DSV A/S

Jens Bjørn Andersen - CEO Jens Lund - CFO

Damian Brewer - RBC Capital Markets Mark McVicar - Barclays Bank PLC Andy Chu - Deutsche Bank David Kerstens - Jefferies Casper Blom - ABG Sundal Collier Holding Robert Joynson - Exane BNP Paribas Dan Togo - Carnegie Lars Heindorff - SEB Edward Stanford - HSBC Jizong Chan - Stifel, Nicolaus Aymeric Poulain - Kepler Cheuvreux Dominic Edridge - UBS Investment Bank

Yes. Hello, and welcome, everybody.

Welcome to the conference call covering our half year 2018 results. The concept will be as it has been for many, many quarters.

We will go through the presentation, which should be available online. We will do it as quickly as we can in order to leave as much time as possible for your questions.

So if we go straight into the presentation after you have carefully studied the forward-looking statements on Page number 3. We will go directly on Page number 2 -- I'm sorry, we will go straight to Page number 3, which is the highlights of Q2 and the first 6 months of 2018.

On that, you can see that we have had what we consider a very strong quarter -- we have just put that behind us -- where we did see a satisfactory growth in gross profit. The growth was 9% for the quarter and we now have 6% growth for the full year.

What may be more importantly, we did see a very strong growth in EBIT in the quarter of 21%, meaning that now year-to-date we have seen a 15% growth in earnings. Combined with the fact that we see no big risks ahead of us, we felt it appropriate also to upgrade the outlook, the full year outlook for the full year.

So that is now between DKK 5.3 billion and DKK 5.6 billion when it comes to the EBIT for the full year. And consequently, that is an uplift of DKK 200 million.

And we have as a consequent also lifted the guidance for the free cash flow with DKK 200 million, so that now is DKK 4.2 billion. As we've said many, many times, we think that the money best belongs in the pockets of the shareholders, so we have also initiated the new share buyback program starting as of tomorrow of DKK 1.2 billion.

And please bear in mind that the numbers I just mentioned, the growth rates, they are in constant currencies. Going to Page number 4.

You can see what we consider another rock solid, very strong results from the Air & Sea division. We are very pleased about the development.

We've seen a continuation of the strong performance in particularly air freight, and you will see the growth rates later on. It's mainly driven by exports from the EMEA region and from Americas.

The sea freight growth was more in line with the underlying market. And we are happy about that since we've seen a weak development on the market on the trade lane from Asia to Europe, which has probably only grown about 1%.

And since that is the biggest trade lane of DSV, the fact that we have managed to grow at the same pace as the market, we consider that pretty good. The fact that we have had a very strong positive yield development is satisfactory and that has of course led to a significant growth in the EBIT, which came to DKK 988 million for the quarter, which is a growth rate in constant currencies of a little over 20%.

I think also the margins speak for themselves, more than 10% operating margin and the conversion ratio of more than 41%. I think the division can be extremely pleased about that.

So going to Page number 5. You can see how the yield has developed.

First, air freight. As you might have seen on the previous slide, we managed to grow the number of tonnes we moved in the quarter by 11%.

And on the normal circumstances when you outgrow the market in such a way, you will see a negative effect in the yields. We have not seen that.

In constant currencies, we've actually managed to grow the GP per unit with approximately -- or with 4.0% to be accurate. And this is something that is very good and it underpins what we have always said in DSV: Growth should always be profitable.

We are not growing for the sake of growth. Any growth should be profitable growth.

And I think we have demonstrated that in the growth. When it comes to sea freight, we've grown in line with the market.

The volumes, number of TEUs have grown approximately 4%, which is what the global markets have also grown. And what is extremely good to see is that we have grown the yields also, the GP per TEU with 6.7%, which has also helped tremendously on the growth in absolute numbers on the GP.

So I think we can extend a very big thank you to the guys in Air & Sea. They have put behind them another a very strong quarter and I think we can be extremely pleased with the developments of the division.

Then we go to Page number 6. It's the Road division.

I think we can also be very pleased with the results of the Road division. They made DKK 322 million in the quarter.

And when you make DKK 322 million in a quarter, I think it gives reason for celebration. So they should be happy and proud of what they have achieved.

We did do one adjustment that you guys have to be aware of and that is the fact that we have put a renewed or an extra focus on our 4PL activities, which we are seeing a potential growth coming from. And if you want to be a true 4PL operator, you need to operate the 4PL activities in a kind of an independent activity in your company.

And we have moved those activities out of Road to a unit in the DSV group entity. And the gross profit for the quarter was negatively affected with approximately DKK 22 million.

So that is the reason that the growth rates in the GP seems not so exciting at first glance. But overall good development.

We've also grown the volumes 5%, which is strong. The market has only grown 2% to 3%.

We believe that we will manage to stabilize the gross margin around 17%. And with that said, we believe that the gross profit and consequently the EBIT will also continue to grow in the coming quarters.

So last of the divisions, the Solutions. We've seen a very strong continuation of the trend which actually started in Q4 2017, where we did see very strong results.

Good top line growth driven by a lot of verticals, but primarily I would say by retail, including e-commerce and also the automotive industry have grown fairly well with us. We've seen a stable gross margin and we also see a nice development of EBIT coming from higher productivity and an increase in profitability in several locations.

Some of you this morning asked if this is a supernatural EBIT margin we have of 5.6%. We think it is -- it's high, we recognize that.

But please do remember that in earlier days, so to say, for instance, back when we bought Frans Maas some years ago and also after buying ABX, the EBIT margin of the Solutions division were significantly higher than what we have seen in recent years and we actually do believe that we can get it up and also work towards achieving our long-term financial targets of the division. But it's great to see also strong set of numbers from the Solutions division and they have also surprised us I can say in a positive way.

So overall we're pleased about the developments of our company. We are tracking our plans.

We are ahead of the plans, which is also the reason that we have lifted the guidance for the full year. And I'm sure some of you will ask about trade wars and impacts in the global economy, but I think we can take that when we come to the Q&A.

So with that said, I will now leave the floor to Jens. So please, Jens?

Well, thank you very much, Jens Bjørn. And I would like to say to the investors it's actually a special day today because it's Jens Bjørn's 10 years anniversary as CEO.

So quite good to note that the share price when you started was DKK 100.

That's correct.

So now it's DKK 560. And personally I'd hope for more, but I guess we are okay with that.

I'll do my best for next 10 years. I'm sorry.

Okay. But congratulations at least from me…

Yes, thanks.

…and on behalf of the whole team. We are proud to work together with you.

And we will now come to the numbers. I will not dwell too much about it.

Many of them are quite -- speak for themselves. But we can see that we have managed to grow our GP with 9%.

But actually our EBIT has grown with more than 20% if we calculate it in constant currencies. And of course this is because we see that there's still marginal conversion of the incremental volume that we produce that is significantly higher than what we see for existing volume.

On top of this, of course it's still the benefit from sort of the full year impact of the UTi synergies that we have achieved as well. But good to see that it filters through into the numbers.

When it comes to financial items, we've on several occasions discussed these internal loans that we have that we have to adjust over our P&L. Now the dollar has increased vis-a-vis some of our currencies up till quarter-end and this actually gives us an inflow in Q2 that eliminates our financial cost and actually produces an income.

So glad to see this. But in reality its internal paper money.

And overall, our financial costs follows what we have guided so far. So we are in line with that.

On the tax side, we still aim for 23% on a yearly basis. We are a bit higher right now.

But we see that we should be able to achieve approximately 23% when the year is final. On the EPS, of course you will see that quarter shows a dramatic development because of these FX movements.

On a yearly basis, it's down to -- or a year-to-date basis, we are down at 23%. It's probably more correct to say that it's somewhere around the 20% mark if we adjust for the FX movements.

But still glad to see that we have significant growth in the income we generate per share, because after all that is what the investors pay for. If we move to the next slide, the cash flow, I would say the cash flow statement is pretty much as expected.

On the half year results, we do normally see an outflow because we have optimized cash flow situation at year-end. Normally this is where we have the best position due to seasonality.

So that's pretty normal. We are very confident with the cash flow and with our debt level, which is currently below 1x EBITDA.

And this also the reason why we've launched this share buyback program of DKK 1.2 billion, which is quite high if you consider it for a quarter. The right calculations -- I know that some of you sometimes speak about this.

If you calculate, our ROIC is 24.3%. So also very close to the financial target we use very much for capital allocation internally.

But if want to compare to some of our peers that have grown organically -- I know that they sometimes like to disclose their ROIC -- you should probably eliminate the impact of acquisitions in our numbers and this would mean that we would have a ROIC of 94%. So I guess that's also a number that we can be satisfied with.

Allocation to the shareholders on Slide number 10. Just basically for the accounting or the accountability of what we do.

You can see how we allocate the capital that we produce and we expect now total distribution this year of almost DKK 3.4 billion. And I think that's in line with the cash we have produced for this period.

So really nothing to say to that. On the guidance, it's on Slide 11.

We have upgraded the guidance with a couple of DKK 200 million top and bottom of the range. And as Jens Bjørn mentioned, so basically cash flow adjusted as a product of this and also adjusted tax rate, which I talked about a little bit earlier.

So nothing material to say about this. It's all as could be expected.

And I think we will very soon skip to the Q&A part. And please ask your questions and we will answer them as good as we possibly can.

Two questions from me. First of all, within the presentation, that's where you talk about further workflow digitization in the Air & Sea business and also clearly that your Road TMS pilot now should be started.

Could you talk a little bit more about what you mean by further digitization in Air & Sea and what sort of productivity that could generate and indeed any findings from the Road TMS pilot so far? And then just secondly, I notice that your average debt maturity is coming down slightly.

It looks like it's around about three years. Do you intent to let that drop further or are you going to look at new or diverse type sources of debt?

Yes. I think if we look at the productivity, for example, for Air & Sea, we have a roadmap for this where we continue to digitize the way we do.

Right now of course there's quite a bit of focus on the both tracking and booking capabilities and we also have some tools like a driver app so that we can get the IOD, the information of delivery. We'll probably also get the POD, the proof of delivery with signature when our driver app is mature enough for that.

So we will drive productivity with some of these initiatives. Then there's a lot of things going on when it comes to customer report and we use a lot of software robots.

Now probably some of that will probably change over time to machine learning when we get better at it, but right now we use software robots for this. We consolidate many of our activities in shared service.

So each of these things are based on business cases. And as you can see, basically we trend towards the sort of long-term guidance for financial targets 2020.

We need to continue these kind of initiatives in order to get there. But we are of course glad to see that when we add volume to the platform, the marginal or the incremental part can be produced very efficiently in our structure.

I think that's the whole point of all the work that we do, that we increase our productivity all the time. I mean, that's really at the end of the day what DSV is all about, productivity.

So if we take the Road system, yes, we are making progress on the TMS platform. We are live and we have almost now produced the blueprint that we need for the system going forward.

It's quite a piece of hard work, but we've put all our resources in there and -- but it's still a long journey. We need to have a pilot this year and we need one more next year before we are 100% certain that we can roll it out.

But we make progress when it comes to that. Then on the debt side, it's right that we have now a duration on our debt portfolio of approximately three years.

And I think we have less debt on our balance sheet that we've seen, so we don't necessarily need the same duration. We issued a bond a year ago or something like this.

And we will look into it, how to bankroll the company in the most efficient. We may take out some facilities with banks with a certain duration or perhaps a little bit later evaluate whether we should do another bond.

So we're monitoring it. And I think with the current debt levels, I think we are okay.

Two sort of groups of questions from me. You've obviously reported and talked about a bit of a slowdown in market growth in the second quarter, particularly on the Sea side.

So the first question is, do you see that slower growth continuing in the second half or are you working on the basis that this has been a bit seasonal or a bit transient and it should come back again? Could you give us some sense as to what you are telling your people to work towards as market growth for the second half?

I can answer that. We've told our people to go out and beat the markets and take market share and grow faster than the market.

You are right, it seems like the markets have come down just slightly. We have said that for Q2 the market for sea freight was 3% and air freight 4%, maybe coming down a little bit.

But from at least air freight's perspective, a very high level. It extremely difficult for us to get good intelligence about what's going to happen in the extremely volatile world also that we will see in the next couple of quarters, but I think we should assume that we will see 3% to 4% growth rates within Air & Sea, both air freight and sea freight.

And then we just have to go out and -- without jeopardizing the yields of course go out and see if we can beat that and take market share. But then it's come down a little bit from the beginning of the year.

It's correct to say -- to assume that, yes.

But your working assumption is that remains relatively stable, yes, roughly where we are at the moment for second half? Okay.

That is...

My second question was no, obviously no mention this morning of M&A. Do you still have an active pipeline?

Is it quieter than it was 6 months ago or fuller? What's the sort of sense out there on M&A?

Nothing has changed, Mark. We are still extremely eager to do M&A.

We think about it every day. We talk about it every day.

The company is getting more and more ready. We just don't want to raise expectations to high.

It's a fine balance. If we talk a lot about it, people will think we're going to do something tomorrow.

If we don't talk about it, people will think we've forgotten about it. That's not the case.

It is extremely important for us. It is priority number one.

For the usage of the cash flow, it's to do value creating M&A. But we've said it many times, it's -- there has been some speculation this morning also about the fact that valuations are too high now and that is the limiting factor for us.

I don't necessarily see that as correct. I think the limiting factor is more kind of a willingness from the seller side.

We have some extremely attractive propositions I think we can show to particular companies, but if they don't want to sell themselves to us -- we can want to buy them as much as we want, but if they want to sell for reasons we sometimes don't understand, then there will be no transaction. So we have to be patient and stay in contact with these companies we have on the pipeline.

And then one day may be things will change or other opportunities will arise and then I think we are ready, both from a financial point of view of course with the deleverage we have done, but also from an operational point of view. So it's not off the table, let me put it that way.

Sounds sensible. Although obviously the more your share price goes up, the higher the values on the investment bankers' comp sheets and they run around trying to persuade people to sell.

But -- okay, thank you.

Investment banker.

Three questions from me please maybe just to flush out your thoughts on trade wars, global economy. You're the sort of fourth out of 4 in terms of reporting, so just wondered if you're saying anything sort of different to your sort of 3 quoted European peers please on the trade tariff side.

Secondly, can you just give us a little bit more information as to the sort of low growth in Asia, Europe and what you've seen there on the Sea side? And then again another sort of interrelated question.

In terms of industry exposure, I think you pull in Solutions some pretty good growth driven by autos. But obviously that's one of the segments that is under, if you like, sort of some scrutiny around trade tariffs.

Is this sort of a bit of a sort of ramp-up before the storm? Maybe some comments there please on autos on the freight management and Solution side?

On the trade wards, it's extremely difficult for us to find something positive in restrictions and tariffs being imposed. We have to say that -- having said that, it seems at least at this present moment and time that the case or the issue has been encapsulated to the China-US trade lanes.

That represents approximately 10% of what we do in Air & Sea, not of all of these, but in Air & Sea. So it's relatively isolated.

So that's why we are not too concerned. We were extremely happy when we saw that there was an ease off in the tensions between the E.U.

and the U.S. That's a more important trade lane for us.

Still the most important trade lane is Asia to Europe and I don't expect anything to happen on that. Also I have to remember that the global supply chains have developed tremendously.

They are extremely sophisticated now. And as an American company, if you have vendors in China doing sophisticated materials for you, for your production, you just don't change supplier overnight.

It's not going to happen. So I think we could potentially be exposed and affected, but we don't expect it to be very dramatic.

And the last thing I wanted to say about this is also some of the items which will be hit are more bulkier items that we are not into. We are not doing steel and soybeans and whatever.

It's not an activity that we are in. But as I said, of course we could be impacted, but I think it will be to a limited degree.

It's correct that there's been some weakness recently on Asia to Europe. The recent developments or statistics we can see they do stem from May, so it's not super updated.

But it seems like the volumes have grown between 0% and 1% only. So of course that has had a negative effect on us, on the total growth in sea freight when that is our by far strongest trade lane.

And it's too early to say if that's going to continue or not, but it's not like it's falling off a cliff. When it comes to Solution, you are right, we're strong in auto and in general that has driven good growth for us.

But also some retail business has really picked up, e-commerce. And then maybe we should have put FMCG in.

I mean, we have been extremely successful in getting a lot of fast moving consumer good clients into the Solutions division recently also. But one of the things we can also see, maybe not so much in terms of growth, but in terms of profit improvement is that we see less failures in implementations.

We have improved our skills I would say on implementing larger customers. And some of the not so very profitable activities that we did in the past, we've actually managed to turn them into something which was quite -- which is quite good now.

So it's a combination of those things.

Just in terms of the China-US trade lane, is that 10% Air & Sea exposure by volume or is there any difference in terms of profitability? Just as a sort of -- just to clarify, the 10% is by volume, isn't it?

It's by volume, yes. That's correct, yes.

I've got three questions please. First of all, a follow-up on the weakness on Asia-Europe with growth of around 1%.

I think it's even more striking if you compare that to a growth of 6% on the Transpacific. And I was wondering if you have any insight in the differential between Asia-Europe and Transpacific sea freight growth?

Secondly, on road freight. Could you quantify the working day impact of the timing of Easter?

And I notice you also lowered some of your gross margin target to 17%. Is that related to an increase in tight capacity situation in road freight or is there also a mix effect from the transfer of the 4PL activities to the group?

And then finally regarding the tariffs and the increased perfectionism, do you also see opportunities with increased complexity potentially leading to improved profitability on some activities?

That's a lot of questions. But in terms of the complexity, you are right.

You could speculate that some supply chains will move out of China to Bangladesh to Vietnam to other places, Malaysia. It's places where we have a strong foothold.

We can move quickly. We are agile.

We can help our customers to set up new systems. So I think we are in a good position if supply chain there they are changing, definitely.

So when it comes to the mix or the GP margin in Road, you are right, it's a combination of a lot of things. The 4PL that we're moving out, it has a consequence of approximately 0.2 percentage point as far as I remember.

So that plays a little role. But it's also -- to be realistic, we've been around the 17% mark for a very long time and it just seems to be extremely difficult for us to move that upwards.

That does not mean that we cannot grow the GP in absolute terms and consequently the EBIT also. So we're still relatively optimistic about that.

When it comes to the impact of working days, we believe it's about a DKK [15] million on EBIT. And it's something we said we would see.

And I think that is also included in the numbers. I think maybe Jens will elaborate maybe later on, but -- and the last -- the first question you asked.

We don't have a lot of insights as to the volumes. You are right, Transpacific has been strong.

You can also speculate is that some kind of last minute express activity going on because you want to get the products home before the tariffs are being imposed. We simply don't know.

Did you want to put some more flavor on...

The only thing you can say on the first one is U.S. has shown quite a high growth rate as well at least with the last sort of numbers we've seen from the U.S.

GDP has grown somewhat faster than Europe. So I guess that's sort of -- and sometimes you then see that the trade, there's a small multiplier on it when there's a lot of growth.

So that can be the case. We are just speculating here.

But I think that that's probably what we see. It's not that major for us anyway.

So, yes.

Okay. Thank you very much, gentlemen.

Yeah. Thanks a lot and first of all congrats on a strong quarter.

Well done, everyone. The first question is regarding the balance sheet.

Jens Lund, you mentioned the target of net debt-to-EBITDA of between 1 and 1.5 and you're actually a little bit below that right now. What -- how should we sort of really expect you to target this going forward?

Do you really want to be around one or is it the midpoint of the range that should be the target? That's my first question.

And then secondly regarding the very strong volume growth in air freight, is it sort of a bit of a catching up on the market growth that you didn't see last year and should we then sort of expect it to start slowing down now? Or has there been any particularly new initiatives implemented in order to capture more market growth here?

Okay. The balance sheet -- you're right, we are 0.93 if you take the two digits on it.

And we do DKK 1.2 billion now. We would like to just to be above 1 if we can do that right now.

We may, once the new leasing rules they come in, have just a single number instead of a range. We will discuss that once this becomes relevant.

But we have launched another share buyback of $1.2 billion in the quarter, so we should lever the company a little bit up. So that's how you should think about it.

I think on the air freight side, last year you saw the impact of the integration, so we had less focus on sales. Now we have focus on sales and we have gained a lot of new customers and we can then cross-sell to these customers our services.

So I think that's also what you've seen, after all the transactions settle, then we get quite a high growth and we develop fairly well once we can focus 100% on our operation. I think that's basically the explanation.

And I think that you can expect us to deliver a solid performance vis-a-vis the market also going forward.

But just coming back on the balance sheet here. It's more sort of -- when we sort of have to try and extrapolate how much could you potentially buyback in Q4 and next year, is it really sort of the more 1x EBITDA we should use as the guiding tool?

Think 1, then you're okay.

A few questions from me if I may. First of all, on the Road division.

The OpEx declined by around about DKK 150 million during the first half of the year versus the first half of last year. Could you maybe just provide some color on how much of that was provided by synergies as opposed to underlying cost reductions please?

And then a couple of questions on the Air & Sea division. The OpEx was around about DKK 1.4 billion during Q2.

Would it be reasonable to assume that that run rate continues during Q3 and Q4 or is that a little bit optimistic? And then the second question on Air and Sea, just a slightly broader one really.

I appreciate that you only provide an EBIT figure for the division overall, but would it be possible to provide some color on the percentage of EBIT that comes from Air nowadays versus the percentage that comes from Sea?

Maybe I can take the last question. And then it was some quite detailed questions you had about the OpEx, so Jens can just prepare a little bit on that.

When you analyze the or when you look at the presentation, you can see that the GP for Air & Sea is pretty evenly split and I think you can say the same for EBIT. It is not possible -- I wish -- we want to be as transparent as possible, but we simply -- it would be too much work going into making an EBIT for each.

Then you will have to do a lot of assumptions. When you get out in some of the smaller countries, you don't have these two, what you say, activity levels totally isolated.

You will have people doing both. And then it will simply be too much for us to split it out.

So -- but you can assume that the cost base which goes into operating and handling this GP is more or less the same. So it's two good and strong legs that we stand on, even though we do see a stronger development on the volumes recently in air freight and we're still fairly okay also in Sea.

So now, Jens, I don't know if you want to...

Okay. But on the Road side, the concentric -- I guess you have understood that we move this part of the volume out.

It really doesn't really produce an EBIT, but it has a GP and a cost attached to it. This of course has an impact on the figures that you see.

And then I think there's been -- if you look at the numbers and have them quarter-on-quarter, you will see that we have quite high cost in Q1 and a little bit lower in Q2. And I think this relates to some accrual issues, where -- if you have to look at it basically on a half year basis.

When we run the company on a size like this, to get all the IT costs -- I think we have approximately 25-plus cost drivers on the IT side in order to make it through activity-based costing. And to have models that are in sync all the time, it requires quite a bit of resources.

So if you look at it, I would say that take the 2 quarters, add them up and adjust for the concentric, where we have already given the numbers to you. It's a little bit than DKK 20 million.

Then I think you will be okay when it comes to the Road side. I don't necessarily think that you will see what was here calculated, a decline in cost of DKK 150 million.

That must be an extrapolation of Q2 that you have. I wouldn't expect that to continue.

So take the average of Q1 and 2 and adjust for concentric and then you're okay for your model. Then was there another question as well?

Air & Sea OpEx, yes.

Yes. So if you look at…

Yes. if we just -- on the Air and Sea division, I'm just trying to get a feel for the kind of operational gearing going into the second half of the year.

So really just trying to get a feel of how much additional volumes could be handled with the current cost base.

I would look at it in another way if I should model it. I would probably model a margin or a conversion ratio of plus 2/3.

So plus 66% percent I would model. Because we do see that we can add volume at a higher conversion ratio, so significantly higher than what we already achieved today.

There's still some synergy impact in the Q2 numbers when you look at the Air & Sea. So I think you will see a lot of impact from very efficient systems.

But in Denmark we have a saying, the trees, they don't grow into heaven. So there's only so much that we can do.

And I think if you model, let's say, 2/3 in marginal conversion ratio, then you're okay.

That sounds pretty good to me. Thank you.

You're welcome.

The DKK 200 million upgrade you make in your guidance, I would like some color on that. What drives it?

Which division's business segment has surprised you in particular compared to when you guided, let's say, from the full year?

It's obvious when you look at it. I think we can say that Road is tracking -- they're actually a little bit ahead of the original plans that we had and that -- we still have old fashioned budgets in our company.

And you might laugh of that, but it's what we have. They are a bit ahead of that.

But of course you will say the same to a slightly larger degree for Solutions. They're also doing better than what we expected three months ago.

But the division that really swings the needle is the Air & Sea. We had not -- three months ago we had not expected to see the volume developments we have seen in air freight and we had not expected also the very strong yield developments that we have seen.

So it is the Air & Sea. It is the engine right now in our company.

And that is the main reason that we are lifting the guidance now.

And in Sea, just a follow-up here, are you seeing some benefits also from at least in your part from the more soft rate environment here?

Definitely. You can see that on the yields.

It's been okay for us. There's been some volatility.

There's been a lot of additional kind of surcharges which are being put into the market also. And at least it seems like we've managed to push that forward to the uses of the transport systems.

And I think that is also the way it is. So I think it's been a good quarter for us.

We've always said that we don't have a big opinion about the rates, if they are high or low whatever. But volatility is always good and we've had that.

So it's been a bit -- been fairly okay. And congratulation on the new job by the way.

Thank you. And then just another question regarding Air & Sea.

You're tying up more cash or working capital in that part of the business. Is that just a function of the high activity we are seeing particularly in Air and will that change throughout the second half -- improve throughout the second half?

Maybe, Jens, you will take this one. It's...

I think what you see is that we get more so-called Fortune 500 customers, very large customers. They demand longer payment terms.

But I guess the ROIC is still okay if we do that business. So we have to invest a little bit in working capital in order to get that growth in the Air & Sea division.

But we are happy to do so.

A couple of questions from my side as well. Firstly, back to the cost issues and I have a question regarding Sea & Air.

Other external expenses have gone up. Jens, you talked about earlier about a bit of synergies kicking in here this year.

But despite that, we can see that the other external costs are both quarter-on-quarter and also year-on-year. And I just wonder if you have any sort of good explanation for that.

Yes. I think there's -- you will probably see that as we invest more and more on automation, of course that there's a little bit of extra cost for some of these IT initiatives.

I would say this is sort of like a general trend, Lars, that you will see that. Of course we try to replace staff cost with this kind of thing.

Apart from this, I would say that -- as I said, there's been -- I think you should look at it on a half yearly basis for the Air & Sea. And even in our -- we are working quite a lot with our activity based costing right now in order to make sure that the allocations are correct.

So that might have impacted with a little bit too much cost here in Q2, if you look at it. So that's how I would see it.

And regarding the volumes. I understand that your geographical exposure maybe a little bit different compared to some of your key competitors, which may explain the growth rates particularly in sea freight.

But is it your impression that even with the strong focus and exposures to Asia, Europe that have you been growing in line with the market or have you actually been gaining market share on those trade lines?

I think if you look at it and you see that we have grown at the same level as the world kind of growth has happened on sea freight and we are more exposed to weaker trade lanes, then that is -- the consequence of that will be or the logic reasoning will be that we have taken market share. So we are happy about that.

When we are at markets which are only growing -- maybe not growing or growing 1% and we still have a 4% growth overall, then we are pleased about that. We -- but it's also important for us to say that we're only pleased about 4% growth in sea freight when we see a growth in yields of 6.7%.

Had we seen a negative yield, then of course we could not be happy about a growth rate of 4%. But we've said it many times and we'll say it again, it needs to be profitable growth.

We don't believe in the fact that we can go out and secure business at loss or breakeven now and turn that into a wonderful profitable business in the future. That is not the business model of DSV.

It has never been and it will never be the business model of us.

Then lastly, cash conversion. I know you already touched a little bit on the net working capital and you need to invest a bit more.

But you're now guiding for sort of mid range, which is 5.45, and a free cash flow of 4.2. If you look at it historically, the cash conversion has been close to 100%.

Is there any chance that you're going to get back there?

Yes. But if you look at it, it depends on cash conversion of what?

Last year of course we converted...

Free cash flow to EBIT.

Yes. You need to adjust for tax and interest costs.

Then I will say that I will come very close to a cash conversion of 100, wouldn't I, if I add all that up. I have to pay 300 in interest and then I have to pay tax as well, Lars.

So if you take that, then I think we are okay when it comes to...

But Jens, we can say no structural changes from previous years. There's nothing really that has impacted us.

Nothing new.

No, not at all. I think we will end up around the 2% level.

And then working capital at the end perhaps a little bit lower like we expect -- or did last year. So it shouldn't be a big change on the working capital.

And then we don't make significant investments. We will make the normal investments that we typically do and sort of reinvest the depreciation/amortization.

I think that's what you can expect.

Two questions please if I may. The first is on looking at the some of the staff numbers in the Air & Sea division.

They've been going down for sometime presumably as a result of synergy benefits. How sustainable is that in future?

And conversely, it looks like staff numbers have been going up quite significantly in Solutions. Is that contract related and perhaps you could help me understand that little bit?

And secondly, on the 4PL business. You've taken that out into the group as you explained.

Could you perhaps just provide a little bit more flavor of the potential for that business and the relative size it is at the moment?

Maybe I'll kick off with the 4PL. Then Jens can answer the 2 first of your questions.

We do see a significant interest from major -- big clients when it comes to 4PL services. We have to admit that we might not have had a kind of a tier 1 product when it comes to 4PL.

Before we brought UTi, we did see that there was some capabilities in UTi -- in a U.S. based company called Concentric and we have seen that to be a credible 4PL player.

You cannot have that activity inside a division. Then you will not be considered a neutral 4PL operator with the customers.

So we've extracted that now and taken it out, put it into group, given it a new name. And we will push that forward.

So this will not drive, what you say, EBIT significantly in the short-term, but I think we have some opportunities going forward. And if we could both build this organically, but maybe also through acquisitions in the future, it would be quite attractive for us.

It's something which is -- it's pretty attractive right now. It's a good position to be in.

So Jens, maybe on the staff numbers for Air & Sea and Solutions.

I think if you look at Air & Sea, you have seen that the numbers have come down for quite a while due to the last sort of impact of the integration. I think also there has been perhaps a few changes in Air & Sea, where we have outsourced some of the different activities that we have.

So it could be that we've had some blue-collar staff in certain areas that did some staffing of containers or stuff like that and we typically outsource that. So you will see that both the white-collar and blue-collar that we've had in Air & Sea have come down.

If we look at Solutions, you will see that our activities, for example, in a country like India has grown quite a bit. You don't automate a lot in India because staff is getting quite a low salary, so you will have a lot of headcount.

But also in Europe and in the U.S., we've grown quite a bit and that's the reason why there has been quite a sort of activity based development in headcount in Solutions. So mainly blue-collar employees that do pick and pack activities, yes.

So I think that should answer your questions.

Most of my questions have been addressed, so maybe just stepping back and looking at something a little more strategic. Post UTi you're a bigger company now and you talked about higher penetration of Fortune 500 customers in the fold.

You also mentioned that payment terms or discussions around payment terms can be a little more challenging when you're dealing with these larger counterparties. Is there a reason to believe that the margin situation is similar or that maybe you have a fewer opportunities for the value-added business than with some of the traditional smaller SMB customers?

And then just a quick housekeeping question. Can you maybe remind us of what you expect for CapEx this year and how much of that is devoted to technology?

Maybe I can talk a little bit about the first couple of things. I think, as I've said that a couple of times over the last 6 months or many times more maybe, we -- I think we are in a sweet spot right now in DSV.

We have the best of two worlds. We are a little bit the new kid on the block amongst the bigger players.

We're not the biggest and we don't necessarily want to be the biggest. But I think so far we have managed to keep our -- what we call entrepreneurial culture.

We empower our people. We have a lot of -- we believe very much in local decision-making given the good staff that we have on the ground, the options to take the decisions which they feel is right for the customer.

We are flexible. We have a flat organization.

At the same time we have stronger capabilities now in terms of buying power, so we can also live up to the expectations when it comes to pricing from our customers. And they like that combination and that is why we have grown.

And when you look at the margins, the margins now already includes the addition of these customers that Jens has talked about. So we don't see a particular reason or we're not concerned that margins will be diluted.

The gross margins of these very large customers might not be the highest. But they are more professional.

You can automate the processes much more. So the EBIT margin can actually be quite satisfactory on these large customers.

Yes. And when it comes to the investment side, we've typically said that perhaps you invest sort of 0.5%, 0.6% of the turnover.

And I think that will be evenly distributed between sort of intangibles and tangible assets. It's mainly IT development that we invest in and then of course racking for warehouses is typically also something that we spent some resources on.

We lease all our facilities, so we don't invest a lot in that. I think you had one more on the margin, whether there would be structurally a lower margin.

I think [Andersen] sort of addressed that. But I don't think -- I think you see some forwarders.

They seem to be what we would like to call IATA kings. So they would be on the top of the IATA list.

We would like to be EBIT kings. That's something else.

So we would like to make some money or profitable growth. And I think it doesn't go in line with DSV culture to go out and deploy capacity to service customers where we can't make a difference -- add some value or whatever, because then there's no room for margin.

So I don't think that you should expect us to do that, dilute it.

Just a quick follow-up. Most of the questions have been answered I suppose.

Regarding air freight, you managed to grow at a significant rate currently and you said you really focus on the yield as well as the volume. However, there may be some capacity constraints during the peak season given the type of growth you and some of your competitors are displaying at the moment.

So what's your best guess of the evolution of GP pattern given the type of volume you are able to show and the capacity constraints you may face? That will be it for me.

We don't model in a big change. We believe it will stay pretty, what you say, stable.

You could of course anticipate -- maybe when you get into the hottest weeks in the peak in Q4, that you could see a slightly weak development for a couple of weeks. But overall on the long run for the rest of the year, we believe that yields will be fairly stable as compared to what they are right now.

And the volume do you think you can maintain it from...

Volume, yes. Of course we love double digit in anything.

I mean, double digit growth is fantastic. I think, as Jens said before, we also need to be somehow realistic.

So -- I think we also said that after Q1 and we were wrong, because we did see double digital also in Q2. But we would be happy if we could see kind of high single digit growth rates in air freight.

It's extremely difficult to quantify. We also have to remember comparisons do become more difficult also going forward.

But we have a good momentum. We are still gaining customers.

We are also losing some customers. We have to remember that.

But overall we have a fairly good situation and we are optimistic.

Just a couple from myself. Just firstly, going back to staff costs.

Obviously, we've seen the staff numbers start to rise, but staff costs sequentially have been fairly flat. Could you just sort of discuss maybe the staff situation?

Are you sort of successfully offsetting any kind of inflation there or what the situation is, particularly in Europe? And then the second question was, I was looking at myDSV and obviously particularly on the Road freight side you've obviously added on an online quotation service and tracking service.

Can you just talk about that maybe in terms of how you see -- is that sort of addressing a new part of the market or is it just adding on something for existing customers? And then the second question is, do you see adding similar functionality to particularly the Air & Sea business?

I think if we look at the staff costs, I think one of the things you have to take into account is the FX impact. That sort of means something when you look at the numbers.

So actually there has been some inflationary pressure. But in general I think what we try to do is we try to take in a lot of young people as well into the organization and train them and use them for various positions, which they do really well and grow within company.

I think this sort of helps you to be in control of staff cost so that you don't end up in a situation where you don't have capacity. So that's certainly something that helps us well.

Then I think we've been sort of investing in myDSV for quite a while and we add more capabilities on this platform. And...

And it's not isolated only to Road, it's important to say.

Yes. It's also for the other division, predominately Air & Sea, but as well -- but you'll see that we add -- this is the portal, this is the solution that we have vis-a-vis our customers.

Our customers know it. They use it.

They are trained in how to use it. Perhaps we could learn a little bit from some of our peers to send a Tweet out every day that we have this solution, but this is not our culture to do like this.

But we might market it a little bit harder. Because this whole customer interaction and that you can do it in a very efficient way is of course important.

And sorry, just a follow-up. I mean, do you feel that -- is that something that existing customers are just expecting more of from yourself in terms sort of visibility?

Or is it something also to attract maybe, as I said, some of these other customers who maybe want to deal with you on a different basis to maybe how you've dealt with customers historically?

It's -- you can look at it in different ways. If you speak to a customer who's already a customer or a client of one of our large competitors, they would expect it's clearly something you need to have on the shelf.

We also gain customers from mom and pop shops, from smaller operations. They do not have these skills that we have.

They don't have the power to invest. It's been something which is also -- there's a cost associated with building up a large operation or portal like myDSV.

So this is something where you can actually go in and have another value proposition to certain customers than what the really small customers are having. And I just looked at the numbers when Jens was talking and I saw that in Q2 we handled approximately 9 million shipments, and more than 80% of those bookings were received digitally.

So the notion that we sit with pen and paper, I mean, it's wrong. We have 56 million order lines in our warehouse in the Solutions division.

I can tell you one thing, they all come in electronically. So we are highly digital and it's something that we will continue to pursue and it's something where we can -- you're right, some customers will just expect it.

They don't get too overly excited about it because it's what they would expect. But other types of customers, they actually are very, very excited about it.

And it's one of the reasons that we can actually also outgrow the market I think.

Thank you to all participants for putting all the interesting questions to us. We were very pleased with the high interest that you have shown in DSV.

I must say on behalf of the whole management and the board, we are extremely proud of the -- what the employees of DSV have produced in the last three months. It's amazing.

We have continued the good trend. You have done fantastic.

So thank you to all of the employees, if I can just take this opportunity, also for your hard work and dedication. You've done amazing and we are proud of you guys.

So thank you very much for that. We will go on road shows now to all kind of places in the world to try to elaborate on the results to the investors.

And then we will also continue working. And we're looking forward to speaking to a lot of you in the coming months, and if not, before at least when we come out with the Q3 numbers.

So on behalf of Jens Lund and myself and all the good employees of DSV, thank you and good bye here from Copenhagen in Denmark.