DSV A/S

Jens Bjørn Andersen – Chief Executive Officer Jens Lund – Chief Financial Officer

Casper Blom – ABG Lars Topholm – Carnegie Robert Joynson – Exane BNP Paribas Lars Heindorff – SEB Damian Brewer – RBC Mark McVicar – Barclays David Ross – Stifel Neil Glynn – Credit Suisse Jørgen Bruaset – Nordea Markets Frans Hoyer – Jyske Bank Edward Stanford – HSBC David Kerstens – Jefferies Dominic Edridge – UBS Andy Chu – Deutsche Bank

Yes. Good morning, everyone.

Welcome to the conference call where we’re going to talk about the half year 2017 results. And as you just heard, I’m joined here today by Jens Lund.

And we will go through an agenda that you will see on Page 3 after the forward-looking statements which we have put in Page 2. But going to Page 3, you will see the agenda for this morning.

It pretty much looks like the agenda we have on most of these conference calls with the highlights of the previous three months result. Short description of the performance of the three business segments that we have in DSV.

Then Jens Lund will take over and go through the financial review and talk a little bit about a revised outlook that we have also given to you through the market this morning. And we will of course finalize the events with a Q&A session where I will once again please ask you to limit the questions to two each, and please do not post questions which has already been posted.

On Page 4 we can see the highlights of the Q2 which we consider to be a very strong set of numbers. We have reported this number.

It is by far the highest EBIT result that we have ever produced in the history of the company. The EBIT before special items increased 38% and we have seen a significant margin expansion.

And as you will see later on in Air & Sea, we have margins at a level we have actually never seen, even before we bought UTi, so we are very pleased about that. We have an estimated underlying GP growth of approximately 2%.

We have done some minor reclassifications of 2016 numbers. You can see that if you want to have a look at the appendix, where we have put these re-classification, so it’s not going to be part of the presentation this morning.

The financial gearing ratio is now as expected within the target range. I believe we have indicated that for many quarters that we would reach that level at this moment in time.

It is 1.3 times as I’m sure Jens will come back to. And with on the back of a very strong and satisfactory cash flow in the quarter, we feel that as we’ve always said the money belongs best in the pockets of the shareholder, so we have announced a share buyback program this morning of DKK 1 billion, which we are pleased to be able to announce.

Due to the strong results, we have also found it relevant to revise the financial outlook for the full year outputs. We have taken off DKK 200 million at the lower end of the range and put DKK 100 million on top, so the EBIT, the guidance now for the full year is between DKK 4.5 billion and DKK 4.7 billion.

And Jens will give a further explanation about this because you also have to bear in mind that this includes some headwind on currency, which is important to note as the U.S. dollar is continuing to weaken.

But overall we are very pleased with the numbers. The Company is in good shape.

And it’s everything is great. So going to Page 5.

We are very proud to be able to announce some extremely strong numbers, I must say, for the Air & Sea Division. We clearly see the addition the benefits of the addition of the UTi business.

It has been very good for the division. The growth of EBIT is 58% in the quarter, even surprised us.

The numbers are better than we had expected. It’s worth to note that the EBIT margin of the division in the quarter is 9.5% and almost 9% for the first half of the year.

And the conversion ratio is 38%. And both these numbers are actually above our not only short-term targets which were to come back to the margins we had before buying UTi, but they are actually also higher than our long-term financial targets, which we should achieve in 2020.

So of course that is has led to the fact that we will have to sit down with the Board of Directors in a strategy session later this year to look at the financial targets of the division, and DSV and see what that means. Normally when you reach your targets you will be set some new targets sourcing.

Also here we see that the underlying GP has grown 3%. And, yes, we are very pleased about that.

When it comes to the volumes, a lot of you have had some questions about this morning. We’ve grown approximately 4% on sea freight which is in line with the market.

On air freight we have a lesser positive development where we have grown approximately 3% where the market has actually seen a 10% increase. We’ve talked about that many times.

It is still our very clear aim to take market share. We expect later on this year as we’ve also set to grow in line with the market of even to grow faster than the market.

You need to do the effort, sales effort so to say before you see the impact, so there is a delaying effect of one or two quarters. But we are ready now.

We are very active in the market. And the activity levels has seriously increased during the quarter.

And we are positive about being able to take market share. It is also worth to note that we have terminated approximately 5% of the original UTi business because it either didn’t fit into DSV or because of the fact that the business was actually loss-making.

So these developments are as expected. And when you see a growth which is not what you say on par with the market, then it is also very important to look at the yields, GP per unit.

And we are both for Air & Sea close to a zero. We are slightly down on sea freight, but on air freight on an adjusted basis we are actually up on the GP patron year-on-year, so very, very good development.

So a super, super strong result from the Air & Sea Division and we are very pleased about the developments. When it comes to road freight, you can see that on Page 6.

We have also on Road, not also but we have in Road continued to see a growth in number of shipments. The division has grown its shipment count 5% where we estimate the market to have grown 3%.

For the first half we’ve actually grown the number of shipments 8%. So we are very pleased about that.

The growth is broadly based on several different industries. So it’s not just one industry that drives that.

Please bear in mind when you look at the results for Q2 that we cannot see the quarter in isolation. We have the famous Easter effect.

So when we have to judge and look at the results for the division, we need to take a view of the year-to-date figures. And you can see that on the right-hand side of the chart.

We have fewer working days in Q2 than what we had in a year ago. So all in all, we are pleased about the division.

They are very big supplier to the two other divisions. And the Road Division is part of the one DSV philosophy that we have.

So we are pleased with the developments. They track more or less at least the expectations that we had at the beginning of the year.

Last but not least, it’s the Solutions Division, an impressive to a 42% growth in EBIT as productivity improves. They’ve had a high activity level in the quarter and also very stable operations.

And the growth is mainly driven by retail business within the retail sector, and also a good growth within the e-commerce business which is of course, as you would expect, rapidly growing. We see the effects also of the UTi acquisition in the Solutions Division.

We see growth and EBIT coming in from different geographies also now than what we saw before we had bought UTi. What has also has positively affected the division is that we’ve had no really major startup costs this quarter.

Sometimes when we do start up with new very large customers we do have extraordinary costs that can actually drag down the result a little bit. And I guess it is also fair to say that as we have grown this division it’s going to be just a little bit more volatile going forward maybe than what we have compared to for in the past.

When you look at the result for the full year, they are close to DKK 200 million for the first six months. And I guess it would be fair to assume that this is a good kind of a benchmark.

And if we could kind of see a result approximately twice as high when the year is over we would be very pleased about that. But also again, it’s important for me to say that we talk a lot about the three divisions but we still consider ourselves one company.

And each of the division’s prerequisite for the other divisions to be more or less in existence. So strong operational performance.

The integration of UTi is more or less behind us. We are sound and healthy.

And with that set, I will pass on now the work to you, Jens.

Thank you very much, Jens Bjørn. And I will quickly run through the numbers on Slide 8.

I think if we look at the revenue of the group, we are now up and have DKK 37 billion on the first six months. GP is DKK 8.3 billion.

Adjusted DKK 8.4 billion on adjusted. So also here we see a really nice development.

If you look at the EBITDA and we perhaps jump into the quarter, we can see that we have DKK 1.24 billion, which is DKK 340 million more than last year. It’s a growth of 38%, as you mentioned, Jens Bjørn.

And there’s not a lot of FX impact on that. On the first six months we have almost DKK 2.4 billion in EBIT.

And it’s up 53% compared to last year. Some of you have asked questions, not least to the financial items which are fairly high and how can that be.

Basically the interest that we pay is more or less in line with what we have guided. But we have seen some fluctuations on some of our inter-company loans where we have some unhitched positions in mainly U.S.

dollar. You will probably have noticed that the dollar has weakened compared to the European currency.

And therefore there is a FX impact of approximately DKK 128 million it says here. So if the dollar continues to weaken we will continue to see this effect.

And if at a certain point in time we’ll gain in strength, then we will see that it moves in the other direction. On the tax side, I think we are holding up pretty well.

There’s of course been some impacts both from the integration and also from the property transaction in Q1. And we will see a somewhat lower tax percentage in for the full year which also is what we see for the quarter here.

Then I think there’s a few other numbers that are relevant to talk about, if you look on the text on the right bottom. You will see that we are 2,000 FTEs down if we correct for the adjustment we made last year.

I think what is even more relevant is to look at the number of white collar employees because this is basically the cost below the TEP we are talking about, and here we are down more than 3,000 employees. And this means that we have harvested a great deal of the synergies that we had planned for.

I think if we skip to Slide 9, we just wanted to put this in because I think this is what all the shareholders are looking for. Growth and EPS, and I think it speaks for itself.

And with that I think we’ll move on to Slide 10. I think that’s a bit more meat on the bone on that slide.

We can start by looking at the working capital, we are 2.9%. We are not there yet, but of course we have seen a sequential improvement.

And there’s still some ground to cover on the working capital but happy to see that that it’s moving in the right direction. If we look at the cash flow in general, I think the adjusted free cash flow is DKK 2 billion.

I think this is what you would expect given the numbers we have reported. So I think that’s a checked box discussion.

If we look at the leverage, it’s 1.3 times EBITDA. We are back into share buyback range.

And when we are at the range we have set we will continue the policy that we have had for many years to hand back the money to the shareholder. And we have kicked off the share buyback of DKK 1 billion.

Of course it’s a large number but we are also a larger corporation than we used to be. I think a final number that is interesting also on this slide is probably the return on invested capital.

Here we are at 20%. It’s 12 month rolling.

And we will slowly be crawling above the 20% mark, we expect, and going back to historical levels which is somewhere between 20% and 25%. Then we move on to Slide 11.

Here’s the 2016 actual percentage, we saw the guidance that we gave after Q1, where we made some minor adjustments and now we have revised it here and guided between DKK 4.5 billion and DKK 4.7 billion in expected EBIT. I think that’s one thing that is important to bear in mind when we look at this number.

And it is the fact that the currency is actually giving us a bit of headwind. And I think for the second part of the year we’re talking about approximately DKK 75 million in headwind plus the FX adjustments that we have seen in the reporting, it amounts for something.

So when you look at the guidance, we consider it to be fairly ambitious but also achievable. If you look at the financial items excluding the FX, we still hold on to the DKK 300 million.

The tax rate is now set at 23% for 2017. Also in relation to the tax rate, as Jens Bjørn mentioned, we will have a discussion on the annual strategy meeting what is the future tax rate going to be.

But we see that the tax is being reduced in a number of jurisdictions and that might also impact our overall tax to be paid. Free cash flow.

We have actually said two numbers in there. I think the relevant number is actually the adjusted free cash flow and I think this is the number that we will guide on going forward because this is the at least the way we see it the most correct number.

So we have guided DKK 4.25 billion and it’s upward adjustment of DKK 250 million compared to our previous guidance. I think one thing is also important here it can be plus/minus.

It is always difficult to project a cash flow very precisely. It can depend on many different components.

So this was a little bit about the outlook. And then basically on Slide 12, it’s not something I would dwell a lot on but, as Jens Bjørn said, there’s some adjustments of course.

They are minor but still relevant if you have a detailed look at the numbers that we report. So we have made these for illustrative purposes because it’s very difficult to get the exact numbers.

So this is more to give you some kind of a direction when you look at our numbers. So with that I think we go to Slide 13, and we can move on to the Q and A session.

And first of all, congrats with another set of record numbers here. Two questions, actually both relate to the to the UTi deal.

First of all, if you could sort of confirm that you are still looking for DKK 600 million of synergies this year and DKK 300 million next year, since you’ve sort of taken that out of the slide pack, that usual chart. And maybe also talk a little bit about the potential timing of further synergies in the second half of the year?

That’s my first question. My second question relates to these 5% of UTi business that you have now terminated.

Is that sort of the same figures that we were talking about initially when you talked about a potential loss of clients in connection with the acquisition or are these 5% on top of that number? That’s my two questions, please.

Maybe I can take the last question because that’s very clear. And thanks for bringing that up.

It is the same 5% that we did talk about initially when we bought UTi. It’s not like the first day we get in and then we have a full overview.

So this is something which has happened throughout the year, also 2016 when we got an overview, when we got the customers on our plan, so we could analyze the profitability. That was not totally possible when the shipments were kind of handled in the UTi systems.

They didn’t have the same transparency at hand as we have. So this is why we could not that business so to say the first day.

So now of course we see the impact of that. But that should slowly during Q3 and for sure in Q4 that should be eliminated.

So we have a clean comparison year-on-year and we look very much forward to that. And please also remember, it’s only 5% of the UTi business, so it’s not 5% of the total Air & Sea business.

And maybe Jens, you will elaborate a little bit on the synergies.

Yes. I think it’s fair to say Casper that if we take the discussion right from the beginning.

We had a business case. We had to produce DKK 1.5 billion in synergies, DKK 600 million last year, DKK 600 million this year and DKK 300 million in 2018.

I think it’s also fair to say that if you look at this year, probably our synergies are bit front-end loaded because of course we see a significant impact in the first part of the year. We had already harvested something in the second part last year.

So probably DKK 400 million in synergies in the first part and DKK 200 million in the second part here, and then still of course expect some synergies going forward. Then as Bjørn already said that we would look at their financial targets and there will probably be a second phase where we can harvest some additional benefits.

This is normal when we make a transaction that once everything settles that there will be a little bit extra. We also said that from the beginning.

And I think when we have revised our financial targets we will perhaps be a little bit more clearer through the targets on that. I think there is something that has perhaps surprised us a little bit when we look at the UTi transaction.

Of course, we knew that when we got larger we could take advantage of our infrastructure. But as it seems here in Q2 it plays quite an important role.

And we have to get a little bit more precise on that. So it’s not something we can be more precise on at this moment in time.

But I think it’s clear to everybody that if you have an efficient infrastructure you have some leverage on it. I hope this answers your question.

Yes. Maybe just a short follow up just to be precise.

I mean this is basically the bracket in after 2018 that you never put a number on, right?

Yes. Exactly.

This is what we will get in the box that we’re sort of looking not solid if you can remember the slide. So

Most certainly can.

Yes.

Two questions on my side. If I look at other operating expenses meaning everything but staff cost that booked below gross profit, they’re sequentially down in all three divisions.

So I wonder if you can give some flavor on that. Is that synergy, is it on allocated cost, i.e.

head office cost or what is it? And how should we think about this level going forward?

And then a second question because I would say the weaker spots if there is one might be that even when you adjust for the change accounting for terminal costs GP in Road doesn’t grow year on year. So wonder if you can put some comments on that?

And maybe comment on what is required before we can expect Road gross profit to grow again, if at all?

Okay. I think I can answer the other external cost.

I know that normally Jens Bjørn will say who answers what but I’ll just jump in and take that before Jens Bjørn answers the Road one, because I think that’s quite fast. So if we look at the other external cost, I think it’s correct that of course we have managed to consolidate our infrastructure.

It’s mainly the IT part but it’s also the facilities, Lars, where we have managed to move together. There is still some ground to cover in relation to this.

I know that the operational teams in DSV, they are certainly looking for low IT cost and we will see what we can do when it comes to that. So I think that we will be able to take out a little bit extra on that, but don’t expect great swings from the run rate that you have seen here in Q2.

But the point is the Q2 run rate is sort of realistic, if I look at the next couple…

It’s a realistic estimate for what we can do, yes.

And when, Lars when it comes to road, I guess we can say that a lot of things have happened in Road in the quarter, and maybe it hasn’t been one of the strongest quarters that the Road Division has ever produced. But I still believe if you look at the GP year-on-year for the full year, we’ve grown 3.7% in absolute terms.

I think that’s fairly okay. But it is probably also correct to say that it will be difficult for us to get the as we have indicated many times earlier also, the gross margin up significantly from where it is now.

Now it’s difficult to be super-optimistic about the gross margin when we’ve had at least five quarters in a row with a margin that begins with 2017. Of course we will never ever in our life stop trying.

But I think you can assume that it will be somewhere between 17% and 18% also going forward. So it is an extremely tough environment we’re in and we also have this mix effect that penalizes us a little bit on the gross margin where we do grow more on the domestic that carries a slightly lower gross margin.

But we’ve had some discussions with the Road Division, and they are adamant but when the year is over they would be able to show a satisfactory growth both in GP and in EBIT. And based on the plans we have seen, I’m also optimistic about that to be the case.

And in a slightly longer perspective, I guess there’s also a task on the IT side, to upgrade Road’s IT systems, isn’t that correct? And will that benefit the yields here?

Yes. We believe, of course, that when we get a new production platform in place for Road that the productivity will increase, we have seen that also in Air & Sea.

And there is nothing that tells us that that should not be the case in road. But I think we at least internally, want to say cautious of putting too much emphasis on that.

But of course long term, you’re right, it is something that could lift the margins, that is right.

And Lars, just so it’s actually normally I would say it’s the conversion rate. But of course, there is more planning capabilities involved in the new system.

So it might also help us a little bit on the GP side as well. At least planning functionality we see in the new system is somewhat more advanced than what we have today.

When will the new system be in place?

Yes. We are running pilots right now.

So once we have evaluated these pilots we can then go over into a normal rollout. And when we have this pilot phase, when that’s over, we can study something about this.

But I think the piloting will go on for at least until the next summer holiday on this because it’s quite a complex system to change. And then we will make a normal rollout.

When we do rollouts of these things we probably can take if we take what we consider to be midsized or smaller countries we can take one per month. And if it’s large countries it will probably take a couple of months per country.

So if you then look at, we are in 25 different countries approximately in roads or something like this. It should take us up to three years when we do a roll out, if I should just make a fast calculation.

Just two quick ones from me, please. First of all on the air freight volumes.

You mentioned that volume seriously increased during the quarter. Could you maybe just provide some detail on the extent to which the volume growth run rate improved as Q3 progressed?

And secondly just on the ocean freight unit profitability. Your peers continue to believe that the gross profit per container will improve during the second half of the year as freight rates stabilize.

It’s kind of view that you guys would agree with looking at things now?

When we start off with the air freight, I guess we can say that when we finalized the quarter we did see internally growth numbers which are in line with the market. So June was more or less at 10% growth to put it that way.

So that is also, that is impacted by two things; a better improvement growth, more new customers coming into DSV; and then of course, a higher quality in the comparison numbers. We have to remember that when we did take over UTi, there were certain differences in accounting.

That might sound strange that you can count the shipment in different ways but trust me, that is the case. So that leads us to be more optimistic.

It’s correct also that there’s a lot of speculation about what happens to ocean profitability. It is an extremely volatile market.

And then if we are not in a situation where we can sit here today and say that the ocean profitability per unit, the unit profitability will sharply increase going forward. But of course, the likelihood that that will happen is probably larger than the other alternative, let me put it that way.

But then we are not guiding on that and it remains to be seen. And if it improves of course, it’s great.

We will work stone hard for that to happen but it’s not like it’s just a given that that will happen, let me put it that way.

Also a couple of questions from my part. Firstly, I’m just curious about just sort of your confidence both in the increased volume growth going to the second half and also the development particularly in solutions.

Are there any kind of verticals that sort of sticks out here? Is this sort of a broad based among both different size customers and also different types of customers?

That’s the first one.

What was that? Was it only at Solutions or was it also Air & Sea?

Both Air & Sea and Solutions.

When it comes to Air & Sea, it’s a broad it’s actually extremely good to see that some of the customers that we initially lose some of the most impatient nervous concerned customers that left UTi almost on day one after the integration or the acquisition because of fears of integration risks and bad service. We’ve actually managed to gain them back.

We’ve grown with some of our old good classic DSV customers who have also given us a lot of new business. So the optimism is not only based on feelings.

It’s actually based on solid contract wins that we have actually signed up to. It’s also a fact that when you get like, when you get awarded a new type of business for instance now, you don’t start with the to actually operate the shipments the day after.

There’s a lot of integration, there’s a lot of IT connections, EDI connections that needs to be done. That’s a termination period with the old freight forward, so typically the business starts three to four months after you get the allocation.

So this is also why we know that we have something in the pipeline. When it comes to Solutions, it is a little bit more, as we have said, related to some retail business that we are doing for certain customers and then a nice growth also in the e-commerce business, e-commerce product which is something that we have of course have on the shelves now.

It is something which is growing much faster than the traditional B2B business. You could argue it carries a slightly lower profitability also.

But that has also driven it. And then of course we do see that some of the new areas, for instance, South Africa for Solution is actually doing really well.

The guys down there have signed up with some new large contracts, also something we’re very excited about. So it’s not just driven by few customers.

And of course we are happy about that, Lars.

Okay. And then staying in Solutions regarding the gross margin which has been before you acquired the UTi been under pressure for quite a while and then we saw last year.

I have now, I’m not looking at the adjusted numbers but I think what you reported last year it moved up and then since then it’s moved down and still down quite significantly in the year. What kind of gross margin level should we expect going forward?

Is this a realistic level with sort of, I would say low mid-20s or what should we expect?

Lars, this was a very, very different question. So I will ask Jens Lund to provide an answer to that.

Okay. I’ll try to do so.

Actually Lars I think that you should probably expect the TEP sort of hit the 25% range for Solutions. This is typically where we will be.

This quarter we’ve had a little bit less than 24. But I would expect that on normal circumstances that we will be sort of in the 25% territory.

And yes, you are right. This has changed also because of different kind of classification of the way we account for things.

But certainly also in substance because we need to produce more for less, so we need to be more efficient. And if you look at the automation we put in Solutions and the way that we organize our infrastructure in general, I think we are well prepared for that and I think we will be able to run a solid operation with 25% GP.

Okay. Can I just have a follow up on that?

The revenue growth that you have achieved this quarter, yes, I can take that as a sort of a kind of approximation for volume growth or is that sort of a realistic assumption or is that a sort of way out?

Yes. I think that’s one of the things you have.

When the business gets bigger it gets more volatile. For instance, in South Africa we have different kind of contracts where we perform certain services that are quite volatile.

And also when you do the e-commerce you have campaigns and stuff like that that impact the volumes quite dramatically. So it depends on your customer base, it depends on some of these peaks or spikes whatever you call them.

So we would like the numbers to be like this all the time. But I think if I should make a spreadsheet I will probably more go down to something that could be in the 10% area or something like this.

I just have two questions remaining in my list. First of all, can I turn to the first one which is, after Q1 you’ve made a little bit of development in working cap in the Solutions business in Q2.

Could you elaborate a little bit more on what changed there and how much more room there is for optimization on the working cap in the Solutions business and over what timescale you’d now expect to see that? And then the second question.

Something more so longer term in strategic, but going back sometime to a last Capital Markets Day, you spent some time talking about your CRM systems. Could you give us an update on where you are there and where you think you need to get to in the longer term?

I think, Damian, I will try to answer these. The Solutions working capital, we still have in particular one activity within the Solutions that is causing us some issues because it doesn’t really develop the way it should be.

But we’ve managed then to as you say, to make some headway on some of the other stuff. We have a board meeting coming up here in September where we will have a roadmap for this outstanding issue, but we need to reduce the working capital on Solutions.

It’s quite significant. And here we’re talking about hundreds of millions of Danish krone, it’s not peanuts.

And I think we should find a way out of this. It will probably be something that we will be talking about until next summer holiday on this specific item.

I think it’s not something we can do overnight but we have a good plan for it. So we should be able to cut I think the working capital on Solutions into half.

That’s a good explanation for that one. If we take I think that answers your question on that one.

Then I will take the CRM system as well. We run a system, some of you might know, it is called Salesforce, UTi ran something called Fossil.

This system, Fossil , has been phased out and we’ve moved everything on to our platform. So basically all the support for the sales people on the governance often as well is being done out of one platform as well.

I know we have spoken most about either the productions platform for Air & Sea or the finance platform but I think it’s also been quite an effort on the sales side to get everything onto one platform. This is then the foundation for the way we account for sales.

And we have a saying in DSV that is called if it’s not in Salesforce it is considered work not done. So I think we are quite happy about this.

And this also basically the foundation for what Jens Bjørn is talking about the pipeline and stuff like that when he’s talking about the expected development. Of course we can see the sequential development but we can also see the pipeline as well.

So I think that was a little bit of color on our CRM system.

Okay, that’s great. Thank you.

Can I just ask one clarification on that? Going back to what Jens was saying about the sort of 3- to 4-month lag for winning business turns into business.

Then if one thinks that you’re going to have a lag between tendering for the business and winning for it when was all of the if you like combined operation all on the one CRM system, just to understand from when you are all on the same CRM system when that translates into wins and then the lag on that in incremental volume?

Basically you will have seen that most of the volumes they were transferred at year end. There might be a few open items that have been transferred here in 2017.

Then you get it in, then you start to basically build the pipeline and also to understand it a little bit better because of course the new customers we have gotten in and stuff like that, we need some time to get the percentages right and what stages they’re in and wants the probability, if you understand what I’m saying, this is how you do this. So the more firm of course the negotiations are, then we know that it will materialize into a contract and then also into an IT task where we will have to get the integration done.

And then once the integration is done there will be an implementation project and then we will take over the volumes. There’s always a bit of time lag on that.

And I think this was also what Jens Bjørn was referring to. So we have won some business during the first part of the year.

We have basically the focus from our operational teams have shifted away from only basically focusing on integration and back on really attacking the market and gaining new volumes as we did before we had acquired UTi.

Two questions. First one.

On Road, EBIT is down 9% in the second quarter. Can I just clarify that you think all of that is coming from the fewer working days because of Easter or are there any other issues that also affected that number?

It’s mainly caused by Easter but there’s also a certain negative development in a few countries. And we’ve spoken about them before, they have not been improved the way we had expected them to.

That’s the old issue that we have talked about in Norway that has disappointed us. And then we have been a little bit too adventurous with some plans we had in Turkey in particular.

And these two could maybe have caused us kind of I don’t know, let’s just say DKK 20 million pain in the quarter. This is in particularly Turkey something that we know which is easy to fix because we can scale that operation down relatively easily.

Norway is a little bit more complex, but based on the plans we have seen, we I know we have said that many times but we hope that we will make an improvement also in the years to come or in the months to come. But it’s not only due to the Easter, that is probably correct to say.

And this is also why we are more optimistic about the second half of the year. And this is based on actual business cases or plans we have seen from the division.

That’s great. Thank you.

And then the second. If you haven’t the 5% of the UTi business that you took on when you bought the company, can you give us any indication on what that would have meant for your volumes year-on-year?

I mean it must in some way bridge the gap between the volumes you reported and what’s going on in the underlying business, yes?

Maybe it would not kind of bridge the gap totally, Mark. It would close to but I think it’s also fair to say that during, as Jens just also described before, there are two things that we need to take into consideration.

The first thing is relatively a poor data quality in the numbers that we compare to. They were seriously done in a different way than what we do the numbers, also the volume numbers.

And then of course, I guess it is fair to say that during the first part of this year, we have probably not grown to the same level as the markets due to the fact that we have been preoccupied with integration issues. Customers have been when you buy a company like UTi and you go to see a UTi customer and you say, "Hey, why don’t you give us some new business?

His reply would always be, Just let’s wait and see guys. Let’s you first prove to me that you can handle the business now.

We don’t know you guys from DSV. And after that they will be more willing to sit down and discuss further cooperation, but at the beginning they are reluctant to do that.

The whole organization of DSV, every time you speak to a customer now we go back to what happened in the beginning of 2017 and in 2016, I have to underline that. Then the discussions you had with customers were all about integration issues.

Here some new contact persons, you need a new IT integration tool to use when you give the bookings, try to get to know DSV. But those discussions are behind us.

Now we are truly one company now. We are one DSV.

The integration is behind us. And this is also why we do believe that we can grow the volumes in line with the market or even take market share when we get further into 2017.

Wanted to dig in a little bit to the air freight. Maybe if you could expand a little bit more on the reason behind the GP per TEU and GP per tonne declines, if there is any difference in the two markets?

And whether it was simply a function of customer contracts being longer than carrier contracts on a rising rate environment, you get pinched a little bit or was there something else going on there?

When we adjust for the GP, we actually see a slight pickup in the GP per tonne in the air freight and it’s correct that sea freight is similar down. It’s actually 1.4% each.

So 1.4% down for sea freight and 1.4% up for air freight. It’s much less volatile than what we have seen elsewhere.

And this is of course, always something that we have said that we will not fall into this trap of being too eager to grow. I mean we will never grow just for the sake of growth.

It needs to be a solid business case behind it. And it’s correct, especially sea freight.

The volatility has been crazy. I mean there has been so many things happening in sea freight this year, also with all of a sudden lack of capacity eastbound from Europe, which is something we haven’t seen.

So it’s been more due to the fact that we have been hit by this what you say increasing rate environment where there has been some lag effect, the famous delaying effect of, I don’t know, for sometimes slightly longer weeks until we can pass on the increase to customers. So but it seems like it has stabilized now and we don’t expect that the GP per units will what you say be as volatile going forward or it will not we don’t expect to have any negative development in the quarters to come.

And then if you look at the shipments that you handle both on the ocean and the air side, how much of that business would be what I would call port-to-port business? So what percentage of your shipments do you only do, say, the Frankfort to Hong Kong move, only do the Rotterdam to New York move?

It’s a very limited amount of the business. I think compared to some of our bigger peers it’s a small it’s a far lesser proportion of the overall business in DSV.

We call it freight management when you only handle that. That’s not really interesting for us to do.

And it’s also a very good question because it gives me time just to talk a little bit about how the GP in sea freight for instance is conducted or is established so to say. The port to port profitability has over the years been a lesser and lesser part of the overall profitability of the GP.

This is where we differentiate ourselves from being a shipping line. We have capabilities that the shipping lines don’t have.

This is the reason that customers choose a freight forward and not a shipping line. We have on land capabilities.

We have collection capabilities, customs capabilities. We can consolidate the cargo.

We can do buyer’s consolidation. We can do a lot of things.

And these, the fees associated with these services are sometimes 75%, even 80% of the total GP in sea freight. So these are actually much more important for us than the profit we can make for moving a box from Shanghai to Rotterdam.

If we were pure broker who only made a profit doing that, then we would be in trouble because that’s something which is severely under pressure. So all the other services we do insurance, I could come up with a lot of other stuff.

They are more important for us than the port to port services actually on a standalone basis. I don’t know if it makes any sense.

Makes a lot of a sense, but would it be fair to say that the freight management piece might represent fewer than 10% of shipments?

I would say it’s over the pure freight management, it’s less than 5%.

If I could ask two questions please. The first one is just following on from Dave’s question or your answer to that.

If 75% to 80% of the gross profit is value added services, just trying to understand more fully, a 10% decline in dollar terms at least in GP per TEU in the second quarter. Does that this seems difficult to ascribe all of that than to simple freight rate movements, if they’re also pressure because of lower fright rates on the value added services component?

Or how should I think about that? And then the second question.

Obviously, the Road challenges and maybe opportunities have been dealt with on the call throughout. But just interested as you wait for the CargoLink Way Forward system to be implemented after the pilots.

Are there significant opportunities to cut cost or to take cost out of interim measure before you raise for that to improve profitability within Road? Or are the is the easy fix in Turkey and other things that you mentioned, are they going to be enough to safeguard the performance of Road in the interim?

Jens Lund will comment on these questions.

I think if we start with the GP and the way we look at the dollar swings and do we have an FX exposure, I think this is what you are alluding a little bit too. I think in most of the way we contract with our customers we would have CAF, Currency Adjustment Factor, so that if it swings and we have a contract in local currency, then it will either benefit the customer or it will be at the expense of the customer.

We can’t take such exposure. Then we have the cost at origin or the landed cost as well depending on what kind of service, is it air freight, is it sea freight, it’s many of these costs, they are basically in its local charges in local currency.

So there should be any big FX exposure on that. It’s basically not our business, Neil, to go into big exposures on these things that we do not understand, so normally we would have adjustment factors for that.

I hope that this sort of clarifies this one a little bit. Then if I can move on to the Road side.

I think you are right that the big change for Road will be of course the CargoLink Way Forward project and then some of the planning capabilities and stuff like that that you will see in this system. But until that of course there are number of things you can do in Road to increase the productivity.

There’s a new thing called robotics that can help us a great deal that we work with. There is also of course the consolidation of some of the services.

We are already doing this today for some of the CRM. Information is basically being consolidated as we speak.

And there could be other services such as customs and stuff like that we consolidate and it’s run as a separate project, so they are there are more possibilities within Road but the big thing is of course going to be CargoLink Way Forward.

Thank you. If I could actually just follow up on that first question, maybe my reference to the dollar confused matters, but whether you look in Danish kroner or U.S.

dollars, you had a 7% Danish kroner decline in GP per TEU. I’m just interested if actual rate management constitutes 20-ish percent of GP, does that mean that GP per TEU excluding value added services must have been down around 50% year-on-year with value added services per TEU flat, the overall combined?

No, no, no, I think if we look at this one now I understand what it is that you’re talking about. Actually we have tried to make an adjustment.

If you look at there are several things confusing this. I think we’ve also tried to write a little bit in the release about it.

Last year UTi had in the Air & Sea division some headquarter cost that were accounted for as turnover. This was changed on the 30 of June because we changed the allocations of the whole UTi structure then so this has actually impacted comparable figures last year.

On top of this, there’s been also some reclassifications to the numbers last year because UTi accounted for facilities and stuff like that that they used for gateways as a fixed cost and we take it up into the GP, so that has also impacted the figures. This is the reason why we have made an adjustment.

And you can see the adjusted GP has actually only declined 1.4%. And going forward, we expect that this will also be shown naturally in the numbers because of course, we have changed this way of accounting within the UTi.

We did that at the end of Q2 last year. So I think this is basically the way we look at this.

So please don’t look at some of our peers have apparently gained a lot of market share but at a very low rate. We don’t go into that game.

So this is not how we conduct business.

I think most of my questions have already been answered, so you can just skip on to next one. Thank you.

Well, you mentioned that the momentum in the air freight has picked up during the quarter. And I was wondering whether you are aimed to recover some market share going into the second half?

Is that going to have a bearing on the yields, on the gross profit per tonne just like we’ve seen put on better on volumes, but not as good on the yields?

Frans, it’s you can say if there’s something we consider very strong asset in DSV is the superior margins that we have also when it comes to the yields. It’s an asset that we want to protect.

We’ve always been proud of having very high margins, both EBIT margins conversion, but also on the GP per unit, so this is something we will carefully try to protect. But it is of course correct to say if you grow significantly above market then you will dilute your margins.

But if you grow in line with the margin and only grow slightly above margin, it actually means that you will only follow your existing customers, if you know what I mean. You will not lose any customers.

Then you would have grown 10% on air freight. So I don’t think we are not talking about significantly outperforming the market, but more or less to get back.

First of all, it’s maybe a two step plan, go, get back to growing in line with the market and then go back again as we did before and outperform the market. So to cut a long story short, we don’t expect for deterioration in the GP per unit in the coming quarters.

Understood, thank you. And the second question more of a longer term issue.

We are looking at a lot of consolidation going on among the sea carriers at the moment, and I was wondering whether you foresee or whether you’re already seeing signs that you are bargaining the bargaining position of yourselves and your peers is being affected or likely to become affected by this consolidation that, I mean not future consolidations but those that we already know about?

No big differences, no big changes. There’s a lot of opportunities still for us.

If one doesn’t really want to work with us, we can go elsewhere and find a good solution. So there’s still even though I agree with you that some consolidation has happened something which we actually approve of because we are spokesmen for that in our industry ourselves, then we haven’t seen any negative impacts on that.

There’s still a lot of choices when it comes to carriers and we believe that also to be the case going forward. So far no news so to say on that front.

Two questions obviously as everyone else. First of all, have you noticed any change in your customer behavior regarding the length of contracts they want to get into as freight rates have now started to rise in ocean and air?

And secondly, just on the buyback which is to be completed by the 13 of October if I recall correctly, is that an opportunity for the board to review buyback again in the third quarter or is that it through for the year?

When it comes to customer behavior, you can probably find a few examples locally where customers are changing behavior a little bit but it’s still very we believe very much in short contracts and this is continuing, also that will continue to be the case going forward. If for very large customers, they ask for very long contracts, we will only do it if we have to back a back agreement back-to-back agreement with the carrier so called named account agreement.

So I wouldn’t say there’s any big, big changes to that. When it comes to buybacks, it’s correct that we have announced the buyback and the way we have done it always throughout the history of DSV is that we do it on a quarterly basis.

Now we have announced this one. Then I guess we I know for sure that we are we will work hard to continue to provide for strong cash flow and should that should we be successful with that then of course we will sit down and look at the situation when we announce the Q3 numbers.

And if we see similar developments as we have seen, we truly believe and this I think we can demonstrate over almost a decade or more than a decade of consistency that the cash belongs best in the pockets of the shareholders with an asset-light business model that we have where we can convert 100% of each year’s earnings to cash. We believe that buybacks is the right thing.

And I guess everything else equals probably a certain likelihood that future buybacks also this year will be a possibility.

I just wanted to double check what the impact was of the terminating the low profitability of the UTi business that you terminated on your yield development in the second quarter or was it just simply explained that you faced a relatively less resistant increasing prices? And secondly on your M&A strategy.

Do you see increased competition for assets in the freight forwarding sector? And does that explain your relatively smaller share buyback given the strength of your cash flow and your balance sheet?

On the 5%, I don’t know, it varied. Some of that was some of the customers were actually, what to say, caught because of low profitability.

Some of them carried a even very close to at least negative GP. And then of course it goes without saying that they don’t belong in DSV.

Other customers, they simply had probably been spoiled a little bit in UTi, so we just found that the best, what you say, way for both parties were to part, so but it was something we went into with open eyes, so I don’t think it has what you say led to a significant, what you say, improvement in the GP. Of course the GP per unit would have been slightly lower had we not got rid of these businesses.

That’s a fair assumption. M&A, a little bit on M&A we can say is we need to have our eyes still focused on the UTi, the finalization of the integration I guess when this year is over we can we can really wrap it up and put it on the archive so to say.

It’s not like we it’s not like I feel that a lot of our competitors are super active pursuing the candidates that we would like to buy but of course we don’t have in depth knowledge about the strategy of all our competitors. But then there are still assets out there which would fit perfectly to DSV.

And we will, yes, pursue these opportunities also in the future. But you should not put too much emphasis into the fact that the buyback program was of DKK 1 billion meaning that we will kind of a not be ready to do acquisitions in the future, things can change overnight.

Opportunities can arise that we are not aware of today. So this was more or less just to get back to on the buyback track that we have been on before.

And I think if M&A opportunities arise in the future we will also be ready to move on them.

Two very quick ones for you. Firstly, probably just to sort of, just to clarify, I mean obviously where we are in the freight forwarding cycle appears to be in a volume growth but obviously the expensive margins from much of the industry.

Are you still pretty happy with the fact that this is just where we are in the cycle? There’s no sort of secular impacts out there?

And I suppose on that line, so do you sort of see yourself seen, have you ever lost any business yourself recently on the back of what you think is very aggressive competition? And then the second question is just on employee churn and sort of unforced employee churn, so you’ve had a lot of changes to UTi.

But can you just stay where you are in terms of the employees and are you seeing any more competition out there for employees? How do you see the market there?

And also what does that mean on the cost base for labor going forward as well, since things seems to be getting a bit tighter?

We talk a lot about processes, we talk a lot about IT, we talk a lot about systems but this is still a peoples business. We depend very much on goods and very loyal employees.

And if there’s one thing I should point out and in all my communication I talk about this it is the fact that we have super loyal, super good employees at DSV. We have a lot of people who have been in our company all their lives and we should never underestimate that.

And I appreciate this and I’m extremely grateful of that fact. I think it is really where we stand out as a company.

And we as a management we need to make sure that the good employees that they also want to be employees of the DSV going forward. That means to of course give them a relevant total compensation package but also create an environment where they can feel that they thrive and where they can really make a difference where not everything is set in stone from the day you go into the office, so to say.

So I can say touching all the wood I can, we have not lost any significant amount of important employees that we didn’t want to lose during the last six months or even longer. I think it is something that we have a very low churn which is something I’m extremely happy about.

When it comes to aggressive competitors, I don’t think it has changed a lot. We have probably lost business also to competitors.

Even in this environment where we have not outgrowing the market we’ve also, yes, gained a lot of business from our competitors. We have a churn rate of approximately 12% to 13% per year.

So there is a certain change in the business also we have. So in these numbers that consists of a lot of new business and of course of some business lost as well, it is quite natural.

Sometimes customers they want to try something else, sometimes we can get the customers, sometimes it goes elsewhere. But it’s not that I feel that there is a significant change in the way that either we or the competitors are looking at the market.

There’s good growth. Normally in a good growth environment we should see also actually us being able to maximize the GP and this is something that we are looking forward to see if that will be the case in the next coming quarters.

One question from me, please. Just in terms of the freight volume comments.

And you mentioned that June was strongly up at 10%, but I guess the market was probably stronger than 10% exiting the quarter as well. So as we look forward into the second half, obviously you mentioned that you’re well-positioned now to actually take market share.

Are there sort of any sort of big picture reasons at the stage why you shouldn’t really why you should not say anything but strong double digit volume growth in the second half?

There’s nothing we want more. Now we have just produced a set of numbers with a growth rate of 2.6%.

So to sit here and say we will have a very strong double digit growth rate in air freight is of course very tempting. Let’s wait and see.

We are optimistic about growing also double digit going forward. I have touched upon a lot of the reasons to why that has not happened.

The comparison is becoming the quality of the comparison numbers in Q3 and Q4 2016 will increase dramatically the quality of the numbers we saw in Q1 and Q2. Last year were probably not the best due to the way that that business was conducted in UTi.

So I wish I could sit here and promise everybody that we will grow double digit and but what I can promise is that we will work hard for that to happen and then let’s wait and see. Yes, I guess that’s what we can say.

Yes, just one quick follow up, Jens, on your initial comments on the Solutions segment. You talked about the business doing well but it should be more volatile going forward.

Could you explain why that is and were you talking about the conversion ratio or the revenues both?

Yes. Jens Lund will answer that.

And sorry, by the way to get you up so early over there. It’s probably it’s a busy day here, so.

All right. Anything for some good results?

Okay. No, as I mentioned earlier, and I think you will see that the Solutions that we have when you go into e-commerce it’s of course much more exposed to campaigns than we have been used to.

So there are fluctuations that relate to this. On top of that you will see a situation where we also for example in South Africa we have some business that is very volatile down there as well.

So that will also lead to fluctuations as well. So I think if you should estimate a run rate for this division, it’s probably more in the 10% region.

Now we came out with quite a good quarter. We had a different kind of impact here, as already mentioned both in retail and e-commerce.

So I think this is basically what we are looking at. We have to get used to Solutions being a little bit more volatile.

Okay, great. Thank you, ladies and gentlemen for listening in.

Thanks to everybody in the company. We are amazed about the performance you have delivered in the last three and six months.

It’s absolutely fantastic. We appreciate the efforts.

So thanks for that. We are the company is in good shape.

We feel we have a very good momentum. We will now continue to work hard for also in the next coming quarters and years for that to be the matter, to be good also and to continue to deliver some decent results.

So with these words we will close down here from Hedehusene in Denmark. And thank you for the interest in DSV and the conference call this morning.

Thank you and bye-bye.