Earnings Call: Q4 2018

Feb 7, 2019

Ladies and gentlemen, welcome to the DSV annual report 2018. For the first part of this call, participants will be in listen only mode and afterwards there will be a question and answer session. Today, I am pleased to present CEO Jens Bjorn Anderson and CFO, Jens Lund. Speakers, please begin. Morning, and welcome to this conference call where we will go through the full year results 2018, of DSV. We have a presentation available for you. I'm sure you can find it online. And then as we normally do, Ian Plunken, myself, will go through the presentation and we will try leave plenty of room for Q And A afterwards. So on page number 2, please take a moment to study the forward looking statements after you have, studied those, I'll direct your attention to the agenda, which you will find on page number 3. We will start off with some highlights about the year and Q4, go through the 3 divisions. Then I will ask Lynch Lawton to go through the financial review, the outlook for 2019 and also to go through the, some revised financial targets that we have published this morning. So on page number 4, you will see what I will Scribe as a Goat result. And those of you who know the term will know that it means greatest of all times because this is the way we consider the results. We have significantly improved the earnings compared to to previous years. Overall, we managed to grow the earnings before special items with 15% taking the EBIT result now to 5,450,001,000,000 we consider the numbers quite strong. We have seen a good development on gross profit in all the 3 divisions. And in the last quarter, we have seen EBIT growth also significantly in both the solution and R and C divisions. The adjusted free cash flow was, totally as expected. But we did an extraordinary contribution to a pension plan in Sweden of about SEK 250,000,000 at the end the year. We did not know if we would manage to do that in 2018 or 2019, but we managed to do that in 2018. As you are pretty well aware, you have seen our company announcement also from 16th January where we informed you about a private proposal we have made to acquire Panalpina. This is a substantial step for us is in case we succeed, it would be by far biggest acquisition. We take it extremely serious. We spend a lot of time on that. But at this moment in time, we have no further comments on the offer and I will repeat. We have no further comments to the offer. So I think we will go, of course, staying on page number 4. I think it's also quite okay for us to be able to say that the return on the invested capital before tax amounts to 26 0.7% for the full year 2018. I think that's something we can be pleased about. Page 5, R and C, I can repeat myself from previous conversations we've had, another rock solid result, very, very strong performance. We have seen a slight decrease in the volumes on the markets in which we operate basically in air freight. But if we start, and look at the commentary, we say that we have 5% growth in air freights. Which is much better than the market. Now we talk about Q4. The market grew 2% and for the full year, we've grown the number of tonnes, 8%, which is twice as high as the market growth. It's mainly driven by growth in export from Europe and from the Americas. When it comes to sea freight, we've seen a growth of 4% in Q4. And also here, we've seen a stable yields We've seen also, which we're happy about improved market growth on the trade lanes from Asia to Europe, which earlier in the year, had a slightly negative growth rate actually. All this means that we can see a significant growth in GP of more than 10.4% which we are extremely happy about. You can also see that it has a positive effect on the conversion ratio, which for the quarter, lies around 39% and for the full year, 40% compared to 37% 1 year ago. Page 6, it's the yields. Also fairly stable. We are pleased about the yields. And then if you are to do some forward looking calculations or modeling, We would advise you maybe a good way would be to use the average for both air freight and sea freight. We see no risks of any imminent material and deterioration of our yields. Our expectation is that the yields going into 2019 will stay more or less at the level they were in 2018 if you use the average for the full year. Then we go to Road. We have a underlying full year growth of 4.5% in gross profit. And 8.2% in EBIT. And that is when you adjust, and this is the last time we're happy about that, that we're going to talk about it. But when you adjust, for the 1 off gain of 1,000,000. We had 2 years ago in Q1 2017. We saw a volume growth of 2% in the quarter and 3% in the full year. It's more or less in line with the estimated market growth in the quarter and for the year. The division is focused on absolute GP rather than volume And we have said goodbye to a few, not so very profitable customers. We're happy about the conversion ratio. It's at 21.6% for the full year. We have noted that, that, some of the analysts have had slightly higher expectations for the road division. We have flagged this morning that one of the reasons that we feel maybe slightly below some of your expectation is the fact we had to book approximately DKK15 1,000,000 as a cost in the other external cost line related to some teleportation costs that we had on some property. We vacated in Ireland Normally, this should never come as a surprise to us. And this is not what we expect also going forward. We have very strict procedures, but then they had slipped through the very tight controlling system this time. And we, of course, are not super happy about that. But it's amounts to approximately 15,000,000 DKK in Q4. Last slide before I hand over to Jens Lund is the Solutions Division on page number 4. I think, again, very strong result. Top line has grown tremendously, both by retail and also by e commerce. And actually also, we are doing fairly well when it comes to to auto Automotive. We have 6% new warehouse capacity added and also a 9% increase in the headcount simply due to higher activity. The earnings growth for the full year is formidable. We have seen a 44% growth in EBIT for the full year and 20% for the quarter. We did see already a pickup in the EBIT at the last part of 2017. Hence, we don't see the same growth rates in Q4 as we see for the full year, which is absolutely no no surprise for us. Ins division. And we believe that they can also continue to be a very important to EBIT on a stand alone basis in DSV. With these words, Jens Lund will start on page number 9. So, Jens. Thank you very much. Thank you. If we look at the overall numbers, 1,000,000,000 in revenue for the full year and 'twenty one in Q4. So definitely 10% growth in constant currencies. And on group level, the GP also up to 1,000,000,000, which is a growth of 10% on a group level as well. The EBIT grew 1,000,000,000 or came to 1,000,000,000 with a growth of 12% so the marginal conversion ratio also up. But I think some of you have rightfully pointed out that we've seen some extra high cost in the Q4 and perhaps also some cost shifting from one line to another. I think it's worthwhile mentioning that we have in sourced certain IT jobs that we had outsourced before. So they've moved from other external expense to staff costs. It's, on DSV level, perhaps not such a big deal, but it is some money, anyway, that we are talking about. We've also had a significant cost in relation to the IFRS 16 implementation, where we have spent a lot of resources to get this right. We have evaluated more than 20,000 contracts taken more than 8000, I think 8000 or 9000 into our system. And it's been quite a cumbersome exercise that has caused us significant resources. I'll also say on staff cost line that because the share price have come up, the value of our share based incentive programs in general, add some extra cost on the salary line. So not all the salary increase is necessarily due to more headcount all increased wage pressure, but also due to the fact that we allocate a larger value in stock options than previous years. So I just want to point this out to you as well, but still marginal conversion rates are up. So we are still keeping tight control over the costs. When we come to the financial expenses, There's been an FX loss in Q4. Now we've seen quite a few gains throughout the year, but in particular, the dollar has weakened a little bit. And that's sort of led to this situation. So tax for the period, not much to say about this approximately 23%. And we've guided also 23%. So I think we are good on this. We will skip to the next slide, which is the cash flow. And I think, as James Bjorn said, we made an extraordinary pension contribution this could be considered, I guess, if you take the pension deficit and calculate it as debt as a repayment of debt, but it's booked in another way in the cash flow statement, namely as a change of provision. And that's the reason why it's sort of impacting our free cash flow. So we're adjusting for this. We are more or less spot on the guidance. Some of you have said, did you know forehand and there's been quite a few questions surrounding this. And it has to go through an approval process with the authorities before we can do such a thing and establish a fund like this in in Sweden. And we were good to go, and then we had to execute on it. So that's not necessarily something that is entirely in our hands. Then I would like to point your attention on Slide 10 just to the average duration on our debt, which is 3.2 years. We've actually refinanced our sort of normal revolving credit facilities this year. And they come in a typical tree plus one structure. So it means that we can keep the duration around the 3 year mark, which is very comfortable given our leverage situation. I'll also point just to one thing more, which you will have to take into consideration. And that is, of course, that the target gearing ratio going forward will be less than 2 times EBITDA The reason for this is, of course, the implementation of IFRS 16, where we will take our off balance basically debt position and book it in our balance sheet. So going forward, less than 2 times EBITDA, And I think we're in good shape when it comes to this number. If we shift to the next slide, number 11. We have realized 1,000,000,000 Tkk in operational result. And if we then look at our guidance, we have guided between 2% 9% growth. We think it's a situation where you cannot predict what is going to happen in 2019, there's quite a bit of uncertainty. So I think we can all agree that the full range can become relevant. Bit higher or lower because it always depends on your collection up till year end, but 1,000,000,000. That's the number we go out with. Tax rate, basically 23%. And I think that's a little bit there are some assumptions below, but I don't want to comment them. However, go to Slide number 12, where we can see the IFRS 16 calculation in a little bit more detail And actually, we have also added another slide, I think it is in the appendix where you can get it a little bit more granular per division as well so that you know what to work with. But overall, should perhaps say that we will, of course, increase our EBITDA quite a bit because we will have to move some of the costs that we have incurred to all the lines. Normally, we take the property cost as cost of operation, but now it moves into amortization, depreciation, at least the bulk of it. And the financial cost will go to the financial items line. So definitely more EBITDA, but we will also see an increase in our liabilities. So that's the other factor and Yulin have to get used to. We still consider ourselves as a light and the way we year, the company should be more or less the same. But of course, the balance sheet will look a little different. The financial targets on Slide 13 have been adjusted accordingly. We've tried to keep the 2020 targets and revised them a little bit for IFRS 16 impact. I think the only debate that we really had is the road seems to have been revised down, but we would like to have a joint target for road and solutions on the conversion ratio. So we've found this compromise. So before we get into the nitty gritty, that's sort of the argumentation behind this I think apart from that, we continue to work towards these targets. If we move to Slide 14, you can see that we've actually taken the 2008 number and calculated our compounded growth rates on. It's probably the worst assumption you can use. So you should have used the 2009, but it seems that then it's more than 20% And we can't have that. It seems as if it would also be wrong perhaps to use this year, as the calculation. So 14% growth in Eps is still something that we're very satisfied with And after all, this is what you are looking for as a shareholder, more income per share. And With that, I think we will go to Slide 15 and open for questions. So please dial in and ask There will be a brief pause where questions are being registered. And our first question comes from the line of Damian Brewer from RBC. Please go ahead. Your line is now open. Hello, good morning. Two questions for me, please. First of all, both focused on the road business, but on the road business, could you elaborate a little bit more on where the regional variations are and in particular, where the deviation from the median conversion ratio has expanded. Or contracted across the business in Q4 when you look year on year? And then secondly, looking sort of into 20202021, Can you talk a little bit more and update on the road transport management system? How the pilot's going? Where do you see full rollout? And when does it have the sort of critical mass effect that one would expect? I think I'll take that. If we take the conversion ratio, it's clear that we've had a few disappointments here in Brion did already mention one of them. I think that we have some of the also there are some markets where there's a little bit of concernunrest. If you go, for example, to an area like Turkey, could be an area where we've also had a few challenges. And Then I would say that there are certain economies in Europe that have shown a bit of weakness as well. This is also visible in our figures. Could be more in larger economies such as Sweden, Germany as well, where there's a lot of capital goods being produced So you do see small impacts of the finished, I guess, that you see in the media as well when it comes to this. Then I think on the IT system, we've done the 2nd pilot in 20 'nineteen, our 'eighteen on the IT platform, and we now have what we call the business blueprint in touch set format that it's actually more or less completed. This means that we can now go into a phase where can do the final configuration and pilot this as well. And if this works out fine, we can start the rollout. So it's been a cumbersome exercise where you do the quote, the booking, modules, and you will do the the mobility track and trace solution as well as reporting and other stuff as well. And I think that it's cumbersome, but we take small steps all the time, and it's surely moving in the right to rigs Road needs a new IG platform in order to be able to scale to the extent that we need in order really to make a big step in the results. So I think we are a good way forward, but there's still some ground to cover. Our next question comes from the line of Andy Chu from Deutsche Bank. Please go ahead. Your line is now open. Good morning. Two questions, please. Firstly, on just following on from road and just to sort of, just drill down a little bit why you feel comfortable with that 2020 guidance. You obviously mentioned some sort of economic impacts and, yeah, I think the world feels a little bit of a the place from a European perspective in terms of the macro. So why are you keeping that 5% margin target and why do you feel comfortable around that? Secondly, around the sort of working capital debtors, I think there's a new table in your annual report around sort of age debtors. And I'm just wondering if you can just clarify in terms of sort of overdue debt as sort of more than 120 days. It feels like you've got a carrying amount of 312 1,000,000 Danish krona and a loss allowance of 120,000,000 for this year. It feels like quite a large number versus last year. We had slightly different reporting of of 12,000,000. So I just wonder if you could just thrash out whether there might be any risk or some sort of a age debt as as you look forward into next year? I think the road target is it's CNC again. I will answer this one. It's actually it is patch revised a little bit down if you really look deep into it because we have a target of 5%. We get some help from the new IFRS 16 and now it's still 5%. So, I think you could read into this that we have lowered a little bit at least that's what we would like you to within tourism. If we look at the trade details, I think that we are well covered when it comes to provisions. We've seen slightly higher losses, I think, in certain areas. And I think in many of these uncertain places, you do face a bit of risk, but I don't think you should expect any sort of big deviations when it comes to lawson traded us not right now, at least. So, I think that's what I can say to that. And just on the road, just reading into sort of the IFRS 16 impact, but obviously nothing in terms of the IFRS 16 impact obviously then, if you've got some impact from Air And Sea, the same impact for Ryads, you're saying we shouldn't read anything into that in terms of the revised targets for 2020, which would make sense. And then just in terms of road, reading the sort of 0 to half percent, you're sort of saying that reading into it the nitty gritty sort of 5 becomes 4 a half. Is that right or maybe 4? Is that is that the right reading and what range? No. It's probably if you stick to the 5 and you take the middle of the range, you'll probably downgrade it with 0.25% or something like this. It could also be 0 point 3 or 0.2 or whatever. That's the way that I think you should read it. And do you think be fairly linear to get, I mean, it's pretty difficult to tell, but do you think it'll be linear improvement in margins from your sort of 3.7% to your 4.74.75. What we have to look at is it's a target. It's an aspiration that we work, toward than depending on how much progress we make on the IT. It's not necessarily that we will become suicidal if we make 4.5% and we have to ask for a couple of years to get to the 5% target. We know we will get there once we have the IT There's no doubt about it. But we have a lot of focus points, I guess, as you can imagine, and a lot of things that we work on So we do allocate certain resource to Road, but they don't necessarily get all the attention that we have. So we try to balance this and then we will also, of course, stand accountable at the end of the day. Our next question comes from the line of David Kerstens from Jefferies. Please go ahead. Your line is now open. You. Good morning, gentlemen. 2 questions, please. First on solutions. If you look at your automotive customers, they sound increasingly barriers with regard to the outlook for 2019. And you still call out Automotive as one of the key growth drivers and solutions to what extent the to continue to be able to grow with your existing customers this year? And secondly, regarding solutions, do you see any potential impact, ahead of, ahead of Brexit from, from record stockpiling in the UK, do your warehouses have sufficient capacity available to benefit from this trend? And then second question regarding your yields in Air And Sea Freight, you highlighted that you are very confident that there will remain at current levels and you highlighted the increase in Q4. And I understand that it's reflecting a tight capacity situation in the prior year quarter. But, to what extent is to get with your peers, structural, or is that something that that eventually will close over time? Some more comments on that would be very useful. Thank you very much. Yes, you're right. I'll take this solutions. If we're big in automotive, it's a big, what you say, vertical for us. When we are optimistic about, automotive, It's got to do with the fact that we are taking market share. We're growing with new customers. We're growing with existing customers. And that clearly offsets any negative if we should see a negative development on the current trading that we are doing with a particular customer? I personally went down to see an unnamed automotive customer not very long ago. They told me that their total turnover, their total spent on transport on logistics was 8 1,000,000,000. It's a very, very large customer for us, but we are very, very small supplier to them. So if we can just grow a little bit with a customer like that, we are safe. We have capabilities. We have an interesting for these type of customers and we are growing with them even though the customer in itself might not see the world as very right now. So that's some of the reasons that are behind the fact that we are optimistic. Also remember that even though the I don't know how to explain that. Even though the sale of ready made cars might not be super positive, the supply chains are still becoming more and more complex and that drives volume growth for us. So even if there's no growth in the number of cars, which are being sold, because of of the complexity of the parts that goes into production, we could actually see a positive development. Then when it comes to Brexit, I mean, I think we have the necessary warehouse capacity. We've worked very, very close with our customers for the last 5, 6 months. But depending on the outcome, of course, we are not in a position where we can guarantee a full and seamless operation It's, if it becomes a no deal scenario, of course, this is also what we've said to customers, they should expect some sort of disruption in their supply chain. That is the case. We have been very close to our customers customers, they have separate issues with this. Some customers don't really have any problems with it. Some customers, they might have chosen the Duke K as a European distribution center. Of course, we are helping them to move what you say that products outside of the UK right now and service Europe from maybe the Benelux or Germany Others have the reverse problem. So it is a complex situation, but I think we have a fairly good grip on the situation. When we say that the yields in ERC, are stable is based on the knowledge we have about the market right now. I don't think there's any structural changes to the yields. We can come back to this again and again, but please do bear in mind that a large proportion of the GP is that comes from the what we call some of you guys call added value services. We do the non freight related services, and they are really stable. So this is what makes us comfortable that the yields can be stable. They cannot be rock, rock solid stable. But if you take the average for the full year, that probably fits well into what we expect for the year 'nineteen also. Thank you. Our next question comes from the line of Marcus Belander from Nordea. Please go ahead. Your line is now open. Thank you. One question regarding your acquisition strategy. In the past, you've mainly made friendly takeovers, but likely, you've you've launched 2 hostile bids during a pretty short time period. What's the reason for this change in how you go about making acquisitions? We don't consider, I would say, the last 2, if you elude to the CEVA case and the Panalpina case. We don't necessarily consider them a hostile approach a true hostile approach would have been very, very different from what we have done. So you shouldn't read too much into this as know really each transaction has its own characteristics, and of course, the way we approach the the target is, of course, based on a conclusion from very thorough was to say analysis on each target. So we don't consider them really hostile as such. Our next question comes from the line of Neil Glynn from Credit Suisse. Please go ahead. Your line is now open. Good morning, everybody. If I can ask 3 questions please. The first one, Jens Bjorn, you touched on value added services a few minutes ago. Just interested as Global Trend becomes more complicated. Obviously, there's volume questions, but is this also providing more opportunities for you to secure more value added services, for customers needing more solutions? The second question, I think it's the 1st year on year growth in headcount and Air and Sea since the UTI deal. Just interested in the outlook for 2019, particularly if the market growth is slowing, how many people do you expect to add within air and sea based on your current view of the market in 2019. And then finally, again, because you've obviously newly expanded the business. And I'm just interested in your, your approach to managing the top line with a bigger business? How does that influence how you act in a potentially soft market? And then added to that, you've integrated businesses in tough markets before. But is there an argument that big M and A in a deteriorating environment may actually heighten the risk to the underlying business? Just interested in your thoughts on that. Yeah. About the value added services, some of them are really what we also internally call VAS or value added services, mainly in our solutions division, that's a big need for this from our customers, it goes from very simple operations to put a label on a particular product in another language, if there's good are going to be sent to another country to very sophisticated services. There's no doubt about the fact that If you compare an invoice that you received from DSV today compared to 5 or 10 years ago, it holds more line Now we do offer more services to our customers. They are outsourcing more and more of their operations to us and they ask us to do more and more A lot of customers don't see transport and logistics as their core competence. And if they can ask us to do it, they will do that. So that is also something that we expect to, to, what you say, be able to continue growing forward. I think, Jens, you had a point on the headcount. Maybe you can talk about that. Maybe also a little bit about And maybe I could just elude a little bit to the last question. I mean, managing the top line and integrating a potential is hyperphysical. Of course, company in a difficult market environment. First of all, I don't think that we will get into a similar difficult market environment as we on 20,89, when we integrated ABX, but it's a it will not make it more difficult for us to kind of integrate the company. I don't see that as a problem. And then when the top line, of course, we will continue to expect growth above market rates also going forward. But as you have seen in the past, and we can reiterate that statement many, many times, again, that at DSV, we we favor profit over growth, not growth for the sake of growth. We need profitable growth This is also why you would probably see slightly lower growth rates than what others can show to, but you will see that we have managed to protect the yields And hence, we can grow the absolute GP and also the EBIT consequently. But, Jens, maybe you wanted to talk about the numbers. I think if we look at the numbers The headcount, I think, in 2016, we were 1900 in ANC and still taking cost out in relation to the UTI transaction. What then happens is that there's a trough I think we reached that at Department of 2017 with just a WISCO over 12,000 headcount and now we're 12,100. At the end of 'eighteen. And I think the way you have to look at this is we grow our GP quite significantly. I think we are up in almost 10% in constant currencies, a little bit absolute figures. So of course, you would need, at the end of the day, more hands, you have rightsized the business. Now you'll come into the growth, but the marginal conversion rates on such growth has historically always been high and higher than our target. And I think that's the way you look So if we manage to drive the company forward, we will need more hands, but it will still be, at a very efficient pace. So we've now rightsized, we can grow. We will increase the hit account in with our growth perhaps at a little bit more efficient sort of, per FTE than what we have in our numbers right now. And I think that's very important going forward. If I could just follow-up on that. I just wanted to be clear. Is there any difference in terms of how you're planning headcount this year? You haven't given me, I guess, a number in terms of potential growth you might see in headcount in 2019, but are you taking a more fluid approach because uncertainty or is that just because you, you don't want to give any number at this point? I I it's it's not the way it works. I don't have a number. I can I I it's each country, each small business unit has a target for 2019 in terms of growing his earnings in absolute terms? So that is the EBIT. He will strive whatever go through whatever he can to achieve those numbers. And that would also mean that if volumes are not picking up significantly, he will not add headcount to the organization. So if we go into a modest growth rate, I would be very, very surprised if we see a growth in the headcount. And if we were to see that, I'm sure Jens Lunden and myself, we would what we could to kind of guide the organization in the right direction. But it is not our expectations that that headcount will grow. We will still see a good impact from the incremental conversion ratio that we hopefully will see in 2019. Depending on where we are in our guidance, there can be different numbers. It's not so that we say hire 200 people to the division and then see what you can do with them. It's the other way around If there's more work, of course, they will need more hands. And I think that's the way you look at it. Our next question comes from the line of Lars Hindov from SEB. Please go ahead. Your line is now open. Good morning. Two questions from my side, please. Firstly, regarding roads, I don't know if you can give us an of what kind of improvement in gross margin you expect from the rollout of the IT system, if any, over the next couple of years? That's the first one. And the second one is regarding the net working capital. If you go back some years, it was close to 0. I know you've been doing acquisitions and the market have changed but I can see some of your key assumption on Page 13 in the presentation that you have assumed networking caps are around 2%. Is that something which has been sort of changed? Or are you no longer have any ambition of of of reaching and network and capital below that level? Thanks. I think we take the network and capital first. I think it's also a question of business mix, if you look at it and see they don't consume a lot of investments in fixed assets and some stuff like that, but they consume more working capital. So now that AirNC is a larger proportion of our business, I think that's sort of the main driver between behind this development. So as a consequence of this, the target is 2%. We used to have a target of 1% which to rightfully point out. And of course, then depending on how year ends out, of course, it can be a little bit more, a little bit less. That's very hard to predict given the volumes that flow through our system. When it comes to the road division, I think there's both a business case for being able to plan better. And this should increase the GP. It's very dangerous always to have 2 big aspirations on the GP because it means quite a bit on the numbers. Then of course, there's a productivity point to it as well. So if I was sitting there with your calculation, you would expect us to get something out of our planning tools and capabilities so that we can utilize the capacity better And that could perhaps be sort of half of the change we need in order to reach our financial target. And then the other one would on the productivity side where we simply need to increase the productivity now that we got better to or will get better tools in some countries. We already have some of the tools implemented, for example, quote tool and mobility. And here, we already see it's sort of starting to take off. We launched my DSV as well, a new booking platform that also helps us on the booking quality So we are slowly facing some of the tools and they should then help on the number of people that have to sit and do manual work today. Because the quality of the data is too low. I don't know if that helps you, but that's sort of the plan that we have. Thank you. Our next question comes from the line of Casper Blum from ABG. Please go ahead. Your line is now open. Thanks a lot. Two questions from my side as well. First goes to solutions where you can say that my impression at least is that the growth you're achieving here seems a bit disconnect disconnected from sort of underlying trade growth. Can you give any sort of guidance to what level of growth would satisfy you in both in 2019 and maybe also in the years to come? And then secondly, within Air And Sea, I think if we think back a year, where and back to performance in 2017. When you guided for 2018, you sort of hinted that you had a couple of new contracts already signed that would start helping you in 2018. Have you got any of those sort of hidden tricks up this leaf looking into 2019? Thanks. Yes, thanks for reminding us. I don't really seem to recollect that we had any ages of our sleeve one year ago, but I'm sure you're right. I cannot say that we have anything material, which will impact us, we expect that the AirNC will continue to show a strong performance They are a strong organization. They have good margins. We have excellent service. The customers like the mix between our entrepreneurial, more hands on approach and then our new renewed size also. So I think the table is set for another good year for 2019. It doesn't come by itself. There's a lot of hard work that needs to be done. From the guys and girls out in the organization. But they are up to it, they are forward, and I'm sure that they will they will, they will set new records also. Then when it comes to solutions, you're right, it's, of course, we need to, kind of kind of be realistic and say that we cannot continue to see the growth rates that we have seen for the full year, of course, 2018 we've grown the earnings, as you saw, from 500,000,000 to 700,000,000. It's 44%. So we will see we are likely to see more modest growth rates, but I still believe that we will see certain momentum. And I also actually believe this is a positive notion some sort of disconnect between the earnings and the growth in the economy around the solutions in a way where we will see more EBIT growth and then what you actually could expect when you look at the economy in Europe and then and in the U. S. Where we mainly do the contract logistics. I actually also now in Asia, I should not forget those guys. Okay. It just to get a little bit of flavor here, would it be fair to say that that you would also be expecting double digit EBIT growth in solutions in 2019? I guess we can sneak us up to something close to double digit. That should be possible for the Solutions division. Yes. Our next question comes from the line of Edward Stanford from HSBC. Please go ahead. Your line is now open. Good morning everybody. Can I come back to net working capital? Clearly, you've mentioned in the statement that it was higher than expected and it's grown quite considerably in the Air And Sea division. Is Can you just give us a flavor of what the pressures are you're seeing? Are there any actions by competitors that causing difficulties in provision of working capital. And do you see any end to that or will it should we expect it to rise further as a percentage of sales in Air And Sea in 2019? And secondly, just coming back to the value added services side, is there anything strategically that you would like to add in terms of capability to what you already have? I think if we look at the net working capital, I don't think there's a it's It's a big theme for some of the customers that they get a certain number of days in credit. And then I think it's also become more outspoken that even if we have agreed something, then we don't stick to it. So that's sort of, I think, the trend, I think, us forwarders then have to look at the return on invested capital and make sure that when we allocate the capital, then we have to carefully evaluate if it makes sense to work for our customer or not. And that's some hard choices we have to make from time to time. And I mean, that's ultimately capital allocation at the lowest level. As you say to our customer, we can't create a return So our investors, they don't accept that we use capital for these things. We do this on a continuous basis. We have incentive schemes internally with net working capital charges for customers that consume high level of net working capital so that we make sure that the capital allocation is right. And I think that's what it's all about. At the end of the day, let's say a customer would want a very high level of credit as long as they pay for it, then I think we're all okay. If there's no credit risk. And it seems as if there is a trend, this is, sort of something that some customers strive for. I can't really see the point, but it's the market we operate in. I wouldn't that was part of your question that we see any irrational behavior amongst any of our competitors. It's not like we see a clear trend with longer payment terms. It's just this if slightly smaller customers might not might now ask for slightly longer payment terms And as you can say, the behavior is not improving. You can say, the outsourcing to payment agencies in different time zones can be also problematic at least in the beginning where things need to settle a little bit in with our customers. We try not to make that our problem, but if we like it or not, that becomes our problem sometimes, if you know what I mean. It has the highest focus. And every Danish kroner, we can improve net working capital be used for something else in DSV. So and everybody is aware of that. When it comes to the value added services, I think it's more a matter of using the best practices that we have in DSV, I don't really necessarily see that we, have lack No, it's a if there's a product out there that we don't have at DSV, but it's more like using more of the good stuff that we have some places in the organization elsewhere as well and use the capabilities that we have We have some best practices that we are rolling out and also some systems that we are more systematically now offering to the customers maybe what we did some years ago. Our next question comes from the line of Bruce Chan from Stifel. Please go ahead. Your line is now open. Yes. Good morning, gentlemen, and, congrats on the Goat results this year. Few questions from me, maybe one in each division. I guess, you know, 1st in Air And Sea, Jens Bjorn, you mentioned that, you know, the slowdown on the core Asia to Europe lane has improved in Q4 had improved in Q4. And, you know, I'm wondering outside of demand related factors, you know, we we talked about the possibility of some structural changes like with near shoring as, you know, contributors to that pressure. Do you have any more color commentary as you look back on, you know, 2018 as to what's or what had driven that slowdown. Second question on road, you mentioned some of the slowdown in 4Q commitments related to shedding some underpaying accounts. Do we have any more of that pricing action to work through, in 2019? You know, 3rd question on the solutions side, you know, e commerce has been growing quite nicely over the last several quarters. You know, is there anything inherent in that business that maybe makes it more challenging from a yield or margin perspective, as far as, you know, the head count or square footage requirements And then maybe one last one on the M and A, any changes in the competitiveness of the M and A market over the last quarter. So I'm happy to take those questions offline. Appreciate it. Yes, that's a lot of questions. First, Air and Sea, I mean, It's been a very volatile, very strange year in terms of volumes. Of course, we understand the reasons behind strong trend specific volumes at the end of the last year, of course, at the end of the last year. But then, I think it's got more to do with some, maybe destocking activities, which has happened. I don't we have really seeing the near shoring, apart from some high profile, maybe cases, is not a trend that we see. We do more see movements from within the regions, if you know what I mean? Some production have been moved out of China maybe to some neighboring countries which do not represent a problem for us. So I do agree with you It's been a very volatile year in terms of volume. And if you start to analyze each straight lane, we've also seen a lot of volatility on those. But overall, the year has been okay. We've seen growth and we also are we are optimistic that we will see growth for 2019. Road. I don't think I have not heard of any larger customers that we are sweating and it sounds so dramatic when we say sweating. It's not like we will go out and just terminate the contracts. It will always be on the basis of some negotiation where we try to increase the rates sometimes customers say, listen, we cannot accept that increase and then they will together, we will then agree that the customer should go somewhere else. So I think it is behind us. We have a good customer base now and we need to work on that in 2019. Solutions, you're right, e commerce. It's it's a product that probably carries a slightly lower GP percentage It's a lot of volume going through as probably also slightly more labor intensive. It's still very attractive because it grows so much. And it's not and e commerce for customers. So it's something that you need to add to what you're already doing. But it could over time, it's a good point, it could over time change a little bit the structure of some of the margins dilute there maybe a little bit in the Solutions division, but as long as the absolute earnings continue to grow, then we are happy with that. M and A landscape, I don't think it has changed a lot. There's a lot of, I mean, it's a topic you could talk about for a long period of time. I mean, people talk about vertical in creation. There's, I mean, we've seen some shipping lines going in during 2018. But overall, we still believe that the overall theme is consolidation in a fragmented industry. It will continue we would like to take part in this. And, yeah, I guess it's no big, big, big changes in the M and A landscape. Hello, Bruce. Are you still there? Thanks. Thank you. Our next question comes from the line of Maurice Pula from Kepler Cheuvreux. Please go ahead. Your line is now open. Yes. Good morning. Thanks for taking my questions. The main question I have is actually follow-up of the previous ones on the working capital movement. You, your guidance for EBIT show a DKK 400,000,000 Danish Kronal range and your free cash flow guidance is obviously a one number on the And that is despite your comment about stable gross profit per unit and an indication of the type of gross volume growth you would anticipate above, GDP. So I'm just curious, why is there a EUR 400,000,000 range in your guidance if, if you have some idea of the free cash flow. So what is the key swing factor here? Is it the volume you would expect from the kind of 1st half to second half? Is it cost growth? Some plans you have on that, that would be helpful to better understand the guidance. And that's pretty much it for me. Okay. I think the working capital, you can have many assumptions into that. There can be a little bit extra investment as well that sort of fluctuates. There can also be some movements on the provisions as well. It doesn't necessarily only have to be if you look at the free cash flow guidance, the working capital. So in general, I've also think you have to look at the number, not like 1,000,000,000 and then 0.02. There can be a little bit below or a little bit above, but it's also very dangerous to guide a range when you look at the working capital because this includes all movements, both the operational and all the movements in the balance sheet. So we try to guide a number, and then we could write plus minus as well. But we like just to guide this number. This year, we were apart from the pension spot on. Some years, we've been a little bit above like last year. And I don't think you should read more into it you have to make your own assumptions when you make the spreadsheet. And I'm quite sure with the comments I give here, you will be able to to do so and make sure that, it all adds up. At the end of the day, let's say we make 1,000,000,000, we will then locate them in accordance with our capital allocation policy. And I think this will give a very high conversion ratio, which also what you would expect from a service company that we do convert the earnings we create into cash. But is this correct? To assume that the main sensitivity in your guidance has to do with the volume growth at this stage. And And if so, what would be your best guess of the pattern between first half volume versus second half volume? I think of course, it's the volume that is a swing factor in our numbers. We keep all the other assumptions then equal, but there can be changes in the labor market that we don't know right now, labor is, of course, an important component for us as well. So we take the assumption that nothing really material happens there when we make deposits. So you're right, it's the volume number. And right now, we take it basically month by month. We have seen it seems as if there was a bit of a sort of slowing down at the latter part of 2018. And we hope that this slowdown will not be too long. And then we might see that it takes a little bit up later on. It could also do the other thing. That's the reason why we've guided the range. Our next question comes from the line of Joel Spungin from Berenberg. Please go ahead. Your line is now open. Yes, good morning. I've just got three questions actually. So maybe I can just start off by asking just about back again on the working capital. And something I think we've discussed in the past, which is the potential impact of tariffs on Trans Pacific volumes. I realized Transpacific is not huge trade lane for you in your seafreight business, but has there been any impact in terms of tariffs and specifically in terms of cash and working capital at all as a result of that. Maybe you've given us around that would be helpful. And then second question, just in terms of your disposal of PP and E and the cash flow. I mean, obviously, the number for 2018, I think, was the highest it's ever been One assumes you sort of can't continue to do this forever. How should we think about that number going forward and obviously the contribution it makes to cash generation. And then finally, just to sort of relatively dull one, the D and A charge in the fourth quarter, I think was down by about 1,000,000 or 1,000,000 compared to last year. I was just wondering if there's any specific reason behind that. Because for sure that this is, these are very good questions, and they are for Jens Lundy. I think the networking capital, no way. We are small on the Trans Pacific. I know that there might have been some fluctuations for some of our colleagues that have a different exposure on that lane. It's still important for us, but are some players that are much larger than us. So nothing really specific on that one. If we take the PP and E I think if you see, we grow a lot in solutions. We put a lot of racking in to the warehouses. This is then what we put on to the books right now. We've then, as you point out, we also take out some different facilities, stuff like that so that we the fixed as we try to reduce them all the time. I think you can also see that in the notes that it gets less and less that we hold on the balance sheet of land and buildings. So I think that drives it a little bit down. And I think, if you look at the, intangibles, we do invest a lot in IT And IT Infrastructure will. So just want to cover that as well and say that this is, of course, part of having a high productivity going forward. So try to stay as low on the sort of tangible fixed assets and, of course, continue to invest in the intangible assets because this is basically something that increases our productivity. Can I just follow-up quickly? So just in terms of thinking about the going forward, the disposal of PP and E, there's no reason to think that number is going to substantively change going forward or that's the fact that you can't, under IFRS 16, obviously, everything has to be on balance sheet, change the equation in terms of of thinking about what you do there going forward? Yes. I think that we will split that out so you can see what what the IFRS 16 numbers are specifically. But of course, over time, when we get rid of all our sort of old school fixed assets, if we can call it that, then we cannot continue to under invest on that side, but it will take some years before we reach that stage. And Meanwhile, we continue to slim down our balance sheet as much as we can. And then we will isolate the the consequences of the IFRS 16. Inside. And then on the land and buildings, it's, of course, our terminals or warehouses and our offices that will sort of be booked under these But historically, we have had some warehouses and some offices on our books, and we now we are on the sort of direction where we slowly reduce this. I think it's easy to see if you go back also historically in the numbers, you'll be able to find this. Okay. And sorry, just to check very quickly, the reduction in depreciation and amortization in the fourth quarter is explained by what It's explained by that we have less of these fixed assets on our balance sheet. Thank you. Our next question comes from the line of Dominic Hedridge from UBS Group. Please go ahead. Your line is now open. Hi there. And just hopefully a quick one for myself. I'd I just noticed the fact that obviously in solutions, you've now more than 60% through the rollouts the warehouse management system, your new warehouse management system, could you just say, whether that's sort of fed to the, obviously, the profitability growth that you've seen? And secondly, just looking forward, how do you see that roll out being? What sort of the optimal level you can reach and be if they're further to come on the profitability side from that rollout? Thanks so much. Yes. I think now roll out 60%, as you say, onto our platform. It's quite a long journey to complete that rollout. I think it will take another 3, 4 years before we have done the rest of the volume. You have to remember that we are deeply embedded into our customers' ERP platforms when we do this. So changes are very cumbersome. It's right now, we have sixty people in the teams working on this year in and year out, changing the volumes. But it gives us better productivity because we can invest on our joint platform and better equipment, better tools for our staff so that they can have a higher productivity and also a better service offering for our customers, we simply can do more value added services for them. So I think that's also part of the says that we have in solutions, that we have this platform, basically IT Infrastructure will roll out that help our teams to become more successful. So there's definitely something to come out of that. Otherwise, we shouldn't invest. Thank you. Our next question comes from the line of Yerg Maier from NZZ. Please go ahead. Your line is now open. Hi. Just a quick one from Zurich. I'm listening to all your great results and talk of Goat and everything. I'm just wondering what is really the rationale behind, acquiring an auto company now? I mean, there's a lot of work you have to do the economy slowing. And now you want to burden yourself with possibly another big acquisition? What's really the thinking behind that? Yes, it's a good question. Now, you know, we don't go to work, not to ourselves. We like challenges and it's part of running a big company. Also, we are of the very clear understanding our opinion that in this extremely fragmented industry where the biggest players have only a fraction of the market consolidation makes a lot of sense. We have created value for all stakeholders every we have built or we have built a bigger company every time we have acquired one of our competitors. We've created value for shareholders for the employees long term and also for customers. We simply build a better product offering to the market than what we had. So the way we see it is at least from analyzing our own situation, today we are much stronger than we were had we not done the acquisition. So we would be stronger today as 2 individual companies would have been. So that is some of the rationale that lies behind the biggest players in the industry. They have a market share of 2% to 3% and the 20 largest they have a market share of between 30% 35%. In other industries, you will see one market leader having a similar markets here. So this is some of the reason that lies behind. You're right. You could debate about the timing of it. I think it's, it's, there's nothing wrong with any timing and right now is as good as moment as any moment So, we have previously done acquisitions in times of uncertainty and also of times with high growth and economic growth and both have actually contributed to a successful development in DSV. Thank you. And that is the last question that we have in the queue. So I'll hand the call back to you speakers for your closing comments. Okay. Thank you, everybody. We really appreciate the interest and all your questions. They are as always, razor sharp. We are, we are happy about the interest that you have, in DSV and in our industry. We thank you for the questions. I just want to send a small thank you note also to all the employees of DSV. Once again, you've set new records. We're proud of you. It's been a fantastic year. You can be proud of yourself as well. So thank you very much for that. We hope that we will continue the good growth also in 2019. And in the meantime, we will cut this conference call and then speak to you also bilaterally in the time to come. So thank you very much and thanks for listening in. Bye bye.