Ladies and gentlemen, welcome to the DSV Panalpina analyst conference call and live webcast. I'm Sandra, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jens Bjørn Andersen, CEO of DSV Panalpina. Please go ahead, sir.
Thank you very much. Good morning here from Basel, where I'm joined today with Jens Lund. We are extremely pleased to be able to speak to you this morning after the initial announcement of the deal of the combination of DSV and Panalpina, the 1st of April. We've worked very hard to get the period as short as possible between the signing of the deal on that particular day and today. Before I start, I'd just like to give my recognition to the whole team between DSV and Panalpina, who worked extremely hard for making this possible and actually making it possible for us to close the deal probably slightly faster than what we had anticipated when we first announced it. It's really been amazing the job which has been done.
Also, some credit should go to the people and the management of Panalpina, who've actually been extremely forthcoming in the period and allowed us to prepare as well as possible. We really, really appreciate that. That has been extremely helpful. Thank you very much for that. If we dig into the presentation, first, we have a disclaimer on page number two. It is slightly more comprehensive than normal, but I would advise you to read that. After that, we have the agenda for this morning on page number three, where we will talk a little bit about the new combined company, DSV Panalpina, first. Then I will hand over to Jens Lund, who will in more detail, speak about the settlement of the exchange offer, talk a little bit about the synergies and the costs related to doing the integration.
Just we want to emphasize that nothing has changed when it comes to our capital structure and the capital allocation. Of course, that is natural just to touch upon that. Then we will just go through the next steps, and we will leave plenty of time for Q&A. On page number four, you will see DSV Panalpina. As of today, we have a leading market position. We are very proud and happy about that. We are now, as of right now, 60,000 dedicated employees in more than 90 countries. This is exactly what we wanted with the combination of the two companies. We will be a clear number 2 when it comes to air freight. Sea freight, we will be number 3. Road freight in Europe, we are the fourth largest.
When it comes to contract logistics in our solutions division, we are a top 10 company. We talked to you guys, the analysts and investors, a lot about this in the past. We are a very fragmented industry. For us, it makes a lot of sense to consolidate the industry. The statement that big is beautiful still very much is correct. There are a lot of benefits by growing your network and the service offerings, and we are in a position to offer significant different opportunities and options to our customers as of today. On page number five, we have said that together we can achieve more. This is not just a slogan. This is something I truly believe in.
We will now take the strength of two good companies, put them together, and if we manage this correctly, as I hope and expect that we will, we can actually achieve much more than we could as two individual companies. You can see, as I said before, we will be a top four transport and logistics player. We are not obsessed with league tables or anything like this, and we will come back to it later. The main reason for putting the two companies together is that we want to create shareholder value. We are expanding our global network. We are still a network business. We do offer transport from anywhere in the world to anywhere in the world. The fact that we have a very dense and strong network has always been important for us.
We realized that more than 15 years ago when we started to build up our network in Europe. I know we already, before this combination, said that we were a truly global company, but now we are even more global. There's no doubt about that. There are some really exciting additions to the network now with the ex Panalpina locations. We are now in more than 90 countries, and we will have more than 1,500 offices and logistics facilities. We are not ashamed also to say that we are top-performing company. The results, we are humble about that, but they speak for themselves. We have industry-leading margins across the divisions, and I think we will come back to that when we look at the business case.
If we succeed, we will be able to create a lot of value for shareholders if we manage to bring the margins of the combined company to the margin that we have today. We also take comfort when we stand on the task of this big integration challenge, that we have a strong integration track record. We have tried this before. At least the people coming from the DSV side of things, they have been involved in numerous integrations and that goes also, of course, for both Jens Lund and myself, who have been part in many also larger acquisitions and transactions. The integration template we will use this time is not very different from the ones we have used before. We like very much IT and processes, but we are still a people's business. It is something we reconfirm every time we meet up.
It is the staff and the people of our company that makes the difference, that we are now 60,000 dedicated employees are very important for us. We have skilled people, it is supported by a very strong and also scalable IT systems that we will use. When we are now getting together, it's all about combining the strengths of the two companies, I'm sure we will make this a success. The last slide before I hand over to Jens Lund is also on page number six. Some more statistics. I talked about it before. People makes the difference. We will be 60,000 employees. The annual revenue will be DKK 118 billion, you can see the distribution below, 79 coming from DSV and 39 coming from Panalpina. We will move more than 1.7 million tons of air freight.
Panalpina has a bigger volume than DSV. It's one of the things that really attracted us to Panalpina. For you analysts, before you do too many calculations, you have to remember, and we've talked about that many times, that the mix of business is a little bit different, where Panalpina are very strong within the perishables segment. It is about 20% of the air volume. It carries a much lower GP, but it is so only about 5% of the GP. I think it's important we take that into consideration. On the sea freight, we will handle slightly less than 3 million TEUs put together. We have a similar size. We are very pleased about that.
Also here, there is a little bit difference in the mix, where some of the TEUs handled by Panalpina, they carry a lower GP than what we have in DSV, but it is only approximately 10%, it's not too much. We are excited to get in and analyze this and see how this will add value also to the DSV network. We know, for instance, that there is a very strong LCL network in Panalpina that we don't have in DSV today. I'm sure this is something that our customers will very much appreciate. We are still very strong in Road, and it's important to say once again that we are not three companies, we are one company. The Road business will also benefit from the combination. Approximately DKK 2 billion of revenue from Panalpina will go into DSV Road.
I know that the road guys, they cannot wait to get out and sell the services to all the Panalpina customers because it goes without saying that the road capabilities of DSV is somewhat stronger than what was in Panalpina. Together, we will have approximately 6 million sq m of warehouses in our logistics division, the solutions division. This is also something that will be an added benefit, and I'm sure that cross-selling opportunities will be big. After the initial integration, this is of course something that we expect a great deal from. We will build a solid market leader, a strong company, with hopefully industry-leading margins when we have integrated the two companies. The journey starts today. We have prepared well, we have planned well, and it's great to sit here together today and be able to speak to you.
With these words from page number seven, I will hand over the microphone, so to say, to you, Jens. Take it away.
Thank you very much. I'll quickly just go through the final details on the settlement. We've increased the share capital almost 30%. We have now 241.5 million shares in DSV. We had a success rate on the offer of almost 98.5%, and that sort of leaves us with another 1.5% that we will have to sort of squeeze out, and there will be a process for that. The enterprise value has also been discussed a little bit. Initially, the enterprise was somewhat lower, but since we have an all-share transaction and our share price has come up, the enterprise value without the inclusion of IFRS 16 liabilities is DKK 35 billion. If you include IFRS 16, it's DKK 37 billion. It's certainly a very significant transaction for us. The delisting of Panalpina, we will request this today, and then it can go to the authorities.
They will have a look at it, and I've been informed that it will take two to three weeks. The Panalpina shares will be delisted, so not traded on the stock exchange anymore. As I said, the squeeze-out, there's a longer procedure for that because it has some legal requirements that has to be satisfied, and we will work with that. We have now a new 10% shareholder. We called them because the Ernst Göhner Stiftung will, once they have received the DSV shares today, be above the 10% mark, and there will be a separate notification on that. We just put this in here as well to confirm. Of course, there are still some household items that are outstanding.
One is that the listed company, we will have to call for an extraordinary general meeting and change the name of the listed company so that it will be called DSV Panalpina A/S. We've also, in the transaction agreement, agreed that we would propose a member to be voted in from the foundation to the board, and that will also be part of the next extraordinary general meeting. We will soon send an invite out for that. If we skip to slide number eight, we have made an overview of the synergies, and I think this is more or less in line with what the market had already expected, DKK 2.2 billion. It is, of course, a consequence of merging operations and facilities, but certainly also that we will have a combination of the back office capabilities in both companies.
We've not said anything specifically about the one-off cost, the so-called special items, but typically they are more or less at the same level as expected synergies. We will have to make or prepare the plans in detail before we can be 100% specific on that. So far, I would use the same number for my calculations. If I had to do the spreadsheet. I think we will come out, or we have planned to come out with more guidance on this when we publish our Q3 numbers. If you notice, it has been changed to the 1st of November, in order for us to be able to have the opening balance ready, but also, here we will have the more detailed confirmation on the synergies as well as the one-off costs ready.
We will also say something about the timing by then. So far, I would just use, if I had to do my spreadsheet so that we look at that, perhaps a similar timing like you saw on the initial announcement on the UTi transaction. We do reserve our right to come back and change it a little bit once we have the plans sort of gone through in a more detailed way with the organization. Let's move to slide number nine. Overall, we see that we expect to lift the margins to a level that is on the same level as DSV level. That will mean that with current performance, it is more than 7% in margin. We have seen that this has also been possible on the other transactions. This is the ambition for this transaction as well.
We expect that the EPS will be accretive in 2021. When you make your calculations, you have to take into account that the amortization of customer relations will mean something. We don't have this number yet, but if I should make an estimate for my spreadsheet, I would use 2%-3% of the transaction value and put that in. Then in the annual report, you will see that the amortization is 30% per year. On growth, of course, when we make the integration, we will grow a little bit slower. Also, when you make your spreadsheet, please take that into consideration as well. We do expect a small loss of volumes. This is normal when you make an integration. Typically, we guide less than 5% and probably a lower impact on the GP margin for this. This is also based on historical experience.
Actually, we've typically managed to perform quite well on this. It's quite conservative what we put into the business case. The way we are going to organize the company is that we will merge the two companies. The foundation for the future entity will be the way we are organized in DSV today. This also means that some of the volumes that are produced in Panalpina will go into the road division. If I should use an estimate, I'll probably take 50% of the volumes in contract logistics and add to road. We have to go out and see exactly what type of operation we're talking about before we make a final decision on this. I think a final note is our long-term financial targets. They actually sort of had a target of 2020 when we had to reach them.
We will now come out and communicate new targets. This will be in the second half of 2020 before we announce these targets, and it'll be based on the combined entity. A little bit on the long-term targets there. If we move to the next slide, capital structure. There's also been quite a lot of interest into that, because it's clear that when we have funded the transaction with all shares, this means that we have, if you want to put it like this, too much equity in the company and we will lever the company up. We have a target leverage of less than two times EBITDA, and we're going to stick to that.
This means that we can repurchase significant volumes of shares, and right now we have a share buyback program running of DKK 3.5 billion , where we have roughly repurchased shares for half of that amount. This program will run out on the 8th of November, and then we will launch a new one. We will also come back next year, perhaps, and make a plan, so that you know exactly what is going to happen on share buyback, including any sort of unusual adjustments that we might make in order to reach our target levels. The dividend policy is also important. We have made an agreement with the shareholders that, going forward, we will allocate approximately 15% of our net profit in dividends, so slightly more than what we have done so far. If we move to the next slide, the timetable.
We are now on the 19th of August. We settle now, we plan to have an extraordinary general meeting in September, as I mentioned before. We will announce the Q3 numbers on the 1st of November, I'll just repeat it once more. The date has changed, make sure that you pencil that in for the 1st of November. The last thing that we need to do in the second half of 2020 is to publish the long-term financial targets. I think with that, we are ready for the Q&A session. We're happy to take your questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Daniel Röska, Bernstein Research. Please go ahead.
Good morning, gentlemen. Congratulations on the deal and closing this morning. Three if I may. Could you talk a little bit about Panalpina's business portfolio, the mix in the business, and how do you expect that to develop over the next two years? You said you expect minimal revenue loss. Panalpina's business mix is quite different from yours in terms of customer sizes, sometimes in terms of the nature of the contracts, and maybe also the specialized work they offer. How are you thinking about that? Are you keeping all the contracts? Will you be turning some of the contracts? Second question, you mentioned IT as a source of saving. The elephant in the room is, of course, what's your day zero hypothesis when you think about this deal, and the two systems in place? What are the key aspects you're considering around that IT?
Lastly, you mentioned a little bit about your organizational principles, moving them into the DSV business structure. My third question would be, will you keep kind of the DSV country-focused approach? How does DSV and the Panalpina organization on the country level then actually fit together? Thanks.
Yeah, I will try to answer two of the questions, maybe Jens, you can elaborate on the IT. When it comes to the business mix, we're very comfortable with what we have seen. We have no plans of changing any of the contracts. Now, this is one of the items that we have not been granted so much access to for antitrust and competitive reasons. We will now go in and evaluate the agreements that lie. With the knowledge we have right now, there will be no need to do any major changes. We are excited about the customer relationships that Panalpina has. It seems like they have very long-standing relationships with some high-quality customers. I hope very much that they like what they see and like that even more in the future.
Of course, we will evaluate everything, and if we see something that we do not like, we will of course try to speak to customers about that. I think the whole idea of lifting the margins comes not so much from a GP uplift, but more from a productivity improvement, so conversion ratio improvement.
When it comes to the organization, we have indicated this morning that it will be the DSV structure that would be the structure prevailing going forward. We have the deepest respect for the way that Panalpina has been organized, but you can only organize yourself one way. I think we like very much in DSV the way that we empower our people. We have a very strong, very firm framework that you can never even bend or break out of. But within that framework, we like to give our management a lot of freedom to organize themselves the way they want to be organized and to take rational decisions that supports the P&L. That does not mean that it will be a carbon copy going forward of the way we organize today.
It will be some sort of hybrid, but you can say that the overall principles will probably be the ones that we know from DSV today. Maybe on the IT?
Yeah, I think on the IT side, it's clear that given that the system that we've operated in DSV has a very high productivity. Panalpina has been on a journey where they've been increasing the productivity. We will take, of course, many of the things out of the DSV system, but there are also things in Panalpina that have worked well, so we will take advantage of them. I think, it's fair to say that on the major production systems, it will be the infrastructure or software stack that has been used in DSV that we will use going forward. We cannot afford to go into a project where we will continue to develop a platform. We need a platform that is developed in order to drive the company forward. I think that's what we can say on the IT side right now.
I will say that I've met a lot of things on the IT side in Panalpina that we can learn from as well, no doubt about it.
Excellent, gentlemen. Thank you. Very clear.
The next question comes from Andy Chu from Deutsche Bank. Please go ahead.
Good morning. Two questions, please. Firstly, on the capital structure, you alluded to potentially some unusual adjustments. I wondered if you could just outline what you might mean by unusual adjustments to get your capital structure to your sort of target, sort of two times net debt to EBITDA. Secondly, in terms of the synergy calculation, what sort of a macro scenario have you baked in? Have you put in any sort of recession out to 2022, given that we're probably likely quite late cycle? Just have in the back of my mind, ABX where you ran into the financial crisis again, pretty one-off, sort of unusual, sort of macro scenarios, but you then upped the synergy target. What's baked in, please? Thank you.
I think, I'll answer that. On the capital structure, normally we would do these share buybacks that are done under the safe harbor model, and this is also what we prefer. It's very open, it's very transparent for the market. Let's say that we would like to make one big adjustment, we might do the unusual thing of having a reverse stock auction. We've not decided on that yet. If that will be the case, it will happen in the first half of next year. That's a little bit on that. We would prefer actually to do the other thing, but it might be that this is beneficial. We are analyzing that together with our advisors.
On the synergies, we basically baked in the current growth environment. Of course, as you alluded to, when we acquired ABX, there was a big economic turndown, and we had to make some additional adjustments. If that becomes relevant, we will let you know. So far, our base case is that the economy is growing in line with what we see today.
Can I just ask one more in terms of just, housekeeping. On tax rate and CapEx, is there anything that you can say there on that front, on those fronts, please? Do we have to wait till 1st of November? Thank you.
The tax rate, I would just use the current tax rate. We don't think it's going to be materially different. Please use that. On the CapEx, I think we will have to wait November, but it's not going to be dramatically different from what we have today. We might spend a little bit extra in particular on the IT side investing in the future. Apart from that, I think it's going to be rather similar.
Just on tax rate, just use the DSV tax rate or blend of the two companies?
I would probably use the DSV tax rate, because we would go onto our TP structure and things like that. We will use the framework that is available in DSV today.
Thank you very much.
The next question comes from Lars Heindorff, SEB. Please go ahead.
Yes. Morning, gentlemen. Two questions from my side. Firstly, regarding the EPS indication that you're giving, that it will be accretive from 2021. I just wonder if you could share with us, or at least give us an indication of how much buyback you factor into that calculation, if any at all. That's the first one. The second one is sort of more broad about the integration process in general.
It's not so long since you did the same thing with UTi, which was very successful. UTi was a bit more mixed when it comes to the portfolio. Do you actually believe that this will be more or less complicated compared to what you saw at UTi? Normally with size comes also complexity, or maybe I'm wrong. That's two questions.
Yeah, Lars, I'll take the last one before I forget. I'm getting old. If we don't have the same sense of urgency, maybe as we had with UTi, was more a little bit, without saying too much, a rescue mission we were on with UTi. We've spent a lot of time with the Panalpina management and staff saying we do not in any shape or form compare Panalpina to UTi. That would be highly wrong. As I said initially, we will use the same template. It will be cascaded down, and we will take, hopefully, the right decisions, and the ownership for taking the decisions out in the countries and the branches will be taken by the local people. Of course, as you correctly point out, each transaction and each integration is different. Of course, that's something we need to be aware of here in Panalpina.
It's not something that leads us to do this in a very different way than what we have done, but maybe apart from what I said initially.
Okay. Can I just ask a follow-up on that? I know it's limited how much you maybe can say at this point in time, linked up with the UTi acquisition, if I understand it correctly, you had very specific targets all the way out into the different branches that people need to fulfill. How far have you come into that planning?
This is why we say it is a preliminary number we are giving on the synergies. That does not mean that we expect that to change a lot, but we would like that. Exactly the same is going to happen now. It will be anchored out to the furthest possible degree, meaning that if you sit with a department at a specific location, you will also be allocated your synergy target. This is the way we normally like it. The synergy number does not stay in the office of Jens or my office. It needs to be alive out in the country, so we have it anchored. This is the only way, and we will follow up and measure this very closely, as we have done in the past also.
Of course, this is only work that can start now, Lars, because we have not had access, and we don't have the organization in place. Of course, we have a relatively granular, what you say, idea about the synergies already now. It's not like it's just one big number. It is spread out amongst the divisions and some countries, but there's still some work to be done on that.
Okay.
On the buyback, and what have we included in this, we've basically taken the cash flow that we produced and made no extraordinary adjustments. We're quite comfortable with that number, Lars, on the EPS accretion.
Okay. Just a clarification, you expect to spend the free cash flow that you generate to buy back shares?
That's what we put into the calculation. We might then make some extra adjustments averages to make the number more robust. What has been key for us is can we articulate a number that is accretive in the announcement in 2021, and we can.
Do you expect that you will be able to buy back the 55 million shares that you have issued over, let's say, three-year periods?
I've heard that from many investors. We will see. Depends capital wise. There's a lot of moving parts in there. We will see, Lars, but we will certainly allocate a significant amount of money.
It would, of course, be a nice kind of feeling if it was possible. Trust us, there's no change. This is the message we want to give. No change in the structure and the policy. It is exactly as it has been. You should take comfort in the history. Also, if you go back in time, I think we have demonstrated that we've been willing to have this capital allocation structure. I don't know, for I don't know if it's 15 or 20 years, so no changes on that front.
Okay. Thank you, guys, and congratulations for the deal.
Thank you.
Next question comes from Marcus Bellander from Nordea. Please go ahead.
Thank you. Just want to try to understand the synergies a little bit better. I'm wondering if the DKK 2.2 billion, does that include procurement synergies, or is it just sort of operational synergies?
I think if we look at this, it's a little bit complex because we perhaps have a little bit of different way to measure the GP in Panalpina and DSV. If we just have that as a reservation, I would say that 90% of the synergies is below the GP line and 10% is above. Of course, the 10% above can be that we make extra good procurement, or it can be that we run the gateways in a more efficient way. It can be these kinds of things. That was what I would use as an assumption if I was making my spreadsheet.
Okay, great. Thank you. Second question, Jens Bjørn. You mentioned that cross-selling opportunities were big, and I realize that it's difficult to quantify them at this point, but could you perhaps give an indication of how big they were when you bought UTI?
Yeah. We would have loved to have said a lot more about this today and also on the procurement synergies. It would be like a free lunch. We couldn't quantify it. You could not hold us accountable for that afterwards. Of course, you can discuss what is the reason that DSV has performed better than the markets in recent quarters or years. Is that because of UTi? Would that have happened anyway? Nobody knows. I'm sure that part of the reason is actually due to the UTi acquisition, that the product we have has been much better, our buying power has increased, and the network is stronger. I think that actually plays a big role, and we hope that we will see the same now after Panalpina.
As we alluded to in the presentation, you might see a dip in the outperformance when it comes to taking market share because we are so focused on the combination of the two companies. After that, we expect that we will be able, once again, to outgrow the market and probably also outgrow it faster than what we would have done. The characteristics of the combined company will change now, and I truly believe that we have a better product to the market. It would be too easy, so to say, for us today to put a number on that, because nobody would ever be able to find that in the P&L afterwards.
Okay, understood. The final question, just regarding the timing of the readjustment of the capital structure. Will you start that immediately, or could you start it immediately, or do you have to wait until you finish your current share buyback program, or what's the timeline here?
As I said, we've finished this one. We'll probably kick off another one in November under the safe harbor rules. When we've gotten into next year, we've done the annual report, and we have a very good picture of what's going to happen next year. We will then have a debate with our advisors if it's advisable to make a reverse auction, or should we just continue as is, and will we have enough capacity to adjust the structure during next year. That's really the debate that's going to happen. I think when we've announced the annual report, and we have sort of a more clear picture, we will be able to give transparency when it comes to that. In reality, it means the same. It's just some quarters of difference that we're talking about when we reallocate the capital.
What we would like to do is, we would like to interfere as little as possible with the way that the market works on a daily basis.
Great. Thank you very much.
The next question comes from Dan Togo-Jensen from Carnegie. Please go ahead.
Good morning, and congrats from my side as well. Getting back to synergies, could you maybe, if you quantify a bit?
Dan, we're having trouble hearing you.
Dan, have you not paid the phone bill? We cannot hear you.
Is it better now?
That's better.
Sorry. Okay. The four pillars you have for synergies, can you maybe elaborate a bit on where you see the most impact? That is on the four pillars you have on slide eight.
Dan, we can say something about, in general, of course, if you go below the GP line, then two-thirds or perhaps even a little bit more is, of course, on the staff side, and the remaining part is other external costs. Of course, if we should give you some guidance, I think I would just have to say, have a look at that and make your calculations.
Going back to UTi again here, because as far as I recall, you had an initial synergy target, and then you had this soft patch on top corresponding to around 20%. This is maybe the synergies that Jens Bjørn is alluding to coming afterwards. Could we expect, so to say, a similar soft factor here, i.e., around 20% on top, or how should we think about that?
I think, Dan, what you should expect is exactly what we have announced this morning and nothing more, nothing else than that. That does not mean that we will not strive for improvements all the time, but it's simply too early for us to say that you will see this margin uplift. We have said in the announcement that we have traditionally seen that the productivity of the company has increased after an acquisition because of the size we get. It's simply too early. It's day number one now for us, and we will, of course, along the lines, adjust the case if we see that it becomes different from what we have announced today. I think you should just keep it to what we have put out this morning.
Understood. Thank you.
Thank you.
The next question comes from Damian Brewer, RBC. Please go ahead.
Good morning. Well done on getting the deal through. I've got three questions, please. First of all, one, just housekeeping. Just on the dividend, the 15% payout of net profits.
Is that 15% all in, i.e., after special charges and everything else, or is that based on some sort of clean number? The other two questions. Historically, Panalpina had the dedicated air network. Could you give us your initial thoughts about what you can do with that, and whether there's great utilization and benefit you can get out of that with your bigger scale? If so, how that works? Secondly, although obviously you don't own very much, you're becoming a sizable real estate renter or leaser. Where are you on your real estate strategy, and given the greater scale of the business, particularly over the last three years, with Panalpina being added to it, what are you thinking about in terms of going forward there? Is there better consolidation to be done? Not just in contract logistics, but across the businesses.
I'll take, Damian, the question about the air network. It's correct that Panalpina, they are bigger in terms of volume than what we are in air freight. To some degree, but only to some degree, they are structured a little bit different to us, where they have a so-called charter network. That is correct. You shouldn't put too much emphasis on that. That is only, I wouldn't say a fraction, but a limited amount of the volumes that are from Panalpina that goes into that. Of course, this is the whole idea, as you correctly point out, that combining the two companies, you can utilize the capacity much better. I know this as an old freight forwarder, that when you get bigger volumes, you have the opportunity to plan the specific transport much better than you could if you did not have a large volume.
Of course, we expect that we will get some benefit from that, and we are also excited to get to know the capabilities of this network that Panalpina has built up. It's more structured than what we have in DSV with some gateways, and you need that because of the sheer volumes. I think if we plan this right, that I think there's a lot of opportunities here.
I think on the dividend side, we will make some adjustments before we make that calculation. Otherwise, we will have a situation where the dividend will fluctuate dramatically, and I don't think that's very productive when it comes to the way that the analysts, they perceive this. We will clearly make some adjustments and make the calculation so that we have a more steady development of dividends. When it comes to the real estate, I think it's something that we've been putting a lot of resources into in DSV for years, because we believe that it's very important that we sit in modern facilities and that we consolidate our activities in these facilities. Panalpina volume or the combined entity going forward will continue down that path. I think that there's really no major changes to the way that has been operated.
We just get more volume to work with, and therefore, we are probably also a more attractive partner for our counterparties.
Okay. Very clear. Thank you.
The next question comes from Neil Glynn, Credit Suisse. Please go ahead.
Good morning, everybody. If I could ask three questions, please. The first two, both on integration. Firstly, I guess it seems quite a positive that Stefan and Robert will remain within the company, or at least on the integration committee per the announcement this morning. Is there any specific timeline envisaged that they will remain within the company? Interested in your thoughts on that at this point. Second question, more housekeeping. You've obviously touched on the SAP, the lack of future for SAP TMS within Panalpina in the future. Can I confirm that your integration costs do not include a seemingly likely write-down of the SAP spend to date? If you can give us any kind of feel for how large that write-down might actually be, that would be helpful. A third question with respect to potential future buybacks.
Whatever form any equity repurchasing might take, are there any provisions to prevent the Ernst Göhner Stiftung stake rising appreciably over time? I guess if they weren't to participate in those transactions, clearly if you're buying back stock, that stake could rise quite significantly if you look out a few years.
I'll start off, Neil. If you look at Stefan and Robert, as you say, we are extremely pleased with the cooperation we've had. They've been super transparent and open, and they've really helped us to prepare the integration so far. We are very pleased about the fact that they can, and they have expressed a willingness to stay on the integration committee. They've given us a lot of valuable information, they, of course, for obvious reasons, know the companies very well. They've handled it in a professional manner, and we expect to be able to exchange information in the period to come. How long that's going to be, we have not defined that. They will stay on the integration committee as long as it is needed and necessary.
In a way, you can say a lot of the work has already been done for the integration committee, but there's still a lot of information that needs to be exchanged. It's also maybe important to stress that the tasks and the job of the integration committee is to draw the bigger lines, so to say. The integration committee is not going to get involved in a very local, what you say, decision about what's going to happen further down in a particular country. It's a couple of top layers of the organizations that they will be a part of. We are super pleased about the fact that they are a part of the team going forward.
I think if we look at the SAP and the housekeeping question, I think Panalpina have already written down most of their investments that they have made on the IT side. Let's say there are investments still left, and they're minor, and there will be some system that we don't need, then it'll be part of an opening balance discussion. We will write it down, and then it will turn into goodwill. The money they have left when it's sitting in the balance sheet, so that's gone, whether we like it or not. It shouldn't really mean a lot. I think with the buyback and the Ernst Göhner Stiftung. I'm not an expert on the Stiftelse, but I see that they do actually allocate a significant amount of money to different projects every year.
It's probably not going to be sufficient for them, without me knowing, just to rely on the dividend because it's somewhat lower than what they've been used to. I would have thought that they would have a plan where they would keep a certain shareholding, and they might then, over time, decide to sell a few DSV shares. Otherwise, they would, as you mentioned, perhaps increase in size, but it would be a while before they would reach the 15% mark. We would like to buy many shares buyback, but it'll take some time. We will do what we can if they stay on to make them a 15% shareholder. We can promise you that.
I would also maybe, if I could just add something, I wouldn't be too, if that was the question, afraid, so to say of that. They are extremely supportive. They are happy about the transaction. They are very excited to take part in the future value creation. We have discussed that a lot with them in the initial phase. They are fully committed to the strategy of DSV, and they are supportive, and we look forward to seeing them in the boardroom of the combined company also.
The next question comes from David Kerstens, Jefferies. Please go ahead.
Good morning, gentlemen. Congratulations with the completion of the Panalpina takeover. Two questions, please. First, on the target for EPS accretion by 2021, is it fair to assume that that is consistent with value accretion in the same year as well? To what extent is value accretion dependent on refinancing the balance sheet after the 30% capital increase? What is the hurdle rate you would be using in that analysis? The second question is regarding the addition to the road business complicating the modeling a little bit. Maybe can you provide a bit more clarity on where that business sat within Panalpina and how profitable it was? I didn't exactly hear the comments you made in the opening remarks. Thank you very much.
I think if we look at the calculations and the value accretion, of course, we've made our own assumptions when it comes to realization of the synergies and the business case overall. I would say that I think we will leave that for now until we come to November. We do feel comfortable with the information we have internally that we can deliver on the accretion in 2021. When you prepare your model, I would tweak it in such a way, if you believe in us, that it would also be accretive in 2021. You have to make it, of course, dilution-adjusted so that you take the, of course, it doesn't include special items and stuff like that. That's a little bit on that. When it comes to the road volume, it's of course based on what we have seen so far.
We've not been able to go into great detail on Panalpina. They have split it a little bit different, so they do handle certain road volumes of what we consider to be road volumes in their contract logistics division, and there might even be certain volumes also within their freight forwarding. We will go in and have a look at that, and we cannot be more specific than what we have been so far because it depends on what we see in detail.
What I did say at the beginning of the presentation was, with the knowledge we have right now, it looks like it could be in round numbers, DKK 2 billion Danish kroners turnover, in addition to the road division of the combined company and DKK 2 billion to the solutions division that we have coming from the contract logistics division of Panalpina. We know, and we apologize for that there will be a couple of quarters where numbers needs to be aligned. We are committed to making it as transparent, as open, but there needs to be a realignment of principles and ways of booking different costs in the system. We will come back to that as quickly as we can.
Understood. Do you have a sense of the profitability of that DKK 2 billion in road business that will enter the Road Division? What is the best assumption to make there?
Actually, the GP looks fairly okay. EBIT may be not fantastic, but it's something we need to work on. We don't have a full overview of that for the time being.
All right. Thank you very much, gentlemen.
The next question comes from Finn Petersen, from Danske Bank. Please go ahead.
Yes, good morning. Congrats with the deal again. You normally talk about loss of revenue around 5%. I wonder what you have put into your calculations here. Secondly, now you have been cooperating with the previous management of Panalpina and been through discussions and reached the synergy number. What kind of surprises have you seen so far, positive and negative, in the process?
I think the loss of revenue, we typically put a high-end number into the business case of 5% and with a lower GP margin, so it probably accounts to 3% of EBIT. Typically, that we see that on these small marginal contracts, we have to find a way forward. That's sort of what we put into the business case. When we look back, we've probably done better than that, but better safe than sorry. I think when it comes to synergies, and where we are at right now, I would say that it's been a process that has sort of been without too many big surprises, as you allude to. Panalpina is a well-organized company. Therefore, there's a lot of transparency, great detail in the numbers, good overview of all the things.
If you look at the reporting of Panalpina, you also see no surprises, at least for the last long period in time. I think it's been a steady process and without too many surprises of magnitude or actually without any. Nothing really comes to mind.
Okay. Thank you.
The last question comes from Aymeric Poulain, Kepler. Please go ahead, sir.
Yes. Thank you. Good morning, everybody. I have got two questions. The first one is on the consolidation of Panalpina. Can you confirm it is going to be consolidated as of Q4? If so, should we use the current consensus numbers? I think it is CHF 140 million EBIT for the year and about CHF 40 for Q4 as a starting block. I am talking Swiss franc, obviously. Secondly, you did not give an indication about the phasing of the special items, and also the payback for this restructuring effort. Could you give us a bit more indication about how the DKK 2.2 billion splits between Q4 2020 and 2021, please? That would be helpful.
I think if you take the consolidation of Panalpina, I don't think we can be allowed to wait until the 1st of October. It will be consolidated from the 1st of September. It will impact the Q3 result of the combined entity. The income that I would use is, I would probably look at what was accomplished last year. I think this has also been the performance of Panalpina so far this year. That was probably what I would put into my spreadsheet. We have not said anything about it, and we're not going to until the Q3 announcement. When it comes to special items, as I said, we will also say a little bit more on that on Q3 because we need to go out to the countries and have the business case agreed with them.
We will need to do that work before we can be specific. Again, you need to make a spreadsheet. I understand that. Have a look at what we said initially on UTi, and you'll probably not be too far off.
Have a look at that and don't expect too much to happen here in 2019, because this will be a lot of planning and a little bit of execution only.
Perfect. Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back to Jens Bjørn Andersen for closing remarks. Please go ahead.
Yes. Thank you. Thank you everybody for listening in. Thank you for coming up with all the good questions that you came up with. I hope we have been able to answer them to your satisfaction. If not, you're always welcome to contact us or our IR department, as you know. We are extremely excited about the task that lies ahead of us. I know there could be a few DSV and Panalpina employees listening in. To the Panalpina people, welcome to the new combined company. We are super excited. Also to the DSV people, please embrace your new colleagues. Together we will achieve a lot. This company will hopefully be extremely successful going forward. Really appreciate everything that's been happening so far.
We will get going with the integration work now, and as Jens Lund said previously, we will come back and announce the Q3 numbers on the 1st of November, and we look very much forward to that. In the meantime, take care and goodbye here from Basel.
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