DSV A/S

Welcome to the DSV results for Q3 2024. Today's call is being recorded and expected to last one hour. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. To ask a question, please press 5 star on your telephone keypad. I would now like to introduce Group CEO Jens H. Lund and Group CFO Michael Ebbe. Please begin.

Thank you very much. Thank you very much for participating in our Q3 call. We have an agenda where we go through the highlights, the business segments, a little update on Neom Financial Review, and then also a little bit update on the timeline for the Schenker transaction. And then as usual, we will then stop with the Q&A. But before we do so, I urge you to have a look at the forward-looking statement so that you are aware of this clause. It's actually on slide number two. If we move on to slide number three, we will go into the highlights for the quarter. I think the sort of very large milestone is obviously that we announced to acquire Schenker in September, and we've also raised capital to do so early October. So I think we are on a good traction and journey there. We of course look forward to closing the transaction and welcoming all our new colleagues from Schenker to the DSV team as well. We look very much forward to that. On the Q3, we've had solid results. I think that we've seen that we now also year on year grow on EBIT. It's the first time that we've done that for quite a while. So we've definitely seen that we come out of the trough and are slowly starting to see growth again. So we're very happy about that. When it comes to the GDP, we are up 4.8% and also our EBIT, as I just alluded to, up 1.5% in constant currencies. And we can also say that our EPS is growing sequentially for the first time since Q4 2022. And we have produced also a solid cash flow that demonstrates that there's substance in the numbers that we produce. Finally, we have narrowed our guidance from 15.5 billion DKK to 17 billion DKK, from 16 to 17 billion DKK. So I think that was sort of some of the highlights for the quarter. If we then move on to the next slide, slide four, we can see from the Ann Ocean results that we produce now higher growth profit. So that's predominantly through higher volumes. Yields have come a little bit up in the ocean freight, a little bit down in the air freight area. But all in all, we are up 5.2%. If we look at the conversion ratio, still healthy 50%. We are very happy about that. The productivity is also going up. We are up 15% compared to last year. So I think one thing that we have to be aware of is that We do see some cost inflation. That's also the reason why we have decided to have a program where we take out costs. Michael will get a little bit back to that later on. So if we move to the next slide on the air freight, I think here it is visible that we do gain share. We are up 7% for the year and 8% on the quarter. We have good traction here and the yields are sort of stabilized around 8,500, actually a little bit more in the quarter. and slightly up from the last quarter. I think we still see very strong volumes out of the Asia-Pacific. We do grow, for example, within tech. That could be one of the verticals where we are doing well. And I think that it's basically a network business that we're growing on, and we're very pleased with that. I also think if you look at all air freight, we are not specifically active within e-commerce and perishables. So that's important to note when you look at the figures. And it probably also explains or yields a little bit on the air freight as well. If we move to slide number six, it's the ocean freight. Here also a solid quarter with solid growth. Year to date, we are up 7%, as you can see from the chart, and we are up 8% on the quarter as well. We see strong export volumes out of the Asia-Pacific area. So also here we have solid traction also compared to the market. We do believe that we take share as well. If we look at basically for an ocean, we see very high customer satisfaction ratings. We're very pleased with that because this constant feedback helps us to improve our service so that we really meet the requirements of the customer. If we move to the next slide on road, we can see that the road market is tough at this moment in time, in particular in Europe. And it's hard for us to basically keep the same profit level because our GDP is not really evolving. So we still have a GP margin around sort of 19.5%, but as you can see it's declined a little bit from last year. Our conversion ratio is also a little bit down because of cost pressure, so our operating margin is hovering around 5.2% at this moment in time. We see the lower activity in Europe, it's of course related to automotive, it's related to retail. Europe has slow growth at this moment in time and we need to continue to focus on the productivity in the road division so that we drive basically the shipments per person up. We're already doing that and have been doing so for four years but it has extra focus right now. So we do expect also that the fourth quarter, because the market situation has developed in such a direction that the customers have pushed our prices down. We've sort of pushed the prices down via the subcontractors. The subcontractors or the hauliers, many of them have now gone out of business. So we see that the capacity situation is changing. It's harder to get capacity and this then drives the haulier rates up. And of course, these increased rates at the end of the day will also have to be borne by our customers. So currently we are out with price increases on the road side, so that we have a model where we also ensure that our hauliers can exist as well. So this is basically what is happening on the road side right now. I think we will probably see that these increases will gradually get impact and probably only sort of really have a solid impact in the first quarter of next year. So we will see a fourth quarter where road will have a little bit of a difficult situation, but nothing that we can't get over with. If we move to the next slide on solutions, We actually have seen that our occupancy rate has increased a little bit compared to the last quarter. And we also see that the number of order lines we produce, so our activity, it's moving in the right direction. So for this quarter, we actually expect that we can get the utilization rate a little bit further up and that we continue to produce more transactions as well. So the activity level is going to be a little bit higher. And this, of course, drives gross profit. And then we need to ensure that we have the right cost base so that we convert this into margin. We're currently hovering around the 10% in EBIT margin, which is among the highest in the industry. If we then move to the next slide, we have a shorter update on NEOM. It's actually going to be pretty short, because as we also said after the second quarter, then the news is that we've now got sort of the regulatory approvals in place. which is positive, but the project is an infrastructure project and it's ramping up slowly, probably also a little bit slower than we originally anticipated. So we're going to see limited activity in Q4 as well. And probably also in the early part of 2025, it will ramp up slowly. Apart from that, of course, we expect returns to be generated that we have to generate there. But at this stage, we don't have to deploy a lot of capital in NEOM. So I think that's what we can say on NEOM right now. And I think Now Michael will take over from slide 10 and go a little bit deeper into some of the numbers. So please take over, Michael, and I can rest my voice a little bit.

Thank you, Jens. Just a few highlights from our profit and loss statement. As Jens mentioned, the financial performance has continued to improve here in the third quarter. compared to the same period last year, which of course is satisfactory. We especially see significantly higher revenue due to the growth in volume and also the prices compared to last year, which are also impacting our net working capital, which I will come back to shortly, and also diluting the margins, giving the pass through that we see. Jens already touched a little bit on our cost development. It's an area that we need to keep focus on, as also mentioned, and also why we started this initiative that we have. We do see pressure on the cost base. We see of course the general cost inflation and salary inflation. But especially in terms of our license cost from IT, from our software providers, is something that we can see that we really need to struggle with in order to keep the cost base in an orderly manner. And then, as you can see also, the net interest cost has increased due to the leasing commitments and then also the interest rate that we see. If we then jump to slide number 11, where the cash flow and some financial KPIs as well. I'm pleased to see a strong cash flow here in the third quarter that we have. It's of 2.5 billion, so that's very satisfactory actually. If you look towards the last year, then you will see, like we talked about at last quarter, that the net working capital has increased due to the activity levels. We have, however, compared to last quarter, slightly improved our net working capital, which we also had spoken about earlier. There are some properties which will bring it down, and then we have increased activity which will bring it up. So the ratio is 4.7%, as you can see right now. We continue to work with the network capital and expect it to stabilize around 3% when we come to the year end, of course, depending on the volume that we have. And our gearing ratio is 1.7, when we said earlier that we need to be below two times. And our NBD is around 38 billion, and this will be the last quarter where we see this size. Next quarter it will be much less, given the proceeds of our equity ratio earlier on this month. If we skip to slide number 12, as mentioned, we had a capital increase. So that also gave us some proceeds from that one, which will come in here in October. And of course, we will have a new number of shares, as you can see. It also means that we have stopped our share buyback. So this will more or less be status quo from next quarter as well, given that we have stopped the share buyback and has also paid out the dividend. Our treasury shares after the increase is around 2.4% of the total share capital. I go to slide number 13, which is the outlook. As Jens mentioned, we already, earlier this month, adjusted our outlook a little bit, where we narrowed our rate, our guidance. So this is, it's a little bit different, as also Jens mentioned, that we continue to expect growth on the A&C product. And slightly less in road, given the things that Jens has already mentioned. And then more or less also growth in solutions. That is what we expect. And then our, you can say, operational efficiency initiatives. Also something that we have not seen significant impact on right now. We expect to see that in Q4 and Q1, like Jens also mentioned. Again, depending on the general inflation and activity levels that we have. If I go to slide number 14, then as you most likely are aware that we announced the agreement to acquire Schenker in September. depending on the approvals from the supervisory board and for the government in Germany. And we received those approvals 2nd of October. And right on the back of that, we launched a capital increase in order to partly finance the transactions that we will have to pay as soon as we have done all the regulatory approvals, which we are working on right now. We started that already the day where we announced the acquisition. So that is full speed ahead of that. And we have already received some approvals and of course continue to chase them around the world. Then the next step in this is that we will like to raise some bonds and we are looking into when that can be. But expectedly here in this quarter, we are looking into that currently and see how much that will be. And then we expect to close the transaction in Q2. Hopefully, it will be in the beginning of Q2. That's at least what we will work hard on. And then when that day comes, we will, of course, give some updated outlook for 2025 and a little bit more details about the transaction and the future around that. I think that was it from my side, Jens.