DSV A/S

Yes. Hello.

Good morning, everyone. Welcome to the conference call here from Hedehusene.

I'm joined today, as normal by Jens Lund, and we are extremely pleased to be able to go through the half year 2020 results with you. We have, as we always have prepared a presentation, and you can find that online.

So after you have carefully read the forward-looking statements on Page number 2, you will find the agenda on Page number 3, where we will start with some highlights about the previous three months' performance. We talk about the integration and cost saving initiatives we have implemented in DSV.

I'll go through the three divisions, and Jens will conclude with the financial review and talk about the outlook also for the full year, which we have reinstated this morning. And we will, of course, conclude the presentation with Q&A.

But if we go to then Page number 4, it is a great morning for us here in DSV Panalpina today. We have delivered the, by far, best result we have seen in the history of the company.

We see it as – we considered ourselves a pretty strong performance in what must still be considered a very challenging market. You can see on the bottom of the slide that we have been able to grow both the GP and also the EBIT considerably.

And the fact that we have actually achieved an EBIT result, which is exactly, or close to exactly at least DKK 1 billion, more than what we did a year ago in Q2 is extremely satisfactory for us. And we will come back to some of the reasons behind this strong performance later on.

We have seen a continued successful integration of Panalpina. The integration synergies and the cost savings are slightly ahead of plan.

We will also revert to that later on. And then as we have touched upon in the past, we had, also in Q2, seen an extraordinary air freight market and also temporary cost savings, which have had a positive impact together with the integration of Panalpina of the results in the quarter.

Due to the fact that we have a slightly more solid ground beneath our feet, we have reinstated our financial guidance. And we now expect an EBIT before special items for 2020 in the range of DKK 8.2 billion to DKK 8.7 billion, which is exactly the same guidance as we had when the year started.

There is a little bit of coincidence. There's been a lot of moving parts in this calculation.

But based on the different scenarios we have used, we came to that range, and Jens will elaborate on that later on. So with that said, we will flip on to Page number 5, where we will talk about the given short integration update.

We might touch upon the integration a little bit also, next time we address this with you guys after Q3. But then after that, we will phase out the communication about the integration of Panalpina.

We are close now to a situation where we can consider the integration work as something which lies in the past. But we are pleased about the fact that synergies are still rolling in and they have rolled in also slightly faster than what we had expected.

We've seen a great transfer of customers to our systems and it is progressing really well. And we have seen no significant service issues as a consequence, which is good to be able to establish.

Around 50 countries have been onboarded now and they represent at the time of the end of Q2, 90% of Panalpina's volume. And since that – an additional estimated 5% of volume have been moved to the DSV platform.

So as you can hear, we are close to a completion, where we can say all volumes are on our systems. We are also pleased to be able to announce that we have been expanding the legacy Panalpina air charter network in a slightly different format in DSV that fits better to our structure.

But we fully recognize the capabilities that we got in from the Panalpina operations organization. When it came to the China network, this is something which has been highly beneficial for us in both Q1 and also in Q2.

And we are now in a situation where we have significant more air freight volume that where we can kind of work with a slightly more fixed capacity situation than we could in the past. This is something which is also highly appreciated by a number of our customers.

So on Page 6, you can see that the total synergy estimated number stands at DKK 3.7 billion. This is the savings target we have by combining both Panalpina synergy case and the so-called COVID-19 initiatives.

It is not possible for us to split those two plans. I know some of you have asked this morning if you could get a split.

Unfortunately, that is not possible. It is two cases, which we have integrated into one.

You can also see that we have – we are slightly ahead of plan, where we said now this morning, the DKK 2.1 billion will be achieved this year. And previously, we said DKK 1.9 billion.

What is also positive is that we now expect to use slightly less cost in relation to achieving the synergies. Now that number stands at DKK 3.1 billion and it was previously DKK 3.3 billion.

So overall, the savings are ticking in. It's not just something that we see in PowerPoint.

We can also see them clearly coming into the monthly P&L, and it's only when they hit the P&L that they actually count in DSV. So we are very pleased about that, that we can see that the overall cost base of the company is coming down as we had expected and in a situation where volumes are still under pressure, it is really a great thing to be able to establish.

So on Page number 7, I almost don't know what to say. It's out of this world result performance that we have never seen before by our Air & Sea organization.

They have doubled the EBIT from last year due to a number of issues. Of course, we have had the impact on acquiring Panalpina, of course, which we had expected.

But then we also, as I said, have had a situation where the fixed capacity that we have access to in air freight has helped us also even though volumes are down, as you can see in a second. The Air & Sea operations have also been really fast when it comes to restructuring their businesses and working on their cost base.

They do operate in a number of countries where you can adjust the so-called fixed cost base faster than what we can for, for instance, in Europe. But a super, super strong result that those of you from Air & Sea, who are listening in on the call, you can be extremely proud of the work you have done.

We clearly recognize the performance here from the head office in Denmark. It's just – it stands up to anything else that we see in our industry.

So congratulations. With that, we are extremely happy with the results.

We elaborate a little bit on the volumes on Page number 8. As you can see, also the page describes a little bit the situation we are in when it comes to the market.

We are still significantly down on the market when it comes to air freight. We estimate that the market in terms of volume is down between 25% and 30%, and when it comes to sea freight between 15% and 20%.

We do see slow improvements in these numbers, but we have seen a slow improvement during the quarter, but it's not like it is improving with big giant leaps. We are very, very content and happy with the yield development in air freight.

We have expanded the service catalog we do for our customers. Also, we do a broader range of services for customers now, a more full-scale operation with more door-to-door services with more kind of urgent express systems also for customers, which has also helped on the yields, the legacy Panalpina freighter network has helped on the yields.

And we should not forget this is also the fact that we do see an improvement in the yields is also something that we would have expected under normal circumstances as we see the integration of Panalpina also transpiring into improved yields. When it comes to sea freight, a more normal, you can say, situation.

The sea freight market has not been as volatile as we have seen in air freight, but also here, we have seen a stable development on the yields, where we now are up compared to both Q4 and Q1. And we do expect those yields to continue going forward.

And of course, I know that we will get a lot of questions also about how we see the yields going forward, especially air freight. So I can maybe touch a little bit upon that.

It is a little bit too good to be true what we are seeing in Q2. That would be nice if we could stay at above 10,000 per ton, but it is our estimate that, that number will gradually come down over the next quarters.

And if we are around, then we do estimate that we could land at somewhere between 7,000 and 8,000 for the rest of the year, but it still remains to be seen. It is still highly uncertain.

Then we go to roads, not to forget also a great, great performance, especially in the last part of the quarter. Air & Sea came out firing on all cylinders, so to say, from the beginning of the quarter, also ending slightly stronger than they started, but that development have been more significant in Road and for solutions also as such.

A very, very strong end to the quarter. The month of June was really, really good for the Road division, which was nice to see also.

The COVID-19 situation have somehow not really impacted our domestic operations to a great deal. We have seen the – a more negative development on the international, but we have seen a gradual recovery, and we are super happy about that.

Road being mainly a European activity, it takes a little bit longer to get the costs out of the systems. But we have plans, we are executing on the plans, and it's also good to have a little bit in the bank for the coming quarters where we do expect the cost base to continue to fall.

So last quarter, before I hand over the last division, sorry, before I hand over to Jens is the Solutions division, some of the same characteristics as we saw in Road. They have managed to have a stable development in EBIT and almost achieved the same EBIT as they did one year ago.

And I think everything taken into consideration, we can be very, very pleased about that. As I said with Road, we have also seen a strong finish to the quarter, which kind of is a great thing looking into what happens here after the summer holidays and in the normally busy part of the year.

Again, depending on which vertical we service, our customers have to various degrees, of course, have been impacted. But also solutions and the operations can be happy and be proud of the performance they have delivered.

And we have a good momentum in, particularly in e-commerce and pharma and health care, where we have actually seen a very positive development, which we hope and believe will continue going into the future. So all three divisions actually in the quarter are doing really well.

It's important to stress that all the three divisions, they are working together. You cannot see them as three individual units.

They all depend on each other, and they are each other's, in many cases, biggest customers also. So it is the sum of all parts that make this result as good as we have seen this morning.

So I'm sure you might have a few questions to what I've said later on. But before that, I will just hand over to you, Jens.

Thank you very much, and I'll quickly run through the numbers on Slide number 11. And overall, of course, we see an increase in the GP of 42% for the quarter, year-to-date 36%.

So that's the value we have created in the quarter. It's been a little bit higher than the average for the year, and we see of course that the EBIT, it increases significantly more mainly almost 63%.

And that means that we have a fairly good conversion ratio in the quarter. Actually, it came to 37%, and we're very pleased with that, because year-to-date, this conversion ratio is then basically on the same level as it was last year pre-Panalpina.

So as Bjørn touched upon integration going well, we get the productivity up to levels that we have seen before. There's still some work to be done, but we are glad to see that our infrastructure scales and that we move in the right direction.

Then I think one thing more we could touch upon special items. We spent a little bit more than DKK 500 million this quarter.

We're still moving ahead according to plan, perhaps a little bit better on the integration side, and we actually reduced the total expected integration cost a little bit, a couple of hundred million. But we still have some important tasks outstanding for the remaining part of the year.

The tax rate, 25.9%, a little bit higher, mainly due to integration. So also on the tax side, we are suffering a little bit because certain of these restructurings we're doing, they will have a onetime negative tax impact.

If we look at the number of employees, we are only 53,400, and we can see that compared to where we just integrated Panalpina, we have a reduction of 8,600. Here, 4,700 is white-collar employees, and that is more or less the permanent saving because the blue-collar employees, they vary depending on the activity.

And we have seen that, of course, there's been a reduction in the activity levels due to COVID-19, but some of these jobs, they will surely recover. So I think that was what I was to say on Slide 11.

So if we just quickly skip on to the next slide, Slide 12. I think the cash flow speaks for itself.

We've produced quite a good cash flow here in the second quarter. We are still under pressure on the working capital due to COVID-19, but I think we managed it in a good way with our customers and found solutions where they were required, and we're quite pleased with that.

Then if you take the leverage of the group, it's clear that now it's calculated at 1.6 times EBITDA. And actually one quarter ago, we just went out and got new extra credit lines because we were uncertain due to the guidance that we got from the political environment, what was going to happen in this crisis.

And we're actually pleased with the fact that we went better safe than sorry and then got extra credit facilities in place. Right now, we don’t feel that the time is right to go out and to share buybacks, but of course at a later stage, the policy is unchanged for the group.

But right now we just want to be on the safe side. If you take the duration of our loans is 5.4.

So we have very much capacity or stable financing in place, you could say. So also that is very solid.

And if you look at the ROIC, we’re still trailing last year, but we are slowly improving the return on the invested capital, so that we’d return to normal levels. If we move onto Slide number 13, I think this is the outlook as Bjørn already touched upon DKK 8.2 billion to DKK 8.7 billion.

And that we will spend DKK 2.3 billion of special items this year has been reduced a couple of hundred million. And I think what is important here, the assumptions are below.

And I think it’s very important this time that we sort of just look at the assumptions for short moment, because if our guidance is more unsecure than normal and this is of course, because it’s hard for us to see through what can we expect on the pandemic. Will it increase as it seems a little bit now, at least, or will it create a stable environment?

We are not certain. Then of course, the freight volumes depend on that and what capacity is available.

We see that passenger planes that go into continental, they are not that much in service right now. And so on and so forth when it comes to that.

So we will then continue to focus on the things we can control, namely, to complete the Panalpina integration, and to complete the COVID-19 initiatives that we have put in place as well. So outlook, I just touched on more uncertain than normal, but we gave guidance, because we believe that we were in a situation, even in spite of these uncertainties where we could.

And with that, I think we actually ready for the Q&A session. So I think that we can move on to that part of the session.

Gentlemen, good morning. Maybe first of all, on the volume you saw in the quarter given that many of your smaller competitors are struggling and we saw some share gain at larger competitive of yours.

How do you kind of rate your performance in the quarter? Was that kind of a targeted decision not to go for as much volume growth on a pro forma basis?

So how would you rate your performance on the volume in the quarter? And then on the increase or on the stellar performance of air freight could you give us kind of a sense of what the price impact on the GP per unit and the mix impact on the GP per unit was?

And also, how do we think about the EBIT tailwinds you’re getting from the charter network in air and sea looking at the market rate where we are right now. Thanks.

Yes. I can talk about that a little bit.

Volume, we go to work every day in our company in DSV to outperform the market on many kind of terms. We have always said, that during an integration, this is not the finest hour of DSV when it comes to market share gains.

It is difficult when you sit during a large integration, because between two companies to take advantage of that. We are slowly getting to a phase where we will expect that we will be able to go out and grow faster than the market.

I think we kind of were on level on par with the market. For air freight, we might have taken a little share.

We might have lost a little depending on what the market if it was 25% or 30% down. But on sea freight, which probably performed or we did performed slightly worse, also a consequence of some business, which was lost by Panalpina before we came in and some contracts that we terminated early on in the process, which still have a full year impact now going into Q2.

Of course, we have said on many other occasions that it is – yes, it needs to be profitable growth or not growth for the sake of growth in DSV. But we do expect that we will soon see a bigger improvement on that.

So it was not like a deliberate choice not to grow, to put it that way. When it comes to air freight, it’s simply – there are simply so many different topics that touches the results of the P&L.

So unfortunately, we cannot say for sure, exactly how we derive that the – we can see it in our numbers, but we cannot see the moving parts. So it’s not possible for us to split the GP per unit into different segments saying, mix was so much, price was so much.

But I would still, of course, say that the access to a fixed capacity, the Panalpina freighter network did play a role. We should not put overly too much emphasis on this alone of the freighters we have used in the quarter.

It only accounts for approximately 5%, so it’s not bad at all alone. But of course, also we have seen also the positive effects of combining the volumes of the two companies into one system, which normally also have a positive effect.

So if we – if we split between mix and price, isn’t that easy, maybe could you comment on kind of the development of the different verticals and products you’ve been seeing on air? I assume kind of more pharma and PPE.

Does that hold true kind of what their growth in some areas in air freight and kind of maybe contraction and perishables, I guess.

Yes, for sure. Perishables, fashion have been under pressure and automotive have been under pressure.

Other industries have done really well. As you say, the PPE has been doing well for natural reasons, that has slowly been fading out.

Pharma healthcare have been doing fine. And couple of other electronics have actually also been okay.

But it will be too much to go into a large kind of a description of the developments of all verticals, but it has been very, very different – the developments we have seen that as correct.

So would it be fair to say that there is a mix shift in the price somehow, and that probably is part of what you’re expecting to return back to normal as we go into next year?

Yes. You could say that to a certain degree, at least.

That is correct. Yes.

Hi, everyone. Thank you.

Firstly, a question on air and how much of sort to say, the profits [indiscernible] we see here, you can consider a windfall in Q2.

It’s not possible for us to account for that 100%, but we have said – as I said, initially, that you should unfortunately not expect us to be able to stay at this high level. The volatility has been extremely high.

We do expect to get to a normalized situation sooner – not a normalized, but a situation where we lie probably somewhere between a 7,000 and maybe 7,500 or something like that, just to give a rough estimate on. And then if the rest have been a windfall or not, I don’t know.

I guess you could kind of brand it that way also.

Could I just say something as well? I think Dan, you have to look into a situation where you will do much more chartering these in the foreseeable future.

I hear that some of the airlines, they only think that the passenger planes, they are going to come back full in 2023. So in this, when you move with charters, the rates and the rate structure is different.

So we sit in a windfall or what is it? But there is some DKK 100 million, of course, that we have made because we create more value and produce in another way.

And somebody even estimated up to DKK 300 million that sort of the combination of the charter network and the chartering in general, where we have chartered thousands of planes at least measured in capacity in the first half year. So it’s like a mix of many different things, and it’s very – if you then go back to your spreadsheet now, and then you say, now I've pulled DKK 300 million out, I don't think you can do that.

Because if we were to return to normally we'll get very high volume, but then you will produce it in another way, now we’ve lower volume, but we produce in a more complex way, where we can add more value.

But with rates that you pay to sub-suppliers have also come down from peaks, right? And that should at least benefits you when you go out and purchase capacity now.

No. No, chartering on air freight is more expensive than I've ever seen in the time I've been in the company.

Yes. But I think sequentially here compared to where it was, let’s say, at the peak in Q2?

Yes. But you have – so that’s correct.

But you also have to remember that we have moved with customers away from contract rates. It's been a spot market then that where we have almost had to agree the rates with our customers from each kind of shipment that they booked with us.

We had to do that immediately when we saw what was happening with the air freight rates. So it's – there would be a pass through, you can say to customers on that to a large degree at least.

Okay. Okay.

Then moving to another business area, where it's a bit of the same discussion here. But road is really performing well.

Can you elaborate a bit on, if there's any positive effects from the decline in fuel prices we've seen during first half?

Yes. Well, maybe not so much the fuel price in itself because we have some fuel mechanisms also, where we have been passed that on two costumers in the past, but probably more where there has been.

Maybe in some weeks, some overcapacity where we have been able to procure the whole it's services slightly more favorable than what we have been able to do in the past when things have been really booming, so that is one of the reasons that we have seen a fairly okay development also in the cross margins.

Yes. Because I mean, especially gross margin looks particularly strong right now, is it's sustainable at these levels you think or expect…

I wish, I could say, yes to that question. It is a – you cannot expect us to be able -- but we will work hard towards that.

It's one quarter and let's just wait and see. We will do our utmost to keep it around the levels it is now.

Sounds, good. Thanks a lot.

Good morning. Two questions, one for each of you.

I think, first of all, on working capital, Jens, do you expect that to get worse through the second half as we start to see furlough schemes unwind and companies getting to in possibly toward trouble? Or do you expect that to get better, is the first question?

I don't think that we should get our hopes up too high. Because I think actually you're quite right that we're just in the beginning, we're going to see more impact from some of the businesses that are suffering.

So some businesses will come back to normal and that will actually be an improvement. And then there are certain companies that will be struggling and how that would pan out.

At the end of the day, we are happy with the 3% we add right now. I must admit that when we sat here quarter ago, I thought it would have been worse.

And we'd also then, of course, went out and get some capital acquired some capital in place for this. Fortunately, we didn't need it, but I think we're going to see a little bit – we haven't lost a lot of money under on our receivables.

Right now, and we've managed them fairly well. But we're just not out of the woods yet.

I think that is the key conclusion when it comes to that.

Yes. And small follow-up really.

Have you held a similar level of credit insurance to what you historically cover or less of that been available?

Yes. Actually, we've been very fortunate because in many areas, the governments they have gotten in and supported these schemes, because they knew it was important that if these credit insurances, they were withdrawn for many of the small and midsize companies, then they will not have access to funding.

So they have actually gone in and in a number of countries, at least in Europe actually taken over the role of credit insurance company or somehow made a deal with them that they support it in an intermediary. So we've had fewer withdraws than we have feared.

So in reality, we have a stable situation when it comes to that there's been a few extra, but nothing material that has withdrawn.

Okay. Thank you.

And my other question is just on – it is on air freight, but it's more on capacity. Could you give us a sense in Q2, how much of your air freight moved on freighters and how much of it was belly hold space?

And how you see that panning out through the second half of the year? Because clearly the airlines are sequentially adding capacity, but there's much more going into short haul than there is into long haul, which is clearly where the heavy belly hold space capacity comes from?

Yes, it’s absolutely, right. Thanks Mark for putting that question to us.

And this is, as Jens alluded to before, this is actually a development we would expect to see continuing into the future. By farther, the largest proportion of what we have done up to about 75% have been flown on full apart charters in the quarter.

So of course, this has been a dramatic change to what we have been used to, of course, as passengers – passenger planes go slightly more and more into service, again. We will probably see that change a little bit, but it's still a whole new way of operating for the whole market.

So this is something which will also mean that probably the volatility in rates will continue going forward, which is not necessarily bad for a company like DSV. And then that we have access to a small proportion of fixed capacity ourself in the charter network of Panalpina has of course been a super beneficial for us in the beginning of this year.

Yes. And again, small follow-up.

You also said, as you – when you talked about expanding the old Panalpina charter network, that you've done it in a slightly different way to the way – which the way, they did it, which was simply to lease the 747 freighter. Could you explain that a bit more?

Yes, we had – it was almost like owning your own plane. We had the obligation to buy food for the pilots and take total ownership, like it was our own plane.

It was branded with our name, the Panalpina name. It was a great, it was a beautiful 747 plane, also a very, very nice and all that.

But we just we have structured in a slightly different way where we have entered into an agreement with some commercial airlines where they put the capacity available to us where we take over the ownership, but where they operate the planes to a larger degree than what we did in the past, where we just leased the plane and, and handled the crew, as I said. And then combined with a lot of a block space agreements is put into this network, where the fixed schedule going into different airports than the traditional airports.

Meaning that we can actually get the cargo either to a different plane earlier, or get it distributed through our road network also a much faster than if we go into the traditional airports. So this is something that our customers, their legacy, we have to say, Panalpina customers, and also some old DSV customers actually highly appreciated it.

It’s a premium product for certain parts of our customers. And we are actually, we have – I must say, we have gone from being somewhat skeptical about this operation to being a much more enthusiastic about it.

But it's not that we are changing our asset-light business model and what we are taking a big gamble on capacity, but it's something which will fit into the new company where we have also almost doubled our total air freight exposure.

Yes. And that just comes with a structurally higher GP, doesn't it?

Yes, exactly. It does.

Thank you.

Yes. Thanks gentlemen, for taking my questions.

I have two questions. So firstly, on road freight, could you please comment around the progress of rollout of TMS CargoLink Way Forward?

And what has been the outcome of pilot rollout so far? And secondly, on the market share loss, if you could comment, is it very specific to any vertical of a market and if you could share some light on your plans to get back to market level growth?

I’ll just take the last question first. It’s as I said, it is exactly as expected.

It’s exactly as we have communicated to many acquisitions also throughout this acquisition, that in the eye of the storm of an integration, it’s not the time, where we excel in terms of market share growth. Customers are slightly reluctant giving us more business, because before we have proven that we can handle the integration in a positive way.

So, the fact that we have actually kept the skin on our nose on air freight, it’s actually positive. We have also – I would say we forget that sometimes, we have actually taken market share gains in both road and solutions.

So, out of a lot of things in DSV, we have a slight underperformance on sea freight. We will never be happy about this, even though it is expected.

So, I would hope very much to see we need to get the numbers aligned so to say, and have a proper like-for-like comparison. So, when we get to at least to fall, we should be able to hopefully, to prove to the market that we have a much, much better situation.

And hence, I know you spend a half, I wouldn’t say half of your working hours on Cargolink way forward, but in some weeks, you do definitely. So, I will leave that question up to you.

Yes. But as you mentioned, we’ve done some piloting and these pilots, they have led to that we had the vendor to make some changes to the software.

And right now, based on these chains, we should then be able to rollout a pilot that should more or less, what can I say, be the pilot that confirms that we can use it. and the most important thing is that is it can scale.

I think, you should be aware that many of our competitors in Europe, they have tried this like we have done for quite some years to create this platform. And I think once we have this in place, we will be able to do exactly the same thing it was wrote and we have done with an ocean.

So, it’s definitely an important milestone for us. But we need the outcome of this, what can I say change, and then try to roll it out and then see how it performs with the changes that we will implement once it’s completed.

So, we’re still grinding. It will take some time, some years, but it’s a very important project, because that will, as I said, help us to create a situation on roads, where we can go heavy into consolidation.

So, just a follow-up on that. So, when do you think you’d be in a position to scale the volumes onto the platform?

It will probably take three years.

Okay. So, is it fair to assume that until then we might not see any big M&A in both divisions?

We will probably do some M&A, but I think it will be more fair to say that it’s harder. If you look at the value we extrapolate when we do acquisitions in the Air & Sea area, it is because we have consolidated our infrastructure to a very high degree, and we can take advantage of our software stack when it comes to the Air & Sea.

To road, we will be able to consolidate and take advantage of our software stack to a lesser extent. So, it will be harder to create synergies.

So you can do it, but you will get the benefits a little bit later.

Okay. Got it.

Makes sense.

Yes. Good morning.

Thank you for taking my questions. The first is also regarding the air freight market with a – obviously, a larger share of volumes going through this freighter network.

I’m just curious to find out if there are any sort of risk associated to that? Normally, you do back-to-back contracts.

Is that also the case in this freighter network? Or how does that work?

And also, maybe as a part of that question, can you actually produce at the same cost in Q3, as you could in Q3, given that you now hand back the 747?

Lars, actually Panalpina had longer commitments on these things, and then we have – we have longer commitments and we have had historically on some of these things, but we then have worked with our customers to make sure that the commitments that we have from them, they are to a large extent aligned. So, it’s not that we all of a sudden changed the policy of the company, where we go out and take a big gamble, so things like that.

So, I think you can rest assure that this culture that will not change it’s simply so embedded into our group, I would say. But you can get it organized and you can also explain the customers what is required in order to have this premium product, as since beyond just said before.

It’s not like we start with a blank piece of paper every morning, and we have to fill up this plane. but of course it’s not a 100.000 back-to-back agreement that we have.

So, we lean out a little bit, but the beauty is, of course that the potential for much higher GP is very large. So, it’s a trade-off.

And we have all the experience of Panalpina, and we have learnt about this product ourselves with our air freight specialist over the last 12 months. So, it’s a very, I would say, conservative and cautious, what you say, small, new initiative that we implement.

And I’m happy about this, because it tells us also last that every time we buy a company, we are able to learn from the companies that we buy and adapt new ways of working also, which will help us to improve going forward.

Okay. And then on the cost – on the production cost, the question was, if you were able to produce at the same cost in Q3 as in Q2, given that you now hand back the 747?

Yes. Lars, the 747s in general, they are not achieved.

So, depending on what type of capacity we get in, it’s probably something that we can compete with. So, it’s not so that when we make other deals that all of a sudden this cost it skyrockets somehow.

So, we should be in good control when it comes to that.

Okay. And then lastly, regarding solutions, also there’s quite a bit of impact from the acquisition of Panalpina, of course.

I’m just curious as to find out what kind of underlying revenue growth you believe you had in the quarter and maybe, also indications here for the second half, if you have any that you will share?

It’s probably, what can I say, a contraction of, I would say around 5%, perhaps a couple of percent more that we have seen. So, of course, we get what can I say, volume in, by the Panalpina acquisition, but the activity levels have, of course, been a little bit lower in some of the areas, Lars.

So that should be something that you could work with, I would say.

Okay. All right.

Thank you, guys.

Yes. Good morning.

Two questions from me, please. Just firstly in terms of, again, just the math in terms of the shorter-term data that we can see out there.

And that seems to point to sort of sequentially improving sort of air yields in the market over the last few weeks. And I just wondered that you’re seeing that is that translating into sort of better pricing from what you’re seeing currently?

And then secondly, just in terms of your perishables business, I understand that you sold about 5% of your volume to a Dutch specialist freight forwarder leasing and probably got about 10% of volume on the perishable sides. And then just maybe, an update as to what you might be thinking on perishables?

Is this the sort of the start of the end of perishables? Thank you.

I mean, if you look at the rates and being a broker, of course, there’s a pass through when things they move in a certain direction. So, this is also what is going to happen.

It’s all the transports that we do they are basically tested with the competition, because as you can imagine the rates are higher right now, and everybody has been looking, for solutions, you don’t move it in the traditional way. So people, they try to test the market.

So, when things they move and things they try to or they do improve, then you will see that in the rates immediately. So that’s certainly, the case when it comes to that.

And the other one was to perishables. The perishables, it’s correct that we have divested a little part of the perishables operation.

It didn’t fit into the network and the way that we operated. And right now, we actually see that the other perishable activities they fit in okay, within the group and we have no ongoing activities to divest any of them.

So, they can be combined somehow with some of the network activities that we had, but this particular one was not something we could combine with our existing activities. So that’s, as you said, been divested and it’s a small part of our operation, but we think it found a very good home with some specialist owners, as you mentioned.

Just remind me, just – what are you left with perishables in terms of verticals. So, I guess any sort of assets, flowers and based on the top of that sort of spilling and sort of fashioned?

What is that – what does that perishable verticals look like?

That was a very specialist flower operation. I think we do, depending on, let’s say you go from LATAM through the U.S.

So, you will probably do more wholesome some fruit, and of course, let’s say you go out of South Africa. There are certain products down there.

The way I believe that’s also actually some flowers and some vegetables as well from down there. So, it depends on what market you’re in and we also still have actually a little bit of flowers, but it’s into Belgium as well that comes out of certain parts of Africa.

Of course, the main part of the flowers they go into the Netherlands, but it is a little bit scattered. but as long as it works and it can fit in with the other activities that we have and we can sometimes make good arrangement with the airlines, so that they have cargo in both directions.

And it actually works, okay, the perishables. It’s a – it is very specialized business.

It doesn’t really – apart from this combined with network cargo and that’s the reason why we, in certain areas, find it difficult to operate, because we are a network company as you know.

All right. Thanks very much.

Hi, good morning, Jens. I have two questions please.

First, on the road freight business, I was wondering, can you please provide some color on the exit rates in June in roads? I think you said in the trading update that effort in the market was down 15%.

April was likely substantially, worse than that. But how good was the market in June?

And do you already see the international transport business picking up again, and we don’t have any implications for your gross profit margin. And secondly, on the timing of the assumption of share buybacks, you have the leverage ratio rapidly coming down to 1.6.

It’s the main reason that you’re still reluctant to resume the share buyback program that you still see your risk to working capital in the second half. When do you expect that it will be more likely to continue buybacks?

Thank you very much.

I’ll start off with road, it’s correct what you pointed out. We have seen a pretty good development during the quarter, where June actually ended up.

We don’t have as many fixed points in terms of market developments as we have on Air & Sea there are no official statistics. but our best estimate is that the market is still down something like maybe 10%.

it has improved – as Europe has opened up fully, you can say during the month of June, it still takes some time before the wheels really get into motion also, but that has basically been what we have seen. So, we are happy about that and Jens, maybe, will elaborate.

but I can just say on the buybacks that it would have been the easiest thing for us this time, just to have initiated the new share buyback program. but we are also here to protect the company also.

and we just need a little bit more solid ground beneath our feet also. But I can just reiterate again, just so to make that crystal clear for everybody that is zero change in the overall capital allocation policies of DSV.

We have throughout many, many years, lot to say, decades been doing large buybacks, and we also expect them to do that again. So, let’s get another three months below our belt and see how the situation develops and then we will reiterate the issue then.

All right. That’s clear.

can I ask a quick follow-up on the momentum and solutions? Is that similar to the road that you also saw solutions down around 10% in the month of June?

Yes, yes. We just – slightly June, probably less of a – the market is even more difficult to look at the market.

We had also, because it was impacted by actually some relatively large customer wins we also had in solution. So, that disturbs the picture a little bit.

But overall...

We can tag activity in solutions, of course, in the quarter has been lower, because after shutdown, and also certain verticals, where we didn’t really do a lot of work, let’s take automotive for example. but I think it’s fair to say that on the customer win side, I cannot remember that we’ve had – can you expand as much traction as we have right now on solution.

So, I think it’s – there’s an accelerated trend towards, consolidating not least fashion retail and do e-commerce stuff like that. In our warehouse, there’s no doubt about it.

And I think that also the PPE of course, is looking for space, because everybody wants security stock on that. So, it definitely drives some what can I say, a momentum on the sales side.

then, on some of the other verticals that have been shut down, it’s clear that we’ve seen less activity simply. and that’s for natural reasons, that’s picking up and then all the industries they open again, and we just cross our fingers that COVID-19 stays.

What can I say it doesn’t when you look at the media it seems like it’s not going in the right direction right now. So, we hope that it will soon come back to being under control.

Yes. That’s helpful.

Thank you very much for the color.

Yes. Thank you.

Just a quick detailed question. Special items, you said they will amount to DKK 3.1 billion in total and they were DKK 800 million in 2019.

So that leaves DKK 2.3 million in 2020. And then they were about DKK 1 billion in the first half, which leaves DKK 1.3 billion for the second half.

I’m just wondering why they are so back-end loaded if you could, yes, explain that?

It depends on which areas that you have to what can I say, make these retrenchments and some of the areas, where it’s easy to make a retrenchment, it’s also mostly what can I say, not that costly. Then if you go to the European area, it’s harder to make the retentions – retrenchments, it takes longer time.

And then it also costs more money at the same time. So, there’s no real logic to it.

And of course, we would be happy to come out and say that we could do it a little bit cheaper, because sometimes actually people, they find another job themselves. And that’s the reason why that we already could come out and say, listen, we can do it a little bit cheaper than had originally planned, because people, they luckily found other positions, which is very good.

And of course, we hope for some of the European ones that they will find a job. We will then save some money and they will have a new job, which is of course, the ultimate thing.

So, I guess that explains it. And then we will see how it pans out.

If many of them, they find a job themselves sooner. We will have to come back and say to you guys, listen, we could save another $100 million or $200 million.

So – but as I said, the European one is more expensive than the other ones.

Great. Thank you.

Hi. Just wanted to talk a bit on the sea side, and there is yield and sea have been strong.

How are you seeing deals in sea going forward? And also secondly, if you could talk about the exit rate on air and sea volumes in June.

Yes. Sea freight has in a way locally, because it's been difficult enough to track what has happened in air freight.

But the sea has been more stable from our point of view, I know some of the carriers they have also had some issues to deal with, which has not been affecting us. But we expect actually that the level you see now is kind of a level that we would continue to see going forward also, this is our aspirations, at least.

So you could kind of assume that the rate levels would kind of stay at what they are. And we have also seen a take-up in volumes throughout the quarter, but unfortunately – in air and sea, but unfortunately not to the same degree as we have seen in – enrolled in solutions, which are still again, mainly with some exceptions European business.

So you can actually kind of map out where the COVID is improving, and then you can assume that the situation will improve in those countries also, of course, the fact that some of the larger areas we’re in like the U.S. and also Latin America, India, South Africa are still deeply impacted by the COVID situation, that does not have a positive impact on volume.

But having said that, we have seen an improvement, but not to the same degree as in the two other divisions.

Thank you.

Thank you very much. Just wanted to understand the point about rightsizing and the savings you are making from that and how that will evolve in going further out, when – even when volumes do recover.

How will the savings evolve then? Will the cost return when volumes return?

What we have said Frans is that, we have a very, very clear ambition for this to be permanent savings, and this word is extremely important. We have an aspiration to increase the productivity of our company.

You can say, actually that the productivity right now is not higher than it used to, even though we are several 1,000 employees fewer than we used to, because of the fact that volumes are also down. But when volumes come back in, we will see – if it is possible and we do believe that is possible due to the highly digital way that we work now, used a lot of new communication skills and technology that we will be able to see an improvement in the productivity.

And if we succeed on that, that will, of course be tremendous when it comes the, yes, future results of our company. This is something we have spent quite a bit of time discussing internally also, because you're right, if we were just to let people go now, spend a hell of a lot of money to achieve this and we hire all those people back maybe one year from now, we would have shot ourselves in the foot.

So, you should look at this to a very, very last degree at least as permanent cost savings.

And if I just should give you some guidance on how to look at it, look at the conversion ratio in the past and see how it's increased. This is in reality, the same thing that has happened there, that we have increased the productivity over time.

So that should also give you a little bit of confidence that we – what can I say managed to increase the productivity,

Great. Thank you very much.

Hi. I've got two questions, if I can, please.

The first one is obviously you had the prerelease towards the end of June, and the EBIT turned out to be a little bit better than maybe was indicated at that stage. Can you just talk about which things went better towards the end of the quarter than you perhaps expected them to?

And the second question, just a short one on you, you just talked about your ability and willingness to look for and execute further M&A in this environment. Thank you.

Yes, it's correct, that we – in the prerelease, we said we would achieve an EBIT result of minimum not exactly, but minimum $2.3 billion, and it turned out to be $2.6 million. That was somewhat better than what we actually thought at the time.

You're right. Actually all the three divisions did better than we expected in June.

June was the best month we have ever had in DSV, a very, very strong performance, so that was basically what caused it. We did see cost savings coming in also at a higher degree than what we expected.

And to be honest, we were also a little bit surprised about some of the temporary cost savings also being slightly higher than we had expected. Try to imagine a large company like DSV, everybody basically sits at home, there is no unfortunately visits to restaurants with costumers or business travel.

It actually has an impact, this will also unfortunately be temporary, I hope these activities, so to say will start up again, at least partly once this situation is over, but then it was kind of the sum of all parts. When it comes to M&A, we still have an appetite to do M&A in DSV, small bolt-ons could happen basically soon if you know what I mean, we have ready to do that in certain geographies, if an opportunity were to arise.

But to do larger, more transformer acquisitions, we need to sign 100% off on the business case of Panalpina, finished the integration, and then hopefully also have seen the back of the COVID-19 situation in the ideal world. But we've said it many times that we don't hope that Panalpina will be the last company that we acquire in DSV.

We have been able to generate value for shareholders by doing M&As, our industry is still very, very fragmented. So the overall fundamentals of value creation through M&A is still very, very much intact for us also going forward.

Understood. Thank you very much.

Thank you everybody, ladies and gentlemen, for taking the time to listen to us this morning. We appreciate all your questions.

You know, how to find us, if you want us to elaborate on any of the issues we have touched upon this morning. Feel free to contact us, we are super pleased about the performance, and we will now do everything in our powers to also go out and deliver some nice, good, strong results in the quarters to come.

In the meantime, I'm sure we will speak to a lot of you bilaterally. So here from – from here, who is now on behalf of the whole team and DSV, Jens Lund and myself, thank you, and bye-bye.