DSV A/S

Jens Bjørn Andersen - CEO Jens Lund - CFO

Finn Petersen - Danske Bank Markets Casper Blom - ABG Damian Brewer - RBC Capital Markets Lars Topholm - Carnegie Investment Bank David Ross - Stifel, Nicolaus & Company Neil Glynn - Crédit Suisse AG Christopher Combe - JPMorgan Chase & Co. Frans Hoyer - Jyske Bank A/S Jørgen Bruaset - Nordea Markets Andy Chu - Deutsche Bank Edward Stanford - HSBC

Yes. Welcome, everybody.

Welcome to the conference call covering the Q3 2017 results of DSV here from Hedehusene today. Jens Lund and I will guide you through the presentation and we will finish off the event with a Q&A.

So if you flip on the presentation after the forward-looking statements, the disclaimer on Page number 2, we have prepared an agenda. You will probably recognize it from earlier.

First, we will begin with some of the highlights of the previous quarter. I will go through the 3 divisions and then Jens Lund will take over covering the financial review, talk a little bit about a new share buyback we have announced and also finish off with the revised outlook for 2017.

And as I said, we will end the presentation with a Q&A. And please see if you can limit yourself to 2 questions and also please see if you cannot ask questions, which have already been asked before.

So Page number 4, highlights of the quarter. It was a good quarter for DSV.

We are happy with the performance. And when we talk about performance in DSV, we talk about the EBIT result.

This is what drives us, it is the growth in absolute earnings and that grew in constant currencies 34.4% to be exact, with good growth in all of the 3 divisions. We saw a growth in gross profit of slightly below 5% and also a volume growth in line or above the market, which is also something we are pleased about.

It has been something we have been indicating to the market that should happen. So when it happens, of course, we are happy.

Because of the strong set of numbers, the good performance we've had in the previous three months, we have decided to revise our financial outlook for the full year upwards. So we now expect an EBIT before special items of between now DKK4.7 billion and DKK4.9 billion, and that is up from a range of DKK4.5 billion and DKK4.7 billion.

You have to bear in mind that part of the upgrade is due to faster than expected realization of integration synergies from UTi acquisition, and that means that we now expect cost synergies of DKK200 million in 2018, and previously we said that was DKK300 million, meaning that we have DKK100 million more in the current year, which comes from what we expected in 2018. So if we go now to Page number 5, it's the strong Air & Sea division we told about.

Again, I must say a really impressive set of numbers; really, really strong on all parameters. I think we can say, it basically speaks for itself when you grow your earnings 49.4%.

I think that's something that the division can be very happy and proud about, and I know they are as well. The gross profit grew just below 7%.

And what might be even more important is that we are now back on track when it comes to growth. We have, for a long period of time, been talking to the market about the fact that due to the integration efforts of UTi, due to the bad data quality also partly from UTi, we have not been able to outgrow the market, which was exactly as expected.

And we have said that we want to go back to growing in line or faster than the market; and for the first time, we can now demonstrate that also in Q3. Remember 3 months ago, when we talked to you guys, we said that the end of Q2 had been strong and we have seen that momentum carry through into Q4 -- Q3, I'm sorry.

And that means that you can see it in the numbers. Air freight has grown slightly below 12% and sea freight just below 3%, and we are very pleased with that.

That is in line or slightly above the market at least for air freight. The yield pressure, we have seen a slight yield pressure, but if you adjust for the FX impact, which is approximately 3%, I think it's fair to say that the underlying yields are pretty stable.

And when it comes for -- to sea freight, they are actually slightly up compared to a year ago. So overall a very, very strong performance.

We now see margins which are extremely high. It's impressive that we can't have double digit EBIT margins and also a conversion ratio of above 40% in the division.

So strong numbers and a big thank you to all the hard working employees in the Air & Sea division. On the next page, you can see the results for Roads.

I guess it's fair to say that after somewhat soft Q1 and Q2, the Road division are now back in the good old fashioned shape, with a good set of numbers also, growing the earnings year-on-year with 8%, which is strong, and also a good growth in the gross profit of 3.4%. We have managed to stabilize the gross margin, which you can see on the top right-hand side of this slide in 4 consecutive quarters.

Now we are just around the 17% and it seems like the gross margin has been stable around that level. So a very good development, and I think I have indicated that many times that one should not be too concerned about the Road's, what you say, performance in Q1 and Q2, we were adamant that Road would get back to strong results, and I think we can clearly see that in Q3.

So we also consider the result very strong. The conversion ratio is now close to 25%, which is also very satisfactory to see.

So congratulations to the Road division. The last slide I'm going to talk about before I hand over to Jens Lund is Slide number 7, it's the Solutions division.

I can say the same for Solution as I just said with Road, good result. Double-digit growth in EBIT.

The absolute numbers are somewhat smaller, but still a good growth, 9.5%; and in constant currency over 11%. And I think that is really, really strong.

We've got a couple questions about the fact that both turnover and EBIT growing and gross profit going in the other direction, and we have to answer that question, point to the fact that the gross profit was negatively impacted by reclassification of some terminal costs in connection with the UTi integration. We are happy to say that we are slowly getting to a period of time where we don't have to talk about reclassifications anymore, but as we have many times talked about, it is a necessity when we do, because of the acquisition of UTi.

When we buy large companies, it is simply impossible to align the accounting principles from the day number 1. The consolidation of the infrastructure is progressing and that has led also to a higher conversion ratio.

So I think we can also say that we are very pleased with the performance of the Solutions division. They are growing, they attract new customers, it's a very sophisticated service offering that we do in Solutions, and Solutions is a very important and integrated part of the overall service offerings of DSV.

So also strong performance here. I think that was it.

I'm sure you have a lot of questions, but we will get back to that. So now, Jens, maybe you can go through the financial review.

Yes, for sure. Thank you, and I'll kick off from Slide number 8 with revenue, it's up almost 10%, and we've had some tailwind on the FX side.

On a yearly basis, we now have DDK 55.8 billion in revenue. And of course when you compare to last year, you have to remember that January 2016 didn't include the UTi numbers.

When we look at the GP, we had 2.4% in growth, but you have to adjust for FX here as well. And if you do this, we almost have a growth in our gross profit of 5%, and it represents the value creation that we have.

So that's actually quite impressive as well. On the cost side, we've continued to see that the benefit of the transaction filtered through.

And we can see that both on other external cost and staff cost, we've managed to reduce our cost base. So this is fully in line or actually a little bit better than what we anticipated, and that's also the reason why that we have upgraded our guidance, because we've managed to complete some of the integration tasks faster than we had originally planned.

I've had some questions a little bit about that as well this morning. And of course, you make a plan at the beginning of the year and we are in more than 50 countries, so it's quite a big plan that we are going through.

And we've seen that we have managed to manage the risk on this plan very well and execute according to plan and sometimes even a little bit better. So that's the reason why we see -- that we speeded up the integration process.

When it comes to the financial cost, there's still some FX impact due to these interim loans that we have in relation to the UTi transaction. So approximately half of the cost we have for the quarter is FX related.

And on a yearly basis, you have to subtract DKK195 million from the DKK425 million we've booked on the line, and this also means that we are in line with our guidance of DKK300 million. On the tax side, we are basically a little bit lower than the guidance we have given.

This is related to a few one-off things that we have experienced after we acquired UTi. There's been some tax cases that we managed to close off in a better manner and all other kind of adjustments like this.

So our long term tax rate, nothing is changed; but on the short term, there might be a few fluctuations also into next year, because we did take over quite a complicated tax structure. So on the operating margin, if we go to the bottom of the slide, 7%.

I think that's a very high margin as a global player. I don't think there are many players that compare themselves with that, on 6.6% on a yearly basis or year-to-date, also very good.

Then it's almost DKK5 per share fully adjusted, and staff count 45,000, and we are approximately more or less the same, as we've been all the way through. But we've managed to reduce our headcount in back-office and administration, and increase the blue collar headcount, and we are almost 3,000 people now on the white collar side.

If we move to Slide number 9, I think this is what is all about [indiscernible] growth and there's really nothing else that matters [indiscernible] stockholder. And I think I'll move on to the next slide, it speaks for itself.

If we take Slide number 10, cash flow, this is the money that we produce, and of course we see that the EBITDA that we increase filtered through as well in the cash generation. Net working capital still at too high a level.

We are seeing a slight improvement compared to Q2, but we still have some open items on the UTi side, and I think it was a little bit the same after ABX that we actually had to work our way through some of the things that we acquired, and this is also still the case. It's of course not satisfactory that we do not deliver better results, but we will continue to full efforts into this.

Then, if we look at our leverage, 1.17x EBITDA is some of the lowest levels we've seen for quite a while. And we are well within the range, but we've also launched another share buyback program in order to make sure that we stay within the range.

In Q3, we have issued a new bond and we've taken out the final part of the existing finance; it had a quite a short duration. And now, with the new bond that we've issued, we have a duration of 3.4 years.

So basically [indiscernible] a company, we are very comfortable. ROIC also 20%, actually at 21.4% right now, it's the 12 months rolling calculation, so you will see that it will continue to increase.

And before you know it, we will be back to levels that we saw before we had acquired UTi. So also trending in the right direction when it comes to the return on the capital we've deployed.

Slide 11, share buyback. This is a slide we used to use also before we acquired UTi, so that you can see the cash flow that we generated on the previous slide and then how we spent the money.

And as you can see, now we are slowly getting into a stage where we continuously return cash to our shareholders. We returned DKK735 million in Q3.

And then we have made some projection on the next program also into Q4 and Q1. There's one thing that is missing, because we don't know what dividend will be announced in Q1.

So you also have to take this into consideration when you evaluate our share buyback. There's another thing also in the relation to the share buyback, it's running over a 5-month period this time.

So it will end at 23rd of March, 2018 as well. On the former program, we have bought them back at DKK455 per share on average, and this has now concluded.

Then we have Slide number 12, our guidance. I think, I've also spoken to a few people this morning about the guidance.

And in the beginning of the year, we started between DKK4.2 billion and DKK4.5 billion and now we have a couple of times adjusted the guidance, a little bit upgraded it, and now we're DKK4.7 billion to DKK4.9 billion in EBIT. And as I mentioned, part of this is also that we realized a little bit faster the synergies we had expected.

The cash flow is also adjusted as a consequence of this, and we see that we are now at an adjusted free cash of DKK4.4 billion. And the free cash flow, if we take the things we spent on integration stuff like that, it's DKK3.9 billion.

So, all in all, solid cash conversion and this is also basically in line with what we normally see, because we are an asset light company that do not invest a lot in infrastructure as we grow. So I think this was it, and I think we can move on now to Slide number 13, where you can see what you need to do if you have questions for Jens Bjorn and I.

Thank you.

I have two questions and they are both on the Air & Sea division. I wonder the volume growth in sea seems a little bit on the lower side in my book.

And if you can say a little bit about the outlook for Q4 what you're seeing in bookings at the end of the quarter. That's one question?

The second question, do you see any limitation to how high the conversion ratio can go in the Air & Sea division? And if it could go to 50%, for example, what kind of tools do you need to go there?

Okay. Finn, thanks for the questions.

When it comes to the growth, overall, we are pleased with the numbers. Of course, you are right, we do outperform the market in air freight, and you could argue that the growth rates in sea is a little bit more modest.

It's just very, very volatile market right now. Rates, they have been fluctuating a lot.

And we've talked about this earlier, we are maybe a little bit more conservative than maybe others at least and we are not good in this business to speculate. So sometimes that limits growth rates just a little bit.

But what it ensures is that we will not see fluctuations in the yields and the GP per units. And as you can see, we've actually had a slight increase in the GP if you adjust for currency in sea freight.

So overall, I would say, we are happy with the numbers. This is the first step out 2 steps.

Now we are coming from way below the market growth. We are now growing in line with the market and now we hope that we can get back to growing slightly higher than the market.

Then the question of our conversion ratio, of course, 50% is a high number. We are probably seeing some of the highest conversion ratios in the industry right now.

But you're also right, it is something that can still continue to grow. We still have countries which are having a significantly lower conversion ratio than others.

So it's something that we will continue to work on, but we cannot quantify it, it would be wrong to quantify how far we could go here today. What we have said is that we will get back to the long term financial targets of DSV in the whole and the divisions at a later stage.

And this is when we are going to address this topic as well.

Just one additional question. There are competitors out there that are saying that new IT platform can bring you to significant higher conversion ratios.

And I just wonder are you in any step changes for your technology or institutional new platforms that will bring your conversion ratios higher.

We have for the last 3, 4 years benefited of a superior and very good IT freight forwarding system, but that is the only thing in these transport management system. The digitalization runs at a fast pace in DSV also.

And there are other, what you say, tools than just the transport management tool that we are using that can also help us benefiting the, what you say, the conversion ratio. But I think we come from a very high level now and of course there will be some natural kind of ceiling as to how high the conversion ratio could go, but I don't think we are there yet, and technology will definitely help us to improve conversion ratio also in the future.

Two questions, please. First regarding Road, you talk a bit in the note on the report about the environment and that there is a high demand for capacity.

And once this has eventually been passed on to your customers, which I suspect it will, is it a fair assumption to speculate that maybe you could start having a little bit more pricing power than you've had historically within Road? That's my first question.

And then secondly, regarding your net working capital, you write in the report that you are seeing a pressure in the market in general. And Jens Lund, if maybe you could elaborate a little bit on what this pressure is and how the outlook is for it, and whether we should still expect the net working capital to come down to, let's say, around 1% of revenue?

I'm sure Jens Lund will be happy to elaborate on this, but maybe I should just start off. It's correct that we say that has been a tighter capacity than what we've seen earlier in the end Road.

I'll say 2 things to that. First of all, it's not uncommon that we see this is now going into the busy year period leading up to the end of the year.

It has probably been slightly more difficult this year to source the number of trucks to source the capacity that we need, of course that has meant that the rates that we'll pay to suppliers are going slightly up. We have of course tried to protect ourselves by going out with rate increases, price increases to our customers.

If this will lead to a growth in gross margins would of course be fantastic. We dare not guide for that today and say that is the fact that we have seen a very flat gross margin.

And our first aim is to stabilize the gross margin at the present level; and could we get it up further, of course, it will be great, but it's not something we can say today.

Then I will take the other one. I think that several things you have to bear in mind when you look at the working capital situation.

Firstly, we grow faster in sea than in, for example, road; and sea as a higher consumption of working capital. So when we make a final financial projections going forward, we have to take this into consideration.

Then it's also right that the customers they want extended terms. So that's also something, of course, that's from structural point of view puts us under pressure.

And we have other issues that we can work with. One of them is our billing days, where we are not where we would like to be right now.

It's also a collection, it's become much better organized. But of course, our new volume from UTi needs to go into the structure that we normally have.

And then on top of this, there are some specific UTi issues that we are still dealing with, where we see an abnormal consumption of working capital. I've mentioned this a couple of times, we are slowly excluding different kind of options, and we will find a solution for this as well.

So when we come with the guidance, let's see what we can guide. We saw the same when we acquired ABX and it took us a little while before we actually managed to get a full control over the working capital, but I see that we are slightly or slowly moving in the right direction.

So I think that was a little bit on the working capital.

First of all, just returning to the theme of the EBIT GP conversion, 41% in Air & Sea, with sea running well above the group average since 2010 at 38%. So on that, could you give us some idea of the distribution of the returns in the air and ocean business?

For example, is North America still biggest? And when you think about that going forward, where is the danger you see that maybe that the margin could lead to loss of volume and how do you think of the need to maybe self-dilute to drive volume growth to longer term value rather than just focus on profitability?

And then just a second question, please. You've been quite clear that some of the, if you like, the lift in EBIT for this year has become the phasing of the synergies being derived faster.

Looking back when you bought Frans Maas and then also ABX, it does look like the synergies did seem to expand in years 2 and 3. Are you ruling out any potential additional synergies being delivered?

Or is it just too early to tell at this point?

Okay. I think I'll answer these.

If we look at the conversion ratio, the margins, I think both historically but certainly also now it had the highest conversion ratio in the U.S. and in the Asia Pacific region.

This has been also continued after we acquired UTi. What I would like to say is actually that some of the improvement had actually come also from Europe, because they have actually got an even higher conversion ratio than before.

So now we also see that Europe is catching up, but they are still below the average. So if we can put it like this, in the 2 other areas, they are above average and it's really good that we see that we then also grow in these areas more than we actually have done in Europe.

So it actually pulls the whole conversion ratio up if you look at it. Then it's something that we will have to give away.

I think the thing is, you have a GP, a gross profit margin, you create a certain value on the transaction that you make, and if you look at our GP margin, I would say it's fairly stable. Of course, we have had to produce extra services so that our value proposition, it includes more than just moving a container.

We do a lot of services for our customer, but we still manage to have more or less the same GP margin. And I don't see this change in the foreseeable future.

I know people, they talk about digitalization, but we also automate and consolidate all processes, and it's basically [indiscernible] who's fastest in making the changes. And I think we've been really good at optimizing our workflows and implementing the changes that we need in order to be competitive.

So we don't see this thing as its all of a sudden going to be diluted, not at all. I think there's economies of scale and I think the UTi transaction will improve this that we have good infrastructure and we can really leverage on it.

Then when we talk about Frans Maas and ABX and EBIT and how can we do this also going forward. I think we have also said on this transaction that there will be further optimizations once we get the volume in.

We've also seen that on the other transactions. Let's now harvest the remaining DKK200 million in synergies in 2018 and then there's probably going to be some efficiencies that we can pull out.

We have a roadmap of business development and this will basically lead to higher productivity.

Two questions on my part, really. The first one is, can you comment on the incremental conversion ratio in the 3 business areas?

It's a little difficult to see because the UTi synergies, but on a sort of underlying basis, where would you say your incremental conversion ratio is compared to your total conversion ratio? And then the second question is really on the headcount, which sequentially was down for Air & Sea, but slightly up for the 2 other divisions.

Going forward, should we expect headcount to reflect volume growth? Or how do you see that for each business area?

I think I will take these incremental conversion ratios. As we look back, Lars, we have probably seen that it's been some time since certain areas in Air & Sea were 60% or something like this.

There's also other areas might be a little bit lower than 50%, but definitely higher than our normal conversion ratio. This is what we have seen, and I think also now that we have acquired UTi, we put the volume on, it's pulled our average conversion ratio up, so we can leverage on our infrastructure.

This is basically the same when you go for Road or for Solutions. But, for example, for Road, you should more look at, let's say, 30% to 33% or something like this.

It's not going to be the same, because it's another type of business, it provides more infrastructure. And of course, it might be 5% to 30% in Solutions, if we add volume there, or when we add volume, because we do this.

You actually see that Solutions have done a little bit better this quarter. We grow in Solutions as you also can see from the number.

But the synergies, they came from the Air & Sea divisions. So of course you will see that the headcount is being reduced.

Then when we increase volume and there's physical activity involved and there's much more physical activity involved in Road but certainly also in the Solutions division, then we of course need more hands, and this is really where we have deployed extra blue collar employees. So basically our total headcount is more or less unchanged, and this is because we make more physical transactions.

So I think this is what has developed. And of course, we have a good value proposition for Road, we still grow, and so we need to be able to handle the volume on the terminals.

And on Solutions, also see that we have a lot of tractions with new clients, so we do get extra volume in. And when we have these big facilities that we fill up with cargo, some of them they need 300, 400, 500 people to work in them.

So that's basically what is happening on the Solution side as well.

But it's fair to assume that if the headcount increase, going forward, is mainly blue collar, then average pay per employee should come slightly down, is that fair?

That is fair, but let's say that we have high growth in the Air & Sea. We would also, as we talked about with the marginal conversion ratio, we still need extra headcount in there as well.

So it also depends on all the other growth rates of course. But everything else being equal, it will drag our average salary down.

With the strong airfreight demand, we're seeing a greater need for freighter capacity. So how is DSV making sure that there's enough capacity available for customers in this market?

It's a good question. You're right, it's been a long time since we've seen tight capacity in airfreight to the degrees that we have seen in the previous periods.

This is where we will now benefit from being one of the larger players. Now we do see that we get preferential treatment, so to say, because of the size that we have.

So we haven't been able to source the capacity that we need, but I agree that it has been more difficult than it has been. It's still a combination of -- we still have the largest proportion of the airfreight that we use goes into the belly space of passenger planes.

But we also do full charter planes, and of course use freighter capacity as well. So it's a mixed bag.

I think it is -- we have to again remember that we are in the middle of the very busiest part of the year, and let's see how this pans out at the beginning of next year. From the statistics that we follow, we still see that there is enough capacity coming in, and I'm sure we have had some exceptions, but I've not heard of any big cases where we have not been able to live up to the expectations of our customers.

We have moved the cargo and lived up to what we have promised the customer so far [indiscernible].

And given the strength in airfreight, are you seeing it continue, because we had a strong peak season last year? Do you expect double-digit growth again in 4Q on the volume side?

Maybe in the short term. You know comparisons -- we did see Hanjin a year ago, which did cause a lot of air freight.

So comparisons will become more difficult, so to say. So I think probably to be cautious, it's fair assumed that we will see growth rates, which might be slightly below double digit for Q4 and on but, well, who am I to say.

And then on the Solution side, was there any particular industry verticals that were -- stand out as far as being the strongest or the weakest in the quarter?

No. I think, I can say a little bit about this.

I think basically retail area has been a busy area for us. We see a lot of growth in relation to this.

And I think we do -- for certain automotive areas, we do a lot of volume and then there's also certain brands that to a little bit less will I would say. So, in general also very high activity in automotive and in industrial so it's really across the board that we have high activity.

And then is there a timeline yet for solutions in terms of when the WMS would be standardized and all the facilities post UTi would be up to DSV standards and then do you have a long-term conversion ratio target for once that is complete?

It's actually quite an extensive project to get the volumes on to WMS platform and it's probably going to run until 2020 before we sort of get all the volumes on to our platform. We have a set of teams that convert volumes as we speak and they will continue to do this.

It is quite a massive task to replace all the IT and infrastructure that we had on the UTi side and then move it on to our infrastructure. You have to remember for example a side, let's say it's a multi-client side, has 15 customers, has 15 integrations into their ERP platform and you have to change them all in order to merge it on to our platform.

A project like this might take 3, 4 months and need to full collaboration of all the clients. So you can imagine that it is quite a big task, but of course we see that then they get access to automation voice pick and all these kind of things that we would have in our standard platform pack to spads pick and whatever we are talking about.

So as you say, there's a good potential for driving efficiency and productivity out of this because I can rest assure that some of the platforms that you run on the used operating system called Windows 98. So, there's been a few years before there has been some investment into automation of some of this.

So, we will have to get people out in wheelchairs in order to be able to figure out how we move the volume from [indiscernible]. In our organization, you know a lot about Windows 98, let me put it like this.

So, hopefully this answers what you asked for.

If I could ask just one actually. Just on the key drivers of low conversion ratios in underperforming countries.

Wondering if you could give us a little bit more color. You've obviously spoke about Europe earlier on in the call, but is that manual intensity, is it weak commercial performance or are there a broader range of factors impacting various European countries?

It's a combination of many things, but generally we can see with a few exceptions where we have the necessary scale, where we are big, we also have better margins. Where we have the highest margins, the best productivity is in the big countries so North America is a very good example.

The mass is easier, it's one big country and one big market and of course we can have a high efficiency. Some of the other reasons that we are lagging behind in some of the countries is it could be customer specific where we have entered by mistake into an agreement that we should never have entered into.

We could have done an acquisition in a country, a small acquisition, we should not have done. We talked about Norway many times.

There could be some market characteristics where the competition for reasons that we don't know is extremely -- or we do know actually, but the competition is very hard. We've talked about some of the coastal companies not having the most rational way of competing all the time.

So -- but to tell you the truth when Jens Lund and myself hear this, we just say it's bad excuses because there are no real excuses. We should always have the highest performing countries in DSV as the benchmark.

We are a super transparent organization. We send out rankings every month.

So, the non-performing countries or the less performing countries can benchmark themselves to the best and we hope that this will kind of create an environment that all ensures that the countries that needs and the regions that needs to improve will also improve. And in a way it's good for us to see that we have that future earnings growth should not only come from small effects here and there, that we actually also have leap jumps we can say in some countries that could actually improve the results quite substantially.

So it's of course frustrating to see sometimes when some countries are not too good, but it actually gives us hope for the future.

Understood. And just to follow on from that, do you think does it have to be -- I guess this isn't a new development, does it have to be individual specialized tailored solutions to individual European countries or would M&A form part of the strategy to ultimately bring Europe up to at least the average over the medium term?

We don't need the help of M&A. We would not accept that as an explanation that you can -- that we can only solve a country's problems by buying.

Of course you're right, it could help; but we would always set the task high that we could and we should be able to fix the problems ourselves with no help from M&A. Let me put it that way.

Just a couple questions following up first of all on working capital and then I had 2 questions on sea freight. First of all, the free cash flow upgrade DKK150 million versus EBIT up DKK200 million, should we just assume that's a working capital difference there for this year?

And then looking at sea freight, can you elaborate a bit on the implied slight deceleration in the market rate of growth in the third quarter and looking at the slowing into the fourth quarter, do weaker rates provide perhaps a bit more confidence in yield recovery not only to year-end but also into '18 and to what extent does that affect your view on going long or short capacity given that you probably made some adjustments over the past couple of years? Thanks.

Maybe I'll take the last question and I'm sorry, you just dropped off for a few seconds, but I'm sure Jens Lund will give a good answer on the working capital. But on sea freight, you're right, it's not -- it does seem like the market is softening just a little bit and normally of course we've already seen that also in -- reflected in the rate environment.

There's no doubt about that. Traditionally, we have talked about in DSV that we do see a delaying effect on the yields that if rates they go up, we get punished for 2 or 3 months maximum at least and this is the worst effect of course happening when rates are dropping.

So, that of course gives us some confidence about the yields going forward. I'm sure on a day-to-day basis, it also affects our behavior towards the shipping lines when it comes to going long or short in DSV.

It's a decentralized to a certain degree at least the decision and I cannot say exactly what this will lead to. What I can say for sure is that we are not -- we don't see ourselves at least as put in this world to speculate in the levels and we would still have a very conservative view where we would be relatively short sighted and not commit to long because you never know what's going to happen in 2018.

And Jens, maybe on the --.

I did not hear what you say on the working capital because you fell out. So, it must have been a very difficult question.

Can you repeat?

Hopefully not. I just asked if we look at the differential on the free cash flow upgrade versus the EBIT is a DKK50 million difference, should we ascribe that to mostly working capital or CapEx or other movements?

Tax. There's tax on it as well.

So, I think that's basically it.

You mentioned the issue of reclassification of gross profit from UTi in respective solutions, could you quantify that and was there also similar effects in either of the other areas? Second question about have you identified any assets for sale as a result of the UTi acquisition?

And thirdly, a question on the effect on your sea brokerage fees, whether you can give us an update on how you see the digitization affecting the brokerage fees in seas?

The world is rapidly digitalizing, you're right. We are digitalizing ourselves.

The communications with our customers, vendors, everything is done in a very different way today than what it was in the past. There is a lot of speculation.

So far -- it's been mostly in PowerPoint presentations so far. We haven't seen any disruption signs in the day-to-day business and this is not what we expect from speaking to our customers either, I have to say.

The clear brokerage, as you call it, the support part of the GP and sea freight it is, as you know, it's a smaller part of the GP. We live more from the additional added value services, you can say, that we generate for our customers.

And this is something which is not a commodity at all. So we think we are well positioned to tackle the digital future in DSV.

And so far, we haven't seen any negative impacts on this.

Then we had the reclassifications, I think, in the quarter. It's probably [DKK40 million, DKK50 million we are talking about.

So when you adjust this, I think the numbers should be okay. I can't recall what -- there is also something into Q4.

So you will hear it again in Q4 this explanation, unfortunately. But then we should be completely out of all the reclassifications, that's the last one.

And then if we look at the assets held for sale, there are probably a few assets that we hold on the asset held for sale line, that has also come from UTi. It's a few business that we try to divest and also a few properties that we put up for sale as well, things we need to sort of divest because they are not needed going forward in the way we operate the business.

Okay. Sorry, I didn't hear the number you mentioned on the reclassification of gross profit.

DKK40 million to DKK50 million, in that region in the quarter.

I think you touched upon most of it, but maybe you could give some color on the M&As seen and moving parts of that side, especially maybe when -- previously you talked about a $1 billion revenue or EUR 1 billion revenue as sort of the lower cut-off of what you will be interested in. Giving the size momentum you currently have, is it time to update your lower limit for M&A targets?

Or how do you see about that and think about size?

It's a very relevant question. It's not like its [indiscernible] that we have.

This target is an internal kind of a decision we have made. What you can say is that there are no upper limits.

So that gives a lot of flexibility, but what we have said is that the really small acquisitions are not so attractive for DSV anymore. We have seen that some of the ones we have done in the past has not really given us the value that we wanted to see.

Generally spoken, I guess we can say that M&A has been part of the life of DSV for the last at least 20 years. And I hope that it will continue to be a part of what we do, it is part of the strategy, we want to take part in this consolidation.

I've said this 1 million times now. We want to take part in the consolidation of the industry.

It's a fragmented industry. We believe in consolidation.

Of course [indiscernible] in doubt about the fact that we can generate value to shareholders through acquisitions, I think it has been proved through the UTi acquisition that this is still the case in DSV. But also I have to say, like we demonstrated in the period of time between buying ABX and UTi, we will remain very disciplined.

Also when it comes to M&A, we will carefully select the targets, we will carefully, carefully study the valuations of the particular assets to see that there are direct correlation between the value of the company, and the real value is that we see inside the company. And then, yes, we will just take the time that we are in no hurry to do any M&A for the time being, but of course we do believe that it will also be the future of DSV.

Okay. And just a follow up on that very shortly.

Do you have any preferences of acquiring listed companies versus non-listed companies? I think [indiscernible] for instance, reporting structure and visibility on the cost side versus this valuation potential?

Not really. I don't know, Jens, if you want to elaborate a little bit on this?

Of course, we want to get as much certainty when we do a due diligence. And of course the ownership structure or the access to information depends a little bit on the ownership structure, but...

I think typically, if you have to report in a transparent way to a stock market, it gives you a very high quality, but it also limits your ability to make due diligence. On the contrary, if you have a private company, then of course you can do a lot of due diligence, but sometimes there is not the same covenants surrounding the monthly or quarterly or yearly reporting.

So basically, I think these 2 things say there's no clear favorite or anything. I think we can understand the figures both of listed and non-listed companies.

So whatever we find suitable, we will manage that, I should say.

A very quick question on Solutions. And you mentioned the need to improve the IT system.

The conversion ratio is somewhere behind the 2020 target of 25%, which I think is the target you gave last year. Is that still the ambition for that business?

Very clearly, say, that is still the ambition for the business. The targets stand until we change them, they stand.

I know -- of course, sometimes we don't do ourselves any big favors by giving out a 12 long term financial targets, 3 for the total group and then 3 for each of the divisions. And I'm sure when we get to 2020, you'll probably see that a few of these targets, might not have met the expectations, or this could have surpassed the expectations.

So it's important to say that the real, you should say, targets you should look at is the targets we have for the whole group. That does not mean that we don't stand by the targets we have for the divisions.

And some of you have said this is one of the more ambitious targets, but sometimes ambitious targets are also what drives a certain behavior and the direction in the organization. And at -- we at this present moment in time, we actually do believe that we can reach this conversion ratio with the plans we have with the IT rollout in 2020.

Two questions for me, please. Could you give us a slight appraise of the GP growth by existing and new customers, please?

And then, in terms of net working capital, could you give us a slight appraise of the day-to-day differential, as it stands today for DSV versus UTi?

No surprise. Maybe I will leave the last questions to Jens Lund, not that I don't have an interest on this, but when it comes to the growth, we have hundred thousands of customers in DSV and there's a lot of moving parts.

So we cannot say exactly what came from what. But what we do know for sure is that we have seen good growth with existing customers giving us new lines, giving us new business, being very happy with the service levels, the rates, the hands-on approach that we have in DSV, which has been helping us to grow with existing customers.

So I would say a certain -- not insignificant part of the growth has come from existing customers giving us new business and it's sometimes much easier to grow that way because you grow with customers who has confidence in your ability to help the supply chain. It's much easier if you are on total unproven cart, so to say.

So this is something that we focus on. And we have plans for more cross-selling also between the divisions that will enable us to grow even more with the existing customers.

And Jens, maybe a little bit on the...

On the working capital to date.

Yes. If we look at the debtor days, I think it's -- if we want to calculate root cause the issue, I think you also have to look at, what we call, work-in progress as well, because that's sort of the unbilled revenue as well.

And as I mentioned, here we see that our billing days, we cannot separate them, but we can say as they come up after the transaction. And we can see that in many areas we typically have a rule that we have to bill a transportation on average 5 days after that it's been completed transaction.

There are a number of reasons why it can't always be done immediately, but sometimes it's also due to the fact that people, they don't do it in the right way. This has, in certain areas, come up to 10, 15 days on average, and now we are well underway down again.

It drives quality also on collection, because if you write the invoice fast, you get a higher billing quality. And this is in -- the customer gets to bill fast, he understands it and there's no way it's really in relation to it.

Then on the billing days, of course, we have seen that our debtor days, they have then increased after UTi. We don't really know what the UTi days sort of were, because I don't think that there were many people that we're capable of figuring out what their numbers actually says, so be quite honest.

So we can see that our debtor days have probably come up with a 5 days or something like this after we had acquired UTi. This can be due to mix of costs mostly, it can also be due to some of the areas they are, but it can also be that you have a lower billing quality, we have weaker collection processes and stuff like that.

So this is basically what we are working on driving down right now.

But maybe, Jens, we should also add that this is something that has the highest focus. We do not have a single meeting with the country without this being very high on the agenda.

We call it a board meeting when we travel out of the country, so we invite the countries here to Denmark to go through their latest performance. We have a standard board agenda, where this is very high on the agenda.

We talk about the debtor days, the creditor days, the days that passes by from the transportation has ended till the invoice is done. And it's something that we follow-up on and it's not something that the countries can just kind of hide away from us here in Denmark.

So this has always been -- running a company with debt on the balance sheet, this has always made us disciplined, and this is something we will never forget, I can assure of you that.

Okay. That makes a lot of sense.

And can I just then pick up [indiscernible] earlier question on cross-selling, which I guess has always been the case in the industry or cross-selling solutions and forwarding, and -- I mean, I guess nothing has changed in that sense, because you're always trying to push multi solutions to your customers. So when you look at your conversations you're having, what is your conversion rate?

I mean, how many of your customers are actually taking full solutions today? And if you were to compare that 5, 10 years ago, going back in history, how has that actually shifted, because my sense is that wouldn't have shifted very much historically?

And do you see -- if that is the case, do you see an acceleration in that going forward?

I wish I couldn't agree with you but I do unfortunately agree with you. This has not -- there has been OpEx step changes when it comes to this.

We still do market ourselves, brand ourselves as one company, but it is a fact that we are 3 very strong divisions that try to sell their own products. Then we have, of course, a layer on top of that, that sells the whole companies, but it's the whole idea of one-stop shopping from our customers has also disappeared a little bit.

Customers and big industries, they don't want just to rely on one partner. So it could be that the road freight is allocated to one and air and sea is allocated to another.

But there is still a potential and there is still something that we are pursuing, and I actually do believe that we can do better also in the future when it comes to this.

If I can ask two further questions, please. First of all, coming back to on the previous themes about working capital, et cetera.

If I look at some of the incremental working capital growth versus the EBIT post UTi, it looks like some of you like the returns on working capital on to even double digit. Could you elaborate a bit more about what the action plan there is?

I mean, could we see some customers leaving your orbit? And then secondly, and this is more long term strategic, before acquiring UTi, at the previous Capital Markets Day, you spent some time talking about customer relationship management systems and how those could be improved to make customers sticker.

Clearly if the UTi integration is going better and faster than expected, when does that move back up the agenda and is there more to do that? And if you can say a little bit more about your thinking on that, that would be great.

Maybe I will just, before I forget, I'm getting old also, answer the last question. I just spoke to Carsten Trolle a couple of hours ago, or even less than that, about a management meeting he had with his management this week.

And Carsten, of course running the Air & Sea division for us, told me that they spent in this particular meeting approximately 50% of the time on growth on sales. So I can tell you this is what we focus on right now.

Of course, we want to fine-tune the integration, we want to fine-tune -- make sure that we get the last of the savings out, but what we want to do now in the -- and this not only goes for Air & Sea, the same applies for Road and Solutions for that matter, is to grow faster than we have done in the past. There's a lot of ways, there's a lot of things that can support that agenda, one of them is of course to have a good visibility.

We have it all, all information is now also from UTi in our Salesforce.com system, CRM system. We have access to customer profitability analysis tools now, that was not the case in UTi.

So I think we are well equipped now to go out and do, what you say, higher focus. Maybe the last thing I could point your attention to is the fact that we've also included the UTi business in our customer satisfaction surveys that we do.

We have a very through NPS system, where we ask our customers if they're actually happy in content with the -- working with these 3, and this is also something we use to prevent customers from leaving us and hopefully minimizing churn. So I think we are well ahead.

We are not exactly where we want to be, but I would say we're actually close.

[Indiscernible] out a little bit. Is there a chance to repeating just the last bit that you mentioned about the NPS surveys?

Yes. We have had a customer satisfaction program for a long time in DSV, where we ask customers if they're happy with the service they get from DSV.

We have put all the UTi customers on that. Now we are one.

Today is important to say we are one company. It's very -- we are 99% there, everything is in one system now.

So if you get a bet, what you say, a score from a customer, what we use that for is of course to immediately contact the customer and see if there is a reason that the customer is not happy. And we have seen that preventing churn and we have seen that we have managed to recapture not so happy customers.

And it is of course also something which we follow to measure the countries. And if a particular country, these customers are over a long period of time always unhappy, of course we need to have a discussion with the management of that particular country about the reasons behind this.

So the NPS score has been an integrated part of the overall sales activities and marketing activities in DSV.

And then on the working capital, you're quite right. There are some few very specific things in UTi that had quite an abnormal consumption of working capital.

And this is of course some specific issues that we are dealing with, and this may even lead to a situation where these customers, they will have to be served by another party, or we will have to discontinue this activity, and we cannot over time have significant deviations in returns on the capital that we deploy and. As you say, there are few customers that are below 5% on the return on invested capital, and this is not satisfactory.

Okay, gentlemen. And I have to say it, because it was only men calling in today asking questions.

Thanks for listening in to the conference call today. We are pleased about the performance of our company.

We're in good shape. We have a good momentum.

We hope and believe very much that this will carry on into Q4 and hopefully also into the future. We will be busy now travelling on road shows to all parts of the world giving more flavor to the results.

If you have investors wanting to see us, please reach out to our Investor Relations department. The organization is working hard and I would also like to use this opportunity to extend a big thank you to all the whole organization, 45,000 fantastic employees, the best in the world.

Thank you for what you've done. We will be back at the beginning of 2018 with the full year numbers for 2017, including also our guidance for '18.

And until then, see you later and bye-bye from here.