DSV A/S

Yes, good morning, and welcome to this conference call. We'll go through the full year results 2018 of DSV.

We have a presentation available for you. I'm sure you can find it online.

And then, as we normally do, Jens Lund, and myself will go through the presentation, and we will try to leave plenty of room for Q&A afterwards. So on Page 2, please take a moment to study the forward-looking statements.

After you have studied those, direct your attention to the agenda, which you will find on Page 3. We will start off with some highlights about the year and Q4, go through the three divisions, then I will ask Jens Lund to go through the financial review, the outlook for 2019, and also to go through the - some revised financial targets that we have published this morning.

So on Page 4, you will see what I will describe as a GOAT result, and those of you who know the term will know that it means, greatest of all times because this is the way we consider the results. We have significantly improved the earnings compared to previous years.

Overall, we've managed to grow the earnings before special items with 15%, taking the EBIT result now to DKK5,450,000,000. We consider the numbers quite strong.

We have seen a good development on gross profit in all the three divisions. And in the last quarter, we have seen EBIT growth also significantly in both the Solution and Air & Sea Divisions.

The adjusted free cash flow was totally as expected, but we did an extraordinary contribution to a pension plan in Sweden of about DKK250 million at the end of the year. We did not know if we would manage to do that in '18 or '19, but we managed to do that in '18.

As you are pretty well aware, you have seen our company announcement also from the 16th January, where we informed you about a private proposal we have made to acquire Panalpina. This is a substantial step for us.

In case we succeed, it would be, by far, biggest acquisition. We take it extremely serious.

We've spent a lot of time on that. But at this moment in time, we have no further comments on the offer, and I will repeat, we have no further comments to the offer.

So I think we will go - of course, staying on Page 4. I think it's also quite okay for us to be able to say that the return on the invested capital before tax amounts to 26.7% for the full year 2018.

I think that's something we can be pleased about. Page 5, Air & Sea.

I can repeat myself from previous conversations we've had. Another rock-solid result.

Very, very strong performance. We have seen a slight decrease in the volumes on the markets in which we operate, especially in air freight.

But if we start and look at the commentary, we say that we have 5% growth in air freights, which is much better than the market. Now we'll talk about Q4.

The market grew 2%, and for the full year, we've grown the number of tonnes to 8%, which is twice as high as the market growth. It is mainly driven by growth and export from Europe, and from the Americas.

When it comes to sea freight, we've seen a growth of 4% in Q4. And also here, we have seen stable yields.

We've seen also, which we're happy about, improved market growth on the trade lanes from Asia to Europe, which earlier in the year had a slightly negative growth rate, actually. All this means that we can see a significant growth in the GP of 4 - more than 10.4%, which we are extremely happy about.

You can also see that it has a positive effect on the conversion ratio, which for the quarter lies around 39%, and for the full year, 40% compared to 37% one year ago. Page 6 is the yields, also fairly stable.

We're pleased about the yields, and if you are to do some forward-looking calculations or modeling, we would advise you, maybe a good way would be to use the average for both air freight and sea freight. We see no risks of any imminent material deterioration of our yields.

Our expectation is that the yields going into 2019 will stay more or less at the level they were in '18, if you use the average for the full year. Then we go to road, we have underlying full year growth of 4.5% in gross profit and 8.2% in EBIT, and that is when you adjust.

And this is the last time, we're happy about that, that we are going to talk about it. But when you adjust for the one-off gain of DKK125 million we had two years ago in Q1 2017.

We saw a volume growth of 2% in the quarter and 3% in the full year. It's more or less in line with the estimated market growth in the quarter.

And for the year, the division is focused on absolute GP rather than volume, and we have said goodbye to a few not so very profitable customers. We're happy about the conversion ratio, it's at 21.6% for the full year.

We have noted that some of the analysts had, had slightly higher expectations for the road division. We have flagged this morning that one of the reasons that we feel maybe slightly below of some of your expectation is the fact that we had to book approximately DKK15 million as a cost in the other external costs line related to some teleportation costs that we had on some property we vacated in Ireland.

Normally, this should never come as a surprise to us. And this is not what we expect also going forward.

We have very strict procedures. But they had slipped through the very tight controlling system this time.

And we, of course, are not super happy about it that. But it amounts to approximately DKK15 million in Q4.

Last slide before I hand over to Jens Lund. The solution divisions on Page 8.

I think again very strong result. Top line has grown tremendously both by retail and also by e-commerce, and actually also, we are doing fairly well when it comes to automotive.

We have 6% new warehouse capacity added and also 9% increase in the headcount simply due to higher activity. The earnings growth for the full year is formidable.

We have seen a 44% growth in EBIT for the full year and 20% for the quarter. We did see already a pickup in the EBIT at the last part of 2017.

Hence we don't see the same growth rates in Q4 as we see for the full year, which is absolutely no surprise for us. So we're happy to see this strong development in the Solutions Division.

And we believe that they also continue to be a very important contributor to EBIT on a standalone basis in DSV. With these words, Jens Lund will start on Page 9.

So Jens, over to you.

Thank you very much. Yes, thank you.

If we look at the overall numbers, 30 - DKK79 billion in revenue for the full year and DKK21 million in Q4. So definitely 10% growth in constant currency segment.

Group level, the GP also up to DKK4.44 billion, which is a growth of 10% on a group level as well. The EBIT grew 1.

- came to DKK1.3 billion with the growth of 12%, so the marginal conversion rates were also up. But I think, some of you have rightfully pointed out that we've seen some extra high cost in the Q4.

And perhaps, also some costs shifting from one line to another. I think, it's worthwhile mentioning that we have in-sourced certain IT jobs that we had outsourced before.

So they have moved from other external expense to staff costs. It's on DSV level, perhaps not such a big deal, but it is some money anyway that we are talking about.

We have also had significant costs in relation to the IFRS 16 implementation. While we have spent a lot of resources to get this right, we had evaluated more than 20,000 contracts and taken more than 8,000 - I think 8,000 or 9,000 into our system.

And it's been quite cumbersome exercise that has caused us significant resources. I'd also say on the staff cost line that because the share price have come up, the value of our shared-based incentive programs in general adds some extra cost on the salary line.

So not all the salary increase is necessarily due to more headcount or increased wage pressure, but also due to the fact that we allocate a larger value in stock options than previous years. So I just want to point this out to you as well, but still marginal conversion ratio up.

So we're still keeping tight control over the cost. When we come to the financial expenses, there has been an FX loss in Q4.

And now we have seen quite a few gains throughout the year. But in particular, the dollar has weakened a little bit and that sort of led to this situation.

So tax for the period. Not much to say about this.

Approximately, it's 23% and we've guided also, 23%. So I think, we are good on this.

We will skip to the next slide, which is the cash flow. And I think, as Jens Bjørn said, we made an extraordinary pension contribution.

This could be considered, I guess, if you take the pension deficit and calculate it as debt - as repayment of debt, but it's booked in another way in the cash flow statement, namely as a change of provision. And that's the reason why it's sort of impacting our free cash flow.

So we're adjusting for this. We're more or less spot on the guidance.

Some of you have said, did you know this beforehand. And there's been quite a few question surrounding this.

And it has to go through an approval process with the authorities before we can do such a thing and establish a fund like this. In Sweden and - we were good to go, and then we had to execute on it.

So that's not necessarily something that is entirely in our hands. Then I would like to point your attention on Slide 10.

Just to the average duration on our debt, which says 3.2 years. We've actually refinanced our, sort of, normal revolving credit facilities this year.

And they come in a typical 3 plus 1 plus 1 structure. So it means that we can keep the duration around to 3-year mark, which is very uncomfortable given our leverage situation.

I will also just to one thing more, which you'll have to take into consideration, and that is, of course, that the target gearing ratio going forward will be less than 2x EBITDA. The reason for this is, of course, the implementation of IFRS 16 where we will take our off balance - basically debt position and book it in our balance sheet.

So going forward, less than 2x EBITDA. And I think, we're in good shape when it comes to this number.

If we shift to the next slide, 11. We have realized DKK5.45 billion in operational result.

And if we then look at our guidance, we have guided between 2% and 9% growth. We think it's a situation where you cannot predict what is going to happen in 2019.

There's quite a bit of uncertainty. So I think, we can all agree that the full range can become relevant.

The adjusted free cash flow DKK4.3 billion, of course, it can be a little bit higher or lower because it always depends on your collection up till year-end. But DKK4.3 billion is what the number we go out with.

Tax rate, basically 23%. And I think that's a little bit - there are some assumptions below, but I don't need to come into them.

I will, however, go to Slide 12, where we can see the IFRS 16 calculation in a little bit more detail. And actually, we have also added another slide, I think.

It is in the appendix where you can get a little bit more granular per division as well. So that you know, what to work with.

But overall, should perhaps say that we will, of course, increase our EBITDA quite a bit because we will have to move some of the cost that we have incurred to other lines. Normally, we take the property cost as cost of operation.

But now it moves into amortization, depreciation at least the bulk of it, and the financial costs will go towards the financial items line. So definitely, more EBITDA, but we will also see an increase in our liabilities.

So that's the other factor, and you will then have to get used to. We still consider ourself as allied, and the way we steer the company, should be more or less the same.

But of course, the balance sheet will look a little bit different. The financial targets on Slide 13 have been adjusted accordingly.

We've tried to keep the 2020 targets and revised them a little bit for IFRS 16 impact. I think the only debate that we really had is, the Road seems to have been revised down.

But we would like to have a joint target for Road and Solutions on the conversion ratio. So we've found this compromise.

So before we get into the net equity that's sort of the argumentation behind this. I think apart from that, we continue to work towards these targets.

If we move to Slide 14. You can see that we've actually taken the 2008 number and calculated our compounded annual growth rates on.

It's probably the worst assumption you can use. So you should have used the 2009, but it seems that then it's more than 20% and we can't have that.

It seems as if it would also be wrong perhaps to use this year as the calculation. So 14% growth in EPS is still something that we're very satisfied with.

And after all, this is what you are looking for as a shareholder, more income per share. And with that, I think, we will go to Slide 15 and open for questions.

So please dial in and ask your questions.

Two questions for me please. First of all, both focused on the Road business.

But on the Road business, could you elaborate little bit more on where the regional variations are? And in particular, what the deviation from the median conversion ratio has expanded or contracted across the business in Q4 when you look year-on-year?

And then secondly looking, sort of, into '20 and '21, can you talk a little bit more and update on the Road, transport management system? How the pilot's going?

Where do you see full rollouts? And when does it have the sort of critical mass effect that one would expect?

I think, I'll take that. If we take the conversion ratio, it's clear that we've had a few disappointments, since Bjørn did already mention one of them.

I think that we have some of the - also there are some markets where there's a little bit of concern/unrest, if you go, for example, to an area like Turkey, could be an area where we've also had a few challenges. And then, I would say that there are certain economies in Europe that have shown a bit of weakness as well.

This is also visible in our figures. Could be more in larger economies, such as Sweden, Germany as well, where there's a lot of capital goods being produced.

So you do see small impact of the things, I guess, that you see in the media as well when it comes to this. Then I think on the IT system, we've done the second pilot in 2019 - '18 on the IT platform.

And we now have what we call the business blueprint in transit format that it's actually more or less completed. This means that we can now go into a phase where we can do the final configuration and pilot this as well.

And if this works out fine, we can start the rollout. So it's been a cumbersome exercise where you do the quote, the booking, mergers, and you would do the mobility track and trace, Solution as well as reporting and other stuff as well.

And I think that it's cumbersome, but we take small steps all the time. And it's surely moving in the right direction.

Road needs a new IT platform in order to be able to scale to the extent that we need in order really to make a big step in the results. So I think, we're on a good way forward, but there's still some ground to cover.

I had two questions, please. Firstly, on - just following on from Road and just to sort of - just drill down a little bit why you feel comfortable with that 2020 guidance?

You obviously mentioned some sort of economic impacts. And I think while it feels a little bit of softer place from a European perspective in terms of a macro so - but why are you keeping that 5% margin target?

And why do you feel comfortable around that? Secondly, around the, sort of, working capital debtors, I think, there's a new table in your annual report around, sort of, age debtors.

And I just wondered if you can just clarify in terms of, sort of, overdue debtors sort of more than 120 days, it feels like you've got a carrying amount of DKK312 million and a loss allowance of DKK120 million for this year. It feels like quite a large number versus last year where you had slightly different reporting of DKK12 million.

So I just wondered if you could just thresh out whether there might be any risk or some sort of, age debtors as you look forward into next year?

I think the Road target is - again [indiscernible] will answer this one. It's actually - it is perhaps revised a little bit down if you really looked deep into it because we have a target of 5%.

We get some help from the new IFRS 16 impact, and now it's still 5%. So I think, you could read into this that we have lowered a little bit.

At least that's what we would like you to read into it. If we look at that trade debtors, I think that we are well covered when it comes to provisions.

We have seen slightly higher losses, I think, in certain areas. And I think in many of these uncertain places, you do face a bit of risk, but I don't think you should expect any sort of big deviations when it comes to loss on trade debtors, not right now at least.

So I think, that's what I can say to that.

And just on the Road, just reading into, sort of, IFRS 16 impact, but obviously nothing in terms of the IFRS 16 impacts. Obviously, and then I see you've got some impact from Air & Sea.

Same impact for Roads, you are saying we shouldn't read anything into that in terms of the revised targets for 2020, which would make sense. And then just in terms of Road, reading the sort of, 0 to 0.5%, you're sort of saying that reading into it and if you proceed sort of 5% becomes 4.5%, is that right?

Or maybe 4? Is that the right reading in what Road...

No. It's probably - if you stick to the 5%, and you take the middle of the range, you're probably down [indiscernible] 0.25% or something like this.

It could also be 0.3% or 0.2% or whatever you know, that's the way that's - I think you should read it.

And do you think, it'd be fairly linear to get - I mean, it's pretty difficult to tell that if it'd be linear improvement in margins from your, sort of, 3.7% to 4.7%, 4.75%?

I think what you have to look at it, it's a target. It's an aspiration that we work towards then depending on how much progress we make on the IT.

It's not necessarily that we will become suicidal if we make 4.5%. And we have to ask for a couple of years to get to the 5% target.

We know, we will get there once we have the IT. There is no doubt about it.

But we have a lot of focus points, I guess, as you can imagine and a lot of things that we work on. So we do allocate certain resource to Road, but they don't necessarily get all the attention that we have.

So we try to balance this, and then we will also, of course, stand accountable at the end of the day.

Two questions, please. First on the Solutions.

If you look at your automotive customers based on increasing the barriers with regards to the outlook for 2019, and you still call out automotive as one of the key growth drivers in Solutions. To what extent do you expect to continue to be able to grow with your existing customers this year?

And secondly regarding Solutions, do you see any potential impact ahead of Brexit from record stockpiling in the U.K. Do your warehouse have sufficient capacity available to benefit from this strength?

And then second question, regarding your yields in Air & Sea freight. You highlighted that you are very confident that they will remain at current levels and you highlighted the increase in Q4.

And I understand that is reflecting a tight capacity situation in the prior year quarter. But to what extent is to get with your bare structure?

Or is that something that eventually will close over time? Some more comments on that would be very useful.

Yes, you're right. I'll take this Solutions - we're big in automotive.

It's a big, what you say, vertical for us. When we optimistic about automotive, it's got to do with the fact that we're taking market share.

We're going with new customer. We're going with existing customers, and that clearly offsets any negative, if we should see a negative development on the current trading that we're doing with a particular customer.

I personally went down to see an unnamed automotive customer, not very long ago. They told me that their total turnover - their total spent on transport and logistics was €8 billion.

It's a very, very large customer for us, but we're very, very small supplier for them. So if we can just grow a little bit with a customer like that, we are safe.

We have capabilities. We have an interesting product for these type of customers.

And we're growing with them even though the customer in itself might not see the world as very positive right now. So that's some of the reasons that are behind the fact that we are optimistic.

Also remember that even though the - I don't know how to explain that. Even though the sale of ready-made cars might not be super positive, the supply chains are still becoming more and more complex, and that drives volume growth for us.

So even if there's no growth in the number of cars, which are being sold because of the complexity of the parts that goes into production, we could actually see a positive development. Then I - when it comes to Brexit, I mean, I think, we have the necessary warehouse capacity.

We've worked very, very close with our customers for the last 5, 6 months. But depending on the outcome, of course, we're not in a position where we can guarantee a full and seamless operation.

It's - if it becomes a no-deal scenario, of course, this is also what we've said to customers. They should expect some sort of disruption in their supply chain.

That is the case. We have been very close to our customers.

Customers, they have separate issues with this. Some customers don't really have any problems.

With some customers, they might have chosen the U.K. as a European distribution center.

Of course, we're helping them to move, what you say, their products outside of the U.K. right now, and service the Europe from maybe the Benelux or Germany.

Others have the reverse problem. So it is a complex situation, but I think, we have a fairly good grip on the situation.

When we say that the yields in Air & Sea are stable, it's based on the knowledge we have about the market right now. I don't think, there's any structural changes to the yields.

We can come back to this again and again, but please do bear in mind that the large proportion of the GP is - that comes from the, what we call, some of you guys call added-value services. We do the nonfreight-related services and they are really stable.

So this is what makes us comfortable that the yields can be stable, they cannot be rock-rock-solid stable but if you take the average for the full year that probably fits well into what we expect for the year '19 also.

One question regarding your acquisition strategy. In the past you have mainly made friendly takeovers.

But lately you've launched two hostile bids in pretty short time period. What do we assume for this change and how you go about making acquisitions?

We don't consider, I will say, the last two if you allude to the CEVA case and the Panalpina case. We don't really consider them a hostile approach.

A true hostile approach would have been very, very different from what we have done. So you shouldn't read too much into this.

It's not really - each transaction has its own characteristics, and of course, the way we approach the target is, of course, based on a conclusion from very thorough, what you say, analysis on each target. So we don't consider them really hostile as such.

If I could ask three questions, please. The first one Jens Bjørn, you touched on value-added services, a few minutes ago.

Just interested as global trade becomes more complicated, obviously there's volume questions. But is this also providing more opportunities for you to secure more value-added services for customers needing more Solutions?

And the second question. I think it's the first year-on-year growth in the headcount at Air & Sea since the UTi deal.

Just interested in the outlook for 2019, particularly if the market growth is slowing, how many people do you expect to add within Air & Sea based on your current view in the market in 2019? And then finally again, talking towards the deteriorating market or potentially - potential weakness.

You've obviously newly expanded the business. I mean, just interested in your approach to managing the top line with a bigger business.

How does that influence? How you act in a potentially soft market?

And then added to that, you've integrated businesses in tough markets before, but is there an argument that big M&A and the deteriorating environment may actually heighten the risk to the underlying business? Certainly interested in your thoughts on that.

Yes. About the value-added services.

Some of them are really what we also internally call VAS or value-added services, mainly in our Solutions division. There's a big need for this from our customers.

It goes from very simple operations to put a label on a particular product in another language, if the goods are going to be sent to another country to very sophisticated services. There's no the about the fact that if you compare an invoice that you receive from DSV today, compared to 5 or 10 years ago, it holds more alliance now.

We do offer more services to our customers. They are outsourcing more and more of their operations to us, and they ask us to do more and more.

A lot of customers don't see transport and logistics as their core competence. And if they can ask us to do it, they will do that.

So that is also something that we expect to, what you say, be able to continue going forward. I think, Jens, you had a point on the headcount maybe you can talk about that.

Maybe also little bit about. Maybe I could just allude a little bit to the last question.

I mean, managing the top line and integrating a potential is hypothetical, of course, a company in a difficult market environment. First of all, I don't think that we will get into a similar difficult market environment as we saw in 2008, '09 when we integrated ABX.

But it's - it will not make it more difficult for us to, kind of, integrate the company. I don't see that as a problem.

And then when the top line, of course, we will continue to expect growth above market rates also going forward. But as you have seen in the past, and we can reiterate that statement many, many times again, that at DSV, we favor profit over growth, not growth for the sake of growth.

We need profitable growth. This is also why you will probably see slightly lower growth rates than what others can show to.

But you will see that we have managed to protect the yields, and hence we can grow the absolute GP and also the EBIT, consequently. But, Jens, maybe you wanted to talk about the - look at the numbers.

I think if we look at the headcount, I think, in '16, we were 12,900 in Air & Sea and still taking cost out in relation to the UTi transaction. What then happens is that as a trough - I think, we restarted a department.

2017 was just a whisker over 12,000 headcount, and now we are 12,100 at the end of '18. And I think the way you have to look at this is we grow GP quite significantly.

I think we are up in - almost 10% in constant currencies, a little bit in absolute figures. So of course, you would need, at the end of the day, more hands.

You have rightsized the business. Now you'll come into the growth, but the marginal conversion ratio on such growth has historically, always been high and higher than our target.

And I think that's the way you look at it. So if we've managed to drive the company forward, we will need more hands, but it will still be at a very efficient pace.

So we have now rightsized. We can grow.

We will increase the headcount in line with our growth, perhaps at a little bit more efficient, sort of, per FTE, than what we have in our numbers right now. And I think, that's very important going forward.

Did that make sense?

Yes. If I could just follow up on that.

Just - I just wanted to be clear. Is there any difference in terms of how you're planning headcount this year?

I know as you haven't given me, I guess, a number in terms of what potential growth you might see in headcount in 2019. But are you taking a more fluid approach because of uncertainty?

Or is that just because you don't want to give any number at this point?

It's not the way it works. I don't have a number.

I can - it's - each country, each small business unit has a target for 2019 in terms of growing his earnings in absolute terms. So that is the EBIT.

He will strive - whatever go through - whatever he can to achieve those numbers. And that would also mean that if volumes are not picking up significantly, he will not add headcount to the organization.

So if we go into modest growth rate, I'd be very, very surprised if we see growth in the headcount. And if we were to see that I'm sure, Jens Lund and myself, we were going to do what we could to kind of guide the organization in the right direction.

But it is not our expectations that headcount will grow. And we will still see a good impact from the incremental conversion ratio that we hopefully will see in 2019.

So depending on where we are in our guidance, you know that can be different numbers. It's not so that we say, hire 200 people to the division and then see what you can do with them.

It's the other way around. If there's more work, of course, they will need more hands.

And I think that's the way you look it.

Two questions from my side, please. Firstly regarding Roads.

I don't know if you can give us an indication of what kind of improvement in gross margin you expect from the Road out of the IT system, if any over the next couple of years? That's the first one.

And the second one is regarding the net working capital. If you go back some years, it was close to zero.

I know you've been doing acquisitions as the market have changed. But I can see some of your key assumption on Page 13 in your presentation that you have assumed net working capital around 2%.

Is that something which has been, sort of, changed? Or you no longer have any ambition of reaching a net working capital below that level?

I think, we take the net working capital first. I think it's also a question of business mix.

If you look at it and see they don't consume a lot of investments in fixed assets and some of the stuff like that, but they consume more working capital. So now that Air & Sea is a larger promotion of our business, I think that's, sort of, the main driver between - behind this development.

So as a consequence of this, the target is 2%. We used to have a target of 1%, which you rightfully pointed out.

And of course, then depending on how year ends out, of course, it can be a little bit more or little bit less. That's very hard to predict given the volumes that flow through our system.

When it comes to the Road Division, I think there's both a business case for being able to plan better, and this should increase the GP. It's very dangerous always to have two big aspirations on the GP because it means quite a bit on the numbers.

And then, of course, there's the productivity point to it as well. So if I was sitting there with your calculation, I think you would expect us to get something out of our planning tools and capabilities.

So that we can utilize the capacity better. And that could perhaps be, sort of, half of the change we need in order to reach our financial target.

And then the other one would be on the productivity side where we simply need to increase the productivity now that we got better tools or will get better tools in some countries. We already have some of the tools implemented for example, quote tool and mobility.

And here, we already see, it's sort of starting to take off. We launched myDSV as well, a new booking platform that also helps us on the booking quality.

So we're slowly phasing some of the tools in and they should then help on the number of people that have to sit and do manual work today because the quality of the data is too low. So I don't know if it that helps you, but that's sort of the plan that we have.

Two questions from my side as well. First goes to Solutions, where you can say that, my impression at least is that the growth you're achieving here seems a bit unconnected - disconnected from, sort of, underlying trade growth.

Can you give any sort of guidance to what level of growth would satisfy you in - both in '19 and maybe also in the years to come? And then secondly, within Air & Sea, I think, if we think back a year where - and back to performance in '17 when you guided for '18, you sort of hinted that you had a couple of new contracts already signed that would start helping you in '18.

Have you got any of those, sort of, hidden tricks up your sleeves looking into '19?

Yes. Thanks for reminding us.

I don't really seem to recollect that we had any aces up our sleeves one year ago, but I'm sure, you're right. I cannot say that we have anything material, which will impact us.

We expect that the Air & Sea will continue to show strong performance. They are a strong organization.

They have good margins. We have excellent service.

The customers like the mix between our entrepreneur more hands-on approach and then our new renewed size also. So I think, the table is set for another good year for 2019.

It doesn't come by itself. There's a lot of hard work that needs to be done from the guys and girls out in the organization, but they're up to it - they're up for it.

And I'm sure that they will set new records also. Then when it comes to Solutions, you are right, it's - of course, we need to, kind of, be realistic and say that we cannot continue to see the growth rates that we have seen for the full year, of course, 2018.

We have grown the earnings, as you saw, from DKK500 million to DKK700 million, it's 44%. So we will see - we are likely to see more modest growth rates.

But I still believe that we will see a certain momentum, and I also actually believe, this is a positive notion. Some sort of disconnect between the earnings and the growth in the economy around the Solutions in a way where we will see more EBIT growth and then what you actually could expect when you look at the economy in Europe and in the U.S.

where we mainly do the contract logistics. Actually, also now in Asia.

I should not forget those guys.

Okay. Just to get a little bit of flavor here.

Would it be fair to say that you would also be expecting the double-digit EBIT growth in Solutions in '19?

I guess, we can sneak us up to something close to double-digit. That should be possible for the Solutions Division, yes.

Can I come back to net working capital. Clearly, you've mentioned in the statement that it was higher than expected.

And it's growing quite considerably in the Air & Sea Division. Is - can you just give us a flavor of what the pressures are you're seeing.

Are there any actions by competitors that are causing difficulties in provision of working capital. And do you see any end to that or will it - should we expect it to rise further as a percentage of sales in Air & Sea in 2019?

And secondly, just coming back to the value-added services side. Is there anything strategically that you would like to add in terms of capability to what you already have?

I think if we look at the net working capital, I don't think there's - it's a big theme for some of the customers that they get a certain number of days in credit. And then I think, it's also become more outspoken that even if we have agreed something then we don't stick to it.

So that's sort of a thing to trend. I think goes forward, as in you have to look at the return on invested capital and make sure that when we allocate the capital, then we have to carefully evaluate if it makes sense to work for our customer or not.

And that's some hard choices we have to make from time-to-time. And I mean, that's ultimately capital allocation at the lowest level.

As you say to a customer, we can't create a return. So investors, they don't accept that we use capital for these things.

We do this on a continuous basis. We have incentive schemes internally with net working capital charges for customers that consume high level of net working capital.

So that we make sure that the capital allocation is right. And I think, that's what it's all about.

At the end of the day, let's say a customer would want very high level of credit. As long as they pay for it, then I think, we are all okay, if there is no credit risk.

And it seems that if there is a trend, this is, sort of, something that some customers try for. I can't really see the point, but it's the market we operate in.

I wouldn't say if that was part of your question that we see any irrational behavior amongst any of our competitors. It's not like we see a clear trend with longer payment terms.

It's just this, if slightly smaller customers might not - might now ask for slightly longer payment terms, and as in say, the behavior is not improving. You can say the outsourcing to payment agencies in different time zones can be also problematic.

At least in the beginning where things need to settle a little bit in with our customers, we try not to make that our problem. But if we like it or not, that becomes our problem sometimes, if you know what I mean.

And it has the highest focus and every Danish Kroner, we can improve. Net working capital can be used for something else in DSV.

So - and everybody is aware of that. When it comes to the value-added services, I think it's more matter of using the best practices that we have in DSV.

I don't really necessarily see that we have lack of knowledge. So if there's a product out there that we don't have at DSV.

But it's more like using more of the good stuff that we have some places in the organization, elsewhere as well and use the capabilities that we have. We have some best practices that we are rolling out and also some systems that we are more systematically now offering to the customers compared to maybe what we did some years ago.

Few questions for me, maybe one in each division. I guess, first in Air & Sea, Jens Bjørn and you mentioned that the slowdown on the core Asia-to-Europe lane has improved in Q4 - had improved in Q4.

And I'm wondering outside of demand-related factors. We talked about the possibility of some structural changes, like with near shoring as contributors to that pressure.

Do you have any more color commentary as you look back on 2018 as to what's - or what had driven that slow down? Second question on Road.

You mentioned, some of the slowdown in 4Q shipments are related to shedding some underpaying accounts. Do you have any more of that pricing action to work through in 2019?

Third question on the Solutions side. e-commerce has been growing quite nicely over the last several quarters.

Is there anything inherent in that business that may be makes it more challenging from a yield or margin perspective as far as the headcount or square footage requirements? And then maybe one last one on the M&A.

Any changes in the competitiveness of the M&A market over the last quarter or so? Happy to take those question offline.

Yes. That's a lot of questions.

First Air & Sea, I mean, it's been a very volatile, very strange year in terms of volumes. Of course, we understand the reasons behind the strong Transpacific volumes at the end of last year, of course, at the end of the last year.

But I think, it's got more to do with some maybe destocking activities, which has happened. I don't - we have really not seen the near shoring, apart from some high-profiled, maybe cases.

It's not a trend that we see. We do now see movements from - within the regions, if you know what I mean.

Some production have been moved out of China, maybe to some neighboring countries, which do not represent a problem for us. So I do agree with you.

It's been a very volatile year in terms of volume. And if you start to analyze each straight lane, we've also seen a lot of volatility on those.

But overall, the year has been okay. We've seen growth.

And we're also - we are optimistic that we will see growth for 2019. Road, I don't think I have not heard of any larger customers that we are shredding and it sounds so dramatic when we say shredding.

It's not like we will go out and just terminate the contracts. It will always be on the basis of some negotiations, where we try to increase the rates.

Sometimes customer say, "listen, we cannot accept that increase." And then they will - together we will then agree that the customer should go somewhere else.

So I think it is behind us. We have a good customer base now.

And we need to work on that in 2019. Solutions, you're right.

e-commerce, it's a product that probably carries a slightly lower GP percentage. It's a lot of volume going through.

It's probably also slightly more labor intensive. It's still very attractive because they grow so much.

And it's not a standalone business, as such. It's - you often do both retail, high street deliveries and e-commerce for customers.

So it's something that you need to add to what you're already doing. But it could over time - it's a good point.

It could over time change a little bit - the structure of some of the margins, dilute them maybe a little bit in the Solutions Division. But as long as the absolute earnings continue to grow, then we're happy with that.

M&A landscape, I don't think it has changed a lot. There's a lot of - I mean, it's a topic you could talk about a long period of time.

I mean, people talk about vertical integration. As - I mean, we've seen some shipping lines going in during 2018.

But overall, we still believe that the overall theme is consolidation in a fragmented industry. It will continue.

We would like to take part in this. And I guess, it's no big changes in the M&A landscape.

The main question I have is - it's a follow-up of the previous ones on the working capital movement. Your guidance for EBIT is surely DKK400 million range, and your free cash flow guidance is obviously one number only and that is despite your comment about stable gross profit.

You need an indication of the type of growth - volume growths. You would anticipate above GDP.

So I'm just curious, why is there a DKK400 million range in your guidance, if have some idea of the free cash flow? So what is the swing factor here?

Is it the volume, you would expect from the current first half to second half? Is it cost growth?

Some plans you have on that? That would be helpful to better understand the guidance.

And that's pretty much it for me.

Okay. I think the working capital, you can have many assumptions into that.

There can be a little bit extra investment as well that, sort of, fluctuates. There can also be some movements on provisions as well.

It doesn't necessarily only have to be, if you look into free cash flow guidance, the working capital. So in general, I have also think you have to look at the numbers, not like DKK4.3 billion, and then 0.00.

That can be a little bit below or a little bit above. But it's also very dangerous to guide a range when you look at the working capital because this includes all movements.

Both the operational and all the movements in the balance sheet. So we try to guide a number and then we could write plus, minus, as well.

But we like just to guide this number. This year, we were, apart from the pension, spot on.

Some years, we've been a little bit above, like last year. And I don't think, you should read more into it.

You have to make your on the assumption when you make the spreadsheet. And I'm quite sure with the comments I give you, you'll be able to do so and make sure that it all adds up.

At the end of the day, let's say, we make DKK4.3 billion, we will then allocate them in accordance with our capital allocation policy. And I think, this will give a very high conversion ratio, which is also what you would expect from a service company that we do convert the earnings we create into cash.

But is it correct to assume that the main sensitivity in your guidance has to do with volume growth at this stage? And if so, what would be your best guess of the pattern between first half volume versus second half volume?

I think, of course, it's the volume that is a swing factor in our numbers. We keep all the other assumptions then equal.

But there can be changes in the labor market that we don't know. Right now, labor is, of course, an important component for us as well.

So we take the assumption that nothing really material happens there when we make the budget. So you're right, it's the volume number.

And right now, we take it, basically, month-by-month. We have seen that - it seems as if there was a bit of a, sort of, slowing down at the later part of 2018, and we hope that this slowdown will not be too long.

And then we might see that it picks a little bit up later on. We could also the other thing, that's the reason why we have guided the range.

I've just got three questions actually. So maybe let me just start off by asking, just back again on the working capital, and something, I think, we've discussed in the past, which is the potential impact of tariffs on Transpacific volumes.

I realized, Transpacific is not a huge trade lane for you in your sea freight business. But has there been any impact in terms of tariffs?

And specifically, in terms of cash and working capital at all as a result of that? Maybe [indiscernible] around that would be helpful.

And then, second question just in terms of your disposal of PP&E in the cash flow. I mean, obviously, the number for 2018, I think, it was the highest it's ever been.

Want to see if you could continue to do this forever. How should we think about that number going forward?

And obviously, the contribution it makes to cash generation? And then finally, just a sort of relatively dull one.

The D&A charge in the fourth quarter, I think, was down by about DKK14 million, DKK15 million compared to last year. I was just wondering if there's any specific reason behind that?

I can say for sure that this is - these are very good questions, and they are for Jens Lund.

I think the net working capital, you know, we are small on the Transpacific. I know there might have been some fluctuations for some of our colleagues that have a different exposure on that lane.

It's still important for us but some places are rather much larger than us. So nothing really specific on that one.

If you take the PP&E. I think, if you see we grow a lot in Solutions.

We put a lot of racking into the warehouses, this isn't what we've put on to the books right now. We've been, as you pointed out, we also take out some different facilities stuff like that so that we - the fixed assets we try to reduce them all the time.

I think you can also see that in the notes that it gets less and less that we hold on the balance sheet of land and building. So I think that drives it a little bit down and I think, if you look at the intangibles, so we do invest a lot in IT and IT infrastructure as well.

So just want to cover that as well and say that this is, of course, part of having a high productivity going forward. So we try to stay as low on the sort of tangible fixed assets.

And of course, continue to invest in the intangible assets because it's basically something that increases our productivity.

Can I just have a follow-up, quickly? So just in terms of thinking about the - going forward, the disposal of PP&E, there's no reason to think that number is going to substantively change going forward?

Or does the fact that you can't on the IFRS 16. Obviously, everything has to be on balance sheet.

Change the equation in terms of - I was thinking about what you do there going forward?

Yes. I think, you know that we will split that out that so you can see what the IFRS 16 numbers are, specifically.

But of course, over time, when we get rid of all - sort of, old-school fixed assets, if we can call it that, then we cannot continue to underinvest on that site. But it'll take some years before we reach that stage.

And meanwhile, we continue to slim down our balance sheet as much as we can. And then we will isolate the consequences of the IFRS 16.

It's typically trailer lease on the equipment side, forklifts on the equipment side and then on the land and buildings its, of course, our terminals or warehouses, and our offices that will sort of be booked under these. But historically, we have had some warehouses and some offices in our books.

And we now - we are on the, sort of, direction where we slowly reduce this. I think, it's easy to see if you go back also historically into numbers, you'll be able to find this.

And sorry, just to check very quickly. The reduction in depreciation and amortization in the fourth quarter is explained by what?

It's explained by that we have less of these fixed assets on our balance sheet.

Just hopefully, a quick one for myself. I just noticed the fact that obviously in Solutions you're now more than 60% through the rollouts of the warehouse management systems - the new warehouse management system.

Can you just say whether that was - whether that, sort of, fed into the - obviously, the profitability growth that you're seeing? And secondly, just looking forward, how do you see that rollout being?

What's, sort of, the optimal level you can reach? And b, if they are further to come on the profitability side from that rollout?

Yes, I think, we have now rollout 60% as you say on to our platform. It's quite a long journey to complete that rollout.

I think it will take another 3, 4 years before we have done the rest of the volume. You have to remember that we are deeply embedded into our customers, ERP platforms.

When we do this, so it changes are very cumbersome. It's - right now, we have 60 people in the team working on this year-in and year-out, changing the volumes.

But it gives us better productivity because we can invest on our joint platform in better equipment, better tools for staff, so that they can have a higher productivity. And also a better service offering for our customer.

We simply can do more value-added services for them. So I think that's also a part of the success that we have in Solutions, that we have this platform.

Basically IT infrastructure we rollout that help our teams to become more successful. So there's definitely something to come out of that, otherwise we shouldn't invest.

Just a quick one from Zürich [ph]. I'm listening to all your great results and talk of GOAT and everything.

I'm just wondering what is really the rationale behind acquiring an auto company now? I mean, there is a lot of work you have to do.

The economy is slowing. And now you want to burden yourself with possibly another big acquisition.

What is really the thinking behind that?

Yes, it's a good question. Now you know, we don't go to work not to burden ourselves.

We like challenges and that is a part of running a big company. Also, we are of the very clear understanding or opinion that in this extremely fragmented industry, where the biggest players have only a fraction of the market, consolidation makes a lot of sense.

We have created value for all stakeholders every time we have built or we have - yes, build a bigger company. Every time we have acquired one of our competitors, we've created value for the shareholders, for the employees long term and also for customers.

We simply build a better product offering to the market, than what we had. So the way we see it is, at least from analyzing our own situation, today we are much stronger than we were had we not done the acquisition.

So we would be stronger today as two individual companies would have been. So that is some of the rationale that lies behind.

The biggest players in the industry, they have a market share of 2% to 3%. And the 20 largest, they have a market share of between 30% to 35%.

In other industries you will see one market leader having a similar market share. So these are some of the reasons that lies behind.

You're right, you could debate about the timing of it. I think it's - there's nothing wrong with any timing and right now is, as good as moment as any moment.

So we have previously done acquisitions in times of uncertainty and also of times with high volume growth and economic growth, and both have actually contributed to a successful development in DSV.

Okay. Thank you, everybody.

We really appreciate the interest and all your questions. They are, as always, razor-sharp.

We're happy about the interest that you have in DSV and in our industry. We thank you for the questions.

Just want to send a small thank you note to all the employees of DSV. Once again, you've set a new record.

We're proud of you. It's been a fantastic year.

You could be proud of yourself as well. So thank you very much for that.

We hope that we will continue the good growth also in 2019. And in the meantime, we will cut this conference call and then speak to you also bilaterally in the time to come.

So thank you very much, and thanks for listening in. Bye, bye.