, oil and Major investment in exploration and production facili- gas exports will remain the dominant sector of the ties for oil and gas continues apace in the countries sub-region’s economy for the foreseeable future. bordering the Caspian Sea, with government-run Thanks to substantial new contracts in this segment, companies and also Chinese firms, rather than west- Panalpina again achieved good growth in most West ern oil corporations, playing an increasingly central African countries. The vessels that the Group oper- role. Although this trend is affecting a number of ates along the west coast were well utilized once exploration projects, Panalpina – which performs the again in 2007. In Angola and Congo, structures and majority of its activities in this sub-region in the oil processes were successfully adapted to conform to and gas supply chain – emerged unscathed, and the established Group-wide business model, and was able to land major new orders and expand the range of services on offer was reviewed to take its market position in 2007. Furthermore, the Group account of the local market’s volatile tendencies. benefited from the increasing number of sizeable In Congo, the Group made pleasing progress with infrastructure projects in the sub-region and gained its new venture into a number of telecommunica- a foothold in the telecommunications sector, where tions projects. it clinched its first orders.

Russia and Ukraine The growth in the Russian economy helped Panalpina to register a gratifying increase in imported air freight tonnages and sea freight volumes to levels well above the predicted figures. On the other hand, Ukraine’s sluggish economy and the cost-driven tendency among many local customers to switch to poorer-quality forwarding companies led to a slight flattening of Panalpina’s business activities in that country.

Business activities in Nigeria were less gratifying. In the course of an investigation by the US Department of Justice regarding possible violations of the US Foreign Corrupt Practices Act, the Group suspended certain local services in 2007. These measures affected, among other things, the entire ships agency business. The respective impact on the Group’s business was substantial both in the regions at origin of the transports and in Nigeria. Further it impacted individual oil and gas customer relations in Nigeria and elsewhere. As a consequence of this reduction of its service offering, Panalpina will have to reorga- nize its structures in Nigeria to an extent that will be further evaluated during 2008. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 29 Reporting Regions

North America Increased profitability due to consolidation of completed reorganization By doubling operational profits (Ebit), the region achieved an impressive result despite the first signs of a recession and difficult conditions in the oil and gas segment. This confirms that the reorganization has been a success and that the Company continues to retain the loyalty of its customers.

Noram Regional A slowdown in the US economy became increas- Competence Center ingly noticeable from the second half of 2007, and Based in Morristown, NJ Panalpina did not escape unscathed. Nevertheless,

Net revenue: CHF 1,684 million Panalpina’s customer-driven solutions led to increased import and export volumes outpacing market growth Headcount: 2,378 by successfully expanding both its global accounts and Branches: 82 SME business across the board. Even with a slow- ing Canadian economy, Panalpina further increased its market leadership in this country, particularly in the ocean and air freight market segments.

High demand for logistics The North American market for logistics services, which remained relatively unaffected by the weak New offices, new orders, new awards dollar and decline in consumer spending, grew by around 7% again in 2007 – or four times faster than A new branch was opened in Columbus, Ohio, in the USA gross domestic product. Panalpina parti August targeting the high growth potential in the local cipated in this growth by winning numerous new con- retail and fashion industry in particular. In November, tracts in all key industries. While the Group already two other offices were opened in Orlando and Tampa, has medium to large market shares in the telecom, Florida to support SME and the global account automotive and hi-tech sectors, it sees considerable business. During its very first days of business in growth potential in retail and fashion and in health- Orlando, Panalpina was able to announce the care in particular. successful conclusion of a substantial new contract with one of the leading global manufacturers of New business also in the oil and gas segment transport pallets and containers, representing the largest-ever ocean freight order to and from the USA In the year under review, gross profit in the region was to date. Panalpina also won four separate awards impacted by the suspension of parts of its service from major American and Canadian clients during the portfolio in Nigeria and related businesses with US oil year under review – further evidence of the high and gas customers. The results were further affected level of customer satisfaction that the Group enjoys by legal fees in connection with the investigation of in North America. US authorities which was still underway at the end of the reporting year. Panalpina nevertheless succeeded in gaining valuable new orders from US companies in this key industry, which is testimony to the Company’s excellent service quality and customer loyalty.

A further rise in profitability The management team further consolidated the reorganization project completed in 2006. It achieved an impressive rise in profitability by expanding its customer base and shipping volumes, and by leveraging other operating expenses. As a result, the contribution margin increased by 10.1%. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 30 Panalpina Annual Report 2007 Reporting Regions

Central and South America Strong sales growth in high-export region with diverse potential Accelerating growth in goods exports and continuing high demand for forwarding and logistics services helped Panalpina increase the net forwarding revenue by 22.1% compared with the previous year.

Average GDP growth of around 5% in the Latin ... and for forwarding perishable goods Latam Regional American countries, together with relatively moder- Exports of perishable goods have been rising strongly Competence Center ate inflation rates (except in Venezuela), formed a Based in São Paulo and growth rates are predicted to remain high. As sound economic backdrop that enabled Panalpina to a result, Panalpina has decided to expand its activi- Net revenue: CHF 818 million generate very good performance in the reporting ties in this area throughout Latin America, with the year. The free trade agreements that are ready to be Headcount: 1,958 exception of Brazil. The countries with the greatest signed between Peru, Panama, Colombia and the Branches: 69 potential are Argentina, Uruguay and – in particular – USA, along with continuing high demand in Asia for Chile, which saw the Group open a new office in goods from the entire region, should translate into a Concepción in 2007. further rise in freight volumes. Even though the appre- ciation of certain local currencies is having a negative impact in some countries, exports remain an important driver for growth.

Export volumes high overall In 2007, Panalpina saw ocean freight exports rise in Latam by over 50% in terms of TEUs, mainly thanks to more shipments from Brazil and Mexico. The Group also recorded a considerable rise in air freight tonnages with growth in this division receiving an additional boost from a new contract to fly over 12,000 tons of flowers from Colombia. Imports also registered good increases, especially in ocean freight from Asia and on routes within Latin America – an area in which Panalpina was able to reinforce its market Promising outlook for the project business leadership against strong competition. In 2007, business was very buoyant again in project transport. The Group sees further high market Big potential for logistics... potential in the Andean countries in particular, as Supply chain management remains the core activity well as in Mexico and Venezuela. A new organiza- with the best growth prospects in the region. tional unit was set up in Buenos Aires during the year The Group already has a strong market position in under review to serve this sector in Argentina, Chile Colombia, Ecuador, Peru and Venezuela, and has and Uruguay. In the Group’s estimation, there are identified further potential in Mexico and Brazil in very good prospects for project assignments in the particular. To meet the high demand for logistics ser- oil and gas and the mining industries in Mexico, vices even more efficiently, Panalpina therefore Peru, Chile and Argentina as well as in connection brought two new distribution centers into operation with the expansion of the Panama Canal. in 2007: a logistics center near Mexico City for a large number of international customers with further expansion potential (see page 45) and a warehouse in Manaus for distributing the products of an inter nationally leading mobile phone manufacturer within Brazil. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 31 Reporting Regions

Asia / Pacific Continuing strength of the region’s economy leads to further surge in sales The steady growth of the Asia-Pacific economies boosted the demand for forwarding and logistics services – a situation from which Panalpina again benefited greatly. New business in all the key industries helped the Group to increase its gross profit by 16.0%, thus even doubling the pre vious year’s growth rate.

Apac Regional China confirmed its undisputed role as the driving Competence Center force of the Asian economic boom and boosted its Based in Bangkok gross domestic product by well over 10% again in

China / Taiwan Regional the year under review. Panalpina was once more able Competence Center to handle an enviable proportion of the fast-growing Based in Shanghai freight flows in and out of the country – thus further increasing its share of this developing market. Net revenue: CHF 1,119 million

Headcount: 2,975 Telecom, hi-tech, and retail and fashion Branches: 99 In 2007 the Group achieved impressive increases in tonnage growth, particularly for air freight from and to China / Taiwan (up by more than 20 percent and 10 percent respectively). This even outstripped the very satisfactory growth recorded for ocean freight flies from Macao via Chennai to link the sub-region volumes. The main reason for this was largely due to with Dubai, from where further connections exist to the higher demand for air freight services from a Africa and Central Asia via Panalpina’s African Star number of major clients in the telecom sector based and Pansibiria lines. This service is expected to be in this sub-region. One of the Group’s most profit- expanded by one additional weekly flight in 2008. able clients increased its tonnage by more than two thirds in the year under review – and this is just one Fine-tuning the regional organization example. The constantly rising purchasing power of Chinese consumers was also reflected in the remark- In 2007, the structure of the regional organization able surge in Panalpina’s air freight imports for the was fine-tuned further to ensure that it can continue top-end segment of the fashion and jewellery industry. reacting flexibly to the exceptionally dynamic eco- The telecom and hi-tech sectors made the biggest nomic climate – and that it will be able to exploit the contribution to growth in gross profit, followed by the vast potential of the Chinese and Taiwanese markets retail and fashion industry. Panalpina expects these even more efficiently in the future. The huge territory three sectors to remain the principal growth drivers covered by the Chinese mainland has now been in this sub-region for the foreseeable future, although divided into three areas, Bohai Bay, Yangtze River all the key industries are demonstrating positive Delta and the Pearl River Delta (the latter including growth trends. Hong Kong and Macau). Together with Taiwan, these now make up the four areas of the China / Taiwan New air freight lines and products sub-region. At the same time, greater budgetary responsibility has been handed to the 28 business A high level of export activity resulted in heavy unit managers, thus giving Panalpina firmer control demand from the retail and fashion and the hi-tech of costs, earnings and growth targets in the sub- sectors, particularly on the route to Europe, which region. A newly formed strategic development team is why Panalpina in 2007 became the first intercon- is dedicated to the targeted expansion of the branch tinental freight forwarder to develop and introduce network, with the priority focus on the offices in a new intermodal rail-air product between China and Tianjin (east coast) as well as Chengdu and Wuhan Europe. This was enthusiastically received by the so as to be ready to benefit from the westward market because of its attractive transit times and very spread of domestic investment in China. competitive prices. The new service is based on scheduled flights via Panalpina’s hub in Luxembourg, as well as client-specific flights via Leipzig and Schwerin-Parchim. Orient Star, another air freight service set up to precisely meet the demand, now WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 32 Panalpina Annual Report 2007 Reporting Regions

Strong growth also outside China Partnership with YAS begins to bear fruit Panalpina also profited from the robust economic The partnership agreement concluded in January growth generated in the rest of the sizeable Asia- 2007 with the NYK subsidiary Yusen Air & Sea Pacific region: Vietnam, Singapore, Indonesia and the Service had the intended result of giving Panalpina Philippines alone boosted gross domestic product access to a larger customer base and a highly by more than six percent each in 2007. The general efficient handling organization. The first signs of im- strength of the Asian currencies (with the exception proved market positioning in Japan and in the area of the Japanese yen) stimulated local consumption of intra-Asian freight traffic have now become evident. and thus imports, while exports were hardly affected The global cooperation agreement signed in June at all. Panalpina expanded faster than average in has therefore produced very gratifying results in three Vietnam, Malaysia and Indonesia – mainly by winning different ways. Thanks to the new agency represen- orders from new customers – and was thus able to tation provided by YAS in Japan, Panalpina France increase its market share again in these countries. was able to win a substantial new contract for over The continuing political instability in Thailand and the 500 air freight tons per year – to mention only one Philippines had little impact on the Group’s business example. Secondly, good progress is being made on activities. plans to harmonize organizational structures so as to enable Panalpina to represent YAS in 24 other coun New ocean freight hub in Singapore tries. And thirdly, stronger collaboration in the other countries in which both companies are present has Europe was again the most popular forwarding desti led to the first mutually beneficial freight co-loading nation in 2007, and Panalpina successfully increased agreements. its export and import tonnages and volumes in both directions once more. Destinations within Asia ranked second in importance, and here too the Group posted impressive sales growth, particularly for ocean freight. In May, Panalpina started operations at its new hub for consolidated ocean freight in Singapore, which now has connections with all the major ports throughout the world via the Group’s own Pantainer line. In the year under review, a slight trend for customers to switch freight from air to sea became apparent for the first time, thus easing the air freight bottlenecks typically experienced in the high season on the main forwarding routes to Europe and North America. By contrast, ocean freight suffered from insufficient capacity all year, which led to big increases in cargo rates. As these could not be fully passed on High level of activity in the oil and gas sector to customers, margins came under a certain amount of pressure in this segment. New business units were opened at various destinations in the Asia-Pacific region – such as the Kemaman supply base in Malaysia, or Balikpapan in Indonesia – during the year under review, in order to support the increasing oil and gas activities in the sub-region. These branches helped win new business in Singapore, Indonesia, Malaysia, Korea and West- ern Australia. The Group was also able to acquire profitable new business in the other key industries – such as the retail and fashion industry in the Philip- pines, where another business unit is being set up in Subic Bay to support general forwarding activities. In addition, there was very strong growth in orders from the automotive sector in various countries. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 33 Core Activities

By again growing faster than the respective markets, Panalpina maintains its position as the global number 3 in air freight and number 4 in ocean freight. In supply chain management, the Group was able to even further increase its growth rate. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 35 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Core Activities

Air Freight Centralized management of long-term partnerships: a good basis for sustained growth In 2007 Panalpina once again grew more rapidly than the overall market, raising its air freight tonnage by 8.4% to 947,000 tons. The Group thus easily maintained its position as the third largest global provider while also expanding its market share.

This expansion substantially exceeded market growth its particular interests, these receive due mutual of about 4 – 5% and underscores Panalpina’s role as consideration as far as possible within a professional a global leader among air freight forwarders – a fact process environment. This helps to forge long-term recognized by customers and air carriers alike. It partnerships, which are very important to Panalpina is also proof that centralized management and the as they constitute the basis of its successful asset- selected mixture of “commercial” freight capacity light strategy – which the Group intends to pursue in (i. e. aircraft space bought on the open market) and the future too. “own-controlled” freight capacity (aircraft chartered by Panalpina) actually delivers the positive results Strong traffic to Africa and new combined offers expected. With many African countries investing increasingly in large-scale infrastructure projects (primarily in the Successful strategy in capacity procurement fields of telecommunications and hi-tech), Panalpina A balanced portfolio of air carriers and capacity has experienced steady growth in demand for capac resources enables central management to react flex- ity on routes from China and India via the Middle ibly to changing customer needs and market devel- East to Africa. In 2007, Panalpina responded to this opments. Success lies in finding the right balance demand by introducing new services and offers on between medium- and long-term commercial capac- these routes, particularly based on its own-controlled ity (with the corresponding financial opportunities capacity. Thus the Group reacted very rapidly to and risks) and ad-hoc capacity at spot prices (with these urgent customer wishes. In response to the higher margin potential, but also the risk of price scarcity of ocean freight capacity from China and increases in the case of sudden capacity shortages). the impact of rising fuel costs on air freight, in 2007 However, bottlenecks are a challenge only on the Panalpina developed an innovative rail-air product routes from Asia and only during the peak season. from China to Europe that has proved extremely popu On average, 70% of Panalpina’s capacity is short- lar with customers in the retail and fashion as well as term and 25% medium-term (i. e. bought less than the hi-tech industries in particular. 6 months in advance). The remainder is covered by long-term contracts with a duration of more than Estimated air freight growth 2006–2010

6 months. Average annual growth in percent

Sustainable supply partnerships 3.7 In 2007, Panalpina further strengthened its central 5.4 4.0 Intra-Europe capacity procurement system, which, although 5.0 Europe–Asia Transpacific Transatlantic Asia–Europe centralized, leaves decisions regarding the amount of 4.1 4.7 capacity to be purchased to the individual regions North America- 3.8 Latam/Caribbean and countries. In this connection, the qualitative tar- Europe–Middle East 6.6 gets negotiated with selected air carriers – along Europe–Latam/ Middle East– Europe Caribbean with continual reviews to evaluate their efficiency – Intra-Asia 4.7 helped to make Panalpina an even more reliable 6.7 Intra-Latam/ partner for the carriers. Furthermore, in 2007 Panalpina Europe–Africa Caribbean and its principal air-carrier partners introduced a Africa –Europe quality management system based on industry-defined Source: IATA performance indicators that ensure global compliance with key targets (such as punctuality of flights www.panalpina.com/air and timeliness of status updates from the side of the carriers or allotment performance delivered by Panalpina). Although each side continues to pursue WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 37 Core Activities

Ocean Freight Further dynamic growth strengthens Panalpina’s position as global number four Panalpina again outperformed the ocean freight market in 2007 with a 13.7% year-on-year jump in volumes. The total of 1.2 million TEUs handled met the Group’s targets for the year and reconfirmed Panalpina’s No. 4 position in the global market.

In an environment that remained highly competitive, thus able to quickly adjust to growing volumes on Panalpina again put in an above-average perfor- high-demand routes – a key benefit for its global mance, with a volume increase by some 5% above customers with ambitious supply-chain needs and the growth of the market as a whole, which was individual requirements. driven mainly by the traffics from and within Asia as well as the export from Latin America. Despite a Successful global procurement network sustained high degree of utilization and increasing Consistent refinement and further increased coopera rates, Panalpina impressed with excellent volume tion between local and global procurement enabled development on all important routes: in particular, the Group to coordinate its joint network even more volumes rose by 25% on intra-Asia routes, by 28% closely in 2007. Thanks to improved internal com- in Asia-to-Europe trade, by 35% on routes within munication and coordination, Panalpina has further Latin America and by a hefty 55% in trade from Latin enhanced its service patterns. By the end of 2007, the America to North America. Group had thus gained a considerable number of attractive new orders from global customers, notably Strategic choice of partners is paramount some key accounts in North America and Brazil. Panalpina attributes this rapid organic growth to a structured choice of partners that assures all custom- Increased demand for LCL services ers the maximum possible flexibility and reliability. The very positive trend overall in LCL (less-than-con- In ocean freight, as in the Group’s other operations, tainer-load) shipments continued throughout 2007. the rigorous asset-light approach calls for strategic The Group’s own efficient LCL network, coupled with partnerships with sub-contractors. To fully meet the strategic investments, such as the successful launch customers’ requirements and provide them with suf of the new LCL Hub in Singapore, helped to boost ficient capacity, it is of key importance to foster carrier Panalpina’s total ocean freight volumes. In analogy to relationships on a medium- to long-term basis. In market developments in the full container segment this process, more than 60% of Panalpina’s freight (FCL), the Group’s LCL product recorded significant volume is covered by six globally operating core growth owing to a continued and foresighted focus carriers, while the remainder is handled by regional- on high-demand markets. The impressive 73% growth or route-specific specialists which complete the in Panalpina’s own consolidated services is based, Group’s worldwide service coverage. Panalpina is for example, on rises of 35% in the business on eastward trans-Pacific routes, 50% in the westward Estimated growth in ocean freight container traffic, traffic from the Far East, 85% in volumes from the 2008–2012 Far East to Latin America and 200% in intra-Asian Average annual growth in percent traffic. Not only did customers appreciate the improved transit times for LCL services, but process improvements (e.g. the introduction of new IT interfaces with 20.0 the cooperation partners) enhanced operational 7.9 6.5 efficiency and reduced costs in the year under review. Eastern 10.9 Further product portfolio improvements, the launch Western Europe North Europe 9.9 of new LCL hubs and additional operational-efficiency America Far East 7.8 enhancements are planned for 2008. 14.0 12.4 Middle 8.2 East South East www.panalpina.com/ocean South Asia Africa Asia Latin 5.8 America

Oceania

Source: Drewry Container Market Review 2006/2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 38 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 39 Supply Chain Management WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 40 Panalpina Annual Report 2007 Supply Chain Management Logi(sti)cal answers to global(ized) challenges The global trend towards outsourcing logistics processes is a typical instance of globalized business and is carrying on undiminished in all major sectors of industry. In 2007, Panalpina boosted its net forwarding revenue from supply chain management activities even stronger than in the previous year by 6.6% to CHF 1.275 billion.

Mobile phones, cars, laptops, designer ensure highest possible inventory visibil- shoes, digital cameras, luxury watches, ity. According to another study by the headache pills – whatever the product, consultancy company Capgemini, out- growing globalization is making produc- sourcing services – subject to regional tion and supply chains longer and more differences – account for 65% of a com- complex in virtually every sector. Hence pany’s total logistics expenditure on the generally predicted steady growth average, and that this proportion is set in the market for outsourced logistics to increase further in the next few years. services. According to a recent study by The success of outsourcing is also Transport Intelligence, the global market demonstrated by the fact that it saves volume of around CHF 210 billion in 2006 companies an average of 18% on inter- is expected to rise to 310 billion by 2010. nal infrastructure and 13% on logistics For some years now, Panalpina has costs. Outsourcing also shortens the been achieving double-digit growth rates order cycle time of goods from 14 to in this market. Building on its global air 10 days on average. and ocean freight transport networks, the Group offers services right across In-depth sector knowledge as key the logistics chain, from procurement to success factor warehousing and production supply, Generally speaking, companies give right through to distribution to the end equal weight to price and quality factors user. when choosing their logistics partner, with the latter’s efficiency and capacity Outsourcing: leaner, cheaper, faster viewed as equally important as know The said study assumes that currently ledge of the specific requirements of the 15.3% of the total logistics activities of sector concerned. Panalpina’s supply all companies worldwide are outsourced chain management package is particu- to external suppliers. This demonstrates larly targeted at the key industries it the enormous overall potential of this has defined as strategically important market with different figures for its individ- (see page 48), since these have been ual areas: while outsourcing is farthest at the cutting edge of global sourcing and developed in the case of transport-related distribution for many years and have services, there are bigger prospects for correspondingly sophisticated logistics growth in warehousing and add-on serv requirements. These sectors are hi-tech, ices (such as product labeling, pack automotive, retail and fashion, health- aging and light assembly) or in reverse care, and oil and gas. In view of the sig- logistics. Many experts believe the big- nificant and sustained rise in orders gest potential to be in IT-solutions to from the telecommunications industry, Panalpina added this sector to its list of key industries in 2007. Those responsible for logistics in the companies within these sectors can rest assured WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 41 Supply Chain Management

that in Panalpina they have a partner which not only knows its own business inside out, but also understands the industry-specific challenges facing the client and speaks the same language.

Fast and flexible thanks to the asset-light approach Panalpina stands out from most of its competitors because of its systematic asset-light business model. This means that the Group provides not only its forwarding, but also its logistics services largely without having to tie up capital in its own infrastructure. Instead, it coor Example of an automotive customer: dinates a worldwide network of best-in- class subcontractors to provide tailored Distribution center in China customer solutions. Thanks to this In autumn 2005, Panalpina began to design a logistics solution based around its state-of- approach, Panalpina is able to follow the-art warehouse in Shanghai to serve a German car manufacturer’s expanding network its customers wherever they go and of 18 authorized dealers in China, which will soon be the world’s biggest market for cars. react quickly and flexibly to their chang- The rigorous requirements of this automobile group placed particular emphasis on the fully ing needs, such as when they outsource transparent management and supervision of the forwarding and warehousing of auto individual activities or production pro- motive components throughout their journey from Germany to China, as well as making cesses to other countries. As lead logis- direct call ordering available to the Chinese dealerships. Panalpina speedily and success- tics provider, Panalpina concentrates fully implemented a solution which has been functional since mid-2006 and has steadily on the service aspect of what are often expanded ever since. In addition to warehousing for the spare parts themselves, extra stor- complex requirements, delegating the age for promotional materials was also made available to the customer, as were adjoining physical forwarding and warehousing to offices to be used for warehouse management purposes. The dealers in China order parts selected partner companies. There are directly from Shanghai. They do this online using Panalpina’s Internet-based software, some exceptions, but primarily in places which is in turn constantly updated with direct information from the car manufacturer’s where it is impossible to find partners headquarters in Germany, while the system itself is automatically regulating minimum that meet Panalpina’s high standards. and maximum stocks.

“For this customer, our Shanghai distribution center is the key to the Chinese Market. They were impressed by the speed with which Panalpina met their specific requirements in this respect. With our own Internet-based software we were able to fully ensure the customer’s order management for the Chinese suppliers during an interim period. The supply chain management processes were implemented within a very short time. Thereby, Panalpina is helping its partner to further improve its leading position in customer satisfaction.”

Frank Zieger, Territory Sales Manager, Panalpina Stuttgart WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 42 Panalpina Annual Report 2007 Supply Chain Management

Panalpina’s range of logistics services in the area of Procurement

Milk-run collection The customer lists a number of different suppliers. Panalpina works out the optimal route in terms of lead times, distances and efficient use of truck capacity, and then frequents it independently for a regular pick-up and delivery of the needed stock.

Example of a retail and fashion customer: Merge in transit IT and forwarding solutions from a single source Consolidation of different consignments from a variety of suppliers into Leder und Schuh Ltd International, a company based in the Austrian city of Graz, is a a single consignment during the ship- leading supplier of footwear and related fashion goods. Its products range from the ping process. By merging in transit, fashionably sporty to the exquisitely elegant and bear well-known labels which are sold in Panalpina saves its customers time, retail outlets in Austria, Germany, the Czech Republic, Hungary, Slovakia, Slovenia and transport costs and expenditure on Poland. Meticulous planning and logistics-chain organization is required to ensure that the warehousing. products hit the shelves at exactly the right moment, since numerous partners in Asia and Europe are involved in the production and distribution of these items, which then have Buyer’s consolidation to be delivered to around 300 sales outlets. In view of the large number of companies Part-shipments from different suppliers involved, Leder und Schuh decided to streamline its supply chain. It turned to its logistics are consolidated in accordance with partner Panalpina, with which it has been working for over 20 years. Panalpina regularly the original customer order to save ships 1,500 TEUs a year from Asia to Europe by sea for this fashion retailer, with additional on shipping costs and to ensure that air freight deliveries from time to time. all the goods are delivered in com Analyses revealed high potential for optimization. This was implemented in the new busi- pliance with the buyer’s requirements. ness processes by integrating all parties involved and redistributing a number of tasks. Panalpina has a number of consoli dation centres and a special IT appli- Panalpina has thus been entrusted with the tracking of each individual order: it ensures cation to facilitate this process. that goods are dispatched on time by the supplier and is responsible for cost-effective shipment after taking due account of the delivery times. The deconsolidation center at Panalpina ensures flexible supplies to the distribution centers in Graz, Budapest and Order management, purchase order Brno, from where the individual items are taken straight to the sales outlets. Panalpina follow-up also provides a range of further services at this goods hub: it deals with customs clear- Panalpina also offers individual solu- ance, sorts merchandise, performs quality control and provides buffer warehousing. tions to those customers who wish to outsource the management and Processes are usually time-critical in the fashion industry, so the efficient management of tracking of supplier orders. In this IT and communications management systems is a decisive factor. The Internet-based process, Panalpina’s “collaboration SCM solution developed jointly by Panalpina and the IT firm Axit Ltd integrates all involved platform” ensures complete visibility parties on a neutral centralized platform, thus ensuring that everyone has access to the all along the supply chain. Panalpina necessary data in line with their role in the process. The combination of highly automated actively takes care of communication data traffic and an intelligent event management system reduce manual intervention to with suppliers, intermediaries and a minimum. Moreover, an end-to-end referencing system ensures transparency right across customs authorities. “Supply chain the supply chain – everywhere and at all times. events” are defined which automa tically provide notifications to suppliers, end customers and Panalpina.

“The forwarding services and one-stop logistics platform provided by Panalpina equip us with comprehensive and Cross docking innovative solutions for managing our supply chain. These The purpose of cross docking is to ensure that the current status of each item, order, delivery optimize a consignment’s movements note or container can be called up at any time by every within a warehouse. Eliminating the partner involved in the chain. The system integrates all the work involved in checking goods into participants and guarantees that each person obtains and out of warehousing facilities can access to the data necessary for the performance of their greatly reduce distribution costs. particular task.” This requires intelligent warehousing software which makes all warehouse Hubert Petz, CPIO & Head of IT, Leder und Schuh movements fully visible. International Ltd., Graz WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 43 Supply Chain Management

Panalpina’s range of logistics services in the area of Warehousing

Distribution warehousing Panalpina offers its customers a number of additional services that go well beyond pure warehouse storage. These, of course, are assisted by an up-to-date warehouse management system which allows customers to check on their current warehousing status online at any time.

Example of a hi-tech customer: Inventory management services Personal Computers from door to door Panalpina’s efficient warehouse management system enables customers Since mid-2005, Panalpina provides one of the world’s leading technology companies to actively manage goods in storage. and the biggest manufacturer of personal computers in the Asia-Pacific region with Our customers can view their current forwarding, warehousing and distribution services. For this major account, the Group inventory levels and place orders developed sophisticated logistics solutions for the delivery of laptops right to the doors directly online. Furthermore, the sys- of the consumers in 28 European countries as well as in Mexico, South America and part tem automatically sends messages of North America. Panalpina’s air freight hub in Frankfurt plays a key role in the distribu- to customers informing them when tion of these goods in Europe. Every day, Panalpina forwards several hundred consignments stocks are down to a specified mini- from the Chinese city of Shenzhen via this hub to their various final destinations on behalf mum level (supply chain event man- of this customer, achieving a maximum door-to-door transit time of four to five days. The agement). crucial factors in winning this business – apart from efficient air freight resources on this very popular route – were an in-depth understanding of the needs of the hi-tech sector in Vendor management inventory general, as well as Panalpina’s flexibility in adjusting its own IT systems to the very specific The purpose of the “VMI warehouse” requirements of this customer. is to allow suppliers to remain responsible and owner of their inventories. With its in-house systems, Panalpina “For this important key account, perfect customer service creates the conditions in which differ- is one of their core corporate values. It therefore goes ent suppliers can manage their stocks without saying that they are not prepared to compromise within a warehousing facility. All inven- on providing a fast, reliable delivery service to their end tory data are transmitted to the ERP users throughout the world. They have been very satisfied systems of Panalpina’s end customers. with our logistics services for years because they feel in Panalpina thus serves as an active our day-to-day cooperation that Panalpina is working with interface between supplier and cus- experts who really know what they are doing, are striving tomer. for the same goals and can be relied on to uphold the highest quality standards.”

Added-value services Jose Canales, Global Key Account Manager, In connection with warehousing, Panalpina Hong Kong Panalpina also offers additional ser vices such as barcode scanning of serial numbers, labeling, repacking, kitting, sampling, light assembly, quality inspections and pick & pack. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 44 Panalpina Annual Report 2007 Supply Chain Management

Panalpina’s range of logistics services in the area of Distribution

Just in time, just in sequence At Panalpina we ensure that our customers receive their goods in accordance with their requirements – on time and in synch with their production processes. Based on the optimum use of the road network, first-class subcontractor coordination and flexible management of all goods flows, Panalpina can meet the on-time deliv- Vital hub for freight flows: ery requirements of even the most New logistics and distribution center in Mexico demanding customers. The logistics center in Mexico which opened in the year under review is an impressive example of the flexibility with which Panalpina can react to changing market conditions Air freight transport thanks to its asset-light business model. A new high-performance building became neces Panalpina’s air freight portfolio offers sary so that the increasing demand from international customers for complex logistics everything from a wide range of air services could be met from a central location. In addition, certain safety regulations specific cargo services with various product to individual contracts with some major customers prevented Panalpina from outsourcing options, to onboard couriers on pas- more of their warehousing to sub-contractors. The new building – which is equipped with senger flights, right through to spe- the latest technology – is strategically situated 30 kilometers from the capital on the high- cially chartered helicopter transports. way linking Mexico City and the USA, an ideal location for freight flows. The building, in which Panalpina is renting 30,000 m2 of storage space and 450 m2 of office space (with Special consignments the option to expand if necessary), has over 32 truck loading bays, double security gates Panalpina can also offer solutions and temperature-controlled air conditioning. The extensive use of solar energy to provide when specific circumstances prevent electricity, a used-water treatment system and integrated waste management that are shipments by air, road or rail. This a shining example for the region are all testimony to Panalpina’s commitment to making could, for example, mean shipping work processes as environmentally-friendly as possible. exceptionally bulky goods by river on specially built barges, or even loading items onto pack animals in otherwise impassable rainforests. “We are extremely satisfied with our new logistics center in Mexico. By the end of 2007, some 170 people have already been working here, using this state-of-the art facility Reverse logistics to fulfill the local logistical needs of around two dozen of For many customers, Panalpina also Panalpina’s larger customers, including global market lead- undertakes a variety of tasks in the ers in the hi-tech, telecom, and retail and fashion sectors.” area of reverse logistics, including col Daniel Regli, Managing Director, Panalpina Mexico lecting, sorting, processing, empty returns management and redistributing – or recovering and recycling – returned products. www.panalpina.com/logistics WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 45 Customer Groups

Panalpina successfully brings its in-depth specialist knowledge and many years of experience to selected strategic key industries, all of which have heavily globalized supply chains and significant growth potential. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 46 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 47 Customer Groups

Customer Groups Telecom Panalpina serves a very broad global customer portfolio from virtually all the sectors that require forwarding and logistics services. The Group successfully brings its in-depth specialist know ledge and many years of experience to certain industries in particular, all of which have heavily globalized supply chains and significant growth potential.

Panalpina provides most of its forwarding and logistics services on the basis of its asset-light business In view of the large number of customers it now model. This flexible approach enables the Group to serves in the telecom industry and the very promising follow its customers everywhere and to offer them growth potential in this area, Panalpina decided customized, efficient solutions wherever in the world during the year under review to run the Telecom they may have business operations. sector as an independent key industry. The rapid pace of technological innovation in mobile Strategic key industries communications brings ever shorter product life The Group possesses particularly detailed sector cycles, and this factor – along with the large number knowledge and a track record stretching back many of high-investment projects currently being under- years in a number of key industries that it has defined taken to expand the local infrastructure, notably in as strategically important – i. e. telecom, hi-tech, auto developing countries – has transformed the sector into motive, retail and fashion, healthcare, oil and gas, an extremely dynamic market. Panalpina is staying and project transport. Customers from these indus- abreast of this beneficial development by providing an tries know that in Panalpina they have an expert independent sales and marketing organization for partner which not only has in-depth knowledge of these customers, who were previously looked after their sector’s specific requirements, but is also able by the hi-tech organization. A strategy it has been to provide them with tailored logistics solutions applying successfully in the other key industries for drawing on the Group’s global air and ocean freight some years now. competencies. The diverse requirements of Panalpina’s telecom customers – which include more than a few of Sustainably balanced customer base the world market leaders in this sector – range from Although the clients in the key industries listed above global forwarding and logistics solutions for the are mainly globally active corporations – many of manufacture and distribution of premium fast-moving them market leaders – Panalpina’s sector-specific consumer goods to complex transport projects for services are also of interest to small and medium- the construction of large-scale mobile communica sized companies. These benefit in numerous ways tions infrastructure in extensive, sometimes remote from the Group’s industry knowledge, infrastructure areas that are difficult to access. As an experienced and knowledge transfer. Overall, Panalpina gener- central provider of such services, Panalpina has ates around three quarters of its revenue from inter- industry-specific competence centers at its disposal, nationally active SMEs and the rest from major particularly in the key strategic markets of Scandina- global clients – a balanced ratio that has stood the via, South Africa, Brazil, India and China. test of time and which the Group deliberately maintains as a sound basis for its sustained growth. www.panalpina.com/telecom WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 48 Panalpina Annual Report 2007 Customer Groups

Hi-Tech Automotive

Within the hi-tech segment, Panalpina’s global Panalpina provides its automotive industry customers reach and industry competence offers complete with transportation and logistics services that enable supply chain integration and management. them to optimize their supply chains, to meet tighter production schedules and to operate on the basis of Adoption of new technologies and universally grow- a lean inventory management. ing broadband and mobile connectivity have meant that shorter product life cycles have become inevi The challenges of the automotive industry are just-in- table realities. These, in turn, require more complex sequence and just-in-time supply systems, where and sophisticated transportation and supply chain the delivery of components from a variety of compa- services. Typically, the hi-tech industry requires logis- nies based in different countries must be carefully tics chains linking the industry’s key East-Asian coordinated to ensure a smooth manufacturing and production sites with distribution operations in the assembly process. This challenging task requires rest of the world. expertise in information design, process planning and operations efficiency. Panalpina is capable of meeting the needs of hi-tech industry customers mainly due to its global reach and Panalpina’s services aim to deliver quality solutions at industry competence. It offers them not only trans- the lowest costs with the flexibility demanded by port services ensuring the timely delivery of parts the world’s leading vehicle manufacturers and their and products, but also integrated logistics solutions, suppliers. The Group offers the development and from procurement to warehousing and distribution, implementation of fine-tuned supply chain solutions with TAPA (Technology Asset Protection Association) with integrated air and ocean freight services to the certification for Panalpina-operated warehouses and automotive industry to ensure the proper functioning logistics centers. Unabated technological innovations of such complex supply chains. It also offers auto- combined with the increasing potential of the world’s motive companies comprehensive service packages emerging markets to catch up with the global leaders for the operation of distribution centers and ware- cause solid growth rates in most fields of the hi-tech houses, thus optimizing the customers’ supply pro- industry. cesses and data transfer.

www.panalpina.com/hi-tech www.panalpina.com/automotive WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 49 Customer Groups

Retail and Fashion Healthcare

Panalpina provides transport and logistics services To its customers from the healthcare sector, tailored to the needs of the retail and fashion industry, Panalpina provides just-in-time delivery to globally which is characterized by constantly changing located destinations and the highest transport stan- trends, seasonal demands and short delivery periods. dards for safeguarding the integrity of pharmaceuti- cal products in transport. Few industries are as dynamic or energetic as the retail and fashion sector with its short-lived waves and The healthcare industry is facing increasing pressure trends, its fast-changing demands and its ever tighter to grow profits by bringing new products to the deadlines. This exceedingly globalized industry needs market in a faster and more efficient way. Growing time-definite delivery from manufacturing sites pre- research and development efforts and the need to dominantly located in Asia to Europe and America. maintain product integrity and security lead to rising logistics and transport costs. Panalpina considers Panalpina’s retail and fashion competence center this to be an interesting business opportunity, also provides services to a large global customer base of because of the boom to be expected as the devel- both suppliers and retailers. The Group’s tailor-made oping economies increase the per-capita spending transport and logistics services address the special on healthcare facilities. requirements of this industry by ensuring time-definite delivery and allowing customers to track the progress Panalpina offers flexible transportation and logistics of their shipments at all times. As an experienced solutions by giving the customer the choice of provider of complex supply chain management con- mode of transportation depending on urgency and cepts, Panalpina’s solutions include services such as consignment size: air freight, ocean freight, road warehouse management, order-picking, packaging and courier services. Panalpina also offers value- and repackaging, labeling, vendor and order manage enhanced services, such as order confirmation, con- ment and inventories. signment documentation and forwarding procedures that meet the industry’s hygiene, temperature and www.panalpina.com/retail pressure requirements through the entire supply chain.

www.panalpina.com/healthcare WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 50 Panalpina Annual Report 2007 Customer Groups

Oil and Gas Industrial Projects

With over four decades’ experience in the oil and gas Based on its worldwide organization and its air and industry, Panalpina is today’s global market leader in ocean freight transportation capabilities, Panalpina supply chain solutions for this sector. offers integrated turn-key project forwarding and logistics management services to various industries The transportation needs of the oil and gas industry on a global scale. require highly complex solutions and specialist skills. Based on its leading market share and solid customer The construction of industrial plants and large infra- relationships, its 40 years’ track record and reputa- structure projects as well as the manufacturing of tion as well as its sector capabilities (e.g. specialist overdimensional equipment and modules may present engineers), Panalpina is in a uniquely strong position very challenging and complex transport logistics globally to provide freight forwarding services for problems, often involving the transportation of very this industry. In 2005, the Group has further strength- heavy and oversized loads. ened its position through two bolt-on acquisitions Panalpina’s dedicated project competence center in Singapore and Norway. Thus, Panalpina is promi- Panprojects is based in Bremen (Germany) and nently present in all the important centers of this employs some 280 specialists at 34 strategic loca- sector (Houston, Aberdeen, Dubai and Singapore). tions around the world. They develop transportation Panalpina’s oil and gas offering is managed through solutions that are tailor-made for each project and a global industry-focused structure via its dedicated allow fast and secure shipment of plant parts as well competence center. The Group’s range of services is as bulky and oversized goods used in a great variety predominantly covering the upstream, i. e. explora- of projects. tion-related activities. These high-quality, safe, and Panprojects provides its services to various engineer- environmentally responsible services go well beyond ing procurement and construction companies. It also traditional freight movement and include complex specializes in serving the mining industry and their supply chain solutions as required by customers serv- suppliers on mining emplacements and extensions. ing the industry. To the power and energy sector, Panprojects provides The continuously high level of oil prices, geopolitical solutions for the supply of large-scale power plants constraints, new technologies and rising concession and wind parks. Moreover, it offers its services to mis- costs have led many oil companies to decide on cellaneous manufacturers and suppliers of other enormous long-term investments and commitments, industrial plants, heavy and over-dimensional equip- which positively impacts Panalpina’s growth oppor- ment and modules. tunities in the oil and gas sector. The management believes that further growth opportunities exist in the www.panalpina.com/projects relatively untapped markets such as Russia, Central Asia, and North Africa, where Panalpina has already established its presence in order to capitalize on these developments.

www.panalpina.com/oil WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 51 Sustainable Growth

For Panalpina, sustainability is a prerequisite for entre preneurial achievement. Beyond this, the Group is determined to contribute towards a global transportation industry that is aware of its responsibilities. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 52 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 53 Sustainable Growth

Sustainable growth as corporate goal

The economies of the world’s different regions are Like globalization itself, the international forwarding becoming increasingly networked. With raw materi- sector that is so closely bound up with it has many als, components and finished products shipped different facets. Panalpina is therefore determined to across the globe, the constituent parts of many every contribute towards a global transportation industry day commodities and consumer goods hail from that is aware of its responsibilities. This is why the some of the most far-flung places on earth. Although Group attaches high priority to an open and respect- globalization is sometimes perceived as a social ful dialogue with all stakeholders who influence its and ecological burden, it can also be seen as a major business success and who themselves are immedi- step towards a form of international co-operation ately affected by Panalpina’s activities – above all its that enables the people of all nations to capitalize on customers, staff and business partners, as well as their particular strengths and jointly benefit from the the neighbors of all company sites. These individuals wealth created. are the key addressees of large parts of this annual report and, in particular, this section on sustainable growth.

Turning challenges into opportunities

Sustainability is an issue that touches upon a wide of our strategy and our new corporate culture and will range of areas, including customer service, quality con- be instrumental in helping us to achieve our aim to sciousness, healthcare, environmental protection or promote compliance as one of our key competitive internal and external social responsibility. Particularly in strengths. the forwarding sector with its close ties to the ongoing Moreover, especially in the forwarding sector, a pro- globalization process, companies are being confronted gressive tightening of performance and transparency by growing challenges and demands. At Panalpina, we requirements is on the cards, not least with regard to see this as an opportunity rather than a danger. Indeed, ecological issues. Our goal here is to attain a leadership the company’s sustainability credentials – underlined position in the long-run. This is why we intend to sup- by its focus on the technical and social competencies of plement the ongoing ecological measures systematically its personnel and a corporate culture that is not just implemented by Panalpina over the years with a clearer an empty mantra but an active, palpable commitment – analysis of our Group-wide environmental performance. can give it a clear edge in the market. Here too, our proactive stance is inspired by the com- No global player with a world-spanning network of sub- pany motto, “A Passion for Solutions”, that underlies our sidiaries and subcontractors will be able to sidestep daily practice. the issues surrounding competition law, corruption prevention and compliance in general. At Panalpina, effec- Monika Ribar tive compliance measures represent a key cornerstone Chief Executive Officer WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 54 Panalpina Annual Report 2007 Sustainable Growth

Quality, security and HSE: Integral thinking, sustainable action

The Group’s activities are driven by To check the quality of the provided services, qualitative, safety-related and environ- Panalpina conducts regular surveys among its customers. These surveys allow a quantified mental principles that best promote assessment of predefined performance indicators the Company’s long-term business (e.g. personal supervision, response time, con- success in the most comprehensive way tract handling, invoicing and a host of other criteria). possible. For Panalpina, sustainability Wherever possible, the results serve as direct input for the optimization of processes and services. is a prerequisite for entrepreneurial In the year under review, some 400 key clients were achievement. surveyed in France, the United Kingdom, Ireland, Russia, the Middle East and the Philippines. While

the findings confirm the generally high degree of As Panalpina’s executives and operational staff know satisfaction among customers and the positive image only too well, conscientious handling of the custom- of Panalpina, some scope for improvement still ers’ goods and of the resources employed is a key exists in individual areas. prerequisite for long-term commercial success. This is why the Group gears its organizational and pro 2007 saw a further flurry of awards as clients from cedural structures – in all aspects of quality, safety, all continents continued to honor the exceptional health and environmental protection – to sustain- quality of Panalpina’s services. The Group views the ability criteria as far reaching as possible. ever-rising number of such accolades as a gratifying testament to the tireless efforts put into improving Quality is customer service the standard of its services. Satisfied customers are the outcome of operational Major quality awards from clients and trade media excellence in all areas of service provision. As a control instrument, Panalpina’s quality system is therefore of paramount importance in that it allows the 2007 13 constant monitoring and fine-tuning of the Group’s 2006 10 services in matters of process security and efficiency. 2005 5 Any necessary adjustments are made in line with the latest industrial and safety standards as well as the permanently changing global market conditions. Pro-active approach in security Panalpina documents all uniform Group-wide quality standards in its Integrated Management System (IMS), Panalpina continues to make investments in security which contains detailed descriptions of the organi and thereby further establishing itself as an industry zational and operational aspects of business. These leader in transport and supply chain management targets and guidelines, primarily tailored to the needs solutions. In 2007, the Group expanded its security of the customers, can be accessed worldwide by organization by introducing a new regional security all staff members via intranet. The IMS also forms the head function for the Africa and Middle East region basis for Panalpina’s certification to the latest ISO while increasing its focus on risk mitigation strategies. standards. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 55 Sustainable Growth

The security management team is comprised of five In 2007, Panalpina continued to receive outstanding regional heads of security and a corporate head officer feedback from its most important critics – its cus- managing strategy and policy development. This team tomers. The Group’s hi-tech customers especially of professional managers, with vast experience in applaud the security efforts made to address supply the areas of transportation security, regulatory devel- chain analysis and to cooperate with their security opment, claims management and law enforcement, organizations to effectively ensure the safe and also has military and industry-related know-how, which secure delivery of their product in a global environ- makes it well-qualified to protect the goods entrusted ment with an ever increasing risk. to Panalpina. This Global Security Committee forms the basis for sound security management by bringing Raising health and safety awareness together global experience, knowledge, best practices Panalpina’s HSE policy enshrines a set of principles and a pro-active attitude and is strongly supported governing health protection, safety at work and by the Group’s Executive Board. eco-friendly practice. These help to ensure the respon sible conduct of everyday business by company employees and therefore minimize the risks for the Group. Panalpina bases its integral HSE management system on ISO 14001 and OHSAS 18001, and is progressively expanding the scope of certification. 2007 saw the integration of the Benelux countries and Gabon, which will be joined by further countries, notably Germany, Norway and India, in 2008. This will bring the Group closer to its target of achieving certification for all its global organizations. In 2007, the worldwide headcount of HSE managers and offi- cers ran to 65. Thanks to the energetic support of the Chief Operations Officer, a first-ever meeting in Paris of the global HSE team allowed an in-depth round-table discussion of strategic HSE issues. The Managing from a security perspective is an ever ongoing refinements also reflect the internal HSE increasing contest. Among the security procedures audits, performed at least once a year by a growing which Panalpina regularly performs are, for instance; circle of trained auditors, and are supplemented global security risk assessments, warehouse audits by on-site inspections, which in 2007 numbered 511 and security awareness training. In general, Panalpina’s (up from 407 in the previous year). integrated product and service policy means the inclusion of environmental, safety and health issues The awareness-raising programs provided for all in all processes along the value chain, from the employees are a key element in Panalpina’s work- development of product concepts all the way to dis- place health promotion strategy. Including inter- posal or recycling. In recent years, new government views, surveys and workshops, they supply valuable regulations and programs designed to protect national feedback for future planning. The HSE campaigns, and international interest have continued to develop. implemented worldwide, focus on issues, such as Private initiatives from industry groups likewise con- safe driving, dangerous goods handling and accident tinue to emerge and challenge the transport and prevention etc. In 2007, as in the previous year, the logistics industry landscape. Yet the Group continues Panalpina Group had no fatal accidents to report. to work and perform well within this structure. In the The total number of accidents in the Group’s certified year under review, Panalpina has been recognized areas stood at 50 (previous year: 51), while the vol- for its pro-active work in China and the United States ume of first-aid cases dropped significantly. As part during supply chain audits by government officials. of a new Behavioral Safety Program, employees are encouraged to report near misses, i. e. events Panalpina continues to participate and enjoy positive which might have lead to an accident. In 2007 a relations with Customs Trade Partnership against total of 72 of such incidents were reported. At 11.2 Terrorism (C-TPAT), Business Alliance for Secure Com- (previous year: 10.0), the overall coefficient of days merce (BASC), US Transportation Security Adminis- lost through occupational accidents and illness (days tration (TSA) and other industry groups such as the lost x 200,000 / total working hours) in the Group’s Security Committee of Freight Forward International certified areas has remained relatively static at a low (FFI). The group is actively pursuing Authorized level. Economic Operator (AEO) certification in Europe and Secure Trade Partnership (STP) in Singapore. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 56 Panalpina Annual Report 2007 Sustainable Growth

The haulage subcontractors are, as far as possible, The Eco-Consumption scheme brings together all obliged to comply with Panalpina’s stringent HSE measures aimed at minmizing environmental impacts policy, through signature and implementation of the in office and warehouse buildings. Here, Panalpina Company’s HSE Minimum Requirements alongside can use its Environmental Management System, the Service Level Agreement. Any HSE breaches by ISO 14001-certified in many countries, to monitor the subcontractors are identified with the help of an associated measures. In 2007, power consumption efficient monitoring system, analyzed for the purpose (in the regions Benelux, UK / Ireland, Russia, Turkey, of improving the system and penalties imposed Central Asia and West Africa) totaled 4,145 MWh, where appropriate. The extended monitoring system which already includes the success of various energy- launched in 2007 helped to uncover some 42 cases conservation measures. In the same regions the which caused Panalpina to issue corrective actions total fuel consumption by company vehicles was to its sub-contractors to improve their HSE standards. 4,197,000 liters. The water consumption in 2007 (in UK / Ireland,Turkey, Central Asia and West Africa) Wide-ranging environmental program totaled 47,900 m3. The monitoring regime recorded 20 spillages (previous year: 15), none of which, Consistent with its HSE policy, Panalpina is constantly however, were classed as significant. As part of the in search of solutions, for both its service portfolio HSE programs, all staff members receive informa- and its internal processes, to maximize environmental tion on eco-efficient, energy-saving management of efficiency and minimize resource consumption. In resources. the scope of its Eco-Transport scheme, the Group promotes environmentally efficient logistics and distribution services as part of its air freight, ocean freight and road haulage operations. The focus is on three eco-friendly concepts applicable to both subcontractors and the company’s own logistics systems: • Cargo consolidation: efficient cargo handling through streamlined operation of warehouses and distribution centers, optimized utilization of container and route capacities, also through collaboration with other logistics providers. • Modal shift: multimodal transportation aimed at delivering economical, energy-efficient solutions for clients. 2007, for instance, witnessed the introduc tion of a new rail-air concept for shipments from China. As a low-cost, energy-efficient alternative to www.panalpina.com/quality an air-only service, a combination of train and aircraft transport is offered. Consignments from the www.panalpina.com/security Beijing and Shanghai regions are first moved by rail www.panalpina.com/hse to Ürümqi, then carried by air to destinations in Europe, Central Asia and Africa. • Haz-Mat handling: minimization of risks posed by dangerous goods shipments and compliance with relevant international regulations through comprehensive management measures in collaboration with the carriers. Panalpina also operates a waste management system conforming with national laws and guidelines and geared to its customers’ needs. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 57 Sustainable Growth

Employees: 15,301 good reasons for the Group’s sustained success

Managing highly complex logistics Diversity needs equality of opportunity chains and forwarding all kinds of When recruiting to fill vacancies, Panalpina’s sole aim goods around the globe without a hitch is to choose the candidate best qualified for the job. requires well trained, conscientious This guarantees equality of opportunity and results in a naturally diverse workforce. Panalpina is far from and motivated staff in every area of the conforming to the stereotype of a company in a male- Company. At Panalpina 15,301 people dominated sector: women account for 46% (previous work together throughout the world, year 45%) of its employees and fill 18% of the top demonstrating professionalism that lies 310 management positions, while the Group also has the first female CEO of any global forwarding and at the heart of the Group’s first-class logistics company. Half of top managers (Executive reputation. Board, Regional CEOs and Managing Directors) are non-Swiss, with 14 different nationalities represented

at this level – figures which demonstrate the wide The corporate slogan “A passion for solutions” sums international base from which the management is up that special quality possessed by Panalpina drawn. Nearly 50% of employees have been with employees: their passionate desire to find the opti- the company for more than five years. Four fifths of mal solution for every forwarding or logistics chal- the workforce are between 25 and 45 years old, lenge, no matter how demanding, and implement it and the remainder are equally divided between older successfully. and younger age groups. “Asset-light” needs brainpower Employees Number Women Men In Panalpina’s business model, the services offered are largely carried out using purchased freight capacity Europe / Africa / Middle East / CIS 7,990 39% 61% and rented infrastructure. Selecting, coordinating and North America 2,378 54% 46% supervising a multitude of subcontractors through- Central and South America 1,958 48% 52% out the world is a very demanding task and requires expertise, creativity and initiative at all levels of the Asia / Pacific 2,975 55% 45% Company. Panalpina staff has the necessary skills to Total 15,301 46% 54% do this, and their wide-ranging abilities underpin the Group’s solid, long-lasting relationships with its customers. They live operational excellence in their day-to-day business activities, thus making a decisive contribution to corporate development. The number of the employees grew by 7% to 15,301 during the reporting year; gross profit per head rose once again to reach CHF 122,581. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 58 Panalpina Annual Report 2007 Sustainable Growth

Nationalities in top management Achievement needs incentives Panalpina rewards outstanding achievement appro- Switzerland, 50% priately. Its competitive salary structure is one reason why the Group is seen as an attractive employer Germany, 14% within the sector. Performance incentives based on individually agreed targets contribute to the success not only of the entire company, but also of the region USA, 6% and the business unit concerned. The share partici- France, 6% pation scheme, which was on offer for the third time United Kingdom, 4% Sweden, 4% during the year under review, was once again greeted with great interest, and the number of managers China, Columbia, Denmark, Italy, Netherlands, Panama, South Africa, Spain, per 2% able to join it was again extended.

Competence needs training In September 2007, Alastair Robertson (46) took over as Head of Human Resources at Panalpina, bringing many years of experience in a variety of fields – personnel management, organizational and corporate development, training and leadership in international business environments. His medium- term strategic objectives are to boost the development of talent within the Group, strengthen the leadership skills of the management team, optimize HR processes and extend the Panalpina Academy concept. The redesigned Academy aims at securing Panalpina’s long-term prosperity by aligning learning www.panalpina.com/jobs and development plans with the strategic aims of the Group.

Talent needs fostering In the year under review, (among the total of 30,745 training hours conducted within the Group) three advanced learning and development programs were offered by the Panalpina Academy. The Executive Board, Regional CEOs and 38 Managing Directors participated in a new intensive leadership and financial management program, which another 50 persons of senior management will attend during 2008. Another significant learning initiative launched in 2007 has already helped 50 Business Unit Managers and other key functional staff from non-financial departments in the Apac region to hone their practical financial skills. This program is being rolled out across all the other regions in 2008 and aims to cover another 110 personnel from non-finance functions. Finally, in the year under review, 26 of Panalpina’s clearly defined talented employees continued the curriculum of the Group’s global high-potential program, now in its very successful fourth year.

WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 59 Sustainable Growth

Information technology: Global data access through secure, unified systems

Ensuring fast, secure access to elec- High-performance logistics software tronic data is an essential task for any The existing range of IT systems that support supply global forwarding and logistics com- chain management solutions was expanded in 2007 pany. Panalpina has a rolling program in order to keep up with sector requirements in the coming years. Panalpina upgraded its legacy systems in place to safeguard its acclaimed by implementing a new, high-performance standard efficiency in this crucial area over the application from Manhattan Associates which allows long term. users to map highly complex logistics requirements in a customized way while offering the client greater

transparency and visibility. In 2005 and 2006, IT work concentrated on integrating the operational applications systems. With this New document management system stage completed, the focus switched to developing a unified central reporting environment and replacing In 2007 the decision was taken to bring in a new the old statistical system during the year under review. central document management system. The software, which will be globally introduced by 2009, will New central reporting systems make it possible to call up all forwarding documentation and correspondence online. This will ensure that The goal is to make all data used in decision-making Panalpina is able to go on rationalizing and optimiz- available online anywhere in the world. Rapid, trans- ing its processes. A new central workflow system will parent information flows underpin operational activities also support this objective. as well as customer service, and flexibility in handling statistics expands the service portfolio for customers Further consolidation of data centers and business partners. Panalpina’s tried-and-tested central communications platform will remain the hub The amalgamation of the original 70 data centers of the available applications even when the next throughout the world continued as planned in 2007, generation of software has arrived. Good progress is and has now been completed in Noram, Emea and being made in migrating the data from the existing China. In 2008, Latam and Asia / Pacific will follow, applications – a process that should be completed leaving only six data centers, all of which fulfill the in 2008. latest performance and security requirements. They will also allow a global disaster recovery plan to be Unified systems for air and ocean freight put in place, as well as enable the various IT applications to be updated more efficiently. Capacity Procurement, the Consolidation departments and the entire Operations division of Panalpina work globally with specially developed Airwarder or Seawarder applications, the new versions of which were rolled out in 2007 as planned. Panalpina has chosen a standard SAP product to replace older software that is still sometimes used when dealing with single consignments. This will be customized to the specific needs of the Air Freight and Ocean Freight segments in 2008 and launched globally in 2009. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 60 Panalpina Annual Report 2007 Sustainable Growth

Social commitment: The Panalpina Group takes the “right to sight” as a “call to act”

For the past five years, in collaboration The year in review therefore marked another major with the Swiss Red Cross, Panalpina milestone on the road to achieving the objectives of Vision 2020 in Ghana. has made substantial financial contribu tions to a long-term program to com- 2007 – another successful year bat poverty-related blindness in Ghana. Patients treated (through clinics, outreach services 97,000 and schools)

Based on its commitment to the community and its Surgeries 1,137 ethical principles, Panalpina has been contributing Patients receiving optical services 600 to the medical and social development in West Africa, Patients screened with refractive errors 3,100 a region in which the Group is active and understands the local conditions well. For the last several Active clinics/hospitals 9 decades, Panalpina has, amongst other countries People reached by volunteers (health education) 132,529 in the region, been operating in Ghana, where approximately one percent of the population is affected by Current staffing preventable blindness. Ophthalmologists 2 Instead of supporting a variety of different initiatives with minor contributions, Panalpina’s social responsi Optometrists 2 bility strategy has long been to focus its social spon- Ophthalmic nurses 18 sorship on a single sustainable project that delivers Level B staff (trained to treat minor eye ailments) 108 effective and measurable aid. Since 2003, the Group has therefore been supporting the Vision First pro- School health teachers 325 gram, a long-term initiative to fight preventable pov- Active Volunteers 551 erty-related blindness in Ghana. This program is part of the Vision 2020 – Right to Sight global commitment, through which the World Health Organization (WHO) aims to eradicate poverty-related eye diseases The Vision First program is a partnership between throughout the world by the year 2020. Conducted Ghana’s Ministry of Health – by the Ghana Health Service as well as the Ghanaian through its implementing and Swiss Red Cross societies, the program has the arm, the Ghana Health Ser- long-term objective of providing full, effective basic vice – and the Christian Health Association of Ghana, the Ghana Red Cross Society and the Swiss Red Cross in eye eye care at regional and local levels as part of Ghana’s care prevention and elimination of blindness in the Brong Ahafo, healthcare system. Northern and Upper West Regions of Ghana. After ten years of service to the Brong Ahafo Region the program has phased Panalpina’s yearly contribution – a substantial part out in 2007 in order to increase its support to the northern of the program’s total financial resources – is helping sector of the country, where the very poor in society live. The to achieve the ambitious objective of halving, by 2010, Vision First program aims at complementing the efforts of the Government of Ghana to realize the objectives set out in the number of patients suffering from eye illnesses its 2004 to 2008 National Eye Health Programme Framework that may lead to blindness. Panalpina’s local manage- Imagine Ghana Free of Avoidable Blindness. ment in Ghana is also committed to ensuring that www.vision-1st.org the program is sustainable and successful, by conducting visits to the clinics a few times a year and www.panalpina.com/society observing first-hand the progress that has been made. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 61 Sustainable Growth

Corporate culture: Committed to high ethical standards

The structure, processes and internal suppliers, competitors, authorities and the general company codes of the Panalpina public, anyone representing the company in whatever capacity is bound by the highest ethical standards. Group reflect the commitment of man- The underlying rules and standards, some put in place agement and workforce to conduct years ago, have been successively updated in line business according to the highest ethi- with changing needs. Since 2006, these have been cal standards in their everyday work. enshrined in the Group-wide Code of Business Conduct. Through the strict enforcement of these These principles are incorporated in guidelines, its global clientele can rest assured Panalpina’s Code of Business Conduct, that Panalpina is conducting its business activities which sets out key rules and standards irreproachably in all aspects and at all times. that are binding on all employees.

The foundation for Panalpina’s decades-long business success is laid through both the personal contribution of every single employee and the day- to-day collaboration between a wide variety of pro- fessionals and experts around the globe. Panalpina thus strives to cultivate, at each of its sites, a har monious, attractive working environment in which each individual feels personally responsible for and is fully committed to enhancing the Company’s success and reputation. “Given its global reach, Panalpina, like many other A corporate culture based on respect world players, inevitably operates also in countries whose economic framework, in terms of local legis- The Group attaches high priority to developing a corporate culture that ensures full respect for the lation, organizational structures and conditions, rights and dignity of each staff member, regardless can be problematic. In such countries, it can be of nationality, lifestyle or faith. Panalpina supports a challenge to meet high western anti-corruption the principles outlined in the UN Universal Declaration standards, for instance. We are confident that our of Human Rights and commits itself to the obser- Code of Business Conduct and our reinforced com- vance of fundamental labor and environmental stan- pliance organization can vouch for the permanently dards (including the prohibition of child and forced trouble-free conduct of business activities even in labor). The exercise of respect and fairness, however, is not confined to the internal corporate environ- such difficult environments.” ment. In daily global interactions with customers, Markus Heyer, Head of Corporate Compliance WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 62 Panalpina Annual Report 2007 Sustainable Growth

Wide-ranging, up-to-date rules of conduct The Panalpina Group is one of the few companies in the sector to have an openly accessible, globally implemented set of rules (www.panalpina.com/ culture) aimed at ensuring that the conduct of each business unit and employee is at all times consistent with the prescribed ethical standards and with all relevant legislation and provisions. The Code of Busi- ness Conduct includes, among other things, binding rules for the promotion of fair competition, for the handling of conflicts of interest, for the prevention of The Basel Institute on Governance is an independent insider trading, corruption, discrimination and mob- and non-profit think tank conducting research and bing at the workplace, as well as health and safety offering policy advice and capacity building support regulations. Based on a mission statement issued by in public, global and corporate governance/com Panalpina’s Board of Directors and Executive Board, pliance. The Institute combines scientific research the up-to-date standards promote transparency with practical experience and seeks to engage part- within the company and risk-awareness among the ners from all concerned stakeholder groups. Based workforce. A central whistle-blowing scheme allows any staff member to report suspected infringements. in Switzerland and associated with the University Isolated reports received by the Company during of Basel, it brings together internationally recognized 2007 did not reveal any improper conduct. In the year academics as well as practitioners with long-stand- under review, disciplinary actions as a consequence ing experience in the matters at stake. of violations of the Code of Business Conduct have www.baselgovernance.org been taken in isolated cases, even leading up to one dismissal.

Development of compliance organization www.panalpina.com/culture Panalpina has recognized the importance of regularly updating its Code of Business Conduct by adding new provisions and fleshing out some of the details. In the year under review, the active enforcement of these rules and standards was supported by an intensive global training program for all employees of the Group and through increased communication within the company. These awareness-raising measures were accompanied by a development of the Group’s global compliance programs and organization with the aim of creating new structures in keeping with state-of-the-art standards in this field. Under the super vision of the Basel Institute on Governance, an independent and internationally distinguished authority on compliance, the existing regional structures were brought together in a new global unit, under the freshly created function of a Corporate Compliance Officer reporting directly to Panalpina CEO Monika Ribar. With Markus Heyer (43), previous Head of Business Processes and Quality, the new position was filled by an undisputed expert, who in 23 years has gained an intimate knowledge of the Group’s organization, processes and world-spanning business activities. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 63 Sustainable Growth

Global Reporting Initiative: Integrated sustainability reporting adheres to GRI

The Panalpina Annual Report 2007 In the year under review, unless otherwise noted, integrates elements of sustainability there were no major changes regarding sustainability matters in subsidiaries, leased facilities or outsourced reporting based on the guidelines operations that significantly affect comparability with developed by the Global Reporting information disclosed in the previous year’s report. In Initiative, a multi-stakeholder, non-profit addition, no reporting changes were made that sig- organization. nificantly hinder comparability regarding GRI-related topics. The data measurements for disclosed GRI indicators follow GRI guidelines as far as the data Panalpina considers sustainability an integral part availability allowed. of successful, long-term-focused corporate management. In order to inform shareholders, customers, Application Level C confirmed by GRI employees and other stakeholders on the progress in This Annual Report, together with the Addendum this arena in a transparent manner, the Group has GRI-Sustainability Reporting published on the Internet voluntarily integrated the GRI guidelines (in their cur- (www.panalpina.com/gri), fulfills the requirements rent G3 version) for the first time in its Annual Report of the most recent GRI G3 reporting guidelines at 2007. The main goal of the Global Reporting Initiative Application Level C. This was checked and confirmed (GRI) is to create a framework for systematic, trans- by GRI. parent, and comparable sustainability reporting for corporations.

Notes on this report This Annual Report covers the business year 2007, although it makes certain comparisons to previous years in order to illustrate developments at the Panalpina Group and its business environment in general. Unless explicitly noted otherwise, the information given, including the performance indicators disclosed in adherence with the GRI guidelines, refers to the year 2007 and to the entire Panalpina Group. The reported indicators are addressed to the extent allowed by the format of the Panalpina Annual Report and by the availability of data. At present, environmental data is only available for parts of the Company. In those cases, the respective scope of data presented is dealt with explicitly in this report. Panalpina intends to develop and report a more consistent overview on this for the whole Group in the coming years. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 64 Panalpina Annual Report 2007 Corporate Governance and Compensation Report

Panalpina is committed to a transpar- Secondary, the business activities are subdivided into ent management structure which the following business segments: is governed by international Corporate • Air Freight Governance principles. This Corporate • Ocean Freight Governance Report complies with • Supply Chain Management (logistics and overland the revised Directive of the SWX Swiss transportation activities) Exchange and therefore serves to Supplementary information can be extracted from provide investors with key information the segmental reporting section of the Consolidated regarding Corporate Governance in Financial Statements (page 92). an accessible format. Section 5 of this 1.1.2 Listed companies within the scope of report also serves as a Compensation consolidation Report as recommended by Econo- Panalpina World Transport (Holding) Ltd. (PWT), the miesuisse in its Swiss Code of Best ultimate holding company of the Panalpina Group, is the only listed company within the scope of con- Practice for Corporate Governance solidation. PWT has its registered office in Basel, guidelines. Switzerland. The PWT shares are exclusively listed on the SWX Swiss Exchange. The market capitaliza- 1 Group structure and shareholders tion on the closing date amounted to CHF 4,907 million (25,000,000 registered shares at CHF 196.30 1.1 Group structure per share). On the closing date 1.1.1 Operational group structure Panalpina’s business activities are primarily regionally • The free float consisted of 14,355,000 registered oriented. The operating structure is divided into the shares (= 57.42% of the share capital) and thereof following four regional units: • PWT held treasury stock consisting of 540,341 • Europe / Africa / Middle East / CIS registered shares (= 2.16% of the share capital). These shares were purchased as a result of PWT’s • Asia / Pacific share buyback program (referenced in section 2.3) • North America (USA and Canada) respectively its share and option program (referenced in section 5.1). • Central and South America The PWT shares are traded under Valor no. 216808 / For strategic and organizational reasons the region ISIN CH0002168083, symbol PWTN. Europe / Africa / Middle East / CIS has been divided into two sub-regions with Europe on the one side and 1.1.3 Non-listed companies within the scope Africa / Middle East / CIS on the other side. A similar of consolidation regional split also exists in Asia / Pacific as China / The main subsidiaries and associated companies are Taiwan forms an independent sub-region. Each of disclosed in the Consolidated Financial Statements the aforementioned regions is managed by its own (page 121) itemized by registered office, nominal cap- Regional CEO. ital, equity interest in percent, investment and method of consolidation. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 65 Corporate Governance

1.2 Significant shareholders The Board of Directors is authorized to exclude the The Ernst Göhner Foundation, Zug, Switzerland, is preemptive rights of shareholders and to convey the main shareholder of PWT, with an equity participa them to third parties, provided that such new shares tion of 42.58%. are to be used for the take-over of entire enterprises, divisions or assets of enterprises or participations During the reporting year two disclosure notifications or for the financing of such transactions. The Board were made in the Swiss Commercial Gazette and of Directors has not made use of this authorization in media releases in accordance with statutory regula- as yet. tions: On 15 October 2007 it was announced that the funds Viking Global Equities LP, Viking Global No decision has been made regarding the creation Equities II LP and VGE III Portfolio Ltd. (Greenwich, of conditional capital. Connecticut, USA) jointly hold 1,302,000 shares, equivalent to 5.2% of the share capital, of PWT. 2.3 Change in capital over the past three On 10 December 2007 it was announced that Lone years Cypress Ltd., Lone Spruce L.P., Lone Balsam L.P., With the exception of the share split introduced at Lone Sequoia L.P., Lone Kauri Ltd., Lone Cascade the IPO, there has been no change in the share L.P., Lone Monterey Master Fund Ltd. and Lone capital structure during the years 2005 to 2007. Sierra L.P. (Greenwich, Connecticut, USA) jointly hold 1,276,076 nominal shares, equivalent to 5.1% of the In August 2007 the Board of Directors initiated a share capital of PWT. share buyback program. Under this program shares of up to a maximum of 5% of the share capital In November 2007 Panalpina notified all PWT inves- (maximum 1,250,000 shares) shall be repurchased. tors with major shareholdings of the revised disclo- The Board of Directors intends to submit an sure obligations effective 1 December 2007 and has application to the Shareholders’ Meeting in 2009 posted the respective disclosure rules on its website. to reduce the share capital accordingly. Between the closing and the publication date both the shareholdings of the Bank of New York, Mellon 2.4 Shares and participation certificates Corporation; Wilmington, Delaware, USA (respectively On the closing date, 25,000,000 fully paid-in PWT Newton Investment Management Ltd and The Bank registered shares with a nominal value of CHF 2.00 of New York Mellon Asset Management) represent- each were issued. On this date, no participation cer- ing 882,649 shares equivalent to 3.53% of the share tificates were issued. capital and The Children’s Investment Master Fund, Grand Cayman, Cayman Islands (respectively 2.5 Dividend-right certificates The Children’s Investment Fund Management (UK) LLP, UK) representing 1,137,173 shares equivalent On the closing date no dividend-right certificates to 4.55% of the share capital were published. had been issued.

1.3 Cross-shareholdings 2.6 Limitations on transferability and nominee registrations Cross-shareholding between PWT and any other company does not exist. 2.6.1 Limitations on transferability for each share category; indication of statutory group clauses and rules for granting exceptions 2 Capital structure Acquirers of PWT shares are entered into the share register as shareholders with voting rights upon 2.1 Capital providing proof of the acquisition of the shares and On the closing date, the ordinary share capital of PWT on provision that they expressly declare to hold the amounted to CHF 50,000,000 and is divided into shares in their own name and for their own account. 25,000,000 registered shares, with a nominal value The Articles of PWT specify that any shareholder may of CHF 2.00 each. exercise voting rights to a maximum of 5% of the total number of shares recorded in the commercial 2.2 Authorized and conditional share capital register. This limitation for registration in the share The extraordinary Shareholders’ Meeting of PWT register shall also apply to persons who hold shares held on 23 August 2005 agreed with the Board of fully or in part through nominees within the meaning Directors’ proposal to create an authorized share of the Articles. Furthermore, this limitation for regis- capital up to a maximum aggregate amount of tration in the share register also applies to registered CHF 6,000,000 by issuing a maximum of 3,000,000 shares which are acquired through the exercising registered shares with a nominal value of CHF 2.00 of preemptive rights, warrants and conversion rights. each. At the Shareholders’ Meeting of 15 May 2007 The Board of Directors is empowered to allow exemp the authorized share capital was renewed at the tions from the limitation for registration in the share same value until 15 May 2009. register in particular cases. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 66 Panalpina Annual Report 2007 Corporate Governance

The Articles make provision for group clauses. 3 Board of Directors The limitations on transferability do not apply to the 3.1 Members of the Board of Directors shares held by the Ernst Göhner Foundation because it held PWT shares prior to the implementa- On the closing date the Board was composed of six tion of the limitations (so-called grandfathering). persons. Three members of the Board of Directors (Rudolf Hug, 2.6.2 Reasons for granting exceptions in the year Wilfried Rutz and Roger Schmid) are also members under review of the Board of Trustees (Stiftungsrat) of PWT’s main No exceptions were granted during the reporting shareholder, the Ernst Göhner Foundation. The bio year. graphies of the members are as follows:

2.6.3 Permissibility of nominee registrations; Rudolf W. Hug, Chairman. Swiss citizen. Born in indication of any percent clauses and registration 1944. Elected 2005 (until 2008). conditions Rudolf W. Hug holds a PhD in law from the University The Articles of PWT specify that the Board of Direc- of Zurich and an MBA from INSEAD, Fontainebleau tors may register nominees with voting rights in (France). In 1985, he participated in the Executive the share register up to a maximum of 2% of the Program of the Graduate School of Business at Stan- share capital recorded in the commercial register. ford University. From 1977 to 1997, he worked in Nominees are persons who do not expressly declare several positions for Schweizerische Kreditanstalt in their application that they hold the shares for (today Credit Suisse). During the period from 1987 their own account and with whom the company has until 1997, he ran the international division and served entered into an agreement to this effect. as member of the executive board of Credit Suisse The Board of Directors is empowered to register nomi and Credit Suisse First Boston. Since 1998, Rudolf nees with voting rights exceeding 2% of the share W. Hug has been active as an independent mana capital recorded in the commercial register as long as gement consultant. Rudolf W. Hug was appointed the respective nominees inform PWT of the names, Chairman of the Board of Directors on May 15, 2007 addresses, nationalities (registered office in the case following the retirement of his predecessor. of legal entities) and the shareholdings of those per- Wilfried Rutz, Vice Chairman. Swiss citizen. Born in sons for whose account they hold 2% or more of the 1939. Elected 2007 (until 2010). share capital recorded in the commercial register. Wilfried Rutz holds a university degree in economics The Articles make provision for group clauses. as well as a PhD from the University of St. Gall. From 1992 until 2004 he acted as CEO of the Debrunner 2.6.4 Procedure and conditions for canceling Koenig Group where he still is a member of its Board statutory privileges and limitations on transferability of Directors. He has been a member of the board of A resolution of the General Shareholders Meeting of several Swiss companies in the private and the pub- PWT on which at least two-thirds of the voting shares lic sector. Since 2003, he has been a member of the represented agree is required for any abolition or Board of Directors of PWT and in 2005 he was change of the provisions relating to transfer limitations. elected Vice Chairman. Günther Casjens, member of the Board of Directors. 2.7 Convertible bonds and warrants / options German citizen. Born in 1950. Elected 2005 (until There were no convertible bonds outstanding on the 2008). closing date. The only issued options relate to the share and option participation program for members Günther Casjens is a trained forwarding and shipping of the Board of Directors, the Executive Board and merchant. From 1974 until 2004 he held several further 137 senior managers of Panalpina. For further positions at Hapag-Lloyd, in 1983 as deputy director particulars please refer to section 5.1. of Europe / Far East Services, in 1987 as managing director North America Services and in 1988 as managing director North and South America Services. In 1990, Günther Casjens became deputy member of the executive board of Hapag-Lloyd and from 1991 until 2004 he was member of the executive board of Hapag-Lloyd. In 2004, Günther Casjens became managing partner and chief executive officer of Nord capital Holding GmbH & Cie KG. Yuichi Ishimaru, member of the Board of Directors. Japanese citizen. Born in 1939. Elected 2005 (until 2008). WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 67 Corporate Governance

Yuichi Ishimaru holds a bachelor degree in eco Günther Casjens, member of the advisory board at nomics from Keio University. He has worked for the Deutsche Bank AG, Frankfurt, member of the Marubeni Corporation since 1963. From 1995 until advisory board at Deutsche Schiffsbank, Bremen, 1998, Yuichi Ishimaru has been member of the board corporate adviser of Temasek Group, Singapore, of directors of Marubeni Corporation and served as member of the supervisory board at Equitrust AG, COO for Marubeni America Corporation, New York. Hamburg. From 1998 until 2000, Yuichi Ishimaru served as Roger Schmid, member of the board of trustees and CEO for Europe and Africa for Marubeni Europe PLC, executive director of the Ernst Göhner Foundation, London. Since 2001, he has also held a position as Zug, member of the board of directors of Verwaltungs- executive vice president of Marubeni Corporation and und Privatbank (Schweiz) AG, Zurich and AIG Private since 2003 he has been acting as special advisor to Equity Ltd., Zug. Marubeni Corporation. Other than these, the members of the Board of Glen R. Pringle, member of the board of Directors. Directors do not hold other material offices or American citizen. Born in 1947. Elected 2005 (until do not carry out any other principal activities that 2008). affect the Group. Glen R. Pringle holds a Bachelor of Arts degree from the University of Alabama (College of Arts and 3.4 Elections and terms of office Sciences). After his studies Glen R. Pringle worked as state director of sales for CENCO Instrument Com 3.4.1 Principles of the election procedure and pany. Thereafter he worked at WVMI / WBIL Radio limitations on the terms of office Station as a manager of sales. As from 1986, Glen The Articles of PWT do not make provision for the R. Pringle held the position of development director general renewal of office for the Board of Directors. for the Alabama Development Office until 1995, The period of office shall be individually determined when he became the development director of Retire- for each member at the time of his election. The ment Systems of Alabama. members of the Board of Directors are elected at the General Meeting of Shareholders with a 3-year Roger Schmid, member of the Board of Directors. period of office. They may be reelected at any time. Swiss citizen. Born in 1959. Elected 2007 (until 2010). The Organizational Regulations of PWT specify an Roger Schmid holds a university degree in law as well age limit of 72 years for the members of the Board as a PhD in law from the University of Zurich. From of Directors. 1991 until 1995, he was legal counsel and director at Bank Leu, a subsidiary of Credit Suisse. Since 2003, 3.4.2 The first election and remaining term of he has been a member of the Board of Directors. office for each member of the Board of Directors Roger Schmid works as an executive director of the The timing of the first election and the remaining term Ernst Göhner Foundation. of office for each member of the Board of Directors is specified under section 3.1. All the members of the Board, are non-executive members and do not actively perform any managerial functions at PWT or any of the Group companies. 3.5 Internal organizational structure They have also not held any executive positions within The Board of Directors is responsible for the ultimate the past three years prior to this reporting year. management of the company and monitoring of the Executive Board. It represents the company exter- None of the members of the Board of Directors has nally and is responsible for all matters which have not a substantial business relationship with PWT or any been transferred to another executive body of the of its group companies. Company by the Swiss Code of Obligations respectively the Articles. In line with the Articles, the Board 3.2 Other activities and vested interests of Directors has established Organizational Regu Rudolf W. Hug, Member of the board of trustees lations which transfer certain management responsi- (Stiftungsrat) of the Ernst Göhner Foundation, Zug bilities to the Executive Board. and member of the board of directors of the following companies: Swiss Post, Berne; Orell Füssli 3.5.1 Allocation of tasks within the Holding AG, Zurich; Micronas Semiconductor Hold- Board of Directors ing AG, Zurich; Deutsche Bank (Schweiz) AG, The Board of Directors self-constitutes and appoints Geneva; Allreal Holding AG, Baar. its Chairman and Vice Chairman. The Chairman (in his absence the Vice Chairman) directly supervises Wilfried Rutz, Chairman of the board of trustees the business affairs and activities of the Executive (Stiftungsrat) of the Ernst Göhner Foundation, Zug, Board and is entitled to regularly attend Executive member of the board of directors of Debrunner Koenig Board meetings. The Internal Auditor as well as the Holding AG, St. Gall, and Alba Management AG, Corporate Secretary, in his capacity as secretary Olten. to the Board of Directors, is directly subordinated to the Chairman of the Board of Directors. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 68 Panalpina Annual Report 2007 Corporate Governance

3.5.2 Member list, tasks and areas of responsibility was regularly represented at these meetings by the for each committee of the Board of Directors CEO, and the Corporate Secretary. Two committees exist under the Board of Directors. As a rule, both Committees meet prior to Board of The Audit Committee consists of the following mem- Directors meetings. The chairmen of the committees bers of the Board of Directors: Wilfried Rutz (Chair- inform and update the Board of Directors on the man), Günther Casjens and Roger Schmid. The Audit topics discussed and decisions taken during such Committee supports the Board of Directors with the meetings. They submit proposals for approval related supervision of the financial accounting, financial to decisions that fall within the scope of the Board reporting and the efficiency of external and internal of Directors. audit procedures including risk management. The Objectives, organization, duties and the cooperation Audit Committee reviews the consolidated annual with the Board of Directors are defined in the Terms financial statements as well as the published interim of Reference. financial statements and submits an application to the Board of Directors for approval. It regularly main- The overall responsibility of the Board of Directors is tains contact with the Group Auditor and the Internal not affected by these committees. Auditor. Based on this, it adopts the detailed reports of the Group Auditors and semi-annual reports of 3.5.3 Work methods of the Board of Directors Internal Audit. It is therefore in the position to audit and its committees the quality, effectiveness and interaction between the During the reporting year, the Board of Directors held control systems, to determine the audit priorities, to five half-day meetings and two telephone confer- introduce proposed measures and to monitor their ences. The Executive Board was represented by the implementation. The Audit Committee determines the CEO, the CFO and the Corporate Secretary at these organization of the internal audit, adopts the internal meetings. In urgent cases, telephone conferences or audit charter and approves the annual planning / scope decisions by circular may be organized for decisions of internal audit. In the field of risk management, the to be taken. Audit Committee approves the detailed and weighted At every meeting, the Executive Board updates the risk map of the Executive Board and adopts the Board of Directors on business and key financial necessary measures for risk control and risk mitiga- developments, as well as information on debtor man- tion and reports the respective outcome to the agement. On a quarterly basis, detailed consolidated Board of Directors. During the reporting year the Audit financial statements on group, regional and business Committee held seven half-day meetings. During the segment level are reported to the Board of Directors Audit Committee meetings direct discussions took in accordance with IFRS standards. The Board of place with representatives of the Group Auditors and Directors is furnished in time with an agenda, detailed Internal Audit. Representatives from the Group Audi- meeting documentation related to topics on the tors were present at five of these meetings and at agenda and minutes. two of these meetings the Internal Auditor attended. At these meetings the Executive Board was regularly represented by the CEO, the CFO and the Corporate 3.6 Definition of areas of responsibility Secretary. In line with the law and the Articles, the Board of Directors has transferred the responsibility to The Compensation & Nomination Committee consists develop and implement the group strategy, as well of the following members of the Board of Directors: as the responsibility to supervise business and Rudolf W. Hug (Chairman), Wilfried Rutz and Yuichi financial development of the Group’s subsidiaries to Ishimaru. It monitors the selection process for mem- the Executive Board. bers of the Board of Directors and the Executive Board and determines the overall remuneration and The Organizational Regulations adopted by the Board terms of employment for members of the Board of of Directors govern the cooperation between the Directors and the Executive Board as well as for highly Board of Directors, the Chairman and the Executive compensated employees. Regarding the compen Board. It contains a detailed catalogue of duties sation of the members of the Executive Board (over- and competencies which determine the financial all remuneration including target bonus), the Com- thresholds in which the Board of Directors and the mittee takes a decision subject to the final approval Executive Board can efficiently execute their daily of the Board of Directors, whereas the application business. The Organizational Regulations also outline for the compensation of the Board members is pre- the reporting duties of the Executive Board on Group pared and submitted to the Board of Directors. and Holding level. Furthermore, the Committee regularly reviews the Main responsibilities of the Board of Directors on proposed management share and option programs Group level are the determination of the business of the Group and submits proposals to the Board of strategy on the basis of the proposals of the Execu- Directors. During the reporting year, the Compensa tive Board, the approval of major Group policies tion & Nomination Committee held four meetings of and organizational structures including topics related approximately two hours each. The Executive Board to Corporate Governance and Compliance, the WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 69 Corporate Governance

approval of the annual operational and investments 4 Executive Board budgets, the approval of any extraordinary additional investment applications as well as financial plan- 4.1 Members of the Executive Board ning. Furthermore, responsibilities include decisions The biographies of the Executive Board members regarding mergers and acquisitions and major human are as follows: resources and remuneration decisions following recommendations and preparatory work of its Com- Monika Ribar, CEO, Swiss citizen. Born in 1959. pensation and Nomination Committee. Member of the Executive Board since 2000 and CEO since October 2006. 3.7 Information and control instruments Monika Ribar joined the Group in 1991. She held vis-à-vis the senior management several positions within the Group’s controlling, IT and The Executive Board informs the Board of Directors global project management departments. From 2000 of business developments in a written format on a until 2005, she held the position of the CIO (Chief monthly basis and a detailed update is given at each Information Officer) of the Group and was member of Board of Directors meeting. Elements of this report- the Executive Board. In 2005, Monika Ribar was ing include monthly financial reports, consolidated appointed as CFO of the Group and in June 2006 her quarterly regional and business segment results appointment as CEO was announced. She officially according to IFRS (with actual figures, previous years’ took over the CEO function in October 2006. Apart figures, quarter results and budget figures as well a from individual Executive Board members, the Heads comparison with the financial guidance), the reporting of Human Resources, Corporate Development and of business development in all regions and business Corporate Compliance are also directly reporting to segments (including focus and problematic organiza her. She holds a university degree in Finance and tions), the development of shipments, volumes and Controlling from the University of St. Gall. She parti tonnages, the debtors’ and creditors’ reports (includ- cipated in the Executive Program of the Graduate ing DSO / DPO) as well as the net working capital. School of Business at Stanford University, Palo Alto, Further information regarding personnel and organi- California, in 1999. zational changes, extraordinary events, analyst-, Jörg Eggenberger, Chief Operations Officer, Swiss investors- and competitors activities form part of the citizen. Born in 1961. Member of the Executive Board regular reporting. Moreover, the Board of Directors since 2000. Responsible for Air & Ocean Operations annually reviews and approves the Group’s targets (including Agent Relations, Security and Panprojects), for the individual regions and business segments Air & Ocean Procurement, Information Technology and adopts the respective report of the Executive and Business Processes & Quality. Board. Jörg Eggenberger joined Panalpina in 1977 and has The Chairman of the Board of Directors occasionally held several positions. From 1981 until 1982, he held attends Executive Board meetings and regularly a management position at Panalpina London, after receives the minutes of the Executive Board meetings. which he returned to the marketing and sales depart- The CEO and individual members of the Executive ment at the Swiss company. From 1985 until 1988, Board regularly join meetings of the Board of Directors he held another management position with Panalpina as well as meetings of its committees. Further indi- in Melbourne. In 1989, he was assigned for a man- vidual Executive Board members and other senior agement position in Taipei and in 1990 he held the executives attend specific topic discussions pertain- position of a branch manager at Panalpina Melbourne. ing to their particular field of expertise when required. From 1990 until 1991 he worked as manager Far Furthermore, specific meetings of the Board of East with Air Sea Broker (today Panalpina Air and Directors are dedicated to a detailed review of major Ocean). In 1991, he became director of the Ocean markets, business segments and the Group’s devel- Freight division at the corporate head office. In 1998, opment according to a predefined schedule. For Jörg Eggenberger became managing director of further details please refer to sections 3.5.2 and 3.5.3. the West Africa Division of Air Sea Broker. In 2000, The Audit Committee of the Board of Directors Jörg Eggenberger became a member of the Execu- monitors and assesses the activities of the Internal tive Board as Chief Operating Officer Eastern Hemi- Auditor as well as his cooperation with the Group sphere. In 2002, he was appointed Regional CEO Auditor. of the Africa / Middle East / Central Asia / CIS division The Audit Committee receives the Internal Auditor’s and later assumed responsibility for the entire EMEA half-year reports and also adopts the comprehensive region. In 2005, he was appointed COO of the Group, annual Risk Map of the Executive Board. The Audit and held this position until October 2006, when Committee approves the proposed risk control and he was appointed Chief Operations Officer and John risk mitigation measures as well as the annual plan- Klompers was announced the Chief Marketing & ning / scope of the internal audit, which is also based Sales Officer. Jörg Eggenberger is a trained forward- on the Risk Map. For further detail please refer to ing merchant. In 2004, he participated in a senior section 3.5.2. management course at Columbia University, New York. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 70 Panalpina Annual Report 2007 Corporate Governance

Christoph Hess, General Counsel & Corporate Secre 4.2 Other activities and vested interests tary, Swiss citizen. Born in 1955. Member of the Monika Ribar, member of the board of directors Executive Board since October 2006. Responsible for of Bank Julius Bär Ltd., Zurich. Member of the board Corporate Legal Services, Insurance and Corporate of directors of Logitech International SA, Romanel / Communications. Morges. Christoph Hess joined the Group’s head office in 1994 John Klompers, member of the board of directors as General Counsel and Secretary of the Board of of Luxair SA, Luxembourg Directors and the Executive Board. In his capacity he also manages both the Group’s Legal / Insurance 4.3 Management contracts and Communications departments. Christoph Hess holds a degree in law from the University of Basel No management contracts exist with any third party and has been admitted to the bar in Switzerland. outside of the Group. Jürg Honegger, Chief Financial Officer (CFO), Swiss citizen. Born in 1964. Member of the Executive Board 5 Compensation, shareholdings since October 2006. Responsible for Corporate Finance (Credit Control, Treasury, Financial Reporting and loans and Tax Management, Head Office Accounts), Group 5.1 Content and method of determining the Controlling and as well as Investor Relations. compensation and the share-ownership programs Jürg Honegger started his career as Controller and Both the compensation and principles governing Auditor for companies in Mexico and Switzerland. the share and option programs for Board of Direc- From 1994 to 2004, he was employed by the Volcafe tors and the Executive Board are determined and Group, initially as Assistant to the Group CFO at approved by the Board of Directors based on the their Headquarters, thereafter as Head of Finance in proposal of the Compensation and Nomination Colombia and later as Managing Director for its Committee. The Committee is regularly updating the subsidiary in Uganda. In 1999, he was promoted to Board of Directors during the Board of Directors Group CFO and member of the Executive Board. meetings, applies for changes in the remuneration He held this position until 2004. Subsequent to the system as required and annually reports the bonus acquisition of the Volcafe Group in 2004 by the new allocation of individual Executive Board members. owner ED & F MAN Holdings Ltd., he held the position The members of the Executive Board are not attend- of Group Treasurer and Divisional Finance Director, ing respective discussions about decisions related based in London, until 2006. Jürg Honegger has a to their own remuneration. The Committee has not degree in Business Administration (lic. oec. HSG) engaged any external experts regarding remunera- from the University of St. Gall. tion topics except for the share and option program. Jürg Honegger resigned in November 2007. These advisors also have other company mandates. John Klompers, Chief Marketing & Sales Officer, The members of the Board of Directors receive a Dutch citizen. Born in 1964. Member of the Executive fixed annual compensation. The salary package for Board since October 2006. Responsible for Sales the members of the Executive Board is made up and Key Account Management (including industry of a fixed basic salary, expense allowance, additional competence centers and global logistics), Supply pension contributions and a target bonus. 50% of Chain Management, Global Oil and Gas, Tender the target bonus depends on the Group’s result (nor- Management as well as Marketing and Customer malized Ebit) and 50% on achievement of meas Relations Management. urable individual performance targets. Performance targets are defined for the CEO by the Chairman John Klompers joined ChartAir Europe in 1995 and for other Executive Board members by the (a company acquired by Panalpina in 1996) as Mar- CEO. The target bonus of the individual EB member keting & Sales Executive. In 1997, he was appointed equals between 50% and 100% of the individual as Branch Manager of Panalpina Eindhoven and annual basic salary. The bonus is cut if the respec- Global Account Manager for a leading electronics tive targets are not reached. company. In 1999, he became Managing Director of Panalpina Netherlands and in 2003 Managing Direc- The members of the Board of Directors as well as the tor of the Benelux area, which includes Panalpina members of the Executive Board had the possibility country organizations in the Netherlands, Belgium to voluntarily participate in the share and option pro- and Luxembourg. In 2005, he was nominated as gram introduced in 2005 and continued in a modi- Regional Chief Executive Officer for Europe. John fied program in 2006 as well as in the reporting year. Klompers holds bachelor degrees in Economics, During 2005, PWT introduced a share and option Supply Chain Management and Marketing from uni- program whereas members of the Board of Directors, versities in Eindhoven and Utrecht. the Executive Board and members of senior management were offered the purchase of PWT registered John Klompers resigned in January 2008. shares. The shares for Board of Directors and Exec- utive Board members were limited to 3,750 registered WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 71 Corporate Governance

shares per person at the offering price of CHF 80.00. 6 Shareholders’ participation For every purchased share, the subscribers of this program have been allocated two options, each option 6.1 Voting rights and representation entitling them to purchase one further share at the restrictions offering price. The options can be exercised until Each share carries one vote at the General Meeting 16 September 2008; thereafter the options will lapse. of Shareholders. The Articles state that when exer- In June 2006, a slightly modified share and option cising voting rights, no shareholder may directly or program offered members of the Board of Directors indirectly represent more than 5% of the total shares and Executive Board members the purchase of a issued by the Company for own and represented maximum of 1,800 registered shares at a purchase shares. price of 75% of the average closing price of the shares The Articles provide for group clauses. at the SWX from January to May 2006 (CHF 111.30). The sale of the subscribed shares was restricted for The voting right restrictions are not applicable to rep- one year. With every subscribed share one option resentatives of the corporate body (Organvertreter) 1 as well as the independent proxy holder of voting is attained, which is allocated to the extent of ⁄3 after a vesting period of one, two, respectively three years rights (Unabhängiger Stimmrechtsvertreter). In order and entitles the participant to purchase a share at to facilitate the exercise of voting rights of deposited the price of CHF 111.30. Options may be exercised shares, the Board of Directors is entitled to enter after allocation until 11 June 2012 after which they into agreements with banks which deviate from the expire. voting restrictions. A third share and option program introduced in June The voting restrictions do not apply to the shares of the reporting year conceptually follows in its held by the Ernst Göhner Foundation because it held entirety the second program of 2006. The purchase PWT shares prior to the introduction of the voting of shares was limited for Board of Directors and restrictions (so-called grandfathering). Executive Board members to a maximum of 1,326 Any abolition or change of the provisions relating to shares each. The options allocated over a period the restrictions on voting rights requires a resolution of three years can be exercised until 17 June 2013 of the General Meeting of Shareholders on which at at a strike price of CHF 201.10 (average closing least two-thirds of the voting shares represented agree. price of the shares from January to May 2007). For US domiciled plan participants a “US sub-plan” was A written proxy entitles a shareholder to be represent- established for 2006 and 2007, the terms of which ed at the General Meeting of Shareholders by his are identical to the international plan except for legal representative, or by another shareholder with the strike price, which equals the fair market value the right to vote, or by the representative of the cor- of the options. porate body (Organvertreter), or by the independent proxy holder of voting rights (Unabhängiger Stimm Employment agreements with Executive Board rechtsvertreter) or by the proxy holder of deposited members stipulate a notice period of 12 months. They shares (Depotvertreter). do not contain “golden parachutes” in case of a change of control nor severance payments after ter- 6.2 Statutory quorums mination of employment. The Board of Directors has so far not introduced a share-based compensation In principle, the legal rules on quorums apply. Sup- for Executive Board members. Further information plementary to the quorums legally listed, a two-thirds related to both overall and individual remuneration of majority of the shares represented at the General the Board of Directors and Executive Board members Meeting of Shareholders is required for the following as well shares and options held by these persons resolutions: at their closing date, including a comparison with the • any abolition or change of the provisions relating previous year, are reflected in the audited Notes to to transfer restrictions; the Consolidated Financial Statements (pages 115 to 117) according to article 663 bbis CO. The overall • any abolition or change of the provisions relating remuneration of the Board of Directors has been to the restriction of voting rights; reduced in 2007 compared to the previous year due • the transformation of registered shares into bearer to the non-executive function of the current Chairman. shares; Further, the remuneration of the Executive Board members was increased as of October 2006 in line • the dissolution of the Company by way of liquidation; with market requirements. • 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 con- sent of the increased quorum. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 72 Panalpina Annual Report 2007 Corporate Governance

6.3 Convocation of the General Meeting of 8.3 Additional fees Shareholders The auditors PwC were compensated an additional There are no provisions deviating from the law. amount of CHF 325,361 for further services rendered in the financial year. PwC was mandated in the 6.4 Agenda reporting year in particular for the completion and submission of tax returns in various countries. 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 8.4 Supervisory and control instruments on the agenda. Such a request must be made in pertaining to the audit writing to PWT at least 60 days prior to the General The Group Auditors are supervised and controlled Meeting of Shareholders. by the Audit Committee. The Group Auditors report to the Audit Committee and periodically the lead 6.5 Inscriptions into the share register auditor participates at the meetings. During these meetings the Group Auditors present a detailed audit Registered shares can only be represented by share plan for the current year including risk based audit holders (or nominees) who have been entered into priorities, the audit scope as well as proposals regard- the PWT share register. Shareholders (or registered ing audit fees, organization and timing. In subsequent nominees) who cannot personally attend the General meetings they present interim audit findings with Meeting of Shareholders are entitled to nominate respective statements and recommendations later a representative according to the provisions in the followed by a detailed audit report. Presentations Articles, who represents them by written proxy. also contain references to upcoming changes in leg- For the purpose of determining voting rights, the islation and IFRS standards. In the context of the share register is closed for registration from the date Group Auditor tender submitted during the reporting the General Meeting of Shareholders has been year selection criteria for Group Auditors have been called (date of invitation) until the day after the General defined. Main criteria are Group Auditors independ- Meeting of Shareholders has taken place. ence, network capabilities, industry and IT experience of the audit team, a risk based audit approach, a central process management as well as the integra- 7 Changes of control and defense tion of internal audit and risk management functions. measures The Audit Committee annually assesses the performance of the Group Auditors and determines the 7.1 Duty to make an offer audit fees (refer to section 3.5). No opting-out or opting-up provisions exist. 9 Information policy 7.2 Clauses on changes of control Neither the contracts of the members of the Board Panalpina regularly updates its Internet website of Directors nor of the Executive Board have a www.panalpina.com, informing the public of any changes of control clause. major events, organizational changes and (quarterly) financial results. Press releases are accessible to all visitors to the website; alternatively subscriptions 8 Auditors can be made so that all latest press releases are automatically forwarded via e-mail. Furthermore, all 8.1 Duration of the mandate and term of office publications, such as the Annual Report (including of the lead auditor the Corporate Governance and Compensation Report), The mandate to act as statutory and Group Auditors customer magazine and sales brochures are availa- was taken over by PricewaterhouseCoopers AG, ble online. The dates of the General Meeting of Share- Basel, (PwC) for the first time for the 1972 financial holders as well as dates of publication of the quar- year by a declaration of acceptance of May 1972. terly financial results are printed in the Annual Report and appear in the Financial Calendar on the website The lead auditor, Thomas Brüderlin, who was respon (under Investor Relations). The minutes of Shareholder sible for the mandate, commenced duties in 2001. meetings are available online. Upon completion of the 2007 Group Audit he will withdraw from this mandate in line with the Group www.panalpina.com/corpgov Auditors’ internal policies.

8.2 Auditing fees According to financial accounting, invoices for auditing fees for the financial year amounted to CHF 2,705,094. WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 73 Report of the Board of Directors

Consolidated and Annual Financial Statements 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 74 Panalpina Annual Report 2007 Contents

Consolidated Financial Statements 2007 Consolidated Income Statement 76 Consolidated Balance Sheet 77 Consolidated Statement of Recognized Income and Expenses 78 Consolidated Statement of Changes in Equity 79 Consolidated Cash Flow Statement 80 Notes to the Consolidated Financial Statements 81 Principal Group Companies and Participations 121 Report of the Group Auditors 124 Key Figures 5-year review in CHF 125 Balance Sheet 5-year review in CHF 127 Key Figures 5-year review in EUR 128 Balance Sheet 5-year review in EUR 130

Annual Financial Statements 2007 of Panalpina World Transport (Holding) Ltd. Income Statement 132 Balance Sheet as of 31 December (before profit appropriation) 133 Notes to the Financial Statements 134 Appropriation of Available Earnings 136 Report of the Statutory Auditors 137

Information for Investors 138 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 75 Consolidated and Annual Financial Statements 2007

Consolidated Income Statement for the years ended 31 December 2007 and 2006

in thousand CHF Notes 2007 2006

Forwarding services 10,591,890 9,301,215 Customs, duties and taxes (1,907,660) (1,565,979)

Net forwarding revenue 4 8,684,230 7,735,236

Forwarding services from third parties 4 (6,880,825) (6,144,403)

Contribution margin (gross profit) 4 1,803,405 1,590,833

Personnel expenses 5 (1,002,442) (886,857) Other operating expenses 8 (441,222) (391,208) Gains / (losses) on sales of non-current assets 9 1,098 (99) Depreciation of property, plant and equipment 18 (38,842) (34,777) Amortization of intangible assets 19 (11,339) (16,383) Impairment of financial assets 19 (1) (511) Goodwill impairment 19 (11,294) 0

Operating result (Ebit) 299,363 260,998

Financial income 10 15,796 12,230 Financial expenses 10 (38,311) (33,157)

Earnings before taxes 276,848 240,071

Income taxes expenses 11 (66,249) (56,561)

Consolidated net earnings 210,599 183,510

Attributable to: Equity holders of the Company 212,007 181,599 Minority interests 25 (1,408) 1,911 Consolidated net earnings 210,599 183,510

Earnings per share for profit attributable to equity holders of the Company during the year (expressed in CHF per share) – basic 12 8.57 7.34 – diluted 12 8.55 7.33

The notes on pages 81 to 123 are an integral part of these consolidated financial statements.

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Consolidated Balance Sheet as of 31 December 2007 and 2006

Assets in thousand CHF Notes 2007 2006

Current assets Cash and cash equivalents 14 351,511 371,352 Marketable securities 14 839 2,524 Derivative financial instruments 15 5,834 2,456 Trade receivables 16 1,336,851 1,185,459 Unbilled forwarding services 143,957 135,393 Other receivables and other current assets 17 82,899 75,518 Total current assets 1,921,891 1,772,702

Non-current assets Property, plant and equipment 18 167,620 161,548 Financial assets 19 56,030 32,321 Post-employment benefit assets 19 9,355 12,044 Intangible assets 19 85,800 102,358 Deferred income tax assets 22 24,873 27,286 Total non-current assets 343,678 335,557

Total assets 2,265,569 2,108,259

Liabilities and equity in thousand CHF Notes 2007 2006

Current liabilities Trade payables 632,786 501,051 Other payables and accruals 145,007 153,141 Accrued cost of services 178,425 220,620 Borrowings 23 30,084 24,239 Derivative financial instruments 15 5,656 3,888 Other liabilities 20 90,589 76,442 Current income tax liabilities 29,072 30,707 Total current liabilities 1,111,619 1,010,088

Non-current liabilities Borrowings 23 3,387 3,248 Provisions and other liabilities 21 72,118 59,200 Post-employment benefit liabilities 21 40,056 42,144 Deferred income tax liabilities 22 21,871 15,873 Total non-current liabilities 137,432 120,465

Total liabilities 1,249,051 1,130,553

Equity Share capital 24 50,000 50,000 Treasury shares 24 (101,397) (15,022) Reserves 1,061,277 934,708 Issued share capital and reserves available to Panalpina shareholders 1,009,880 969,686

Minority interests in equity 25 6,638 8,020 Total equity 1,016,518 977,706

Total liabilities and equity 2,265,569 2,108,259

The notes on pages 81 to 123 are an integral part of these consolidated financial statements.

Panalpina Annual Report 2007 77 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Consolidated and Annual Financial Statements 2007

Consolidated Statement of Recognized Income and Expenses for the years ended 31 December 2007 and 2006

in thousand CHF Notes 2007 2006

Amounts recognized in equity for pension plan Defined benefit post-employment plans – Actuarial gains (losses) 6 (17,703) (14,724) – Effect of impact of limit in paragraph 19.58b 6 15,383 2,527 – Exchange difference 6 (400) (2,146) Other long-term employee benefits – First time adoption 0 (295) – Defined benefit obligation jubilee (2,352) 0 Current income taxes on items recognized in equity 368 0 Deferred income taxes on items recognized in equity 22 (863) 4,281 Exchange difference on translations of foreign operations (9,080) (8,114)

Net earnings recognized directly in equity (14,647) (18,471)

Consolidated net earnings 210,599 183,510

Total recognized earnings for the year 195,952 165,039

Attributable to equity holders of the Company 197,360 163,128 Attributable to minority interests (1,408) 1,911

The notes on pages 81 to 123 are an integral part of these consolidated financial statements.

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Consolidated Statement of Changes in Equity for the years ended 31 December 2007 and 2006

Attributable to the equity holders of the Company Minority Total interests equity Transla- Share Treasury Other tion Retained in thousand CHF Notes capital shares reserves reserve earnings Total

Balance on 1 January 2006 50,000 (20,000) (90,648) (57,270) 968,811 850,893 6,957 857,850 Defined benefit post-employment plans – Actuarial gains (losses) 6 (14,724) (14,724) (14,724) – Effect of impact of limit in paragraph 19.58b 6 2,527 2,527 2,527 – Exchange difference 6 (2,146) (2,146) (2,146) Other long-term employee benefits – First time adoption in Indonesia (295) (295) (295) Exchange difference on translating foreign operations (8,114) (8,114) (750) (8,864) Deferred income taxes on items recognized in equity 22 4,281 4,281 4,281 Net earnings recognized directly in equity 0 0 (10,357) (8,114) 0 (18,471) (750) (19,221) Consolidated net earnings 181,599 181,599 1,911 183,510 Total recognized earnings for the year 0 0 (10,357) (8,114) 181,599 163,128 1,161 164,289 Dividends paid 24 (49,384) (49,384) (98) (49,482) Share-based payments 7 1,767 1,767 1,767 Changes in treasury shares, net 24 4,978 (1,696) 3,282 3,282 Balance on 31 December 2006 50,000 (15,022) (101,005) (65,384) 1,101,097 969,686 8,020 977,706

Balance on 1 January 2007 50,000 (15,022) (101,005) (65,384) 1,101,097 969,686 8,020 977,706 Defined benefit post-employment plans – Actuarial gains (losses) 6 (17,703) (17,703) (17,703) – Effect of impact of limit in paragraph 19.58b 6 15,383 15,383 15,383 – Exchange difference 6 (400) (400) (400) Other long-term employee benefits – Defined benefit obligation jubilee (2,352) (2,352) (2,352) Exchange difference on translating foreign operations (9,080) (9,080) 123 (8,957) Current income taxes on items recognized in equity 368 368 368 Deferred income taxes on items recognized in equity 22 (863) (863) (863) Net earnings recognized directly in equity 0 0 (5,567) (9,080) 0 (14,647) 123 (14,524) Consolidated net earnings 212,007 212,007 (1,408) 210,599 Total recognized earnings for the year 0 0 (5,567) (9,080) 212,007 197,360 (1,285) 196,075 Dividends paid 24 (74,329) (74,329) (97) (74,426) Share-based payments 7 5,175 5,175 5,175 Changes in treasury shares, net 24 (86,375) (1,637) (88,012) (88,012) Balance on 31 December 2007 50,000 (101,397) (106,572) (74,464) 1,242,313 1,009,880 6,638 1,016,518

The notes on pages 81 to 123 are an integral part of these consolidated financial statements.

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Consolidated Cash Flow Statement for the years ended 31 December 2007 and 2006

in thousand CHF Notes 2007 2006

Total cash flow from operating activities 27 315,870 338,264

Interest received 13,647 11,688 Interest paid (21,546) (23,334) Taxes paid (61,523) (52,884) Other liabilities utilized 20 (32,225) (18,651) Provisions and other liabilities utilized 21 (4,717) (14,150) Net cash from operating activities 209,506 240,933

Cash flow from investing activities Purchase of property, plant and equipment 18 (43,022) (48,219) Purchase of financial investments 19 (25,963) (4,477) Purchase of intangible assets and other assets 19 (7,797) (8,761) Total investments (76,782) (61,457)

Proceeds from sales of property, plant and equipment 1,622 2,767 Proceeds from sales of investments 0 47 Loan repayments 27 212 Proceeds from sales of securities 3,121 2,720 Repayment of other financial assets 0 735 Sales of intangible assets 637 91 Net cash used in investing activities (71,375) (54,885)

Cash flow from financing activities Proceeds from (repayment of) short-term borrowings 4,772 5,680 Proceeds from (repayment of) long-term borrowings 625 1,613 Dividends paid 24 (74,329) (49,384) Dividends paid to minority interests 25 (97) (98) Transaction in own equity instruments (88,011) 3,282 Net cash used in financing activities (157,040) (38,907)

Effect of exchange rate changes on cash and cash equivalents (932) (618)

Net increase (decrease) in cash and cash equivalents (19,841) 146,523 Cash and cash equivalents at the beginning of the year 371,352 224,829 Cash and cash equivalents at the end of the year 351,511 371,352

The notes on pages 81 to 123 are an integral part of these consolidated financial statements.

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Notes to the Consolidated Financial Statements

1 General

The consolidated financial statements of Panalpina World Transport (Holding) Ltd. (“the Company”) for the year ending 31 December 2007 were authorized for issuance in accordance with a resolution of the Board of Directors on 6 March 2008. Panalpina World Transport (Holding) Ltd. is a limited company incorporated and domiciled in Basel. The registered address is Viaduktstrasse 42, 4002 Basel, Switzerland. The Company shares are publicly traded and its primary listing is on the SWX Swiss Exchange in Zurich. The Company and its subsidiaries (together “the Group”), are one of the world’s leading logistics and forwarding companies spe- cialized in international air and ocean transports.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are listed below. These policies have been consistently applied to all the years, unless stated otherwise.

Basis of preparation of the consolidated financial statements

The consolidated financial statements have been prepared under the historical cost convention, except for derivative financial instruments and available-for-sale investments that have been measured at fair value. The consolidated financial statements are presented in Swiss francs (CHF) and all values are rounded to the nearest thousand except when otherwise indicated. The consolidated financial statements are based on the accounts of the individual subsidiaries on 31 December, which have been drawn up according to uniform Group accounting principles. The consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) and interpretation thereof adopted by the International Accounting Standards Board (IASB). The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities on the date of the financial statements. If in the future such estimates and assumptions, which are based on management’s best judgement on the date of the financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which the circumstances changed.

Changes in accounting policies

The accounting policies adopted are consistent with those of the previous year consolidated financial statements of Panalpina World Transport (Holding) Ltd. except as follows: The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretations did not have an effect on the financial performance or position of the Group. They did however give rise to additional disclosures, including in some cases, revisions to accounting policies.

IFRS 7 Financial Instruments (Disclosures) and a complementary amendment to IAS 1 Presentation of Financial Statements (Capital Disclosures) IFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information regarding the exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including a sensitivity analysis of market risk. It replaces IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions and disclosure requirements in IAS 32 Financial Instruments: Disclosure and Presentation and is applicable to all entities reporting under IFRS.

IAS 1 Amendment – Presentation of Financial Statements The amendment to IAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The Group assessed the impact of IFRS 7 and the amendment to IAS 1 and concluded that the main additional disclosures will be the sensitivity analyses to market risk and the capital disclosures required by the amendment of IAS 1.

IFRIC 10 Interim Financial Reporting and Impairment The interpretation prohibits the impairment losses recognized in an interim period on goodwill, investments in equity instruments and investments in financial assets carried at cost to be reversed on a subsequent balance sheet date. IFRIC 11 IFRS 2 Group and Treasury Share Transactions The Group has elected to adopt IFRIC interpretation 11 as of 1 January 2007, insofar as it applies to consolidated financial statements. This interpretation requires arrangements whereby an employee is granted to an entity’s equity instrument to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed.

Panalpina Annual Report 2007 81 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Consolidated and Annual Financial Statements 2007

The following standards, amendments and interpretations are mandatory for accounting periods beginning on or after 1 January 2007, but are not relevant to the Group’s operations.

IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies The interpretation provides guidance on how to apply the requirements of IAS 29 in a reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, when the economy was not hyperinflationary in the prior period.

IFRIC 9 Reassessment of Embedded Derivatives IFRIC 9 was issued in March 2007, and becomes effective for financial years beginning on or after 1 June 2007. This interpretation establishes that the date to assess the existence of an embedded derivative is the date on which an entity first becomes a party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. The following standards and interpretations to existing standards have been published which are mandatory for the Group’s accounting periods beginning on or after 1 January 2008 or later periods, but the Group has not early adopted them:

IFRS 2 Amendments to IFRS 2 Share-based payment (effective from 1 January 2009). The amendment clarifies that vesting conditions are either services or performance conditions only and it specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment.

IFRS 3 Amendments to IFRS 3 Business combinations (applicable to business combinations occuring in accounting periods beginning on or after 1 July 2009) The amendment requires significant changes in the application of the acquisition method to business combinations. All payments to purchase a business are to be recorded at fair value on the acquisition date, with some contingent payments subsequently remeasured at fair value through profit or loss. Goodwill may be calculated based on the parent’s share of net assets or it may also include goodwill related to the minority interest. All transaction costs will be expensed.

IAS 27 Amendments to IAS 27 Consolidated and separate financial statements (effective as from 1 July 2009) The amendment requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. They will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured to fair value and a gain or loss is recognized in profit or loss. In addition, total comprehensive income must be attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

IFRS 8 Operating Segments was published in November 2007, and will be effective for accounting periods beginning on or after 1 January 2009 IFRS 8 replaces IAS 14 Segment Reporting. IFRS 8 requires entities to define operating segments and segment performance in the financial statements based on information used by the chief operating decision-maker. These new requirements could have an impact on the segments presented, the items reported and their respective measurement. The Group has not undergone a careful analysis and therefore no final assessment of the impact can presently be made.

IAS 23 (amendment) Borrowing Costs (effective from 1 January 2009) IAS 23 requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23 (amendment) from 1 January 2009, but it is currently not applicable to the Group as there are no qualifying assets.

IFRIC 14 The limit on a defined benefit asset, minimum funding requirements and their interaction IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognized as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The following interpretations to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2008 or later periods but, are not relevant for the Group’s operations:

IFRIC 12 Service Concession Arrangements (effective from 1 January 2008) IFRIC 12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services. IFRIC 12 is not relevant to the Group’s operations because none of the Group’s companies provide services for a public sector.

IFRIC 13 Customer Loyalty Programs (effective from 1 July 2008) IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive, the arrangement is a multiple- element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement in using fair values. IFRIC 13 is not relevant to the Group’s operations because none of the Group’s companies operate any loyalty programs.

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Scope and method of consolidation

Subsidiaries The consolidated financial statements include the financial statements of all subsidiaries that are directly or indirectly controlled (including special purpose entities) by the Group. “Control” is defined as the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date control ceases. The purchase method of accounting is used for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed on the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired as well as liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value on the acquisition date, irrespective of the extent of any minority interest. The excess of the costs of acquisition over the Group’s share of the fair value of the acquired subsidiary’s identifiable net assets is recorded as goodwill. If the cost of acquisition is less than the Group’s share of the fair value of the net asset of the subsidiary acquired, the difference is recognized directly in the income statement. Subsidiaries acquired or disposed during the year are included in the consolidated financial statements from the date of acquisition or up to the date of disposal. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognized in assets are fully eliminated. Unrealized losses are considered as an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies by the Group.

Minority interests and associates Investments in associated companies are those entities in which the Group has significant influence, but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the income statement and within equity in the consolidated balance sheet, separately from parent shareholders’ equity. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired is recognized as goodwill. Disposals to minority interests result in gains and losses for the Group and are recorded in the income statement. Associates are accounted using the equity method of accounting and are initially recognized at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The majority of Group companies and equity investments are listed on page 121ff.

Segment reporting The Group is primarily organized by regions. The risks and returns of the Group’s operations are primarily determined by the geographical location of the Group’s operations. This is reflected in the Group’s management and organizational structure. The determination of the Group’s geographic and business segments is based on the organization units for which information is reported to the Group’s management. The Group has four regions, Europe / Africa / Middle East / CIS, North America, Central and South America and Asia / Pacific. The two sub-regions Africa / Middle East / CIS and China / Taiwan are managed separately, but they are reported within their respective main regions and are not considered as separately reportable geographical segments. Transfer prices between segments are established on an arm’s length basis. Segment assets and liabilities consist of current assets and liabilities, and of property, plant and equipment, goodwill, intangible assets, pension assets / liabilities and provisions. Non-segment assets and liabilities mainly include deferred income tax balances and financial assets. Capital expenditure comprises additions minus disposals to goodwill, intangible assets and property, plant and equipment, including those arising from acquisitions. A segment is engaged in providing services within a particular economic environment that are subject to risks and returns which are different from those of segments operating in other economic environments.

Foreign currencies translation

Functional and presentation currency The consolidated financial statements of Panalpina Group are presented in Swiss francs (CHF). The financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency), which is generally the local currency.

Foreign currency transactions Each entity in the Group determines its own functional currency and the items included in the financial statements of each entity are measured using this functional currency. Transactions in foreign currencies are initially translated into the functional currency using the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated on the balance sheet date using the period-end exchange rate. All differences are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognized in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt within equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as of the dates of the initial transaction. Any goodwill arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

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Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analyzed between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortized cost are recognized in profit or loss, and others in the carrying amounts are recognized in equity. Translation of Group companies The results and financial positions of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate on the date of that balance sheet. • Income and expenses for each income statement are translated at average exchange rates. • All resulting exchange differences are recognized as a separate component of equity. The most important exchange rates used in the reported financial statements are:

2007 2006 Balance Income Balance Income Sheet Statement Sheet Statement EUR 1.66433 1.64274 EUR 1.60762 1.57776 USD 1.13490 1.19972 USD 1.22030 1.24152 GBP 2.26719 2.40180 GBP 2.39887 2.31830

Revenue recognition

Net forwarding revenue includes services for forwarding performed to third parties after deducting trade discounts and volume rebates and excluding sales taxes and value added taxes less charges for customs, duty and taxes. Trade discounts and volume rebates are recorded on an accrual basis consistent with recognition of the related revenue recorded as a deduction for accounts receivables or as accrued liabilities or provisions. Such estimates are based on analyses of existing contractual or legislatively- mandated obligation, historical trends and the Group’s experience. Net forwarding revenue is recognized at the time the services are performed. Logistics projects and other services with a longer period of delivery are recognized in the accounting period in which the service is rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Contribution margin (gross profit) includes net forwarding revenue from services rendered less related expenses for services provided by third parties net of customs, duty and taxes. Other revenues, e.g. dividends, interest, licenses, etc., are accrued as they arise. For the financial statements, they are recorded in the appropriate period, to the extent that a legal right to receive the payment has been established.

Forwarding services from third parties

Forwarding services from third parties include the corresponding direct services costs and related services cost rendered by a third party. Trade discounts, cash discounts and volume rebates are recorded on an accrual basis consistent with the recognition of the related services.

Employee benefits

Wages, salaries, social security contributions, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where the Group provides long-term employee benefits, the cost is accrued to match the rendering of the services by the employees concerned. Liabilities from long-term employee benefits are discounted to take into account the time value of money, where material.

Post-employment benefits

Most employees are covered by defined benefit and defined contribution post-employment plans sponsored by the Group companies. The Group’s contributions to defined contribution plans are charged to the appropriate income statement heading within the operating results in the year to which they relate. The accounting and reporting of defined benefit plans are based on the recent actuarial valuations. The defined benefit obligations and service costs calculated using the projected unit credit method. This reflects service rendered by employees on the dates of valuation and incorporates actuarial assumptions primarily regarding discount rates used in determining the present value of benefits, projected rate of remuneration growth and long-term expected rate of return for plan assets. Discount rates are based on the market yields of high-quality corporate bonds in the country concerned. Cur- rent and past service costs are charged to the income statement within personnel expenses. Actuarial gains and losses, which consist of differences between assumptions and actual experience and the effects of changes in actuarial assumptions, are recorded directly in equity. Pension assets and liabilities in different defined benefit plans are not offset. The recognition of pension assets is limited to the total of the present value of any future refunds from the plans or reductions in future contributions to the plans and any cumulative unrecognized past-services costs. Adjustments arising from the limit on the recognition of assets for defined benefit plans are recorded directly in equity. A review of subsidiaries’ pension plans in Germany, Taiwan, Japan, France and Switzerland has shown that they are defined benefit schemes.

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Share-based compensation

The Group operates equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options and the discount on the shares granted are recognized as an expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. On each balance sheet date, the Company re- vises its estimates of the number of options that are expected to become exercisable. The impact of the revision of original estimates, if any, is recognized in the income statement, with a corresponding adjustment to equity. Other long-term employee benefits exist in the form of anniversary gifts, long service benefits and health costs. The provisions necessary to provide the benefits are determined and recorded actuarially (cf. projected unit credit method) with actuarial gains and losses and past service costs, if any, recognized immediately in the income statement.

Other operating expenses

Other operating expenses include mainly administrative expenses, communication expenses, rent and utilities expenses, travel and promotion expenses, insurance expenses and claims, change in provision form imparirment of trade receivables and collection expenses and other operating expenses necessary to render forwarding revenue to third parties. The expenses are recognized when the expenses recorded on an accrual basis have been occurred.

Taxes

Current income taxes Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Current income tax relating to items recognized directly in equity is recognized in equity and not in the income statement.

Deferred income tax Deferred income tax is provided using the liability method on temporary differences on the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, except: • where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in regard to taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized except: • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, upon the transaction, affects neither the accounting profit nor taxable profit or loss; and • in regard to deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. The carrying amount of deferred income tax assets is reviewed on each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Un- recognized deferred income tax assets are reassessed on each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted on the balance sheet date. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the income statement. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current income tax liabilities and the deferred income relate to the same taxable entity and the same taxation authority.

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Value added tax and sales tax Revenues, expenses and assets are recognized net of the amount of value added tax or sales tax except: • where the value added tax or sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables that are stated with the amount of value added tax or sales tax included. The net amount of value added tax or sales tax recoverable from, or payable to the taxation authority is included as part of receivables or payables in the balance sheet.

Cash and cash equivalents

Cash and cash equivalents included in the balance sheet and cash flow statement represent cash in hand, bank and postal checks, bills of exchange net, bank current account balances and time deposits and highly liquid money market papers with an original maturity period of less than three months. Bank current account liabilities are included under short-term borrowings.

Trade receivables

Accounts receivable are recognized initially at fair value measured at amortized cost using the effective interest method, less valuation adjustments for impairments. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statement within other operating expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off or one hundred percent impaired are credited against operating expenses in the income statement.

Unbilled forwarding services

Unbilled forwarding services represents the deferred expenses and accrued income gross amount due from customers for forwarding services in progress for which costs incurred exceed progress billings or services are not yet rendered. For logistics projects and other services with a longer period of delivery, recognized profits are included.

Property, plant and equipment

Property, plant and equipment are stated at cost including expenditures that are directly attributable to the acquisition of the items, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such costs include the cost of replacing part of the property, plant and equipment when that cost is incurred, if the recognition criteria are met. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and if the cost of the item can be measured reliably. Land and buildings are carried at cost less depreciation on buildings and impairments charged subsequent to the date of the re- valuation. Depreciation is calculated on a straight line method to allocate their costs over their estimated useful lives, as follows:

Years Warehouse and office buildings 25 – 40 Warehouse and transportation equipment 3 – 10 Office furnishings and equipment 5 – 10 EDP hardware 3 Trucks, trailers and special vehicles 3 – 10 Automobiles 3 – 5

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is included in the income statement in the year the asset is derecognized. The asset’s residual values, useful life and method of depreciation are reviewed and adjusted if appropriate, at each financial year- end.

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Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement on inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: • there is a change in contractual terms, other than a renewal or extension of the arrangement; • a renewal option is exercised or extension is granted, unless the term of the renewal or extension was initially included in the lease term; • there is a change in the determination of whether fulfillment is dependent on a specified asset; or • there is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date on which the change in circumstances gave rise to the reassessment for the first, third or fourth above mentioned scenarios and on the date of renewal or extension period for the second scenario. For arrangements entered into prior to 1 January 2006, the date of inception is deemed to be 1 January 2006 in accordance with the transitional requirements of IFRIC 4. Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Charged finance costs are reflected in the income statement. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Operating lease payments are recognized as an expense in the income statement on a straight line basis over the lease term.

Business combinations and goodwill

Business combinations are accounted for using the acquisition accounting method. This involves recognizing identifiable assets and liabilities of the acquired business at fair value. Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, as of the acquisition date, allocated to each of the Group’s cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, respective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units represents the lowest level within the Group at which the goodwill is monitored for internal management purposes and is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with IAS 14 Segment Reporting. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of under this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and unamortized goodwill is recognized in the income statement.

Intangible assets

Brands, trademarks, customer lists and relationship, software licenses and other intangible assets are initially recorded at cost. The cost of intangible assets acquired in a business combination is the fair value as of the date of acquisition. For acquired intangible assets other than a business combination, the initial fair value will be recorded. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the income statement in the period in which the expenditure is incurred. Intangible assets are amortized on a straight-line basis beginning from the point when they are available for use and over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The estimated useful life for software licenses is three to five years; all other intangible assets a maximum of ten years. The amortization period for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life of future economic benefits embodied in the asset are accounted for by changing the amortization period, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the income statement. Computer software developed internally is capitalized only when the Group can demonstrate the technical feasi- bility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the software and the ability to measure reliably the expenditure during the development. During the period of development, the asset is tested for im-

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pairment annually. Following the initial recognition of the development expenditure, the capitalized software development costs are amortized over their estimated useful life (not exceeding three years) and carried at cost less any accumulated amortization and accumulated impairment losses. Amortization begins when development is complete and the asset is available for use. Costs of maintaining and modifying existing programs are charged to the income statement.

Impairment of assets

The Group assesses on each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or asset groups. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborating by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses are recognized in the income statement. For assets excluding goodwill, an assessment is made on each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount.

The following criteria are also applied in assessing impairment of specific assets: Goodwill Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount to the cash-generating unit is less than the carrying amount of the cash-generating unit to which the goodwill has been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. The Group performs its annual impairment test of goodwill as of 31 De- cember. Intangible assets Intangible assets with indefinite useful lives are tested for impairment annually as of 31 December either individually or at the cash-generating unit level, as appropriate.

Financial assets

The Group classifies its financial assets into the following categories: at fair value through profit and loss, loans and receivables, available-for-sale and in exceptional cases as held-to-maturity. The classification depends on the nature of the asset and the purpose of the transaction. The management determines the classification of its financial assets at initial recognition and reevaluates this designation on every reporting date. The Group considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are separated from the original contract which is not measured at fair value through profit or loss when the analysis shows that the economics characteristics and risks of embedded derivatives are not closely related to those of the host contract. All normal purchases and sales of financial assets are recognized on the trade date, which is the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by convention in the marketplace or regulation.

Financial assets at fair value through profit or loss The category is subdivided in two categories: Financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified if acquired principally for the purpose of generating a profit from short-term fluctuations in price. The Group’s investments in marketable securities are classified as held-for-trading. Such investments are included in current assets in the balance sheet. Marketable securities comprise only exchange-traded and readily realizable investments. Derivative financial instruments are generally categorized as held-for-trading unless they are designated and qualified as hedging instruments (the treatment of derivative financial instruments is outlined in the section Financial risk management).

Receivables Receivables originated by the Group are financial assets that are created by providing money or services directly to the debtor. Such receivables are not quoted and not originated with the intent to be sold immediately or in the near-term. Receivables are presented in current assets for maturities up to twelve months; other receivables are presented in non-current assets. Loans and receivables are included in the following line items of the balance sheet: Trade receivables (treatment of the trade receivables is outlined in more details in section Trade receivables), other receivables and other current assets include: short-term active loans and other receivables and financial and other assets.

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Available-for-sale financial assets All non-derivative financial assets that are not categorized as held-for-trading or as originated loans and receivables are classified as available-for-sale. Available-for-sale financial assets which include equity securities and other investments are presented as non-current assets, unless they are expected to be sold within twelve months after the balance sheet date. Purchases and sales of investments are recognized on the settlement date. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit and loss are initially recognized at fair value and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has substantially transferred all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Originated loans and receivables are subsequently carried at amortized cost using the effective interest method. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the income statement within “other financial income/expenses”, including interest and dividend income in the period in which they arise. Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analyzed between translation differences resulting from changes in amortized cost of the security and other changes in the carrying amount of the security. The translation differences are recognized in profit and loss, and other changes in carrying amount are recognized in equity. Changes in the fair value of other monetary securities classified as available-for-sale and non-monetary securities classified as available-for-sale are recognized in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the income statement as gains and losses from investments. Interest on available-for-sale investments calculated using the effective interest method is recognized in the income statement. Dividends on available-for-sale equity instruments are recognized in the income statement when the Group’s right to receive payments is established. The Group assesses on each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the securities are impaired. If any such evidence exists for available- for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in the income statement. Impairment losses of equity instruments recognized in the income statement are not reversed through the income statement. Impairment testing of trade receivables is described in sections the Trade receivables and Impairment of financial assets.

Fair values The fair value of financial instruments traded in active markets is based on quoted market prices on the balance sheet date. The quoted market price uses for financial assets held by the Group is the current bid price. For unlisted securities or over-the-counter transactions, the Group determines the fair value using appropriate valuation techniques (such as net present value or option pricing models). The Group uses a variety of methods and makes assumptions that are based on market conditions existing on each balance sheet date. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates on the balance sheet date. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilites for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

Impairment of financial assets

The Group assesses on each balance sheet date whether a financial asset or a group of financial assets is impaired. Assets carried at amortized cost If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss shall be recognized in the period of loss. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and the group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If within a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost on the reversal date.

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In relation to trade receivables, individual provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. For trade receivables not individually impaired the Group implemented a policy to determine the best estimation of the fair values. Such estimates are based on analyses of historical trends, the Group’s experience and markets observations. The estimates are reviewed, and adjusted if appropriate, at each financial year-end. The carrying amount of the receivables is reduced through use of an allowance account. Impaired debts are derecognized when they are assessed as uncollectible. Available-for-sale financial investments If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in the income statement, is transferred from equity to the income statement. Reversals in regard to equity instruments classified as available-for-sale are not recognized in the income statement. Reversals of impairment losses on debt instruments are reversed through the income statement; if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the income statement.

Trade payables

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

Borrowings and interest-bearing loans

All borrowings and loans are initially recognized at fair value of the consideration received less directly attributable transaction cost. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the liabilities are derecognized also through the amortization process. Borrowing and interest bearing loan costs are recognized as an expense when incurred.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as of fair value through profit and loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in profit and loss. Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Derecognition of financial assets and liabilities

Financial assets A financial asset is derecognized when the rights to receive cash flows from the asset have expired and when the Group has transferred its rights to receive cash flow for the asset and either has substantially transferred all the risks and rewards of the asset or has transferred control of the asset.

Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where a financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability. The recognition of a new liability and the difference in the respective carrying amounts is recognized in the income statement.

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) resulting from a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimation can be made of the amount of the obligation. The expense relating to any provision is recorded in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the pas- sage of time is recognized as a finance cost. Provisions are established in particular for post-employment benefit liabilities and claims from freight forwarding.

Share Capital

Ordinary shares are classified as equtiy. Incrementing cost directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. For purchases own equity instruments (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the compa-

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ny’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the company’s equity holders.

3 Critical accounting estimates and judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimations and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in the note Intangible assets, section Goodwill. The recoverable amounts of cash-generating units (CGU) have been determined based on value-in-use calculations. The underlying calculations require the use of estimates (Note 19: Impairment test for goodwill). A sensitivity analysis shows that a deterioration of free cash flow by 10% of the tested CGU below the projected level would result in an impairment of goodwill of CHF 5.4 million.

Pension and other post-employment benefits Obligations for pension and other post-employment benefits and related net periodic benefit costs are determined in accordance with actuarial valuations. These valuations rely on key assumptions including discount rates, expected return on plan assets, expected salary increases and mortality rates. The discount rate assumption reflects the rates available on high-quality fixed- income investments of appropiate duration on the balance sheet date. The expected return on plan assets assumptions are determined on a uniform basis, considering long-term historical returns and asset allocations. Due to changing market and economic conditions the underlying key assumptions may differ from actual developments and may lead to significant changes in pension and other post-employment benefit obligations. Such differences are recognized in full directly in equity in the period in which they occur without affecting the income statement.

Provision A number of subsidiaries are subject to litigation arising out of the normal conduct of their businesses, as a result of which claims could be raised against them. The Group used for the above mentioned provision the conservative actuarial calculation, which requires for the calculation of the “incurred but not reported reserves (IBNR)”, among other estimations, the overall circumstances which may impact the future losses, such as the growth of business. If the management decided to use the optimal actuarial calculation method, which only takes into consideration the linear loss development according to historical figures, the carrying amount of claim provision would be approximately CHF 1.7 million lower. Using a more conservative percentile, the carrying amount of claim provision would be approximately CHF 1.3 million higher. The Group is also subject to legal and regulatory proceedings and government investigations in various juristictions. These proceedings are related to the area of competition law and to possible breaches of anticorruption legislation. Such proceedings may result in criminal or civil sanctions, penalties or damages against the Company. Regulatory and legal proceedings as well as government investigations involve complex legal issues and the out-come of which is difficult to predict. Accordingly, management’s judgement is effected in determining whether it is more likely or not that such a proceeding will result in an outflow of resources and whether the amount of the obligation can be reliably estimated. Theses judgments are subject to change as new information becomes available. Upon resolution of any legal or regulatory proceeding or government investigation, the Group may incur a provision for such matters. It cannot be excluded that the financial condition or results of operations of the Group will be materially affected. For additional information see Note 29: Pending legal claims. Thereof lawyer costs are recognized when incurred.

Deferred income tax assets Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant Management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits. The carrying value of recognized tax losses at 31 December 2007 was CHF 20.5 million (2006: CHF 26.3 million) and the unrecognized tax losses at 31 December 2007 was CHF 37.6 million (2006: CHF 54.4 million). Further details are provided in Note 22.

Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgments are required in determining the current and deferred assets and liabilities for income taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. Management believes that the estimates are reasonable and that the recognized liabilities for income tax related uncertain- ties are adequate. Various external factors may have favorable or unfavorable effects on the income taxes. These factors include, but are not limited to, changes in tax laws regulations and/or rates, changing interpretation of existing tax laws or regulations and changes on management estimations. Such changes that arise could affect the assets and liabilities recognized in the balance sheet in future periods.

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4 Segmental reporting

Reporting by geographical segments

Europe / Africa / Central and South Middle East / CIS North America America in million CHF 2007 2006 2007 2006 2007 2006

External forwarding services 5,063 4,418 1,684 1,699 818 670 Intra-group forwarding services 2,285 2,585 437 492 148 184 Net forwarding revenue 7,348 7,003 2,121 2,191 966 854

Forwarding services from third parties (6,300) (6,087) (1,783) (1,884) (817) (717) Segment contribution margin (gross profit) 1,048 916 338 307 149 137

Other segment expenses (872) (753) (316) (296) (130) (118) Segment operating result (Ebit) 176 163 22 11 19 19

Financial result Earnings before taxes Taxes on income Consolidated net earnings

Europe / Africa / Central and South Middle East / CIS North America America in million CHF 2007 2006 2007 2006 2007 2006

Additional information Segment assets 1,420 1,328 293 322 178 140 Segment liabilities 778 702 160 152 47 48 Capital expenditure 30 35 6 9 5 5 Depreciation of property, plant and equipment 25 22 6 6 3 2 Amortization of intangible assets 5 10 1 1 1 1 Goodwill impairment 11 0 0 0 0 0

The Group organizes its business primarily by regions. Segment information is prepared on the basis of the location of the assets. Usually, the location of the customers does not differ from the location of the assets in the particular region. Intersegmental services are charged at market rates. Segment expenses are shown after elimination of intra-group transactions. Segment operating profit does not include finance revenue or financial costs. Segment assets do not include deferred tax assets of CHF 24.9 million (2006: CHF 27.3 million), available-for-sale investments of CHF 18.8 million (2006: CHF 18.2 million) and receivables of CHF 37.2 million (2006: CHF 14.2 million). Segment liabilities do not include deferred tax liabilities of CHF 21.9 million (2006: CHF 15.9 million) and borrowings of CHF 33.5 million (2006: CHF 27.5 million). Capital expenditure consists of additions of property, plant and equipment, intangible assets and investment properties.

Reporting by business segments

Supply Chain Air freight Ocean freight Management in million CHF 2007 2006 2007 2006 2007 2006

Net forwarding revenue 4,129 3,713 3,280 2,826 1,275 1,196 Forwarding services from third parties (3,336) (3,026) (2,752) (2,334) (793) (784) Segment contribution margin 793 687 528 492 482 412

Total assets 964 838 734 510 311 210 Capital expenditure 20 20 15 11 6 8

The Group’s business can be divided into three divisions: air freight, ocean freight and supply chain management. The assets allocated to the divisions mainly comprise trade receivables, work in progress, accruals, tangible fixed assets and intangible assets. Cash, financial investments and assets related to the central management functions are not allocated. 92 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Consolidated and Annual Financial Statements 2007

Asia / Pacific Eliminations Total 2007 2006 2007 2006 2007 2006

1,119 948 8,6847,735 1,098 821 (3,968)(4,082) 0 0 2,2171,769 (3,968)(4,082) 8,6847,735

(1,949)(1,538) 3,9684,082 (6,881)(6,144) 268 231 0 0 1,8031,591

(185) (163) (1,503)(1,330) 83 68 300 261

(23) (21) 277 240 (66) (56) 211 184

Non-segment Non-segment Asia / Pacific Total assets liabilities Group 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006

294 259 2,185 2,049 81 59 2,266 2,108 209 180 1,194 1,082 55 48 1,249 1,130 8 7 49 56 5 5 39 35 4 4 11 16 0 0 11 0

Unallocated Total 2007 2006 2007 2006

0 0 8,6847,735 0 0 (6,881)(6,144) 0 0 1,8031,591

257 550 2,2662,108 8 17 49 56

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5 Personnel expenses

in thousand CHF 2007 2006

Salaries and wages 783,712 698,415 Cost of defined contribution plans 47,881 43,396 Cost of defined benefit plans (Note 6) 4,905 4,438 Social security costs 84,651 75,785 Share based compensation (Note 7) 5,175 1,767 Other personnel related expenses 76,118 63,056 Total personnel expenses 1,002,442 886,857

Number of employees (unaudited) 15,301 14,304

6 Employee benefit obligations

The Group has numerous pension funds. Retirement benefits vary from plan to plan, reflecting applicable local practices and legal requirements. Defined benefit pension plans are predominantly in Switzerland, Germany, Taiwan, Japan and France. The cost of the defined contribution plans is charged to personnel expenses. The amounts recognized in the balance sheet are determined as follows:

in thousand CHF 2007 2006

Fair value of plan assets 255,989 266,449 Present value of funded obligation (232,532) (224,170) (Deficit) surplus 23,457 42,279

Unrecognized surplus due to paragraph 19.58b (18,015) (33,398) Present value of unfunded obligations (36,143) (38,981) (Liability) / asset recognized in balance sheet (30,701) (30,100)

The following amounts were recorded in the income statement relating to defined benefit pension plans:

in thousand CHF 2007 2006

Net pension cost for year ending Current service cost (13,849) (13,507) Interest cost (9,075) (8,582) Expected return on plan assets 11,701 11,764 Member contributions 4,837 5,180 Settlements / curtailments 1,481 707 Net periodic pensions (cost) credit (4,905) (4,438)

The movement in the defined benefit obligation over the year is as follows:

in thousand CHF 2007 2006

Changes in defined benefit obligation (DBO) DBO beginning of year (263,151) (242,137) Current service cost (13,849) (13,507) Recognized past service cost 3,089 0 Interest cost (9,075) (8,582) Actuarial gains (losses) recognized in equity (8,325) (14,210) Benefits paid 24,716 17,746 Curtailments 687 0 Liabilities extinguished on settlement (975) (1,412) Currency impact (1,792) (1,049) DBO end of year (268,675) (263,151)

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The movement in the fair value of plan assets of the year is as follows: in thousand CHF 2007 2006

Changes in fair value of plan asset Fair value beginning of year 266,449 261,744 Employer contributions 5,807 6,068 Employee contributions 4,837 5,180 Expected return on plan assets 11,701 11,764 Actuarial gains (losses) recognized in equity (9,378) (514) Benefits paid (23,786) (17,729) Liabilities extinguished on settlement 418 0 Currency impact (59) (64) Fair value end of year of plan asset 255,989 266,449

The actual return on plan assets was CHF 0.8 million (2006: 22.7 million). An analysis of the amounts recognized in equity is shown in the table below: in thousand CHF 2007 2006

Analysis of amounts recognized in equity Recognized in equity January 1 93,503 79,160 Actuarial (gains) losses plan asset 9,378 514 Actuarial (gains) losses DBO 8,325 14,210 Effect of impact of limit in paragraph 19.58b (15,383) (2,527) Currency impact 400 2,146 Recognized in equity on 31 December 96,223 93,503

Plan assets are comprised as follows: in thousand CHF 2007 2006

Major categories of plan assets Cash and cash equivalents 3,621 10,823 Equity investments 73,156 81,509 Bonds 148,668 143,111 Investment funds 24,196 24,448 Insurance contracts 6,348 6,558

The principal actuarial assumptions used (expressed as weighted averages) are as follows:

2007 2006

Discount rate 3.48% 3.45% Expected return on pension plan assets 3.73% 3.08% Future salary increase 1.42% 1.50% Future pension increase 0.46% 0.50%

The overall expected return of plan assets is based on country-specific long-term market expectations at the beginning of the period. A 5-year summary of the Group’s defined benefit plans is shown in the table below: in thousand CHF 2007 2006 2005 2004 2003

DBO 268,675 263,151 242,137 242,836 222,789 Plan assets (255,989) (266,449) (261,744) (237,033) (226,302) Deficit (surplus) 12,686 (3,298) (19,607) 5,803 (3,513) Experienced gains (losses) on plan liability (8,325) (14,210) 9,832 (10,692) (2,756) Experienced gains (losses) on plan asset (9,378) (514) 11,993 874 10,360

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7 Share and option ownership program

The Group operates several share and option ownership programs which are offered to members of the Board of Directors, members of the Executive Board and selected preferential employees which have the possibility to voluntarily participate in the programs.

Management Incentive Program I (MIP I) The Management Incentive Program I was introduced in 2005. Participants of the program were offered a certain amount of registered shares at the offering price of CHF 80.00 each with a lock-up period of one year. For every purchased share, the subscribers of the program were allocated two options, each option entitling them to purchase one further share at the offering price. The options cannot be settled in cash. The options are exercisable unconditionally starting one year from the grant date. The options have a remaining contractual option term of nine months. The following table lists the parameters based on which the option valuation was performed using the Black-Scholes model:

Management Incentive in CHF Program I

Market price of share 80.00 Exercise price of option 80.00 Expected volatility (in %) 22.59 Option life (in years) 2 Dividend yield (in %) 2.05 Risk-free interest rate based on Swiss government bonds (in %) 1.103

Management Incentive Program II (MIP II) In 2006 the existing Management Incentive Program I was continued in a modified Management Incentive Program II. Participants of this modified program had the right to purchase shares with a discount of 25% based on the share price corresponding to the average closing price of one share at the SWX Swiss Exchange during the months January to May in the respective year of purchase. The difference between the discounted share price on grant date and the share price paid by the participants is recognized as personnel expenses on the date of the issue of the shares. The shares are subject to a 1-year lock-up period. For every purchased share under this plan, the Group granted one option free of charge to the participants. The options have a contractual term of six years and a vesting period of one to three years. Each option entitles the participant to obtain one share of Panalpina World Transport (Holding) Ltd at a predetermined strike price which equals the average closing price of one share at the SWX Swiss Exchange during the months January to May in 2006. The share options cannot be settled in cash. In May 2007 the Board of Directors decided to divide the Management Incentive Program II into an International Incentive Plan (the “International Manage- ment Incentive Plan”) and in a “United States Management Incentive Plan”. Beneficiaries of the “United States Management Incen- tive Plan” are selected preferential employees of the subsidiary in the United States of America and members of the Board of Directors with residence in the United States of America. The conditions of this plan do not differ from those of the “International Management Incentive Plan” except for the strike price which equals the closing price of one share at the SWX Swiss Exchange on the date of disbursement. Under this changed program, beneficiaries of the “United States Management Incentive Plan” holding options to purchase shares of the Group’s capital stock were given the opportunity to exchange their existing options for new options to purchase an equal number of shares. 3,550 options with a strike price of CHF 111.30 were tendered pursuant to the “United States Management Incentive Plan”. In May 2007 those options were accepted and cancelled by the Group. The Group undertook to grant new options on a one-for-one basis, in lieu of the tendered options, to the affected employees. The new options, which totaled 3,550, were granted with a strike price of CHF 114.00.

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The following table lists the parameters based on which the option valuation of both plans were performed using the Black- Scholes model:

International United States Management Management Incentive Incentive in CHF Plan II Plan II

Market price of share 114.00 114.00 Exercise price of option 111.30 114.00 Expected volatility (in %) 30.00 30.00 Option life (in years) 55 Dividend yield (in %) 1.78 1.78 Risk-free interest rate based on Swiss government bonds (in %) 2.670 2.670

Management Incentive Program III (MIP III) The Management Incentive Program III was introduced in June 2007. The conditions of this share and option program do not differ from those of the modified Management Incentive Program II. During the reporting period, participants of the “International Management Incentive Plan III” subscribed 38,591 shares with a strike price of CHF 201.10. Participants of the “United States Management Incentive Plan III” subscribed 3,101 shares with a strike price of CHF 251.00. The difference between the discounted share price on grant date and the share price paid by the participants is recognized as personnel expense on the date of the issue of the shares. The weighted average fair value of the share options granted during the reporting period is determined using the Black-Scholes valuation model, applying the following significant inputs into the model:

International United States Management Management Incentive Incentive in CHF Plan III Plan III

Market price of share 251.00 251.00 Exercise price of option 201.10 251.00 Expected volatility (in %) 22.74 22.74 Option life (in years) 55 Dividend yield (in %) 1.20 1.20 Risk-free interest rate based on Swiss government bonds (in %) 4.250 4.250

Movements in the number of share options outstanding and their related average exercise prices are as follows:

2007 2006 Average ex- Average exercise price ercise price per share (in Options per share (in Options CHF) (number) CHF) (number)

Options outstanding on 1 January 90.39 163,645 80.00 199,242 Granted 197.69 45,242 111.3054,520 Exercised 84.67 (93,600) 80.00(89,897) Forfeited options 143.44 (4,292) 111.30 (220) Cancelled options 114.00 (3,550) Options outstanding on 31 December 137.77 107,445 90.39 163,645

Options exercisable on 31 December 87.77 34,171 80.00 109,345

Out of the 107,445 outstanding options (2006: 163,645 options), 34,171 options (2006: 109,345 options) were exercisable. In 2007 83,472 options of the MIP I were exercised at a strike price of CHF 80.00 (2006: 89,897 options), 8,416 options of the International Management Incentive Plan II were exercised at a strike price of CHF 111.30 (2006: 0 options) and 387 options of the United States Management Incentive Plan II were exercised at a strike price of CHF 114.00 (2006: 0 options). During the same period 1,325 options of the Mangement Incentive Plan III were exercised as a result of retirement of a participant.

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Share options outstanding at the end of the year have the following expiry date and average exercise prices:

2007 Average Exercise price Number of options per share (in CHF) expiring at year-end

2008 80.00 25,753 2009 2010 2011 2012 111.50 42,861 2013 205.08 38,831 Total 137.77 107,445

The Group holds own shares in order to meet its obligations under the Management Incentive Programs. These own shares are deducted from equity. The cost of share-based payments was as follows:

in CHF 2007 2006

Employee share plan 3,585,197 1,311,052 Option plan 1,590,131 456,183 Total cost share-based payments 5,175,328 1,767,235

8 Other operating expenses

in thousand CHF 2007 2006

Administrative expenses 34,224 27,038 Communication expenses 76,587 71,114 Rent and utilities expenses 194,513 173,472 Travel and promotion expenses 61,033 54,291 Insurance expenses and claims 27,074 30,045 Bad debt and collection expenses (Note 16) 11,540 1,973 Other operating expenses 36,251 33,275 Total operating expenses 441,222 391,208

Rent and utilities expenses include rentals amounting to CHF 92.0 million (2006: CHF 84.2 million) and lease of machinery, equipment and vehicles of CHF 22.0 (2006: CHF 17.1 million).

9 Gains and losses on sales of non-current assets

in thousand CHF 2007 2006

Gains on sales of investments 1,556 47 (Losses) gains on sales of property, plant and equipment (458) (146) Total net (losses) gains on sales of non-current assets 1,098 (99)

In the current year, net gains from the sale of assets resulted essentially from the sale of operational equipment and vehicles in Switzerland. In 2006, there were no material net losses from sale of assets.

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10 Financial result

in thousand CHF 2007 20061

Interest income Interest income on current bank accounts 6,247 3,773 Interest income on loans 4,573 2,469 Interest income on debtors 3,687 5,271 Cash discount income 65 40 Dividend on available-for-sale financial assets 639 130 Other financial income 585 547 Financial income 15,796 12,230

Interest expenses Interest expenses on loans (2,354) (2,411) Interest expenses on current bank accounts (5,966) (2,672) Interest expenses on creditors (15,222) (19,153) Cash discount expenses (50) (48) Interest expenses on financial leasing (86) (78) Bank charges (4,617) (3,785) Exchange differences (8,054) (3,825) Guarantee fees expenses (896) (870) Other financial expenses (1,066) (315) Financial expense (38,311) (33,157)

Net financial result (22,515) (20,927)

1 Prior year’s presentation has been adapted to the 2007 format.

11 Income taxes expenses

in thousand CHF 2007 2006

Current income taxes 59,072 56,123 Deferred income taxes (Note 22) 7,177 438 Total taxes on income 66,249 56,561

Since the Group operates internationally, it is subject to income taxes in many different tax jurisdictions. The Group calculates its average expected tax rate as a weighted average of the tax rates in the tax jurisdictions in which the Group operates. In 2007 the expected rate remains stable at 25.0% compared to 2006.

in thousand CHF 2007 2006

Earnings before taxes 276,848 240,071

Tax at the applicable tax rate of 25% (2006: 25%) 69,212 60,018

Effect of differing national tax rates (3,379) (8,921) Utilization of non-capitalized tax loss carry-forwards (3,780) (559) Capitalization of deferred tax assets from previous periods (59) 0 Not recognized loss carry-forwards 6,172 4,934 Effect of changes in the tax rate on temporary differences (7,389) (349) Withholding tax on dividends received 4,481 1,257 Expenses not deductible for tax purposes and non taxable income 834 1,303 Miscellaneous 157 (1,122) Actual tax charge 66,249 56,561

The effect of changes in the tax rate on temporary differences as well as the utilization of non-capitalized tax loss carry forward arise mainly from Switzerland.

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12 Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the net earnings attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year, excluding ordinary shares purchased by the Company and held as treasury shares (see note 24).

in thousand CHF 2007 2006

Consolidated net earnings attributable to equity holders of the Company 212,007 181,599 Weighted average number of ordinary shares outstanding 24,749 24,744 Basic earnings per share (in CHF) 8.57 7.34

Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group has only share options outstanding, which can be categorized as dilutive potential ordinary shares. For the share options, a calculation is made to determine the number of shares that could have been acquired at fair value based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

in thousand CHF 2007 2006

Consolidated net earnings attributable to equity holders of the Company 212,007 181,599 Weighted average number of ordinary shares outstanding 24,749 24,744 Adjustments for share options 44 21 Weighted average number of ordinary shares for diluted earnings per share 24,793 24,765 Diluted earnings per share (in CHF) 8.55 7.33

13 Financial risk management

Risk management is a fundamental element of the Group’s business practice on all levels and encompasses different types of risks. At a Group level risk management is an integral part of the business planning and controlling processes. Material risks are monitored and regularly discussed with the Executive Board. Financial risk management specifically is described in further detail below.

Financial risk management The Group is exposed to various financial risks arising from its underlying operations and corporate finance activities. The Group’s financial risk exposures are predominantly related to changes in foreign exchange rates, settlement, liquidity and credit risk as well as the creditworthiness and the solvency of the Group counterparties. Financial risk management within the Group is governed by policies reviewed by the Executive Board of Panalpina. These policies cover credit risk, liquidity risk and currency risk. The policies provide guidance on risk limits, type of authorized financial instruments and monitoring procedures. As a general principle, the policies prohibit the use of derivative financial instruments for speculative trading purposes. Policy implementation and daily risk management are carried out by the relevant treasury and/or credit control functions and regular reporting on these risks is performed by the relevant functions within the Group. Clear treasury management guidelines define approved financial transactions and products, counterparty limits and minimum creditworthiness and transaction limits. In line with the above-mentioned policy, the Group only enters into derivative transactions that are directly linked to underlying recognized and anticipated exposures arising from operating and/or financial assets or liabilities.

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Financial risk factors

Carrying amount and fair value of financial assets by asset classes The accounting policies for financial instruments have been applied to the line items below:

Fair value Derivative Available- through Loans used for for- profit or Held to and Total in thousand CHF Cash hedging sale loss maturity receivables (fair value) Trade receivables and other receivables 1,419,168 1,419,168 Unbilled forwarding services 143,957 143,957 Accrued interest income 34 34 Cash and cash equivalents 351,511 351,511 Derivative financial instruments 5,834 5,834 Marketable securities: Money market instruments 14,968 14,968 Bonds and debentures 965 965 Shares 18,702 142 18,844 Other investments 1,565 1,565 Third party loans 3,699 3,699 Rental and guarantee deposits 12,371 12,371 Total on 31 December 2007 351,511 5,834 20,267 15,933 142 1,579,229 1,972,916

Derivative Other used for financial Total in thousand CHF hedging liabilities (fair value)

Borrowings 33,471 33,471 Derivative financial instruments 5,656 5,656 Total on 31 December 2007 5,656 33,471 39,127

Fair value Derivative Available- through Loans used for for- profit or Held to and Total in thousand CHF Cash hedging sale loss maturity receivables (fair value) Trade receivables and other receivables 1,249,345 1,249,345 Unbilled forwarding services 135,393 135,393 Accrued interest income 785 785 Cash and cash equivalents 371,352 371,352 Derivative financial instruments 2,456 2,456 Marketable securities: Money market instruments 1,593 1,593 Bonds and debentures 894 894 Shares 18,051 142 18,193 Third party loans 2,423 2,423 Rental and guarantee deposits 8,200 8,200 Total on 31 December 2006 371,352 2,456 18,051 2,487 142 1,396,146 1,790,634

Derivative Other used for financial Total in thousand CHF hedging liabilities (fair value)

Borrowings 27,487 27,487 Derivative financial instruments 3,888 3,888 Total on 31 December 2006 3,888 27,487 31,375

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Credit risk Credit risk arises from the possibility that counterparties to transactions may default on their obligation, causing financial losses for the Group. The objective of managing counterparty credit risk is to prevent losses on financial instruments mainly with its liquid assets, derivative assets and trade receivables. Credit risk is managed in accordance with clear and established guidelines. Liquid assets are invested with highly rated borrowers and there is no exposure of credit risk. Trade receivables These are subject to a policy of active credit risk management which focuses on credit availability, ongoing credit evaluation and account monitoring procedures. The objective of the management of trade receivables is to sustain the growth and profitability of the Group by optimizing asset utilization whilst maintaining risks at an acceptable level. There is no significant concentration of counterparty credit risk due to the Group’s large number of customers and their wide geographical spread. Risk limits and exposures are continuously monitored by country and by the nature of counterparties. Additionally, the Group obtains credit insurance and similar enhancements when appropriate to protect the collection of trade receivables. The maximum exposure is the carrying amount as disclosed in Note 16. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, available-for-sale financial investments, loans and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

Settlement risk This risk results from the fact that the Group may not receive financial instruments from the counterparties at the expected time. This risk is managed by monitoring counterparty activity and settlement limits.

Cash and marketable securities These are subject to a policy of restricting exposures to high-quality counterparties and setting defined limits for individual counterparties. These limits and counterparty credit ratings are reviewed regularly. Investments in marketable securities are entered into on the basis of guidelines with regard to liquidity, quality and maximum amount. As a general rule, the Group invests only in high quality securities with adequate liquidity. Cash and short-term time deposits are subject to rules which limit the Group’s exposure to individual financial institutions with a minimum rating of A.

Liquidity risk Liquidity risk arises through a surplus of financial obligation over available financial assets due at any point in time. The Group’s objective approach to liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. To secure liquidity, the Group holds a net cash position of CHF 318.9 million (2006: CHF 346.4 million). As of 31 December 2007 unutilized credit lines amount to CHF 378.7 million (2006: CHF 381.7 million). The Group liquidity is reported to the Management on a monthly basis. The table below summarizes the maturity profile of the Group’s financial liabilities on 31 December 2007 and 31 December 2006 respectively, based on contractual undiscounted payments.

2007 (in thousand CHF) <1 year between 1 to 5 years >5 years

Borrowings (Note 23) 30,084 3,387 0 Trade and other payables 777,793 0 0 Derivative financial instruments 5,656 0 0 Current income taxes 29,072 0 0 Other liabilities 37,981 0 0 Total 880,586 3,387 0

2006 (in thousand CHF) <1 year between 1 to 5 years >5 years

Borrowings (Note 23) 24,239 3,248 0 Trade and other payables 654,192 0 0 Derivative financial instruments 3,888 0 0 Current income taxes 30,707 0 0 Other liabilities 29,177 0 0 Total 742,203 3,248 0

Currency risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily in regard to the US dollar and the euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities as well as net investments in foreign operations. Management has set up a policy to require Group companies to manage their foreign exchange risk against their functional currency. The Group companies are required to hedge their entire foreign exchange risk exposure with the Group Treasury. To manage foreign exchange risks arising from future commercial transactions or recognized assets and liabilities, entities in the Group use forward contracts, transacted in generally with Group Treasury. Foreign exchange risk arises when future commercial transactions or recognized assets and liabilities are denominated in a currency that is not the Group entity’s measurement

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currency. Group Treasury is responsible for managing the net position using external derivative contracts. For segment reporting purposes, each subsidiary designates contracts with Group Treasury as fair value hedges. External foreign exchange contracts are designated at Group level as hedges of foreign exchange risk on specific assets and liabilities on a gross basis. A 10 percent strengthening of the CHF against the following currencies at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2006.

2007 effect (in thousand CHF) Profit or loss Equity

US dollar (10,771) 0 Euro 3,252 0 Hong Kong dollar 1,943 0

2006 effect in thousand CHF Profit or loss Equity

US dollar (2,442) 0 Euro 639 0 Hong Kong dollar 3,941 0

A 10 percent weakening of the CHF against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, assumed that all other variables remain constant. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Cur- rency exposure arising from the net assets of the Group’s foreign operations is managed primarily though borrowings denominated in the relevant foreign currencies or in USD.

Interest rate risk The absence of significant interest bearing liabilities in general and their short-term nature limit exposure to interest rate risk. The Group has a clear funding policy that forbids affiliates from borrowing in foreign currency and has a clear preference for intra- group financing. Affiliates are also required to repatriate their excess cash. Liquidity is mainly managed at corporate level by using money market products. Derivative instruments are used to manage duration of financial instruments in a prudent way.

Insurance risk The Group has established a captive reinsurance company, Mondi Reinsurance Ltd., Hamilton, Bermuda, that insures a dedicated risk portion of its errors and omissions, transport-operator and commercial general liability programs. The exposure of its captive reinsurance company is limited by a third-party insurer that covers losses exceeding an amount of CHF 1 million on a single case basis and a total aggregate limit of CHF 9 million annually, for claims exceeding CHF 50,000 per incident. In a consolidated view, the Group, through its captive reinsurance company, bears the risks insured with its captive reinsurance company up to the limit as if such risks were not insured at all. Furthermore, as third party coverage is subject to a considerable deductible and a total aggregated limit per year, the Group, in effect, bears the risk of damages, losses and claims that are above such aggregated limits as well. The Group has supplemented its insurance program with a claims management and a claims handling system that ensure transparency of the Group’s risk profile and the proper handling of any claim.

Capital risk The Group defines the capital that it manages as the Group’s total equity, including minority interests. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, in order to support its business and returns to investors, to have available the necessary financial resources to allow the Group to invest in areas that may deliver future benefits and to maintain sufficient financial resources to mitigate against risks and unforeseen events. Capital is monitored on the basis of the equity ratio, which is calculated as being equity (including minority interests) as a percentage of total assets. This is reported to the management as part of the Group’s regular internal management reporting. The Group’s capital and equity ratio are shown in the table below: in thousand CHF 2007 2006

Capital and reserves attributable to Panalpina shareholders 1,009,880 969,686 Equity attributable to minority interests 6,638 8,050 Total equity 1,016,518 977,736

Total assets 2,265,569 2,108,259

Equity ratio 44.9% 46.4%

The Group is not subject to regulatory capital adequacy requirements.

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14 Cash and cash equivalents

in thousand CHF 2007 2006

Cash on hand 2,779 2,790 Cash at bank 349,465 385,549 Checks and bills of exchange – in transit (733) (16,987) Marketables securities 839 2,524 Total cash and cash equivalents and financial assets held for trading 352,350 373,876

Financial assets held for trading include primarily shares and bonds. In 2006 this position consisted mainly of money markets and bonds. Net cash (debt) is comprised as follows:

in thousand CHF 2007 2006

Cash and cash equivalents 351,511 371,352 Financial assets held for trading 839 2,524 Short-term borrowings (30,084) (24,239) Long-term borrowings (3,387) (3,248) Net cash (debt) 318,879 346,389

15 Derivative financial instruments

Accounting for derivative financial instruments and hedging activities

Derivative financial instruments are used to hedge foreign currency and interest rate risk. All derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative qualifies as a hedging instrument, and if so, the nature of the item being hedged. To qualify for hedge accounting, the hedging relationship must meet several strict conditions regarding documentation, probability of occurrence, hedge effectiveness and reliability of measurement. If these conditions are not met, then the financial instrument does not qualify for hedge accounting. In this case, the hedging instrument and the hedged item are valued independently of one another. The derivative hedging instrument is reported at fair value with the changes in fair value included in income (expenses). For qualifying fair value hedges, the derivative financial instruments are carried at fair value and gains or losses are recognized in the income statement. Additionally, the fair value gain or loss on the hedged item attributable to the hedged risk is recognized in the income statement. The fair value of various derivative instruments used for hedging purposes are disclosed below. The full fair value of a hedging derivative is classified as non-current asset or liablity when the remaining hedged item is more than twelve months, and as a current asset or liability when the the remaining maturity of the hedged item is less twelve months. Trading derivatives are classified as a current asset or liability. Normally, the Group consciously decides not to designate derivative instruments for hedge accounting according to IAS 39 (although they all are hedging-instruments from an economic point of view). Otherwise, the Group can designate individual derivatives as either: • a hedge of the exposure to changes in the fair value of a recognized asset or liability (fair value hedge), • a hedge of the exposure to variability in cash flows associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedges) or • a hedge of net investments in a foreign operation. • For qualifying cash flow hedges, the derivative hedging instrument is recorded at fair value. The portion of any change in fair value that is an effective hedge is included in equity, and any remaining ineffective portion is reported in income (expense). If a hedged forecast transaction results in the recognition of a non-financial asset or liability, the cumulative change in fair value of the hedging instrument that has been recorded in equity is included in the initial carrying value of that asset or liability at the time it is recognized. For all other qualifying cash flow hedges, the cumulative changes in the fair value of the hedging instrument that have been recorded in equity are included in income (expense) at the time when the forecasted transaction affects net income.

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• For qualifying hedges of net investments in foreign operations, the hedging instruments are accounted in a manner similar to cash flow hedges. The foreign exchange portion of any change in fair value that is an effective hedge is included in equity as translation reserve. Any remaining ineffective portion is recorded in income (expense). If the hedged subsidiary is disposed of, then the cumulative amounts that have been recorded in equity are included in income (expense) at the time of the disposal.

Derivative financial instruments

The year-end contract value is calculated on the total volume of individual contracts using the fair value at year-end. The positive replacement value represents the theoretical profit if the open currency contracts were closed out as of 31 December. Corre- spondingly, the negative replacement value represents the theoretical loss on closing the currency transactions open as of 31 December. The change in the fair value has been recognized in the income statement because the instruments did not fulfill the conditions for hedge accounting.

Positive Negative Contract Value Replacement Value Replacement Value in thousand CHF 2007 2006 2007 2006 2007 2006

Forward foreign exchange contracts 1,098,808 812,909 5,834 2,456 (5,656) (3,888)

Forward trading hedges 1,042,063 693,904 5,808 2,435 (5,520) (3,500) Foreign exchange options 56,745 119,005 26 21 (136) (388)

Positive Negative Contract Value Replacement Value Replacement Value in thousand CHF 2007 2006 2007 2006 2007 2006

Terms of the forward foreign exchange contracts 1,098,808 812,909 5,834 2,456 (5,656) (3,888)

0 – 3 months 1,089,433 807,460 5,795 2,343 (5,609) (3,710) 4 – 12 months 9,375 5,449 39 113 (47) (178)

Derivative financial instruments are spread over the following currencies:

Forward foreign exchange contracts in thousand CHF 2007 2006

EUR 433,155 186,510 USD 393,212 446,553 GBP 68,354 62,514 HKD 49,879 34,152 SEK 42,929 16,114 CAD 40,080 18,046 SGD 17,947 10,322 AUD 17,279 20,956 JPY 13,961 8,530 DKK 4,796 1,841 CZK 4,329 990 NZD 4,208 1,014 Other 8,679 5,367 Total 1,098,808 812,909

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16 Trade receivables

in thousand CHF 2007 2006

Commercial clients 1,321,202 1,174,898 Agents 46,164 38,757 Total trade receivables (gross) 1,367,366 1,213,655

Provision for impairment (30,515) (28,196) Total trade receivables (net) 1,336,851 1,185,459

There is no concentration of credit risk with regard to trade receivables as the Group has a large number of customers that are dispersed internationally. Provision for impaired trade receivables are established based upon the difference between the receivable value and the estimated net collectible amount. Panalpina establishes its provision for doubtful trade receivables based on its historical loss experiences. Significant financial difficulties of the debtor are individually impaired. The maximum exposure to credit risk on the reporting date is the fair value of net trade receivables mentioned above. The Group does not expect writing off not-past-due nor unprovided trade receivables. The creation and usage of provisions for impaired trade receivables have been included in other operating expenses in the income statement. The following table summarizes the movement in the provision for impairment of trade receivables:

in thousand CHF 2007 2006

Balance January 1 28,196 36,616 Receivables written off during the year as uncollective (6,981) (7,658) Changes in provision for doubtful accounts 9,300 (762) Balance December 31 30,515 28,196

The following table sets forth details of the age of trade receivables that are not overdue as the payment terms specified in the terms and conditions established with Panalpina customers have not been exceeded as well as an analysis of overdue amounts and related provision for doubtful trade receivables:

in thousand CHF 2007 2006

Commercial clients 1,321,202 1,174,898 Agents 46,164 38,757 Total trade receivables (gross) 1,367,366 1,213,655

Provision for impairment (30,515) (28,196) Total trade receivables (net) 1,336,851 1,185,459

of which: Not overdue 861,203 648,141 Past due not more than 30 days 335,351 350,815 Past due more than 31 days and 180 days 154,801 179,732 Past due more than 181 days and 360 days 19,582 21,567 Past due more than 361 days 18,089 15,370 Prepayment (21,660) (1,970) Total trade receivables (gross) 1,367,366 1,213,655

Provision for impairment (30,515) (28,196) Total trade receivables (net) 1,336,851 1,185,459

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Trade receivables include amounts denominated in the following major currencies:

in thousand CHF 2007 2006

CHF 77,742 61,531 USD 222,278 270,742 EUR 462,565 404,690 GPB 75,896 67,187 SEK 74,514 33,309 HKD 61,472 55,229 CNY 52,554 52,668 Others 309,830 240,103 Total trade receivables (net) 1,336,851 1,185,459

17 Other receivables and other current assets

in thousand CHF 2007 2006

Office supplies 2,415 1,478 Taxes (VAT, withholding tax) 40,661 31,991 Accrued income 1,646 845 Accrued interest income 34 785 Personnel advances 6,288 6,160 Short term deposits 0 4,734 Prepaid rent expenses 2,449 424 Supplier rebates 12,323 11,346 Short term loans 431 552 Others 16,652 17,203 Total other receivables and other current assets 82,899 75,518

18 Property, plant and equipment

Machinery Construc- Land and and tion in 2007 (in thousand CHF) buildings equipment Vehicles progress Total

Acquisition costs Balance on 1 January 146,453 236,026 57,251 1,151 440,881 Translation differences 10,587 9,490 (1,254) (80) 18,743 Additions 4,479 30,265 5,623 2,655 43,022 Disposals (716) (23,778) (5,684) (54) (30,232) Reclassifications 4 534 (8,324) (7,786) Balance on 31 December 160,807 252,537 47,612 3,672 464,628

Accumulated depreciation Balance on 1 January 68,375 183,577 27,381 0 279,333 Translation differences 5,398 6,292 2,787 14,477 Additions 8,346 25,016 5,480 38,842 Disposals (1,085) (22,058) (4,715) (27,858) Reclassifications 4 534 (8,324) (7,786) Balance on 31 December 81,038 193,361 22,609 0 297,008

Net book value January 1 78,078 52,449 29,870 1,151 161,548 Net book value on 31 December 79,769 59,176 25,003 3,672 167,620

Of which net book value of assets acquired under finance leases 560 0 2,115 22 2,697

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Machinery Construc- Land and and tion in 2006 (in thousand CHF) buildings equipment Vehicles progress Total

Acquisition costs Balance on 1 January 141,314 227,159 48,047 108 416,628 Translation differences 317 (3,564) (896) (8) (4,151) Additions 5,833 26,951 13,326 2,109 48,219 Disposals (2,040) (14,571) (3,226) (29) (19,866) Reclassifications 1,029 51 (1,029) 51 Balance on 31 December 146,453 236,026 57,251 1,151 440,881

Accumulated depreciation Balance on 1 January 61,337 176,469 26,372 0 264,178 Translation differences 118 (2,554) (286) (2,722) Additions 8,055 22,920 3,802 34,777 Disposals (1,135) (13,309) (2,507) (16,951) Reclassifications 0 51 51 Balance on 31 December 68,375 183,577 27,381 0 279,333

Net book value on January 1 79,977 50,690 21,675 108 152,450 Net book value on 31 December 78,078 52,449 29,870 1,151 161,548

Of which net book value of assets acquired under finance leases 71 1,593 1,664

19 Financial, other and intangible assets

Financial and other assets Intangible assets

Post-em- Available- ployment Other for-sale Receiv- benefit as- intangible 2007 (in thousand CHF) investments ables sets Goodwill assets Total

Acquisition costs Balance on 1 January 26,161 14,155 12,044 60,974 101,715 215,049 Translation differences 292 (1,530) (789) (2,928) (4,955) Additions 367 25,963 7,794 34,124 Disposals (1,376) (2,689) (1,335) (5,400) Reclassifications 166 166 Balance on 31 December 26,986 37,212 9,355 60,185 105,246 238,984

Accumulated depreciation or impairment losses Balance on 1 January 8,004 (9) 0 0 60,331 68,326 Translation differences (3) 9 (2,635) (2,629) Additions 1 11,294 11,339 22,634 Disposals (698) (698) Reclassifications 166 166 Balance on 31 December 8,168 0 0 11,294 68,337 87,799

Net book value on 1 January 18,157 14,164 12,044 60,974 41,384 146,723 Net book value on 31 December 18,818 37,212 9,355 48,891 36,909 151,185

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Financial and other assets Intangible assets

Post-em- Available- ployment Other for-sale Receiv- benefit intangible 2006 (in thousand CHF) investments ables assets Goodwill assets Total

Acquisition costs Balance on 1 January 26,173 10,945 13,448 60,203 91,423 202,192 Translation differences (31) (389) 771 3,057 3,408 Additions 121 4,477 8,761 13,359 Disposals (102) (878) (1,404) (1,526) (3,910) Reclassifications 0 Balance on 31 December 26,161 14,155 12,044 60,974 101,715 215,049

Accumulated depreciation or impairment losses Balance on 1 January 7,52500042,834 50,359 Translation differences (9) 2,549 2,540 Additions 511 16,383 16,894 Disposals (32) (1,435) (1,467) Reclassifications 0 Balance on 31 December 8,004 (9) 0 0 60,331 68,326

Net book value on 1 January 18,648 10,945 13,448 60,203 48,589 151,833 Net book value on 31 December 18,157 14,164 12,044 60,974 41,384 146,723

Available-for-sale investments are only equity investments for which no active market with publicly quoted market values exists. Therefore, it has been impossible to determine the market value of these equity investments and the investments are carried at historical cost less identified impairment. The fair values of unlisted securities are based on discounted cash flows using a rate based on the market interest rate and the risk premium specific to the unlisted securities. Receivables include third party loans of CHF 3.3 million (2006: CHF 1.9 million), pledged money market and bonds of CHF 15.2 million (2006: CHF 0) and mainly rental and guarantee deposits of CHF 12.3 million (2006: CHF 8.2 million). The net book value of other intangible assets comprises: • Software in the amount of CHF 20.9 million (2006: CHF 18.9 million). Software includes accumulated internally generated capitalized software development costs of CHF 9.2 million (2006: CHF 15.0 million). • Other intangible assets consist mainly of acquired brands and customer relations of CHF 11.5 million (2006: CHF 22.0 million).

Impairment test for goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to the country of operation. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. A summary of the goodwill allocation per CGU is presented below: in thousand CHF 2007 2006

Air Division 31,151 31,151 Panalpina World Transport (Nigeria) Ltd. 1,022 12,316 Grampian International Freight Aberdeen & Beverwijk 12,415 13,136 Panalpina World Transport (Singapore) Pte. Ltd. (JANCO acquisition) 4,303 4,371 Total goodwill 48,891 60,974

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The following key assumptions have been used for the value-in-use calculations of each CGU:

Switzerland Europe Africa Asia

Growth rate1 2.50% 4.00% 3.50% 4.50% Operating expenses in % of forwarding revenues2 98.00% 90.00% 94.55% 91.00% WACC3 11.50% 11.34% 8.54% 11.98%

1 Weighted average growth rate used to extrapolate cash ﬂ ows beyond the budget period 2 Budgeted operating expenses in % of forwarding revenues 3 Pre-tax discount rate applied to the cash ﬂ ow projections

The management determined budgeted growth rate based on past performance and its expectations of market development. The operating expenses in % of forwarding revenues are consistent with the forecasts and past experience. The WACC used are pre- tax and reflect specific risks relating to the relevant CGUs. For the impairment testing procedure the planning assumptions of prior years were critically reviewed as a result of the recovery of the activities which was realized at a slower pace than origninally expected. This review resulted in lower expected cash flows from the goodwill by Panalpina World Transport (Nigeria) Ltd. in the coming years and a reduced estimated amount recoverable from the respective net assets calculated on a value-in-use basis. Consequently, an impariment of the goodwill allocated to the CGU in the amount of CHF 11.3 million was recorded. This impairment is reported as goodwill impairment in the income statement. For the impairment testing procedure it was assumed that the CGU would achieve sales growth above market growth for the planning period. It was also assumed that Ebitda will decrease over present performance due to the increase of percentage of operating expenses in % of forwarding revenue.

20 Other liabilities

Outstanding Employee vacation benefits and 2007 (in thousand CHF) entitlement Claims others Total

Balance on 1 January 24,628 22,637 29,177 76,442 Translation differences 185 (119) 66

Additional accruals 14,763 1,309 32,679 48,751 Reversals of other liabilities (2,445) (2,445) Charged in income statement 14,763 1,309 30,234 46,306

Amount paid (10,941) (21,284) (32,225) Transfers 27 (27) 0

Balance on 31 December 28,662 23,946 37,981 90,589

Outstanding Employee vacation benefits and 2006 (in thousand CHF) entitlement Claims others Total

Balance on 1 January 24,504 21,165 22,247 67,916 Translation differences (275) 79 (196)

Additional accruals 5,046 1,472 27,038 33,556 Reversals of other liabilities (6,182) (6,182) Charged in income statement 5,046 1,472 20,856 27,374

Amount paid (4,647) (14,005) (18,652)

Balance on 31 December 24,628 22,637 29,177 76,442

Other liabilities include, apart from outstanding vacation entitlement, personnel profit participation, social security and payroll taxes, and the current portion of short-term claims payables.

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21 Provisions and other liabilities

Post-employ- Claims Employee ment benefit and other 2007 (in thousand CHF) benefits liabilities provisions Total

Balance on 1 January 30,315 42,144 28,885 101,344 Translation differences (385) 1,852 258 1,725

Addition 11,023 17,077 28,100 Reversal of unused amount (496) (3,940) (9,842) (14,278) Charged in income statement 10,527 (3,940) 7,235 13,822

Utilized during the year (3,017) (1,700) (4,717)

Balance on 31 December 37,440 40,056 34,678 112,174

Post-employ- Claims Employee ment benefit and other 2006 (in thousand CHF) benefits liabilities provisions Total

Balance on 1 January 29,338 29,766 24,629 83,733 Translation differences (447) 1,057 166 776

Addition 5,886 11,321 16,197 33,404 Reversal of unused amount (1,253) (1,166) (2,419) Charged in income statement 4,633 11,321 15,031 30,985

Utilized during the year (3,209) (10,941) (14,150)

Balance on 31 December 30,315 42,144 28,885 101,344

The balance for claims represents a provision for certain claims brought forward against the Group by customers and forwarding agents. The balance as at 31 December is expected to be utilized within the next two to three years. Long-term claims include an additional provision for probable potential future payments in connection with transport damages. The management determined the provision based on past performance and its expectation of the funds needed for the future settlement of the claims for the past delivered services which are not yet reported.

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22 Deferred income taxes

Deferred taxes are related to the following balance sheet items:

Deferred tax assets Deferred tax liabilities in thousand CHF 2007 2006 2007 2006

Receivables 6,603 8,385 (960) (1,204) Fixed assets 3,995 2,936 (15,790) (16,870) Provisions 12,377 12,885 (4,558) (1,887) Other balance sheet captions 7,335 11,023 (10,634) (8,348) Deductible loss carry forwards 4,634 4,493 0 0

Total 34,944 39,722 (31,942) (28,309)

Net deferred tax assets (liabilities) 3,002 11,413

In this summary, deferred tax assets and liabilities are shown gross by balance sheet captions. For balance sheet disclosure purposes, the liabilities and assets are reported net by each subsidiary, resulting in the following balance sheet presentation:

in thousand CHF 2007 2006

Deferred tax assets 24,873 27,286 Deferred tax liabilities (21,871) (15,873) Net deferred tax assets (liabilities) 3,002 11,413

The gross movement on the deferred income tax account is as follows:

in thousand CHF 2007 2006

Balance on 1 January 11,413 8,829 Translation differences (371) (1,259) Income statement charge (7,177) (438) Tax charged to equity due to IAS 19 (863) 4,281 Balance on 31 December 3,002 11,413

In 2007, the amount of CHF 61,726 (CHF 182,000) was not capitalized because it was not probable that it can be set off against future profits.

Year of expiry of unrecognized tax loss carry-forwards (in thousand CHF) 2007 2006

2007 0 2,305 2008 1,406 971 2009 1,406 1,673 2010 1,406 971 2011 2,124 971 2012 1,406 0 Later 29,804 47,479 Total unrecognized tax loss carry-forwards 37,552 54,370

The unrecognized tax loss carry-forwards increased by CHF 18.8 million in Algeria, Australia, Brazil, Ireland, Slovakia and Turkey. Tax loss carry-forwards expired in Ecuador, Kazakhstan and Turkey. Tax loss carry-forward of CHF 4.8 million has been utilized in Austria, Belgium, Spain and Switzerland. On 31 December 2007, undistributed earnings of CHF 338.1 million (2006: CHF 382.6 million) have been retained by subsidiary companies for reinvestment. No provision is made for income taxes that would be payable upon the distribution of such earnings. If the earnings were remitted, an income tax charge could result based on the tax statutes currently in effect.

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23 Borrowings

Short-term borrowings (in thousand CHF) 2007 2006

Bank borrowings 20,006 20,185 Finance lease liabilities 1,049 496 Other loans 9,029 3,558 Total short-term borrowings 30,084 24,239

Long-term borrowings (in thousand CHF) 2007 2006

Finance lease liabilities 1,325 1,032 Other loans 2,062 2,216 Total long-term borrowings 3,387 3,248

The weighted average interest rate of bank borrowings and other financing liabilities is 6.18% (2006: 5.97%). The carrying amounts of short term bank borrowings approximate their fair value.

Maturity of long-term financial debts (excluding lease liabilities) 2007 2006 in thousand CHF 2007 019 2008 0 2,197 2009 2,056 0 2010 60 Later 00 Total 2,062 2,216

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

in thousand CHF 2007 2006

XAF 10,532 6,225 VEB 4,083 0 COP 4,007 0 YTL 3,604 0 RUB 3,400 0 ARS 3,188 0 GBP 1,768 1,494 BRL 702 0 DZD 549 0 EUR 409 0 INR 388 0 Others 841 19,768 Total 33,471 27,487

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24 Share capital

Outstanding number of shares Ordinary Treasury in thousand CHF (numbers) shares shares Total

On 1 January 2007 24,822,217 50,000 (15,022) 34,978

Treasury shares Sold 15,000 3,637 3,637 Purchased (512,850) (105,713) (105,713) Sold under employee share plan 41,692 7,925 7,925 Sold under employee option plan 93,600 7,776 7,776 On 31 December 2007 24,459,659 50,000 (101,397) (51,397)

The share capital is presented by 25 million issued shares (2006: 25 million) of CHF 2.00 par value, fully paid-in. As of 31 December 2007, the number of outstanding shares amounted to 24,459,659 shares (2006: 24,822,217) and the number of treasury shares to 540,341 (2006: 177,783). Treasury shares have been deducted from shareholders’ equity. All shares issued by the Company were fully paid-in. The extraordinary Shareholders’ Meeting, held on 23 August 2005, authorized the Board of Directors to create an authorized capital in the maximum amount of CHF 6 million by issuing a maximum of 3,000,000 registered shares with a nominal value of CHF 2.00 each at any time until 22 August 2007. On the Annual General Meeting, held on 15 May 2007, the shareholders followed the proposal of the Board of Directors to extend the authorized share capital until May 2009 with an unchanged amount. The Board of Directors has not yet made use of this authorization. The Company has no conditional share capital. During the year under review the Board of Directors decided to return excess capital to the shareholders by launching a share Total nzug buyback program for up to 5% of the total share capital, which represents a maximum of 1,250,000 registered shares. A separate second trading line at the SWX Swiss Exchange was opened on 13 August 2007. During the year ended 31 December 2007 the 3x Group acquired 409,600 numbers of shares under the share buyback program for a total consideration of CHF 24 million. The Group intends to cancel the repurchased shares. The respective proposal to reduce the share capital is expected to be submitted to the shareholders at the Annual General Meeting in 2009. The amount available for dividend distribution is based on the available distributable retained earnings of Panalpina World Trans- port (Holding) Ltd. determined in accordance with the legal provisions of the Swiss Code of Obligations. In 2007, the dividend paid was CHF 74 million (2006: CHF 49 million). Except for 223,696 treasury shares, all shares were dividend-bearing.

25 Minority interests

in thousand CHF 2007 2006

Balance on 1 January (net) 8,020 6,957

Translation differences 123 (750) Interest in net earnings (1,408) 1,911 Dividend paid (97) (98) Total net minority interests 6,638 8,020

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26 Related parties

Board of Directors and management compensation

The members of the Board of Directors receive a fixed annual compensation and participate in certain equity compensation plans. In 2007, there were 7 (2006: 6) members of the Board of Directors, including the former chairman Gerhard Fischer who retired from the Board at the Annual General Meeting of 15 May 2007. Rudolf W. Hug succeeded Gerhard Fischer as Chairman of the Board of Directors. Compensation to the Executive Board consists of a fixed portion and a variable portion, which depends on the course of business and the individual manager’s performance. In addition, members of the Executive Board receive indirect benefits and are able to participate in certain equity compensation plans. In 2007, there were 6 (2006: 8) members of the Executive Board, including one member leaving the Executive Board in April 2007. Overview of the total compensation to all members of the Board of Directors and Executive Board:

Value of Total Termi- options Social Compen- Annual nation Other on grant security sation 2007 (in thousand CHF) salary1 benefits benefits2 date contribution3 2007

Remuneration Members of the Board of Directors 1,125 545 61 1,731 Members of the Board of Directors leaving 791 3,000 31 40 3,862 Total 1,916 3,000 31 545 101 5,593

Members of the Executive Board 5,555 178 401 346 6,480 Members of the Executive Board leaving 280 575 38 81 974 Total 5,835 575 216 401 427 7,454

Total remuneration 7,751 3,575 247 946 528 13,047

Value of Total Termi- options Social Compen- Annual nation Other on grant security sation 2006 (in thousand CHF) salary1 benefits benefits2 date contribution 2006

Remuneration Members of the Board of Directors 1,189 51 1,240

Members of the Executive Board3 6,404 197 36 201 6,838 Members of the Executive Board leaving 2,709 2,709 Total 6,404 2,709 197 36 201 9,547

Total remuneration 7,593 2,709 197 87 201 10,787

1 Salaries incl. fi xed remuneration, salary, bonus, service bonus and discount on shares granted 2 Other benefi ts incl. expense allowance and fringe benefi ts 3 The remuneration of the Executive Board includes the compensation of the executive member of the Board of Directors in 2006

In 2007, the Group contributed a total of CHF 553 thousand (2006: CHF 366 thousand) in regard of the Executive Board to defined benefit plans. There were no contributions or donations to close members of the families of the key management.

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The following compensation table provides details on the individual compensation awarded to each member of the Board of Directors in 2007:

Value of Total Termi- options Social Compen- Annual nation Other on grant security sation in thousand CHF salary1 benefits benefits2 date contribution 2007

Current members of Board of Directors Rudolf W. Hug, Chairman 296 99 26 421 Wilfried Rutz, Vice Chairman 269 99 13 381 Günther Casjens, Member 135 99 0 234 Yuichi Ishimaru, Member 141 99 11 251 Glen R. Pringle, Member 109 50 11 170 Roger Schmid, Member 175 99 0 274 Total remuneration of current members 1,125 0 0 545 61 1,731

Board of Directors members leaving Gerhard Fischer, retired Chairman 791 3,000 31 0 40 3,862 Total remuneration of members leaving 791 3,000 31 0 40 3,862

Total remuneration 1,916 3,000 31 545 101 5,593

1 Salaries incl. fi xed remuneration, salary, bonus, service bonus and discount on shares granted 2 Other benefi ts incl. expense allowance and fringe benefi ts

As of 31 December 2007 members of the Board of Directors including associated persons held the following number of shares and options (subject to allocation):

Number of PWT Number of Year of nominal shares options allocation Term

Rudolf W. Hug, Chairman1 5,115 1,200 2006 2006 – 2012 1,325 2007 2007 – 2013 Wilfried Rutz, Vice Chairman 9,475 500 2005 2005 – 2008 1,800 2006 2006 – 2012 1,325 2007 2007 – 2013 Günther Casjens, Member 10,875 1,200 2006 2006 – 2012 1,325 2007 2007 – 2013 Yuichi Ishimaru, Member 9,375 5,000 2005 2005 – 2008 1,800 2006 2006 – 2012 1,325 2007 2007 – 2013 Glen R. Pringle, Member 4,050 1,800 2006 2006 – 2012 995 2007 2007 – 2013 Roger Schmid, Member 9,375 7,500 2005 2005 – 2008 1,800 2006 2006 – 2012 1,325 2007 2007 – 2013

Total 48,265 30,220

1 Rudolf W. Hug succeeded Gerhard Fischer as Chairman; Gerhard Fischer retired from the Board at the Annual General Meeting of 15 May 2007.

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The following compensation table provides details on the compensation awarded to the members of the Executive Board in 2007:

Value of Total Termi- options Social Compen- Annual nation Other on grant security sation salary1 benefits benefits2 date contribution 2007 in thousand CHF

Executive Board Monika Ribar, Chief Executive Officer 1,600 46 99 119 1,864 Members of the Executive Board 3,955 132 302 227 4,616 Executive Management leaving 280 575 38 81 974

Total remuneration 5,835 575 216 401 427 7,454

1 Salaries incl. fi xed remuneration, salary, bonus, service bonus and discount on shares granted 2 Other benefi ts incl. expense allowance and fringe benefi ts

As of 31 December 2007 members of the Executive Board as well as associated persons held the following number of shares and options (subject to allocation):

Number of PWT Number of Year of nominal shares options allocation Term

Monika Ribar, Chief Executive Officer 11,875 1,800 2006 2006 – 2012 1,325 2007 2007 – 2013

Jörg Eggenberger, Chief Operations Officer 6,951 1,800 2006 2006 – 2012 1,325 2007 2007 – 2013

Christoph Hess, General Counsel and Corporate Secretary 1,850 600 2006 2006 – 2012 600 2007 2007 – 2013

John Klompers, Chief Marketing and Sales Officer 3,300 800 2007 2007 – 2013

Jürg Honegger, Chief Financial Officer 1,326

Total 25,302 8,250

Shareholders, pension funds, associated companies and all subsidiaries are defined as parties related to the Group. Apart from the transactions with related parties mentioned here, we refer to note 6. In 2007, the Group paid contributions to pension funds of CHF 5.6 million (2006: CHF 5.9 million).

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27 Cash flow statement

Cash flow from operating activities (in thousand CHF) 2007 2006

Earnings before taxes 276,848 240,071 Depreciation of property, plant and equipment (Note 18) 38,842 34,777 Impairment of financial investments (Note 19) 1 511 Goodwill impairment charge (Note 19) 11,294 0 Amortization of intangible assets (Note 19) 11,339 16,383 (Decrease) increase in long-term provisions 24,173 18,723 Loss (gain) on sales of fixed assets (Note 9) (1,098) 146 Loss (gain) on sales of investments (Note 9) (283) (47) Adjustment of net periodic pension costs 5,839 (3,868) Interest income (Note 10) (14,572) (11,553) Interest expense (Note 10) 23,678 24,362 Share-based payments (Note 7) 5,175 1,767 Cash flow before interest and taxes 381,236 321,272

Decrease (increase) receivables and other current assets (198,850) (153,835) (Decrease) increase payables, accruals and deferred income 87,178 143,453 (Decrease) increase other liabilities 46,306 27,374 Total cash flow from operating activities 315,870 338,264

28 Business combinations/disinvestments

In 2007, there were no business combinations, nor were any significant subsidiaries sold.

29 Additional information

Contractual commitments on non-cancellable operating lease contracts 2007 2006 in thousand CHF 2007 0 120,959 2008 136,501 72,005 2009 81,373 58,638 2010 65,014 51,827 2011 48,996 40,828 2012 42,613 0 Later 110,596 115,681 Total residual commitments 485,093 459,938

Included in the residual lease commitments is an operating lease contract for an aircraft (total CHF 29.3 million), leased by Panalpina Air & Ocean Ltd. The contract with a yearly notice period expires in August 2009.

Obligations under finance lease contracts 2007 2006 in thousand CHF 2007 0 496 2008 1,049 462 2009 1,077 462 2010 224 108 2011 24 0 Total residual commitments 2,374 1,528

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Pledged assets

On the balance sheet date, the Group’s pledged assets amounted to CHF 123.0 million (2006: 117.4 thousand). CHF 15.2 million (2006: CHF 0) are assets pledged as security for trade foreign exchange transactions and relate to pledged marketabe securities. CHF 1.0 million (2006: CHF 13.0 thousand) are assets pledged as security for liabilities and relate to pledged cash at bank and time deposits and CHF 106.8 thousand million (2006: CHF 104.4 thosand) are assets pledged as security for a Zero-Balance-Pool and relate to pledged cash at bank.

Pending legal claims

In addition to the matters discussed under insurance risk, from time to time the Group is involved in legal proceedings in the ordinary course of its business. Other than as noted below, the Group is not a party to any legal, administrative or arbitration proceedings which could significantly harm the Group’s business, financial condition and results of operations taken as a whole, and it does not know of any such proceedings which may currently be contemplated by governmental or third parties. Pantainer Ltd., the NVOCC (Non-Vessel Operating Common Carrier) of the Group, is facing lawsuits concerning liability claims in an unspecified amount in connection with two incidents in which it is alleged that fires occurred, allegedly due to containers shipped under Pantainer bills of lading, containing chemicals that were not declared as hazardous cargo. In the first case, the container ship was seriously damaged and the extent of damage to the cargo is understood to be significant. Legal proceedings in connection with this aforementioned case have been initiated against Pantainer Ltd. The pending lawsuits in London and Rot- terdam contain actions for damages in an unspecified amount and a declaratory judgment against Pantainer Ltd. In addition, a formal payment demand in an amount of approximately USD 130 million has been filed against Pantainer Ltd. in Basel to interrupt the statute of limitations. In the second case, as a consequence of a fire – which was able to be extinguished shortly after it broke out – the vessel has declared general average. The operation of the vessel was deliberately stopped for safety reasons, the fire was extinguished and the operation of the vessel continued. Claimants may seek compensation of general average contributions and damage/loss of cargo respectively potential damages to the vessel. Formal legal proceedings have been launched in Tokyo against the shipper which in turn has commenced third party proceedings against Pantainer Ltd. and other companies of the group. The value in dispute amounts to approximately CHF 8.5 million. In both cases, although it is alleged by other parties that the chemicals shipped under the Pantainer bills of lading were the source of the fire, Pantainer Ltd. has received information from the shippers of the cargo that the chemicals were not dangerous. Further- more, Pantainer Ltd. has filed/prepared recovery actions against certain other parties involved. In the first case high court proceedings have been stayed pending resolution of arbitration proceedings between the claimant and further parties up the line. These arbitrations have been settled recently prior to the issue of an award and the claimant agreed to pay an amount of USD 19.1 million in respect of the loss of the vessel and 50% of other claims relating to loss of cargo and containers and recoverable costs, which are not yet specified in all details. The amount of cargo claims is limited to approximately USD 11 million, in accordance with a limitation decree obtained by one of the parties up the line. This is likely to reduce respective cargo claims, but it is not yet clear how substantial the reduction may be. A claim against Pantainer Ltd. will be for an indemnity in respect of these sums. If no resolution between the parties can be reached, it is likely that the court stay will be lifted and the proceedings will continue. These cases will raise complex issues as to the exact chemical composition of the cargo, its characteristics, description and the likely cause of the fires. In the first case evidence emerged which indicates that a defect in the vessel may have caused sea water ingress which in turn may have caused chemicals to react. To date, the proceedings have not progressed far enough for Panalpina to reach a definitive view of its potential liability exposure, the insurance coverage actually available or the realistic prospects of a recovery from other parties. In an initial reaction in June 2005, the insurance company has denied coverage for the first case, but accepted coverage for the second case. To date, no specific provisions have been made. In January 2007 Panalpina Inc. was served a “subpoena” by the U.S. Department of Justice (DOJ). The subpoena required Pan- alpina, Inc. to produce all documents related to the provision of its services for two specific customers. The subpoena resulted from an investigation and a subsequent plea agreement with one such customer and the DOJ for potential violations of the U.S. Foreign Corrupt Practices Act (FCPA) by allegedly making improper payments through Panalpina as its customs agent to Nigerian officials to secure preferential customs treatment. In March 2007, a supplemental subpoena was issued to demand information on Panalpina services for its customers in Nigeria, Kazakhstan and Saudi Arabia. In May 2007, DOJ issued a letter listing specific customer files of Panalpina Inc. to be produced to DOJ. As a consequence Panalpina initiated an internal investigation and retained the services of an external counsel and a forensic accounting expert company. During 2007 Panalpina reviewed its range of services and practices in certain problematic countries. Simultaneously the implementation of its standardized and group-wide Code of Business Conduct, related processes and training programs was accom- plished. This program was designed to bring Panalpina’s companies into compliance with the FCPA and other applicable anti-corruption laws in the countries in which they operate on a going-forward basis.

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Further to discussions with the DOJ the Audit Committee has instructed external counsel to investigate according to US standards Panalpina’s compliance with the FCPA and other applicable anti-corruption laws during the period 2002 to present. Panalpina is fully cooperating with the DOJ and has agreed, inter alia, on investigation plans in a limited number of selected countries and procedures for reporting findings of these investigations to DOJ. The investigations are not expected to be completed prior to the end of 2008. Based on the information obtained in the investigation to date, potential FCPA violations may have occurred. As a result, legal proceedings may be brought against the company respectively its affiliates and/or certain of its employees in connection with potential violations of law including the FCPA. In addition, the scope of the proceedings may be expanded. The company’s operating activities and financial results may also be negatively affected, particularly due to potential fines, claims or the loss of business. To date, no provisions have been made, as management does not have sufficient information to assess whether a present obligation exists and to reliably estimate its financial impact, if any. However, the company will have to bear the costs of the continuing investigations including related legal and accounting fees as well as the costs of the ongoing compliance remediation efforts. In October 2007 Panalpina’s headquarters in Switzerland and the US were raided by competition authorities. Further, a request for information was served by the New Zealand Commerce Division and a document retention notice by the Competition Bureau Canada. These activities were part of a concerted action of several competition authorities against various major freight forwarding companies for alleged anti-competitive behavior. Further, a civil class action lawsuit was filed in the US against Panalpina and six of its major competitors as a direct consequence of the actions by authorities. As the internal fact finding related to the aforementioned countries is still ongoing, Panalpina is not in position to assess its exposure and potential financial consequence, if any. Consequently, no related provisions have been made.

Subsequent events

Since the balance sheet date, no events have become known for which a disclosure is required.

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30 Principal Group companies and participations

Nominal Equity Method capital interest Invest- of con- Company Registered Currency in 1,000 in % ment solidation

Europe Panalpina World Transport (Holding) Ltd. Basel CHF 50,000 K Panalpina Management AG Basel CHF 2,500 100 1 K Panalpina Finance Ltd. Jersey CHF 10,000 100 1 K Panalpina AG Basel CHF 600 100 1 K ASB Air Sea Broker AG Basel CHF 3,000 100 1 K Pantainer AG Basel CHF 100 100 1 K Panalpina Insurance Broker AG Basel CHF 100 100 1 K Hausmann Transport AG Reinach CHF 100 100 1 K Panalpina Air & Ocean AG Basel CHF 2,700 100 1 K Jacky Maeder international forwarding Ltd. Basel CHF 2,000 100 1 K Panalpina Welttransport (Deutschland) GmbH Mörfelden EUR 10,226 100 1 K Panalpina Welttransport GmbH Düsseldorf EUR 154 100 1 K Panalpina Welttransport GmbH Hamburg EUR 154 100 1 K Panalpina Welttransport GmbH Kehl EUR 153 100 1 K Panalpina Welttransport GmbH Mörfelden EUR 307 100 1 K Panalpina Welttransport GmbH Nürnberg EUR 3,937 100 1 K Panalpina Welttransport GmbH Stuttgart EUR 153 100 1 K Panalpina Welttransport GmbH Vienna EUR 36 100 1 K Panalpina Welttransport GmbH Höchst EUR 36 100 1 K Panalpina France Transports Internationaux S.A.S. Paris-Roissy EUR 4,500 100 1 K Panalpina Trasporti Mondiali S.p.A. Milan EUR 2,000 100 1 K Panalpina Transportes Mundiales S.A. Madrid EUR 451 100 1 K Panalpina Transportes Mundiais Lda. Lisbon EUR 50 100 1 K Panalpina World Transport Ltd. London GBP 500 100 1 K Panalpina World Transport (Ireland) Ltd. Dublin EUR 25 100 1 K Grampian International Freight Ltd. Aberdeen GBP 97 100 1 K Panalpina World Transport N.V. Antwerp EUR 3,750 100 1 K Panalpina Luxembourg S.A. Luxembourg EUR 31 100 1 K Panalpina World Transport B.V. Amsterdam EUR 91 100 1 K Grampian International Freight B.V. Beverwijk EUR 18 100 1 K Panalpina Czech Sro. Prague CZK 1,000 100 1 K Panalpina Spedicija d.o.o. Koper EUR 8 100 1 K Panalpina Slovakia S.R.O. Bratislava SKK 700 100 1 K Panalpina Magyarorszag Kft. Budapest HUF 3,000 100 1 K Panalpina Romania S.R.L. Oradea ROL 72 100 1 K Panalpina Polska Sp. z. oo. Wroclaw PLN 50 100 1 K Panalpina AB Gothenburg SEK 1,000 100 1 K Panalpina Overseas Shipping A / S Oslo NOK 1,000 100 1 K Panalpina World Transport Nakliyat Ltd. Srk. Istanbul YTL 300 100 1 K Panalpina World Transport ZAO Moscow RUB 2,100 100 1 K Panalpina CIS Helsinki OY Vantaa EUR 8 100 1 K Panalpina World Transport Ltd. Kiev UAH 1,111 100 1 K Luxair S.A. Luxembourg EUR 13,744 12 4 N

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Nominal Equity Method capital interest Invest- of con- Company Registered Currency in 1,000 in % ment solidation

North, Central and South America Panalpina Inc. Jersey USD 4,000 100 1 K Hensel, Bruckmann & Lorbacher, Inc. Farmingdale N.Y. USD 50 100 1 K Panalpina Inc. Toronto CAD 100 100 1 K Panalpina Transportes Mundiales, S.A. de C.V. Mexico City MXN 34,534 100 1 K Panalpina S.A. Panama City USD 1,250 100 1 K Almacenadora Mercantil S.A. Panama City USD 25 100 1 K Panalpina S.A. de C.V. San Salvador SVC 100 100 1 K Panalpina Transportes Mundiales S.A. San José CRC 2,500 100 1 K Panalpina Uruguay Transportes Mundiales S.A. Montevideo UYU 3,526 100 1 K Panalpina S.A. Santa Fé de Bogotá COP 7,450,838 100 1 K DAPSA Depositos Aduaneros Panalpina S.A. Santa Fé de Bogotá COP 2,815,208 100 1 K Panalpina C.A. Caracas VEB 7,299,297 100 1 K Inversiones Ortrac C.A. Caracas VEB 6,000 100 1 K Panalpina Ecuador S.A. Quito USD 1 100 1 K Panalpina Aduanas S.A. Lima PEN 1,000 100 1 K Panalpina Transportes Mundiales S.A. Lima PEN 4,008 100 1 K Panalpina Ltda. São Paulo BRL 28,701 100 1 K Panalpina Chile Transportes Mundiales Ltda. Santiago CLP 68,960 100 1 K Panalpina Transportes Mundiales S.A. Buenos Aires ARS 44 100 1 K Panalpina Transportes Mundiales S.A. de C.V. Santo Domingo DOP 25 100 1 K Mondi Reinsurance Ltd. Hamilton CHF 2,000 100 1 K

Asia and Australia Panalpina World Transport (Singapore) Pte. Ltd. Singapore SGD 2,500 100 1 K PT Panalpina Nusajaya Transport Jakarta IDR 1,500,000 100 1 K Panalpina China Ltd. Hong Kong HKD 1,000 100 1 K Panalpina World Transport (PRC) Ltd. Shanghai CNY 9,500 100 1 K Panalpina Asia-Pacific Services Ltd. Hong Kong HKD 500 100 1 K Panalpina World Transport Ltd. Hong Kong HKD 100 100 1 K Panalpina Taiwan Ltd. Taipei TWD 15,500 100 1 K Panalpina IAF (Korea) Ltd. Seoul KRW 500,000 100 1 K Panalpina World Transport (Thailand) Ltd. Bangkok THB 14,000 70 2 K Panalpina Asia-Pacific Services (Thailand) Ltd. Bangkok THB 10,000 100 1 K Panalpina Macao Ltd. Macao HKD 1,000 100 1 K Panalpina Transport (Malaysia) Sdn. Bhd. Kuala Lumpur MYR 4,215 100 1 K Panalpina World Transport (Japan) Ltd. Tokyo JPY 50,000 100 1 K Panalpina World Transport (India) Pvt. Ltd. Delhi INR 1,668 100 1 K Panindia Cargo Private Ltd., Dehli Delhi INR 100 100 1 K Panalpina World Transport (Philippines) Inc. Manila PHP 10,000 100 1 K Panalpina World Transport (Pty) Ltd. Sydney AUD 2,500 100 1 K Panalpina Kazakhstan LLP Almaty KZT 145 100 1 K

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Nominal Equity Method capital interest Invest- of con- Company Registered Currency in 1,000 in % ment solidation

Africa and Middle East Panalpina Gulf LLC Dubai AED 1,000 49 3 K Panalpina Jebel Ali Ltd. Jebel Ali AED 100 100 1 K Panalpina World Transport (Dubai) DWC-LLC Dubai AED 300 100 1 K Panalpina World Transport (Kuwait) WLL Kuwait KWD 20 100 1 K Panalpina (Bahrain) WLL Manama BHD 20 100 1 K Panalpina Central Asia EC Manama USD 300 100 1 K Panalpina Georgia LLC Tbilis GEL 11 100 1 K Panalpina Azerbaijan LLC Baku AZN 1 100 1 K Panalpina Turkmenistan LLC Turkmenbashi TMM 312,000 100 1 K Qatar Shipping Company (Panalpina Qatar) WLL Doha QAR 200 49 3 K Panalpina Transports Mondiaux Cameroun S.A.R.L. Douala XAF 150,000 100 1 K Panalpina Transportes Mundiales Guinea Equatorial Sarl. Malabo XAF 10,000 100 1 K Panalpina Transports Mondiaux Algerie EURL Hassi Messaoud DZD 5,000 100 1 K Panalpina Transports Mondiaux Congo SARL Pointe Noire XAF 70,000 100 1 K Panalpina Transports Mondiaux Gabon S.A. Port-Gentil XAF 50,000 90 1 K Panalpina World Transport (Nigeria) Ltd. Apapa NGN 100,000 69 2 K Panalpina (Ghana) Ltd. Accra GHS 10 100 1 K Panalpina Transportes Mundiais Navegaçao e Transitos, S.A.R.L. Luanda AON 18,000,000 92 1 K

K = fully consolidated N = not consolidated 1 = capital participation 91 – 100% 2 = capital participation 50 – 90% 3 = controlling influence over management 4 = capital participation less than 50%

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Report of the Group Auditors

To the General Meeting of Panalpina World Transport (Holding) Ltd., Basel

As auditors of the Group, we have audited the consolidated financial statements (income statement, balance sheet, statement of recognized income and expenses, statement of changes in equity, statement of cash flows and notes / pages 76 to 123) of Panalpina World Transport (Holding) Ltd. for the year ended 31 December 2007. These consolidated financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with Swiss Auditing Standards and with the International Standards on Auditing, which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with Swiss law. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers AG

Thomas Brüderlin Oliver Zell Auditor in charge

Basel, 10 March 2008

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Key Figures in CHF 5-year review

in million CHF 2007 2006 2005 2004 2003

Forwarding services 10,592 9,301 8,280 7,452 6,561 Change in % 13.88 12.32 11.11 13.58 3.10

Net forwarding revenue 8,684 7,735 6,949 6,120 5,362 Change in % 12.27 11.31 13.55 14.14 3.61

Gross profit (contribution margin) 1,803 1,591 1,408 1,327 1,239 Change in % 13.35 13.00 6.10 7.10 (0.72) in % of net revenue 20.77 20.57 20.26 21.68 23.11

Consolidated net earnings 210.6 183.5 120.3 100.0 97.7 Change in % 14.77 52.54 20.30 2.35 (15.48) in % of gross profit 11.68 11.53 8.54 7.54 7.89

Ebitda 360.8 312.7 214.2 198.1 195.4 Change in % 15.39 45.99 8.13 1.38 (7.48) in % of gross profit 20.01 19.65 15.21 14.93 15.77

Ebita 310.7 277.9 177.9 160.5 152.6 Change in % 11.80 56.21 10.84 5.18 (7.23) in % of gross profit 17.23 17.47 12.63 12.09 12.32

Ebit 299.4 261.0 165.6 139.0 138.1 Change in % 14.70 57.61 19.14 0.65 (8.97) in % of gross profit 16.60 16.40 11.76 10.47 11.15

Cash flow before interest and taxes 381.2 321.3 216.4 198.4 194.9 Change in % 18.65 48.48 9.07 1.80 (11.57) in % of gross profit 21.14 20.19 15.37 14.95 15.73

Net cash flow from operating activities 209.5 240.9 141.9 33.9 89.6 Change in % (13.03) 69.77 318.58 (62.17) 24.62 in % of gross profit 11.62 15.14 10.08 2.55 7.23

Free cash flow 138.1 186.0 121.4 (77.7) 47.5 Change in % (25.74) 53.21 256.24 (263.58) 143.59 in % of gross profit 7.66 11.69 8.62 (5.86) 3.83

Net working capital 487.8 414.4 418.7 356.2 263.1 Change in % 17.72 (1.03) 17.55 35.39 19.59

Capital expenditure on fixed assets 50.8 57.0 59.9 77.1 51.1 Change in % (10.84) (4.84) (22.31) 50.88 (23.73) in % of gross profit 2.82 3.58 4.25 5.81 4.12

Net capital expenditure on fixed assets 45.4 54.0 33.2 61.6 39.7 Change in % (15.90) 62.65 (46.10) 55.16 (18.31) in % of gross profit 2.52 3.39 2.36 4.64 3.20

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in million CHF 2007 2006 2005 2004 2003

Depreciation 61.5 51.7 48.5 59.1 57.4 Change in % 18.91 6.60 (17.94) 3.04 (3.53) in % of gross profit 3.41 3.25 3.44 4.45 4.63

Personnel expenses 1,002.5 886.9 843.7 782.4 734.8

Personnel Number of employees at year-end (world) 15,301 14,304 13,583 13,224 12,344 Number of employees at year-end (Switzerland) 769 755 659 669 755 Yearly average (world) 14,712 13,342 13,031 12,784 12,404

Productivity ratios (CHF) Net sales per average employee 590,282 579,766 533,241 478,723 432,280 Gross profit per average employee 122,581 119,235 108,050 103,802 99,887 Personnel expenses per average employee 68,138 66,474 68,747 61,202 59,236 Personnel cost in % of gross profit 55.59 55.74 59.92 58.34 59.30

Leverage (liabilities/equity) 1.24 1.17 1.13 0.97 1.01

Net interest bearing liabilities (325) (372) (221) (231) (311)

Gross gearing (interest bearing liabilities/equity) 0.03 0.03 0.02 0.02 0.03

Net gearing (net interest bearing liabilities/equity) (0.32) (0.38) (0.26) (0.28) (0.41)

ROCE (Ebit less tax/capital employed) in % 36.44 31.96 20.95 23.67 26.03

Current cash debt coverage ratio (net operating cash flow/average current liability) 0.20 0.26 0.18 0.05 0.14

Cash debt coverage ratio (net operating cash flow/average total liability) 0.18 0.23 0.16 0.04 0.12

Return on equity in % 21.3 20.2 14.6 13.8 17.3 Change in % 5.32 38.07 5.81 (20.21) (5.58)

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Balance Sheet in CHF 5-year review

in million CHF 2007 2006 2005 2004 2003

Assets 2,266 2,108 1,830 1,574 1,522 Change in % 7.47 15.17 16.26 3.89 1.93

Current assets 1,922 1,773 1,496 1,263 1,246 Change in % 8.40 18.48 18.45 3.89 1.93

Liquid funds 358 376 241 246 332 Change in % (4.74) 56.02 (2.22) 10.38 20.46 Receivables and other current assets 1,564 1,397 1,255 1,017 914 Change in % 11.93 11.28 23.45 5.10 3.90

Fixed assets 344 336 334 311 275 Change in % 2.29 0.60 7.40 12.93 (5.68)

Tangible assets 168 162 152 159 154 Change in % 3.47 6.58 (4.40) (8.05) (12.80) Financial assets 90 72 73 61 68 Change in % 25.36 (1.37) 19.67 3.67 (23.38) Intangible assets 86 102 109 91 53 Change in % (15.88) (6.42) 19.78 (10.42) (16.57)

Liabilities and shareholders’ equity 2,266 2,108 1,830 1,574 1,522 Change in % 7.49 15.16 16.28 3.89 1.93

Liabilities 1,249 1,131 972 787 782 Change in % 10.47 16.29 23.55 0.64 4.55

Payables, accruals and deferred income 1,103 1,002 837 660 651 Change in % 10.08 19.79 26.79 1.38 5.68 Borrowings 33 27 52 57 52 Change in % 22.60 (46.99) (9.65) (11.58) 29.86 Provisions 112 101 84 70 79 Change in % 11.06 20.24 20.00 (11.39) (33.44)

Minorities 7 8733

Equity 1,010 970 851 784 737 Change in % 4.11 13.98 8.55 8.49 3.27

Share capital 50 50 50 50 50 Change in % 0.00 0.00 0.00 0.00 0.00 Treasury shares (101) (15) (20) 0 0 Change in % 575.98 (25.00) 100.00 0.00 0.00 Translation differences (74) (65) (57) (87) (67) Change in % 13.50 14.04 (34.48) 29.85 21.82 Retained earnings 1,135 1,000 878 821 754 Change in % 13.51 13.90 6.94 10.14 12.61

Panalpina Annual Report 2007 127 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Consolidated and Annual Financial Statements 2007

Key Figures in EUR 5-year review

in million EUR 2007 2006 2005 2004 2003

Forwarding services 6,448 5,895 5,339 4,827 4,328 Change in % 9.38 10.41 10.61 11.53 (0.18)

Net forwarding revenue 5,286 4,903 4,480 3,964 3,537 Change in % 7.82 9.44 13.02 (1.79) 10.52

Gross profit (contribution margin) 1,098 1,008 908 860 817 Change in % 8.91 11.01 5.58 5.18 (3.87) in % of net revenue 20.77 20.56 20.27 21.70 23.10

Consolidated net earnings 128.2 116.3 77.6 64.8 64.4 Change in % 10.23 49.87 19.75 0.62 (18.17) in % of gross profit 11.68 11.54 8.55 7.53 7.89

Ebitda 219.7 198.2 138.1 128.3 128.9 Change in % 10.83 43.52 7.64 (0.44) (10.42) in % of gross profit 20.01 19.66 15.21 14.93 15.57

Ebita 189.1 176.1 114.7 104.0 100.7 Change in % 7.40 53.53 10.29 3.29 (10.18) in % of gross profit 17.23 17.47 12.63 12.09 12.32

Ebit 182.2 165.4 106.8 90.0 91.1 Change in % 10.18 54.87 18.67 (1.15) (11.85) in % of gross profit 16.60 16.41 11.76 10.47 11.15

Cash flow before interest and taxes 232.1 203.6 139.5 128.5 128.6 Change in % 13.98 45.95 8.56 (0.03) (14.38) in % of gross profit 21.14 20.20 15.36 14.95 15.73

Net cash flow from operating activities 127.5 152.7 91.5 22.0 59.1 Change in % (16.48) 66.89 315.91 (62.84) 20.66 in % of gross profit 11.62 15.15 10.08 2.56 7.23

Free cash flow 84.1 117.9 78.3 (50.3) 31.3 Change in % (28.68) 50.57 255.67 (260.64) 135.86 in % of gross profit 7.66 11.70 8.62 3.84 3.83

Net working capital 293.1 256.9 269.0 230.9 168.8 Change in % 14.09 (4.49) 16.50 36.81 11.55

Capital expenditure on fixed assets 30.5 35.4 38.5 50.0 32.8 Change in % (13.75) (7.88) (23.00) 52.47 (28.86) in % of gross profit 2.78 3.51 4.24 5.81 4.01

Net capital expenditure on fixed assets 27.3 33.6 21.3 39.9 25.5 Change in % (18.79) 57.75 (46.62) 56.47 (23.80) in % of gross profit 2.49 3.33 2.35 4.64 3.12

128 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Consolidated and Annual Financial Statements 2007

in million EUR 2007 2006 2005 2004 2003

Depreciations 37.4 32.7 31.3 38.3 37.9 Change in % 14.44 4.73 (18.28) 1.11 (6.59) in % of gross profit 3.41 3.25 3.44 4.45 4.63

Personnel expenses 610.2 562.1 544.0 506.8 484.6

Personnel Number of employees at year-end (World) 15,301 14,304 13,583 13,224 12,344 Number of employees at year-end (Switzerland) 769 755 659 669 927 Yearly average (World) 14,712 13,342 13,031 12,784 12,404

Productivity ratios Net sales per average employee 359,328 367,461 343,816 310,092 325,433 Gross profit per average employee 74,620 75,572 69,667 67,947 71,308 Personnel expenses per average employee 41,478 42,130 41,747 39,073 39,071 Personnel Cost in % of gross profit 55.59 55.75 59.92 58.96 59.30

Leverage (liabilities / equity) 1.24 1.17 1.13 0.97 1.01

Net interest bearing liabilities (195) (231) (142) (150) (199)

Gross gearing (interest bearing liabilities / equity) 0.03 0.03 0.02 0.02 0.03

Net gearing (net interest bearing liabilities / equity) (0.32) (0.38) (0.26) (0.28) (0.41)

ROCE (Ebit less tax / capital employed) in % 36.44 31.96 20.95 23.67 26.03

Current cash debt coverage ratio (net operating cash flow / average current liability) 0.20 0.26 0.18 0.05 0.14

Cash debt coverage ratio (net operating cash flow / average total liability) 0.18 0.23 0.16 0.04 0.12

Return on equity in % 21.3 20.2 14.6 13.8 17.3 Change in % 5.32 38.07 5.81 (20.21) (5.58)

Panalpina Annual Report 2007 129 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Consolidated and Annual Financial Statements 2007

Balance Sheet in EUR 5-year review

in million EUR 2007 2006 2005 2004 2003

ASSETS 1,361 1,311 1,169 1,021 953 Change in % 3.83 12.17 14.56 7.09 (3.03)

Current assets 1,155 1,103 954 819 777 Change in % 21.04 15.54 16.54 5.45 (0.69)

Liquid funds 215 233 148 160 213 Change in % (7.63) 57.26 (7.43) (24.91) 2.91 Receivables and other current assets 940 870 806 659 564 Change in % 7.99 7.89 22.35 16.91 (1.98)

Fixed assets 206 209 215 202 176 Change in % (3.96) (2.80) 6.53 14.28 (12.15)

Tangible assets 101 100 98 103 99 Change in % 0.71 2.61 (4.98) 4.33 (13.98) Financial assets 54 45 47 40 44 Change in % 20.51 (5.01) 18.67 (9.35) (3.90) Intangible assets 52 64 70 59 34 Change in % (19.45) (8.90) 18.48 73.51 (16.21)

LIABILITIES AND SHAREHOLDERS’ EQUITY 1,361 1,311 1,169 1,021 953 Change in % 3.83 12.17 14.48 7.18 (3.08)

Liabilities 750 703 618 502 479 Change in % 6.75 13.79 23.18 4.71 (6.85)

Payables, accruals and deferred income 663 623 551 419 395 Change in % 6.42 13.07 31.61 5.98 (6.72) Borrowings 20 17 13 24 21 Change in % 18.30 30.19 (45.24) 16.84 (17.09) Provisions 67 63 54 59 64 Change in % 6.98 17.19 (8.81) (7.11) (3.81)

Minorities 45422

Equity 607 603 547 518 472 Change in % 0.63 10.35 5.60 9.72 1.10

Share capital 30 32 32 32 32 Change in % 0.00 0.00 0.00 0.00 0.00 Treasury shares (62) (1) (13) 0 0 Change in % 6,072.43 (26.17) 100.00 0.00 0.00 Translation differences (74) (41) (37) (55) (44) Change in % 79.94 11.45 (33.46) 25.96 20.69 Retained earnings 682 622 564 541 484 Change in % 9.64 10.27 4.35 11.78 2.67

130 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Annual Financial Statement

Financial Statements 2007 Panalpina World Transport (Holding) Ltd.

Panalpina Annual Report 2007 131 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Annual Financial Statement

Income Statement

in thousand CHF 2007 2006

Income Income from participations 173,345 150,698 Financial income 38,772 64,067 Rental income 350 350 Other income 02 Total income 212,467 215,117

Expenses Personnel expenses 17,410 1,859 Other administrative expenses 9,819 6,118 Financial expenses 41,457 47,422 Depreciation and value adjustments 2,603 9,075 Total expenses 71,289 64,474

Taxes 100 1,257

Profit for the year 141,078 149,386

132 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Annual Financial Statement

Balance Sheet as of 31 December (before profit appropriation)

Assets in thousand CHF 2007 2006

Current assets Cash 186,140 227,366 Receivables: – from Group companies 5,607 7,106 – from third parties 655 353 Financial receivables from Group companies 174,344 271,506 Marketable securities 15,209 0 Prepaid expenses and deferred charges 6,747 4,458 Total current assets 388,702 510,789

Long-term assets Buildings and real estate p.m. p.m. Participations 97,897 97,701 Loans to Group companies 234,481 211,367 Own shares 101,397 15,022 Total long-term assets 433,775 324,090

Total assets 822,477 834,879

Liabilities and equity in thousand CHF 2007 2006

Short-term liabilities Cash pool Group companies 45,580 174,446 Payables: – due to Group companies 12,307 486 – due to third parties 4,803 51 Financial liabilities to Group companies 59,549 41,841 Accrued expenses 6,685 5,157 Total short-term liabilities 128,924 221,981

Long-term liabilities Loans from Group companies 1,225 0 Provisions 42,394 29,713 Total long-term liabilities 43,619 29,713

Total liabilities 172,543 251,694

Equity Share capital 50,000 50,000 General legal reserve 10,000 10,000 Reserve for own shares 101,397 15,022 Special reserve 226,453 312,828 Accumulated earnings: – balance brought forward from previous year 121,006 45,949 – profit for the year 141,078 149,386 Total equity 649,934 583,185

Total liabilities and equity 822,477 834,879

Panalpina Annual Report 2007 133 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Annual Financial Statement

Notes to the Financial Statements

General

The Group’s consolidated financial statements must be considered for an appropriate financial and economic assessment of the Group. The presented statutory financial statements of Panalpina World Transport (Holding) Ltd., which serve as a supplement to the consolidated financial statements, were prepared in accordance with the requirements of the Swiss law for companies, the Code of Obligations (SCO).

Valuation methods and translation of foreign currencies

Marketable securities are reported at market value. Treasury shares are valued at the lower of cost and market value. All other assets including participations are reported at cost less appropriate write-downs. Assets and liabilities denominated in foreign currencies are translated into Swiss francs (CHF), using year-end rates of exchange, except participations which are translated at historical rates. Transactions during the year which are denominated in foreign currencies are translated at exchange rates effective at the relevant transaction dates. Resulting exchange gains and losses are recognized in the income statement with the exception of unrealized gains which are deferred.

Financial income

The cut in the reporting year is predominantly attributable to a significant lower foreign exchange result.

Personnel expenses

The increase of CHF 15.6 million is mainly due to a change in the internal cost allocation which added CHF 9.9 million. In accordance with the Transparency Act, the compensation of the members of the Board of Directors and the members of key management are disclosed in note no 26 in the Group’s financial statements.

Other administrative expenses

The increase in the reporting year of CHF 3.7 million is for the most part attributable to the development of the Panalpina brand which amounts to CHF 2.7 million.

Financial expenses

The decrease in financial expenses is mainly the result of lower hedging costs due to a lower interest rate differential mainly between USD and CHF.

Depreciation and value adjustments

In the year under review, value adjustments totaling CHF 2.6 million were debited to the income statement. This refers to depreciation on loans to subsidiaries and value adjustments to participations in subsidiaries.

Financial receivables from Group companies

Financial receivables decreased by CHF 97.2 million compared with the previous year. This decrease is for the most part a result of lesser financing needs of the subsidiaries as well as of debt restructuring from short-term loans to long-term loans.

Marketable securities

The marketable securities encompass primarily two UBS funds which are used as collateral for Prime Brokerage. These two funds are pledged towards UBS.

Participations

The principal direct and indirect subsidiaries of Panalpina World Transport Holding Ltd. are listed under the heading “Principal Group companies and participations” on pages 121 to 123.

Loans to Group companies

Loans to Group companies increased by CHF 23.1 million in the year under review. This increase is primarily due to debt restructuring.

134 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Annual Financial Statement

Own shares

In the year under review, treasury shares purchased totaled 512,850 shares (2006: 102,810 shares) with an average purchase price per share of CHF 206.13 (2006: CHF 120.53) and treasury share sales totaled 150,292 shares (2006: 175,027 shares) with an average sale price of CHF 128.67 (2006: CHF 99.24). Of these shares a total of 130,741 (2006: 177 783) are held for serving the employee option plan. The other 409 600 shares (2006: 0) are held for the share buy back program. This program was launched in 2007 by the Board of Directors to return excess capital to the shareholders. The share buy back program includes up to 5% of the total share capital, which represents a maximum of 1,250,000 registered shares. The number of treasury shares held by the Panalpina World Transport (Holding) Ltd. meets the definitions and requirements of Art. 659b SCO.

Movement Movement Number of shares 31/12/2007 in year 31/12/2006 in year 31/12/2005

Total Panalpina World Transport (Holding) Ltd. shares 25,000,000 0 25,000,000 0 25,000,000 Total Treasury shares held by Panalpina World Transport (Holding) Ltd. 540,341 362,558 177,783 (72,217) 250,000

Financial liabilities to Group companies

Compared to the previous year, financial liabilities to Group companies increased by CHF 17.7 million. This increase is due to additionally granted loans by subsidiaries.

Provisions

These include provisions relating exclusively to foreign exchange risks.

Share capital

As in the previous year, the fully paid-in share capital on 31 December 2007 amounts to CHF 50 million consisting of 25 million registered shares at a par value of CHF 2.00 each. in thousand CHF 2007 2006

Guarantees in favor of third parties Guarantees and indemnity liabilities, Code of Obligations, article 663b 136,265 117,977 In addition, Panalpina World Transport (Holding) Ltd., Basel, has issued letters of comfort in favor of various banks concerning liabilities due from subsidiaries amounting to CHF 9.7 million (previous year: CHF 16.9 million).

Pledged Assets Cash 106,413 103,300 Marketable securities 15,209 0

Fire insurance value of buildings and real estate 3,080 3,039

Shareholders Ernst Göhner Stiftung, Zug 42.58% 42.60% Lone Cypress Ltd., Lone Spruce L.P., Lone Balsam L.P., Lone Sequoia L.P., Lone Kauri Ltd., Lone Cascade L.P., Lone Monterey Master Fund Ltd. and Lone Sierra L.P., USA 5.10% 0.00% Viking Global Equities L.P., Viking Global Equities II L.P. and VGE III Portfolio Ltd., USA 5.21% 0.00% Bank of New York Mellon Corporation, USA 3.53% 0.00% Portfolio investment (according to the share register, there are no more shareholders with holdings of more than 5%) 43.58% 57.40%

General legal reserve

The legal reserve must be at least 20% of the share capital of Panalpina World Transport (Holding) Ltd. in order to comply with the SCO. Panalpina World Transport (Holding) Ltd. has met the legal requirements for legal reserves under Article 659 et. Seq. and 663b10 SCO for the treasury shares.

Panalpina Annual Report 2007 135 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Annual Financial Statement

Appropriation of Available Earnings

The Board of Directors proposes the following appropriation of available earnings of total CHF 262,084,675 at the Annual General Meeting:

in CHF 2007

Distribution of an ordinary dividend of CHF 3.20 gross per share* 80,000,000 To be carried forward 182,084,675 Total 262,084,675

* It is not planned to pay dividends on own shares held by the Group.

136 Panalpina Annual Report 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Annual Financial Statement

Report of the Statutory Auditors

To the General Meeting of Panalpina World Transport (Holding) Ltd., Basel

As statutory auditors, we have audited the accounting records and the financial statements (income statement, balance sheet and notes/pages 132 to 135) of Panalpina World Transport (Holding) Ltd. for the year ended 31 December 2007. These financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with the Swiss Auditing Standards, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the Company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.

PricewaterhouseCoopers AG

Thomas Brüderlin Oliver Zell Auditor in charge

Basel, 10 March 2008

Panalpina Annual Report 2007 137 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Information for Investors

Share information

Share symbol PWTN Fiscal year ends 31 December Reuters PWTN.S Valoren 000216808 Bloomberg PWTN SW ISIN CH0002168083 Trading exchange SWX Share register SIS Aktienregister AG, Olten, Switzerland

Key figures

in million CHF 2007 2006 change in %

Net forwarding revenue 8,684 7,735 12.3 Contribution margin (gross profit) 1,803 1,591 13.4 Ebitda 361 313 15.4 Ebit (operating result) 299 261 14.7 Net earnings 211 184 14.8 Cashflow from operating activities 316 338 (6.5) Net capital expenditure 49 54 (16.7) Balance sheet 2,266 2,108 7.5 Equity 1,017 978 4.0 Employees 15,301 14,304 7.0 Gross profit per average employee (in CHF) 122,581 119,235 2.8

5-year development

(in million CHF)

Net forwarding revenue Net earnings

7,500 210 684 5 1 8, 21 6,250 73 175 4 49 7, 18

5,000 20 140 6,9 62 3,750 6,1 105 0 5,3 12 2,500 70 0 98 10 1,250 35 0 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Contribution margin (gross profit) Shareholders’ equity

1,900 1,000 7 8

1,750 875 01 3 1, 97 8 1,600 80 750 1, 7 85 1 0 1,450 625 78 59 74 1,

1,300 8 500 7 40 1, 9 1,150 32 375 1, 23

1,000 1, 250 2003 2004 2005 2006 2007 125 0 Ebit 2003 2004 2005 2006 2007 310

280 9

250 29 1

220 26 190 160 6

130 16 9 8 13 100 13 70 2003 2004 2005 2006 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 138 Panalpina Annual Report 2007 Information for Investors

Ordinary gross dividend payments

Amount Per share Financial year (in million CHF) * (in CHF)

2007 (proposal) 80 3.20 2006 75 3.00 Key figures 2005 60 ** 2.40 2004 30 1.20 in million CHF 2007 2006 change in % 2003 30 1.20 2002 20 0.80 Net forwarding revenue 8,684 7,735 12.3 2001 10 0.40 Contribution margin (gross profit) 1,803 1,591 13.4 * Based on 25,000,000 shares. Ebitda 361 313 15.4 ** Included a special one-time jubilee dividend of CHF 20 million declared at the ordinary Shareholders’ Meeting Ebit (operating result) 299 261 14.7 of 20 May 2005. Net earnings 211 184 14.8 Cashflow from operating activities 316 338 (6.5) Earnings per share Net capital expenditure 49 54 (16.7) Balance sheet 2,266 2,108 7.5 Number of shares 2007 2006 change in % Equity 1,017 978 4.0 Employees 15,301 14,304 7.0 Basic EPS 24,743,622 CHF 8.57 CHF 7.34 16.8 Gross profit per average employee (in CHF) 122,581 119,235 2.8 Diluted EPS 24,764,704 CHF 8.55 CHF 7.33 16.6

5-year development Share price development (in million CHF) 2007 2006

Last day of trading previous year (in CHF) 166.20 103.70 High 267.00 166.90 Low 168.20 94.30 Last day of trading current year 196.30 166.20 Average trading volume 116,451 126,679

Total shareholder return (in %) 20.0% 63.2% Market capitalization as per 31 December (in CHF million) 4,908 4,155

Share price development in comparison to SPI Financial calendar 1 January to 31 December 2007 1 January to 31 December Business year Panalpina World Transport SPI Swiss Performance Index 13 March 2008 2007 full year result 60% 29 April 2008 Q1 results 6 May 2008 Annual General Meeting 40% 13 May 2008 Dividend distribution 20% 30 July 2008 Half-year result 30 October 2008 Nine-months result 0%

–20% 12 March 2009 2008 full year result 1 Jan 07 1 Mar 1 May 1 Jul 1 Sep 1 Nov 1 Jan 08 5 May 2009 Annual General Meeting WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 139 Panalpina – Main Offices Worldwide

Algeria China Germany Algiers, Hassi Messaoud Beijing, Changsha, Changzhou, Bad Waldsee, Berlin, Bremen, Chengdu, Chongqing, Dalian, Cologne, Dortmund, Dresden, Angola Dongguan, Fuzhou, Guangzhou, Dusseldorf, Frankfurt, Hamburg, Cabinda, Lobito, Luanda, Soyo Haikou, Hangzhou, Hong Kong, Hanover, Kassel, Kehl, Leipzig, Argentina Macau, Nanjing, Ningbo, Mannheim, Munich, Muenster / Buenos Aires, Ezeiza Qingdao, Shanghai, Shekou, Osnabrueck, Nuremberg, Shenyang, Shenzhen, Suzhou, Stuttgart Australia Tianjin, Urumqi, Weihai, Wuhan, Brisbane, Melbourne, Perth, Ghana Wuxi, Xiamen, Xi’an, Zhongshan Sydney Accra, Takoradi, Tema Colombia Austria Hungary Barranquilla, Bogotá, Graz, Hoechst, Innsbruck, Linz, Budapest Buenaventura, Cali, Cartagena, Salzburg, Vienna Medellín, Pereira India Azerbaijan Bangalore, Chennai, Cochin, Congo Baku Coimbatore, Hyderabad, Kolkata, Pointe-Noire Mumbai, New Delhi, Pune, Bahrain Costa Rica Tirupur Manama San José Indonesia Bangladesh Czech Republic Jakarta, Semarang, Surabaya Chittagong, Dhaka Brno, Prague Ireland Belgium Denmark Dublin, Shannon Antwerp, Brussels, Liège Copenhagen Italy Brazil Dominican Republic Bergamo, Biella, Bologna, Belo Horizonte, Campinas, Santo Domingo Brescia, Como, Florence, Genoa, Curitiba, Guarulhos, Joinville, Milan, Reggio Emilia, Rome, Macaé, Manaus, Porto Alegre, Ecuador Turin, Vicenza Rio de Janeiro, Santos, Guayaquil, Quito São Paulo, Viracopos Japan Egypt Nagoya, Osaka, Tokyo Cameroon Cairo Douala Kazakhstan El Salvador Aksai, Aktau, Aktobe, Almaty, Canada San Salvador Atyrau Calgary, Edmonton, Fort Erie, Equatorial Guinea Kitchener, London, Montreal, Korea Malabo Ottawa, Quebec City, Richmond, Busan, Daegu, Iksan, Incheon, Surrey, Toronto, Vancouver, Finland Seoul Windsor, Winnipeg Helsinki Kuwait Chile France Safat Iquique, Santiago, Valparaiso Lille, Lyon, Marseille, Nantes, Libya Paris, Strasbourg Tripoli Gabon Luxembourg Libreville, Port Gentil Luxembourg Georgia Poti, Tbilisi WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 140 Panalpina Annual Report 2007 Panalpina – Main Offices Worldwide

Malaysia Russia United Kingdom (UK) Johor Bahru, Kuala Lumpur, Astrakhan, Moscow, Nakhodka, Aberdeen, Birmingham, Penang St. Petersburg, Tyumen, Glasgow, Great Yarmouth, Usinsk, Yekaterinburg, London, Manchester, Prestwick Mexico Yuzhno-Sakhalinsk Cancún, Guadalajara, México United States of America (USA) City, Monterrey, Queretaro, Saudi Arabia Anchorage, Atlanta, Baltimore, Villahermosa Al Khobar, Jeddah, Riyadh Boston, Bradley/Hartford, Charleston, Charlotte, Chicago, Netherlands Serbia Montenegro Cincinnati, Cleveland, Columbus, Amsterdam, Eindhoven, Belgrade Dallas, Denver, Detroit, El Paso, Maastricht, Moerdijk, Rotterdam Singapore Greenville, Houston, Huntsville, New Zealand Singapore Indianapolis, Laredo, Auckland Los Angeles, Memphis, Miami, Slovakia Milwaukee, Minneapolis, Nigeria Bratislava Montgomery, Nashville, Abuja, Apapa (Lagos), Ikeja, Slovenia New Orleans, New York, Norfolk, Kaduna, Kano, Port Harcourt, Koper Orlando, Otay Mesa, Philadelphia, Warri Phoenix, Portland, San Diego, South Africa Norway San Francisco, Seattle, Cape Town, Durban, Oslo Saint Louis, Tampa, Tulsa, East London, Johannesburg, Washington DC Panama Port Elizabeth, Richards Bay Colón, Panamá Uruguay Spain Montevideo Peru Barcelona, Bilbao, Madrid, Callao, Lima Valencia Venezuela Caracas, Maiquetía / La Guaira, Philippines Sri Lanka Maracaibo, Puerto Cabello, Cebu, Manila Colombo Puerto La Cruz, Puerto Ordaz, Poland Sweden San Antonio del Táchira, Gdynia, Warsaw, Wroclaw Gothenburg, Stockholm Valencia Portugal Switzerland Vietnam Lisbon, Porto Basel, Berne, Geneva, Lugano, Hanoi, Ho Chi Minh City St. Gall, Zurich Puerto Rico San Juan Taiwan Hsin-Chu, Kaohsiung, Taichung, Qatar Taipei Doha Thailand Romania Bangkok Bucharest, Oradea Turkey Istanbul, Izmir Turkmenistan Ashgabat, Turkmenbashi Ukraine Borispol, Kiev United Arab Emirates (UAE) Dubai, Sharjah WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd Panalpina Annual Report 2007 141 Imprint

Panalpina World Transport (Holding) Ltd. Viaduktstrasse 42 P. O. Box CH-4002 Basel Switzerland Phone +41 61 226 11 11 Fax +41 61 226 11 01 [email protected] www.panalpina.com

The Panalpina Annual Report is published in German and English. For additional copies please refer to the above address or send us an e-mail. An electronic version is available at: www.panalpina.com/ar

Editor Panalpina World Transport (Holding) Ltd. Corporate Communications Concept / Design Wirz Corporate AG, Zurich Lithography Lithoteam, Allschwil / Basel Printed by NZZ Fretz AG, Schlieren Consultant on sustainability chapter sustainserv, Zurich and Boston WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd 142 Panalpina Annual Report 2007 5-year development 2007 at a Glance in million CHF Net forwarding revenue Net forwarding revenue increased by 12.3% to CHF 8,684 million

7,500 684 8, 6,250 35 Net earnings increased by 14.8% to CHF 211 million 49 7,7 5,000 0 6,9 12 62 3,750 6,

5,3 Substantially improved profitability 2,500 1,250 0 Air freight and ocean freight activities clearly outperformed the respective 2003 2004 2005 2006 2007 market growth rates

Contribution margin (gross profit) 947,000 air freight tons (+8.4%) and 1.233 million ocean freight TEUs (+13.7%)

1,900 transported 1,750 3

1,600 80 1, 1,000 new jobs created worldwide 1,450 1 59 1,

1,300 8 7 40 1, 9 1,150 32 1, 23

1,000 1, 2003 2004 2005 2006 2007

Ebit Net forwarding revenue per core activity Net forwarding revenue per region in million CHF 320 Asia/Pacific, 13% 290 Air freight, 47% 1,119 9 4,129

260 29 North America, 19% 1 1,684

230 26 200 Ocean freight, 38% 3,280 170

140 6 Central and South America, 9% 16 818 9 8 Supply chain management, 15% 110 1,275 13 13 Europe/Africa/Middle East/CIS, 59% 5,063 80 2003 2004 2005 2006 2007

Net earnings Returns Share price development in comparison to SPI in percent Panalpina World Transport 210 SPI Swiss Performance Index 1

175 21

4 2007 2006

140 18 60% 105 0 12

0 40% 70 98 10 Return on equity (ROE) 21.3 20.2 35 20% 0 Return on capital employed (ROCE) 36.44 31.96 2003 2004 2005 2006 2007 0%

–20% 1 Jan 07 1 Mar 1 May 1 Jul 1 Sep 1 Nov 1 Jan 08 Shareholders’ equity

1,000 7 8

875 01 1, 97

750 8 7 85 0 625 78 74 500 375 250 125 0 2003 2004 2005 2006 2007 WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd A global leader in asset-light air and ocean freight and logistics

... with convincing competitive strengths

www.panalpina.com/facts WorldReginfo - 17abf035-72c0-486c-bdd9-0efd2a0da9fd

Panalpina Annual Report 2007  Interview with Rudolf W

Panalpina Annual Report 2007 Interview with Rudolf W