DSV A/S

I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jens Lund, Group CEO. Please go ahead.

Thank you very much and welcome everybody to this Q1 and closing call on Schenker. I would particularly like to welcome all the employees of DSV and certainly also our new colleagues from DB Schenker. Welcome on board as well. We look very much forward to a combined journey together with you. And we have to remember, going forward, everybody is a DSV employee. So with that said, I will quickly move on to the next slide. We will do the presentation as usual, where I will take some of the slides, Michael will take some of them, and then we will come back to the Q&A part. When it comes to forward-looking statements, please refer to this page. It's very important information, so please take a minute and review it. And I'll then move on to the next slide where you can see our agenda. It's quite packed today, so we will try to keep the pace up so that we have the time for the Q&A part. So, of course, moving into the highlights. I know it's the 30th of April and it's actually not Q1, but I still believe that the highlight of the day is the closing of the Schenker transaction. And we are all very excited, proud and pleased and all these emotions that we have in relation to a landmark transaction that means the world to DSV. But it also means quite a lot for our country, Denmark, as well. We will now have a leading player within our industry. And I think this is something that we can all be proud of. But it's also a mammoth task we have ahead of us. So we're also, of course, humbled by getting the chance to acquire the company and we will do our best to ensure that the transaction and the business plan is followed as we normally do on transactions like this. I would also like to extend a big thank you for all of the investors that have supported us with capital. It's something that we have been very, very proud of, but also humbled by the support that we've got. So it makes all of us extra eager to deliver on the promise. You've furnished the capital and now we have to deliver on the business plan. So you can rest assured that it means quite a lot for us. Our Q1 results, this is actually what the foundation for our business is, is operational results. Without them, we don't really have the capacity to do anything. We've had a solid Q1. We're very pleased with the outcome of the quarter. There's been a lot of turbulence, as you know, and we've still managed to produce a solid report and not least to produce also a very strong report. cash flow and I'm quite sure Michael will say something about that because in case you haven't noticed it's something that he's very happy with as well. So right now we see a GP up 6.2% and the EBIT up 4.8% on the quarter. So we now come into a situation, if you can remember, last year we had some situations where the GDP was declining. Now it's actually growing again, which is really what we like to achieve. So on these parameters, we are very pleased as well. I'd already mentioned the cash flow, so I'll just say that we've updated our guidance. We now have a revised guidance between 19.5 and 21.5 billion DKK for the year and of course the triggering factor for the change is the Schenker transaction. Michael will, as I said, speak a little bit more about it in a short moment in time. But first I will say something about the ANC division. Here we see that the GP is up both on On air freight and ocean freight, we will look a little bit about the reasons for that a little bit on the next slides. But as you can see, our conversion ratio, it's basically a little bit better than it was last year. And the margin is also more or less at the same level. I think one of the things that we have seen is that in these turbulent times, actually the value add that we deliver in relation to the services, it's actually increased. So we would normally look at our GEP, what is freight related and what's value added services. And we can see that basically we produce more value added services than we did before. and therefore a larger proportion of our GDP relates to value-added services. I think our volume growth also will be explained on the next couple of slides, but we are basically trending in line with with markets depending on one transaction that we will also explain on the air freight side. So I think we see a solid conversion ratio. It's still not where we want to be, but in this market where the volumes are not growing as fast and also while we're preparing for the integration, I think we're very happy with the outcome of the quarter. Then if we look at the air freight, you can see that the yield, it's been increasing. And here it's important to note that we have basically three customers that are quite low yielding that basically either we don't work with anymore or that has shifted from air to ocean. These customers represent on an annual basis approximately 100,000 tons of air freight. So if you adjust for basically a very low yield on these customers, then you would have to push the baseline a little bit up. And that would probably equate to something like 300 kroners if you take the comparable figures. So therefore, the development into Q1 is also more natural if you then look at it. if you adjust the baseline for these figures. So I think that is what we can say on air freight. It's a flat volume, but adjusted for these, we would have grown 4%. And you just have to take that into consideration when you look at the baseline. If the explanation is a little bit complicated, you can always, of course, get an update from our excellent IR team. They will be able to give you what can I say the numbers in detail as well. So with that said, we will quickly move to ocean freight as well. And here we can see we have more or less grown, or volumes perhaps at the low end of the market, but we're actually okay. Also on the OSINT side, we see that basically the value added services that we produce, so we do more customs formalities, we do more gateway services in relation to LCL, We do more basically work when it comes to types of buyers, consolidation, etc. This is what we call the value-added services. They actually increase as a part of basically the volume or the services that we render. And that's the reason why the yield is trending upwards. So also here we feel quite comfortable with development and it's a very solid foundation for operation. Moving on to road, you can remember that it's been quite a tough period because of the European economy, automotive sector, large countries in Europe having a difficult time. I think you can see that basically our gross margin seems now to have stabilized. Our conversion ratio is has sort of plateaued and is perhaps moving a little bit in the right direction. Let's see in the next quarter as well how we are faring. But we are moving in the right direction. EBIT level also moving in the right direction again. So glad that we can see this development, but we are not out of the woods yet. There's still a lot of hard work ahead of us. And I think also here we will come back to that. But with the combination of the networks together with Schenker, we'll of course help us to push basically the financial performance also in the right direction. So all in all, I know the numbers are down, but if we compare to our peers, I think it certainly can stand the test of comparison with them. But then also, as you know, we're not satisfied with our numbers. We always want to achieve something that is a little bit higher. And that's also the aspiration here. We have to generate a return on basically the capital we deploy. That's sort of the aspiration we have. But very well done, I would say, to the road division in difficult circumstances. If you take the solutions, which is the last time we will call it that, we will actually call it contract logistics going forward. It's one of the things that Schenker have taught us, that we should call the divisions basically what they do, because otherwise we have to explain it to our customers all the time and all our other stakeholders. On solutions, we are very pleased to see that we now start to generate more activity, more revenue, As you know, we've had a situation where we were at the fill rate a little bit too low on the warehouses, so perhaps at 82, 83%. We've actually sold more volume now, and we are starting to utilize this capacity. Normally, you would expect that you could reach a 90% mark. You will never get 200. Then the business, if you have the warehouses completely full, it will be inoperable. So here also a situation where we are confident with what we have in the pipeline and what has happened, that we now can drive the revenue forward, we can generate more GDP, and then I'm quite sure that we will beat last year's benchmark on EBIT as well fairly soon. So all in all, moving in the right direction, also very positive on the contract logistics side. Yep. Then it's over to you, Michael, actually, and you can take us through all the details, all the numbers.

Thank you very much. In order to save some time, I think I'll go through some highlights of the numbers. If we look at page 10 here, the highlights from our P&L, Jens already explained that we have grown on GP, which is drilled down to EBIT, and of course also to net profit, so it's a good development. EBIT is, you can say, of course, driven by the GP, and then we have had some cost inflation, which goes a little bit in the other direction. If you look at the financial items, it's, you can say, slightly cost now, but you have to bear in mind that this is the last quarter. We will have now the new financing structure in place with Schenker, so that will, of course, change for the next quarters. Currently, our estimate is that our finance cost will be around 2 to 2.5 on a yearly basis. That is in DKK, of course. Then if you look at a little bit about our EPS, earnings per share, if you adjust for the capital increase, it was more or less on level with last year. And then we have a good base to improve from, which we, of course, expect that we will improve that going forward. And then if I go to the next one, and I'm happy, Jens, that you also have noticed the cash flow, actually. It is something that we have been working on and has been, to be honest with you guys, struggled a little bit with. So it's good to see that we have changed the direction now and actually have a quite positive cash flow of 3.2 billion DKK. And also you can say changed the development in our net working capital. We are not satisfied with this. We still have a high net working capital, but now at least we have improved and we will hopefully work hard to continue to improve that so we can get into a more normalized level of net working capital. Clearly now, when we report next time, the Schenker numbers will be included. So we need to work a little bit on that one as well. Another thing that is worth mentioning is, of course, our NIBD, Net Interest Bearing Debt, which was actually negative or positive cash deposits. That will, of course, also change dramatically. We did a significant wire of a significant amount in Euro this morning. So, of course, that will change as from today. And the same goes for the gearing ratio, which will also change right now. Coming back to a little bit of how we see that. On the next slide, we have this, our new presentation, our tagline, winning as one. indicating that now we are one team, we are one company, the DSV and Schenker. So it's not them and us, it's not DSV or Schenker, it's DSV all along. And we are happy to have this picture that you can see on the screen right now. It's a combination of both some DSV colors and also some Schenker colors. So that's good. And we want to win as one. I think we've heard a lot about the strategic rationale. And so that stands clearly. Of course, it has not changed since we communicated a little bit about it last time. We will expand our global network. It's a strong combination, strong global presence. And if you look at it to the right-hand side of this, you can see the split both on division but also on region. And I think what this, of course, apart from the fact that it's already written here, it's also worth mentioning that in APAC we see a strong presence and a strong for contract logistics from Schenker. So that does really contribute to our global network and also our global set up in CL, which will be the benefit for our customers. So we will be a top performing company within the industry. So we're very pleased with this. Yeah. Just a summary, line by line and side by side. You can see and read the numbers yourself. I think a couple of things worth mentioning. We will be significantly larger in air freight and in sea freight. And of course also in logistics, and again coming back to where the regional presence is, it will then be an add-on to our existing service offerings for our customers. So we will create a strong player within the industry. I guess that there's a lot of questions, so we will go through this rather quickly. There are some transaction details on this slide you can read through yourself. You can recognize many of the numbers from previous communications from us. In terms of our financing and capital structure, I think it's important to notice that we have successfully raised 75 billion DKK, 5 billion through equity and 5 billion to bonds. And again, like Jens mentioned, we are overwhelmed by the support from the investors and are of course very grateful for that, both for the equity but also for the bond investors. The remaining part of the financing will be financed through the cash that we have at hand. and then some expansion within our existing committed credit facilities. Our target is still to get below a gearing ratio of two times NRBD to EBITDA before special items. Of course, you can say for the first couple of reports, we will be above that range, but we are committed to get back on the target that we have, where we would like to have the ratio below two times. Then we have also communicated in press releases, but just to remind you that we have done some management changes at the top layer of DSV. The current CEO of Schenker, Jochen Teves, he will be nominated to the board of directors at an extraordinary general meeting here in Q2. Helmut Zweighofer, the current CEO of Schenker's Europe region, will be the new CEO of our road division. Schenker Road is a really, really large organization in Europe. So I think it's a good choice and there's a good setup that we will have here. Same goes for Vishal Sharma, current CEO of Schenker. APAC will be the group CCO of FDSV, heading up our commercial approach and our commercial projects. development, of course. Then Saskia Blockberger, current CPO in Schengen's Europe region, will be the new chief people officer of the SBE. I think it's a strong management team that is now created and you can complement both DSV and Schenker. So I think it's a very strong setup that we will have also on a management level. Then what many of you are very keen to hear about is the expected financial impact. I think it's very important to notice that, bear in mind that we get got the keys this morning. So it's really, really new things that we are. Of course, we have tried to prepare best as possible, as we always do, by the way. Schenker will be included in our consolidated financial results as from tomorrow, May 1st. And currently our business case, we always prepare a business case before we enter into these M&A transactions. Right now, our estimates on the annual synergies is in the level of 9 billion DKK end of 2028, where we expect the majority of the integration to be complete. We do not expect significant impact on the synergies in 2025, and we will give you further information when we have that in connection with our Q2 reporting. Synergies, as always, consist of the consolidations of operations, logistics facilities, back office functions, finance and IT infrastructure, So it is more or less business as usual when we do this M&A. Of course, it's a bigger size of business this time, and the business mix is a little bit, you could say, different. We also communicated previously that we would like to lift the operating margins within the business areas to a minimum of DSVs levels in 2028, based on a normalized EBIT baseline for Schenker of around 6 billion DKK. If you add the 6 billion with the 9 billion, you will see roughly 15 billion DKK or 2 billion Euro. That will be the base in 2028. We expect that the transaction will be IBS accretive already in 2026. So that is also exactly next year that will be there. We have withdrawn our long-term financial targets. Now we need to get more familiar with the Schenker business in order for us to make the ambitious targets for the following five years. So that will be communicated when we have a little bit more knowledge about it. Then we will have a transaction cost estimated of around 11 billion that will be charged to the income statement whenever we do all the different integration work. You can say normally we have said it's roughly one to one, slightly below or above, depending on which side you look at it. Typically, we say synergies is in line with the cost. The last couple of transactions, the cost has been slightly higher And here is also slightly higher due to the composition of the industry and the presence in the countries as such. And then for this year, we expect around 2 to 2.5 billion DKK of restructuring here in 2025. Also, of course, dependent on the speed of the integration. Then a slide that you are most likely familiar with. I'm very happy now that we have another column to the far right hand side of this, where we can now say that we have Schenker included. And this is also reflecting our guidance that I will come back to shortly. For the next steps, now we are of course pleased that we managed to close the transaction today. which is also, I think, given the size, I still believe it's more or less a record again that we could get all the closing regulatory approvals and also conclude all the steps here in April. Remember, we promised you in Q2, and so we're still in the early days of Q2. Then we will, of course, start work with the numbers in the business and the integration. And then when we come to second quarter, We will give a little bit more information when we have some more knowledge about, of course, about how the business is structured in the different divisions and also adaption of accounting policies and opening balance and all the boring for some finance stuff. But that is something that we need to do, of course. We have also, as Jens mentioned, updated our outlook for 2025. mainly because now we have included Schenker. You can see our previous guidance was 15.5 to 17.5 billion. We now estimate that we will have an outlook of 19.5 to 21.5. One thing that you need to bear in mind, we have this time also shown a number of the estimated purchase price allocations. We have not done that before, but given the size of the transaction, it's something that you need need to be aware of when you put it into your models. Special items, I've already touched upon that. It's also clear that we have also noticed the uncertainty in the macro environment and also talked about terrace impact and so forth. This is the outlook that we have reflecting how we see the world these days. And then, of course, it can change if something really dramatically changes. But this is how we see it right now. The volume is expected to be slightly lower than what we have said earlier. However, the yield, as Jens also alluded to a little bit, is a little bit higher. So that's also why we can maintain the guidance like we have done. In terms of the NEOM job ventures, no significant financial contribution is expected in 2025 either. I remember I had one question once whether that could be negative. It cannot. The way it's structured is that it cannot be a negative contribution. Yeah. And then back to some key takeaways that you can talk us through.