Earnings Call: Q3 2018

Oct 26, 2018

Ladies and gentlemen, welcome to the DSV to report 3rd Quarter 2018. Today, and please present CEO, Jens, Ewan Anderson, and CFO, Jens Lund. Speakers, please begin. Yes. Good morning, ladies and gentlemen. Welcome to this conference call where Jens Lund and myself will go through the Q3 20 18 results that were just published this morning. We've been looking forward to giving you the information that we have here today for some time. So why don't we go straight into the presentation? And I'll please ask carefully study the forward looking statements that we have on Page 2. In the presentation, you will find, online And after you have started that, I'll kindly ask you to go to page number 3 where we have the agenda for this morning. It pretty much looks like it has for the last many quarters. First, the highlights of the quarter, the 3 divisions. Jens will talk about the financial side of the business, and we will wrap it up with a Q and A. So why don't we go straight into the highlights on page number 4? We're very pleased with the performance and the results of the quarter. We've delivered, what we feel is a strong set of numbers the fact that the gross profit of increased organically is of course very strong. This is the profits we have on the files, essential for us to grow also the EBIT. So we have out performed the previous quarters, you can see the year to date growth is 7%, but we've grown the gross profit in the quarter 10%, very solid It's also meant that the EBIT developed in the direction we wanted it to develop. It's grown 16% 15 year to date. This means that we, this morning, just revised the full year outlook for the year, where we have removed 100,000,000 at the bottom part of the range So now we have a guidance for the full year, between DKK 5,400,000,000 5,600,000,000 and the adjusted free cash flow remains unchanged. We are also very solid in the capital allocation policy, so that means that we have all announced a new share buyback program this morning, of DKK1.2 billion and Jens will account for what that means for the full year later on in the presentation. So that was the highlights of the quarter. So if we go to page number 5, you can see the development of our super strong Air And Sea division. Once again, I've said this many, many quarters in a row. Fantastic results. They are living up to our expectations, on all parameters. We've seen nice growth rates in both air freight and sea freight. Air freight grew 7% in the quarter. Mainly driven by growth in exports from Americas and from Europe. We've seen slightly lower growth rates in seed freight, but the market is also growing Yeah. We have at least seen a sea freight growth of 4% which we are also very happy about. There's been a lot of focus on the impacts from, the trade tariffs, which are being imposed on the trade lane, a between the U. S. And China and so far we have seen very, very limited impact on that. All this means, has the effect that we will grow, we have grown the gross profit close to 9% which is, of course, extremely important for us. And you can see the incremental conversion ratio is above 66%. So does not stay at the gross profit line. It also has an effect on the EBIT line. And this is of course something we are very, very happy about and the conversion ratio is now all time high in the division of 42 0.9% which is also necessary if we need to achieve the long term financial targets. Please remember the the conversion ratio is always high in Q3. Next slide on Page 6, describes the development we have had on the yields as you have heard many times from us, we don't only talk about growth. We always talk about profitable growth. And you can see on air freight, we have managed on a year on year basis to grow the yields, the gross profit per ton with 5% and in sea freight, we've managed to grow the yields compared to 1 year ago with with 1%. So it's a pretty good development which we are we are happy about and We expect, going forward, the yields, to remain fairly stable also, and, yeah, which will hopefully lead to continued good performance in the Air And Sea division. So strong set of numbers once again, very, very good work from the Air And Sea division. On page number 7, we could see the development of a road somewhat, in some terms, at least similar to what we saw in Air And Sea, also a good development on gross profit which is the foundation for good EBIT results growing close to 9%. Very, very good. All grown, our market share as we saw in, in, in M And C. We've also seen better pricing And also we should not underestimate the turnaround of some low margin activities, in some countries, have helped the gross margin to a healthy 17.6% in the quarter. I think it's too early to set that as as the new kind of benchmark for the quarter, but we remain positive that the gross margin will stay at least above 17%. Conversion ratio is also strong in the division 25.1% for the quarter. And we are super happy about that. What we're also very pleased and proud about is that we managed to to finalize and fully roll out our customer facing digital interface, my DSV in the quarter And this will be a driver for better customer service and also higher productivity and better better communication from a digital point of view with our customers going forward. So Good set of numbers from Road. It's nice to, to be able to say that. Solutions, they are also on page number 8. They continue that good development we have seen in previous quarters. I can only repeat myself. Strong development also here in gross profit turnover gone up 25% gross profit also 18%. And you can see EBIT has grown 60%. So pleased about that. It's good to see. We have a 8% new warehouse capacity, which has been added. And, we, we have a good momentum, in the division. Also, here, we see, very positive impact from the long term strategy we've had of consolidation in the infrastructure, and we have also seen like we did see in Broad the impact of some particularly profitable and successful in the past. We have used that, previously as a kind of an explanation why the results were maybe not as we had expected in solutions. So of course, it's very satisfactory to see that we have managed to turn some of these activities around as we indicated to you guys earlier on. So that was just a brief overview of the divisions. And now I'll just pass on the word to you, Jens. So please take it away. And I'll just go on with the details on Slide 9. Where we can see that we've had a turnover of more than 1,000,000,000 in a quarter, which is the highest ever. We also see that the GP is up by 10% on group level. So this is really good. We see that the EBIT is up with 15.7% in constant currencies. So we had a conversion rate of almost 34 in the quarter. And that's also, I think, record we're talking about, but still we have to look after our fixed cost development because it's it's in times like this that we need to be careful about the development in our fixed cost. When we look at the amortization, it's more or less the same as last year. And of course, a big part of that is, IT amortization these days When we talk about FX and financial items, we can see in the quarter that we are in the high end because we have had a few FX losses on some of the things where we had gains in previous quarters, our financial cost is quite low. The tax basically, there's not much to say about that. It's in line with our expectations. So, all in all, this lead to GP margin of 22 for the group and EBIT margin of 7.5%. Conversion rate, as I mentioned, almost 34%. And then I think one thing that is really important, the earnings per share, 6 point 1 in the quarter and that's 22% up compared to the same quarter last year. So I also think that this is what you're looking as a shareholder, it's growth. That's what it's all about. If we move to slide number 10, there's a strong cash flow deterioration of the group. We still tie up a high proportion of sort of yearly earnings in cash flow throughout the year. It's a very high season that we have at end of September. And we are working hard to make sure that we get in line before year end. There is pressure from the customers. As always, I would have said, so there's really nothing unusual happening on that one. It we take the leverage of the company, we are below one time EBITDA and that's also the reason why we have this share buyback of too, we try to go to sort of the lowest end of the range right now. It's what we're aiming for the duration on the 2.6. We may add a little bit of duration here in Q4 so that we also have a very comfortable situation when it comes to the debt side. So all in all, invested capital of 1,000,000 and compared to last year, we're actually a little bit lower. So we have deployed less capital in the group and increased the income that leads to higher work. And we see that we are now about the 25% mark year to date. And this means that we are basically at at the high end of our guidance and also historically, I think we're doing, as we have stated on the return on invested cap So if we move to Slide 11, just, basically, it's, just to make sure that everything reconciled on our capital allocation. And you can see that if we do not repay debt and do not acquire companies, then we re distribute the cash that we generate to the shareholders. And that's sort of also what we plan to do this quarter. If we move to Slide 12, the guidance, as Jens Bijan mentioned, we've just narrowed the reins on the operational result. And I think that can always be expected towards the end of the year that we can be a little bit more precise on the guidance. And of course, we have in the high end of the range that we have guided. The cash flow of 4.2% and the tax rate, 23% it's basically unchanged and on the financial items, as I said. On the interest costs, we are probably a little bit lower than what we have guided not much, at least not enough for us to change the guidance. So I think that was it on the outlook. And we are good to go on the questions now. So please fire away. Thank our first question comes from the line of Damian Brewer from RBC. Please go ahead. Your line is now open for your question. If I can ask 2 questions, please. First of all, on the contract logistics business, could you give us an update of how you're thinking about sort of working capital versus profit returns in that business. I know historically you focused obviously on getting the capital down, but looking at the 9 months, you generated million of extra EBITDA for incrementally about 1,000,000 of working capital in that business. So where there are decent returns on capital, would you be prepared to let the working capital expand? Or is this still a deep focus on reducing it And then the second question, sorry, this is a little bit cheeky, but we hear all the time, but Amazon's going to destroy the sector. There's disintermediation, increased visibility, you know, heading to recession, etcetera, etcetera. Given all that, why isn't the GP per unit falling? Because you'd expect with that, the GPP unit will be significantly reducing and yet you're up between 1% 5% year on year. So what is differentiating you from the market on your GPP unit performance? Thank you. Damien, maybe I'll take the last assume you talk about the GP per unit in Air And Sea. Yes, you got it. Yeah, sure. It's correct. There's a lot of speculation. There's a lot of things are happening, but so far most of these things are happening in the media. And we have not seen it penetrating into our business at least When it comes to the GP per unit, we have to remember that, a last proportion of the GP that we generate today comes from added value services and not just, commodity work, doing a business from one airport another, from one, port to another. I think that is one of the, one of the main differences. Then of course, I also think that, the type of work that we do for our, customers are expanding all the time customers are asking for more and more services, that also carries a certain fees. And this is something that we have always been good at protecting in DSV. We see that as a strong asset that we have a high GP per unit. It's something an asset we also want to protect. Sometimes that goes a little bit against the growth rates We might not grow as explosive the, the GP per unit. We have some very, very large, very sophisticated blue chip companies, but we also have a lot of small and mid sized did it. So we actually don't think that the GP per unit will be, what you say, very volatile going forward our expectation, that it will continue to remain with some percentage points of course. In the level that it is right now, we will fight everything we can to make that happen at least. And then maybe, Jens, I think the net 1 capital question for for solution was more directed to you somehow. I think that was the idea. Yes. I think we will hand that over to the accounting department. Anyway, what you look at is, of course, that, as you said, we've certainly to drive the unit forward. I think it's also fair to say we have implemented quite a bit of new business. Billing is sometimes a little bit slow when you we also have certain clients still legacy from UTI, where we're not meant to find a solution yet to bring the working capital level down. And then I think There's still one thing you also have to look at in a solution. And that's, of course, that in Q3, it's high volume. So at the end of Q3, so the level will, of course, also be high there. But when it comes to the return on invested capital, I think that the overall target of 25% that everybody has to adhere to. But sometimes, I guess, if you have new business take on in solutions, it might be that the 1st couple of years that we will settle for 'twenty if they can do that, then we're also happy with them. But if you want capital in this company, our shareholders, they don't really differentiate that much when they look at us as a group. So we have to be quite tight and strict internally as well. When we allocate the capital. So you can rest assure that there's no freelance for solutions. We have introduced something as well internally, it's called network capital charge. And this is something that we have a lot of very healthy discussions about internally. And very popular. No, not really. But we're very adamant about it. So I don't think you should think anything has changed and there's a lot of focus here on solutions as well. That's great. Thank you. Can I just ask for one clarification on Yens's first point on the GP of the Air And Sea business? How much of it either sits in what you described as value added service or in that in the category in Q3? It's probably, between 70% 75 75% is, is, value added services. We could not carry the GP per unit we had. We have a it was just a pass through on the rates. So this is what also makes us comfortable when we talk about the future prospects of continuing to kind of protect this. Thank you. Our next question comes from the line of Mark McVicar from Barclays. Please go ahead. Your line is now open for your question. Good morning, Jens. Good morning, Jens. Two questions, please. First of all, if I look at the margin of the Air And Sea division in the 1st 9 months of this year, they are already above, slightly above your 2020 target. At what point will you trigger the next review of those targets? Or do you think, they should be held where they are I think that if you look at the long term financial targets on the conversion rate show, we are still slightly below. We have a target, which is higher than what we are at year to date, but Coast markets are positive problem if we, if we should sit down and revise those, but I can assure you of one thing and that has always been the principle in DSV. If you reach your targets, we agree on new targets also. So, and this will also happen in the case of Air And Sea. It could be in conjunction with the new IFRS rules, which will have an impact on the margins that we will revise them, but it's still too early to say. It could just be revised as a consequence of the regulation. But as I said, if they reach the targets, we will sit down with the guys and see what new targets they potentially should have. Okay. That's great. 2nd question, you may or may not choose to answer. Obviously, we've all sat and watched the machinations around CEVA, and that's now, history. But just at a high level, could you give us some sense of what attracted you to it in terms of geography, customer verticals, products, ignoring sort of the detail of the numbers, which I'm sure you're not going to give anybody? No. It's just, kind of, kind of a proof that, we still wanna pursue, value creating, M and A. We've known CEVA for some time. For various reasons, we were not ready to approach them at an earlier stage. We needed just to finalize the UTI, the work sort of say. We had a good business case. We felt that, an acquisition of CEVA could create value for our shareholders of both CEVA and also of DSV. There was not a copy, but there were certain similarities to what we saw at UTI. We felt that, of course, we could improve the operation. We could lift the margins of the company. But then as you correctly say, it was not meant to be And, that's the way it is sometimes, for various reasons. And, but we can say also today that the cap allocation policy of DSV is set in stone. We still believe very much that we have some ability DSV to create value also through acquisitions. We're very motivated. The organization is very motivated to do it also. So that's still very high on our agenda, going forward. So nothing has changed in that rate. Okay. That's great. Thank you. Thank you. Our next question comes from the line of Edward Stanford from HSBC. Please go ahead. Your line is open. Good afternoon. Sorry. Good morning, everybody. Following on from Mark's question about your approach to CEVA. Could you give some indication as to whether that was something you were pursuing exclusively for a while? Or it's another way of asking, what's your M and A pipeline looking like if you're able to perhaps give a flavor of that And even if you can't, on the second point, you've talked about the fact that your business doesn't appear to have suffered from of the machinations going on between the U. S. And China, what are your customers telling you about how they're going to behave in Q4 and Q1 next year in terms of anticipating a potential rise in tariffs and how is that potentially affecting your outlook? Yeah. When it comes to pipeline, of course, on M And A, it's difficult to give a lot of insight into that. But it is obvious, pursuing CEVA, was something we did wholeheartedly. And that was the only thing we were thinking about for a long period time, it was big, it had a potential to be a very large acquisition for us. So of course, we did not play on other horses so to say for a certain period of time. I think the pipeline looks exactly as it looked before. It's not a fantastic pipeline with a lot of opportunities where we could just go out and pick and choose the next one. But we will carefully maneuver in this market I'm sure that there will be openings, which are also, attractive for the shareholders of DSV and the company, of course. So So we've not, of course, there's some sort of, disappointment of course in the company, but but we will, kind of, be revitalized, again, very soon. And then, of course, we will continue like we have done, for many, many years. And when it comes to the volatility and and the so called trade wars. What we're hearing from customers, depending on vertical to vertical is that there are certain movements, it depends if you have, if you have, like, a dual sourcing strategy, you might move some elsewhere, but we are not seeing that production is being moved, home sort of say to the U. S. What we are seeing is production being moved in certain cases to other countries in Southeast Asia to Bangladesh to Vietnam to Myanmar. And to be honest, this is something we have absolutely nothing against, because as long as the volumes are not dropping overall significantly then we are happy. You could speculate, of course, we have to be careful not paint the 2 rosy picture on this. We don't know what's going to happen. To say that the U. S. China relations accounts for 10% only of the volumes that we carry, not of the whole company But in one of the 3 divisions we have, I know it's the biggest, but, so we are not super exposed to this, Asia to Europe and the transatlantic relationship is still far more important for us. So even if we would see an escalation that does not keep us at wake at night with the knowledge we have right now at least. Sorry, perhaps if I may follow-up clearly Asia Europe's not on the seafreight side has not been particularly strong recently. Are you seeing any market softness in that market? Yeah, you're right. It's for 2nd quarter in a row. It seems like it's probably going to be negative territory. Q3 could actually be down 2% to 3%. We don't have the September numbers yet. So, it's the biggest trade lane we have. So with that in mind, we're actually pretty heavy the growth rates that we saw in DSV. It represents Asia Europe represents approximately 1 third of our total volume. So So the fact that we managed to grow 4% overall, we are actually pleased with that. So I cannot say that there are signs that things are really significantly picking up, but it's not like it's falling over a cliff either. Thank you. Our next question comes from the line of Dan Togo from Carnegie. Your line is open. Yes, hello. I have a few questions from my side as well here. Going back to road and the turnaround here, You're saying your turnaround, Doha margin countries. Can you explain a bit about what you've done here? Is it sustainable? And what not least, what is the, sort of, say, impact in Danish corner, if you can quantify? Thanks. That's the first question. Yes. We don't really have, we have not disclosed the numbers, but, it's it's a double digit number for the quarter in Danish Kronos EBIT wise. We have had we've talked about Norway for many quarters. We it's not like we're out of jail or anything like that, but of course, when you have something which is not super well performing, it also, is annoying. It's irritating, but it also represents an and this is an opportunity we have taken Norway has improved. Turkey has improved. Netherlands have improved and also to a certain degree, not that we had issues as such, but we've seen a pickup in margins also in the U. S. So, so we're happy about that. Now we've seen kind of in the quarter the first part, which was maybe the easiest. You saw the biggest impact. So, and you can only count the EBIT improvement once but it's not like they are at the end of the road in the improvement process. So I still believe that we will could potentially see an impact also going forward. But is it client pruning or is it costs that has been No, it's more, improvement of the, of the processes, of course, some cost savings, set up in the operational system, just better management changing, to some more hands on, operational people we have in certain countries it's it's a combination. It's it's not shredding as such of customers. That that is not not the case. And then a question on solution. It's quite a, sort of, say, a healthy improvement you've done in profitability here, expanding also capacity. Looking into 2019, is going to look at more of a similar expansion in warehouse capacity. And will it lead to, so say, same profit improvement or are there some things mitigating that? Maybe, Jens, you have just had the pleasure of having a lot of the senior management of solution in meetings with you in recent weeks. So maybe you can expand with the freshest information on that? Yes. I think what you see then is solutions take some time. It takes time to plan new facilities, and it takes time to plan the IT infrastructure. So we have a roadmap of course, where we are grinding our way through it, we've seen a lot of sort of impact of this, we have implemented a lot of automation, in certain areas this year. We will continue to do so next year. And then we will also introduce new facilities as well. Sometimes they show benefit quite fast and some of them take a little bit of time, but the progression in solutions, it should certainly continue, but I don't think if you put 60% into your spreadsheets, then I think you you probably overestimated somewhat, but we do expect also that are driven forward in solutions. So we've gotten better at implementations. We've got a better or we got ourselves better organized and we clearly have to make progress, but don't expect 60%. You can expect something double digit in the lower end, I think that's where we are coming from. Understood. And then just a final question here on the M and A side. I understand the message on CEVA for now at least. But are you, do you see other targets out there right now that potentially could offer the same sort of value to you in the landscape? The short answer is yes. There are others. There are other opportunities out there. Are they, actionable? That's sometimes another question. But there are definitely a good combination candidates, out there in the market. And we will continue the dialogue and the surveillance or say of these candidates as we have done for many, many years. And then I'm sure that one day then, yeah, we will be successful in also announcing a new value creating acquisition. So it's not that, all hope is out now for sure not the case. We still believe that it will be possible for us to create value, through M and A going forward. Thank you. Very helpful. Thank you. Thank you. Our next question comes from the line of Markus Belander from Nordea. Please go ahead. Your line is open. Thank you. I'd like to follow-up on Dan's question regarding the solutions business. Obviously, very impressive revenue growth 25% year on year. But the gross margin was down quite a bit sequentially at least. Just how should we think about that? Is that the natural effect of the strong revenue growth? Because you're essentially taking market share, the expense of profitability, or is it because you're ramping up these new facilities or or what's going on there? I think what you will find in most of these areas that it gets industrialized and it gets professionalized and you have simply have to have higher throughput on the things that you are doing. So that's certainly a consequence. But there's probably if you look at this quarter, It is probably in the low end. And I would be cautious to have 22% as the run rate. It can be that I mean, we will see when the budget comes out for next year, but I would expect that you should more look at the year to date figure or something like this and not have too much for us on 1 quarter. But I think it's clear that also on solutions, we have to get used to that we have to have higher throughput. If you look at the number of order lines that we produce, because also the things that we do the units, they get smaller and smaller like with all the other services that we have because people they want faster and smaller or more frequent deliveries, really. So that's the trend that you see also on this. And then we have to get ourselves is drive cost out leverage on our infrastructure like we do on all the other divisions as well. And, as it seems, we seem to be in a pretty good position in order to do this. Understood. Thank you. And second question, I guess a housekeeping question. Other external expenses in the road was quite high q3. And I remember in the q 2 call, I think, you, Jens Lund indicated a sort of a lower number on average, at least, for for the second half of the, the year. Why the big swings in that other external expenses and what what should we expect going forward? I think you'll have to use the average run rate. We've had some accruals and things like that that have been giving us a little bit of a headache internally. So that's sort of, I think if you look at Q2, we were in the low end. And now in Q3, it seems like they are in the high end, but I would think that there should be 3.20 to 330. Going forward in the quarter. So I would go with that as a run rate. Thank you. Our next question comes from the line ofcast of Long from ABG Sundal Care. Please go ahead. Your line is now open. Thanks a lot. First question regarding road, you mentioned that the MytesV is now fully rolled out. And also that it could give a bit higher productivity. Is this something that we should think about something that will sort of be visible when we do our numbers? Or is it more something that you need to do to basically defend the probability levels we're looking at now? And then my second question, which might be difficult to answer, but when you acquired UTI, you gave us a nice chart with some some these $1,500,000,000 of synergies. Coming in different years and there was also a little box in the years after that never got a value on it. Would you say that that box has now been sort of fully used up and that we are seeing that in numbers? Or are there still things that you can basically extract from that acquisition? That's the questions for me, please. Maybe I'll go with my TSB I certainly hope it's something you will kind of see in the numbers of the road division going forward. If we can isolate it, it's another case, but of course, this is what will, be needed also for us to reach our long term financial targets. This is one of the tools that we have in the toolbox to get there, it's both something that attracts new customers' tools because they like the functionalities, a digital interface is, is super good. We are more or less paperless in many departments now and this is, of course, the way it goes. So it will hopefully help us also to grow the business, but also we will see a productivity improvement because of this also. And of course, that will be reflected in the numbers. I very much hope so. You can always debate, will we give some of that benefit away and the competition in the market, it's likely that part of it will kind of disappear but I would be very disappointed if we don't see it, but it should drive us, going forward. Maybe, Jens, you can talk about it. It's a very it's a little bit a kind of a hypothetical question you post on. And I remember you were sitting with the rulers measuring this high to how big it was this small, kind of block we had at the end when we bought UTI, and there's been a lot of speculation about that Jens, you want to elaborate on it? It's Basically, it's clear that when we buy a company like UTI think it's obvious to everybody, the synergies that we put into the business case and announced to the market is the hard synergies. Then I think if you look at it now, we see we get some additional benefits on top, making it possible to sort of achieve the revised financial target that we then put forward. And of course, this goes more into a roadmap where when you have this capacity that we have now, then you can leverage on the initiatives that we make and drive the things forward. And I think if you look at our KPIs, today. I think it's clear to see that, it's been good for us to buy UTI. It not only the impact of UTI, but it certainly helped us as well to drive the company forward. And as James Brown said, we can't really isolate it. And then to the question, do we have more ideas? The roadmaps we have for business development, they have never up in what can I say more full of initiatives than they are now? If you speak to people in the organization, they say stop no more initiatives. Let's have a little break. So I think if you look at it, we will continue to drive the company forward. You can rest assure on that. Part of it, we will be able to keep ourselves hope and part of it will be given to the customers. So it depends on our change capacity, how much do we get to keep ourselves Interesting. If I may just follow-up, I think my question sort of relates also to the fact, I mean, if there were sort of anything in the performance this year, if there's been anything sort of extraordinary that we could say that was due to these never mentioned synergies, basically feeding through. If sort of anything extraordinary this year that we shouldn't expect next year or if it's just business as usual? No, I think, of course, through the initiatives we take on the closure of data centers, closure of IT, platforms, systems and all that certainly gives us some benefit. And then of course, that the UGI staff, and it's very important that they get their productivity up to all level. They've done a wonderful job in operation doing that. And of course, I think our outperformance, if you want to put it like this, bit less next year. We can't necessarily drive it forward in with I think it's clear to see that the marginal conversion ratio has been really high. It might be it's a little bit low on this year. Thank you. Our next question comes from the line of David Gaston from Jefferies. Please go ahead. Your line is open. Hi, good morning, gentlemen. I have a similar question, regarding the final benefits from UTI. And I was wondering if after the realization of all the cost synergies with 200,000,000 in the first half, if you're now starting to increasingly benefit from from commercial synergies on the top line, and which is driving your relatively higher growth versus your friends in Switzerland. I'm wondering how long that would be sustainable Then secondly, regarding, Asia Europe, did you grow or did did your volume on on Asia Europe decline in in with the market or did you outperform that trade lane? And what are your customers saying? Is the main reason for the weakness? Because if you look at your European rogue business, seems to continue to grow very nicely at around 4%. And then finally, highlight inflationary pressures in the presentation. I was wondering, did your road business benefit from the fact that there were no inflationary presses on the labor side or is it the timing effect explaining the relatively high conversion ratio for your World Trade business. Thank you very much. Yeah. The growth in, in Air And Sea, I mean, the question was, how did we, grow? I mean, there's a lot of ways where we have grown. It's, you cannot say that, that we have stopped growing, or it has only been because of UTI. Of course, we have a better network now. We have better capabilities. We are stronger now than we were before. We grow the market also going forward. And so we are pretty confident about that. We would be very disappointed we at least on a yearly basis, are not outgrowing the market, you can probably always find 1 quarter, we lose a customer, whatever. But overall, It's a clear ambition of DSV to outgrow the market, to take market share, but still in a balanced way so that we still manage to keep the high GP per unit that we have I can only underscore that one more time. We feel it is a very strong competitive advantage to our to the and also to the shareholders of DSV. This is something we want to protect also going forward. Asia to Europe, we have, we have outgrown. We have, we've had positive growth in the, in the quarter, something like once 2%. So we have we've really outgrown that market. If it is correct, we still need to see, the September numbers, but it's very likely that it is, which tracking. So we're happy about that. It's a very good question. You ask, what the hill, I'm sorry, is driving that. We are asking ourselves that question. It seems like there's some weakness in some strong economies, on those trade lanes, Germany, UK, maybe you can kind of explain U. K. Why that is down a little bit, because the, the domestic consumption, and activity is still pretty strong. So there could be some destocking of course, which is going on. But unfortunately, we don't have, too good intelligence really telling us what it is that drives this. But, I think that at least when we get into the new year, we will see again growth in those areas is overall we still believe that the markets will grow also Asia to Europe in line with world GDP. I don't know, Jens, have you had any kind of remarks on the last question? Yes. I think the inflationary pressure on the cost, in enrolled, as I said, there was probably also some accrual issue there were the number should have been seen more like on the year for road. It's clear, of course, that we also see that there are certain constraints in certain areas as well. When it comes to labor, I think that's clear to everybody these days that the there are certain areas where there are bottlenecks, there are many areas where it's still possible to basically get staffed in without too much wage pressure, but there's also a few areas, of course, where we see issues. So I think that's a little bit inflationary pressure and then the conversion for Rotna. So your growth conversion benefited in the third quarter due to some timing effects. Is that a fair conclusion? Yes, it is. So look more added on a year to date basis or a little bit at least as well. Okay, great. Thank you very much gentlemen. Thank you. Thank you. Our next question comes from the line of Robert Johnson from Exane BNP. Please go ahead. Your line is open. Good morning everybody. A couple of questions for me, please. I First of all, a follow-up question on my DSV. You've already talked about the impacts that will have on productivity of the existing business. But could you maybe just provide some commentary on the extent to which that will enable you to capture synergies best from M and A in the road business going forward. And then the same question on the dividend, if we look at the balance sheet even with the share buyback that's been announced today completed. The net debt to EBITDA will still be at the very low end of the target range. Could there be any potential to raise the dividend payout ratio going forward or is the intention still maintain that at a relatively low level? I think when we look at my DSV, it's not something that will sort of from day to day revolutionize what we're doing. We had something called DSV services before. It's just an old outdated platform for our customers but now we have a new portal solution where we can post different services activities. Right now, it's things like booking. It's like drag and trace and things like that you can do. And you can see your status on some shipments, stuff like that in there as well. And we will, of course, developed this platform further. So I think it's an important tool. We still at the bulk or the majority of our shipments in via electronic data in the chains can be the I can be XML or these kinds of things. That's where we get the bulk of the volumes today. But of course, we see there's also good sort of demand for this tool as well. So it's like a supplement. And I think we get the bulk of bulk bookings we get in electronically, we get very few in manually. So it's just to clarify that a little bit on my DSV, but it's a very important thing that we when you run different IT platforms, you have to get out of the old structure and into something that is ready for the future and scalable. And that will, of course, always help us when we do M and A that will then have something can scale our old solution. It was basically worn out because we implemented it way back. So at that a little bit on the IT side when it comes to that. When we come to the dividend payout, I think it's fair to say that, that we've always been in the lower end when it comes to dividend payout because when we do M and A, it's important that we can sort of not allocate too much of the cash to, or shareholders, but then we can use the funds we generate through, 1st of all, repaid it. And then if we need to invest in the group, we can also do that as well. So we will increase the dividend payments I think if you want a dividend stock, you'll probably have to look somewhere else and then DSV. Understood. And maybe one additional question just regarding the recent is slightly different wording from the press release that you made on the 23rd October, which was simply stated that the CEVA board had been unwilling to engage with DSV. Could you maybe just elaborate on the extent of the communications that you actually had with the CEVA board following the 2 approaches? I'm sorry, Robert, we cannot do that. We cannot elaborate too much on that. What we can say is that it was kind of We say that there was an unwillingness from the board to engage with us at the price we offered. Basically, we were in dialogue with the board 3 weeks and they had 5 days to review our second order, our second offer. And there was no really willingness to engage with us on the basis of that offer. And of course, you can see seen in the light of what happened afterwards. We kind of maybe also understand that we might never really have had a chance, but that stands for our own account. I think that's basically what what we can say at this moment in time on the CEVA case. Our next question comes from the line of Bruce Chan from Stifel. Please go ahead. Your line is open. Thank you, operator, and good morning to you, Jens Bjorn and Jens. I guess, first, I want to follow-up on some of the questions on the solutions side. You've obviously made some very nice improvements and very nice progress in conversion ratio year over year. And I guess I'm wondering given that performance, should we expect the same kind of seasonal ramp in margins from 3Q to 4Q that we might normally see due to peak? And then second question, still on the solution side, Jens, you talked about warehouse automation and solutions. Is that mostly on the WMS software automation side? Or are you implementing some other measures? I know XPO has been pretty bold up on the cobots and then their applications. Especially in e Commerce. And then maybe just a final question here. On the Aaron C side, we talked in previous quarters about the risk of some of the steam ship lines growing into the traditional forwarding business. There's been some news about reshuffling it at Maersk and we continue to see CMA loosely involved via CEVA. I'm just wondering if you have any update from a competitive standpoint as to what's going on there. Thank you. Maybe I'll just take the last point. It's correct that some things are changing and we've seen that over the last couple of years now. And We are following that. It's an interesting development. But so far, also what we understand with CMA and CEVA, they will operate on arm's length basis is still a very fragmented industry. You know, we're one of the big players in the market. Our market share is very, very low single digit in terms of market share. So we have a market, a strong market position when it comes to delivering the services that we do and we don't really see the asset owners as a future competitor. This is not either what they are telling us either officially or when we meet up with them to discuss this. There's some sort of symbiosis as maybe it's too strong a word, but then we need them, but they also need us. We controlled 50%. We have disrupted their industry many years ago. We controlled 50% of all the boxes, which are being moved now. And it's 2 very different things being a shipping line and a freight forwarder. We have a far larger value proposition and I think that will to be the case, but that they want to expand on their service offerings on certain customer segments which we are maybe not involved with today is maybe not unlikely, but so far we are we have good dialogue with the shipping lines and we are not too scared about it. Jens, maybe on the on the solution side. Yes. I think if you look at Q4 last year, you also, of course, as you mentioned, have a big increase in earnings, and I don't think that we will be able to deliver 60% top of that. I think if we look at some of the comparable last year, some of the quarters were also a little bit I don't know if you mentioned it, but I remember it, but we did talk about something called the bleeder list and some of the quarters last year were impacted by certain customers where we had implementation, stuff like that, where we had big issues. We've not seen this so much this year. And I think some of the reasons behind this is actually part of your second question where you say what kind of automation you put in. And I think you almost have studied this a little bit because your question is actually quite qualified because one of things you can do is on the VMS platform, you can do a lot for that. And we've rolled out our standards platform and are still doing that. We actually have 3 rollout teams, so almost sixty people that do this change from the old platforms and onto the new. And next year, we will even up to 4 teams. So we will increase our investment. It is further what it means is that if you have a new platform, can badge up and you can then get the productivity up for the people that do the picking. And that's really good. So we can handle orders per person per hour or per day or whatever. That's one thing. But the other thing you can do in order to help the staff that we have in the warehouse is to put different types of automation, and it can be just inbound sort of outbound sort of voice pick print and apply. It can be many we sort of that drive autonomous vehicles in the warehouse can be good to man, can be different vertical lifts. There are many solutions we have. Gone for a standard program where we have certain number of tools that they can pick from. So we don't have to reinvent the wheel, so to say a the time. So we actually do work on the VMS platform, which you touched upon, but also on some of the hard our mechanization, whatever you want to call it. But we try to do it in a sensible way, so that we don't overinvest. And then we try, of course, to get volume the customers and, so that we can utilize the capacity we have. And this means that when you automate things, you drive the prices down, you become competitive, but you still get to keep a bit of your money yourself. And that's back to the question we had earlier on where the GP is a little bit lower these days, but it's still good for us. And that's what it's all about, that we have some EBIT lift. And maybe just a quick follow-up, if I may. In terms of vertical split, how much of your solutions business is related to e Commerce and then other side today? And then where do you maybe see that going over the next couple of years? Overall, of course, e commerce is still very small. Growth like Hill it's like we can, we can almost topple it from 1, 1 quarter to another, no, not maybe topple it. But it is really, it is growing tremendously, but in the overall swing of things, it's still very, very small. Also has been good for us and also, the traditional retail business has been been very strong. And it just seems like there is a renewed appetite also in the industry amongst customers to engage with companies like DSV to give their whole supply chain and overhaul and, contract logistics capabilities we have plays a very large role. This is by far, notice respect to the 2 other divisions that we have, but the services offered in the solutions division the most complex sophisticated that we do. And of course, when we can go in and act almost as a consultant, a supply chain consultant to our customers. It ties up the customer in a different way than it does in the 2 other divisions. Great. That's very helpful. Caller. Thank you. Thank you. Our next question comes from the line of Lars Heimdorf from SCB. Please go ahead. Your line is now open. Thank you and good morning. The first question is regarding the air volumes and the yields We've seen yields declining a little bit here, at least quarter on quarter. And some of the numbers we've seen from some of your Swiss competitors suggest accelerating growth. Despite that everybody talks about declining growth in the market, and it appears to be at the expense of yields. So maybe if you can give us a little bit of guidance into Q4 and maybe also a bit further about what kind of user environment you see in the air cargo space where I understand that capacity is still quite tight. You want some guidance for 2021 also or now that you No, I'm getting. It's a as you know, it's a we have given a full guidance for the year and when it comes to certain KPIs, cash flow EBIT, but of course, we can kind of say that we We don't expect maybe that's the way to approach it. The same negative development on yields that we saw last year last year were characterized by a really panic kind of like situation at the end of the year. Nothing tells us that we will fall into that this year. So that means to cut a long story short that we will see pretty stable yields going forward into Q4 and probably also going into next year. There's nothing that tells us that yields will either go sky high or that they will drop from the levels they had right now. Of course, you will always see a slight volatility, but if you analyze our yields I know you have done that way, way back also. You will see that the volatility is very, very low. And I think that remains also be the case, yes, going forward. Okay. Still a lot of talks about the Solutions Division. I mean, it's quite impressive. So maybe a both a question and a suggestion because, I think most analysts are probably sort of searching for some kind of guidance there in terms of revenue growth and gross margin. I don't know if you can say anything about how many square meters you have Is that some is that a number that you can't disclose? And what kind of growth you expect in Square Meters? I assume that there must be some kind of correlation between many square meters you have and what kind of revenue growth you have? It's I don't think it's a secret. We run close to 6,000,000 square meters in the division. And of course it's something internally that we measure. It's not like we are assessed with growth in that. We are we only open new warehouses if we have a customer relationship We don't speculate in going out building in the warehouses hoping to fill them up afterwards. We've had elsewhere in the industry disastrous results, following that strategy. So we will never do that. Of course, we can engage with the analysts. If you want more transparency, we're open to, to proposals, to help you do your work better. We have only the same as you guys. So let's sit down and have a debate about that. And I don't know if you want to elaborate is also on order lines. This is basically what we get paid for. The mix changes dramatically with the e commerce because we simply get so many order lines that we actually struggle ourselves, and a little bit to have the transparency to be quite honest about it. And I think on the square meters, the empty square meters, the road mapping of facilities, consolidation of them. I think this is something that we have focused on, for many years, but I think the increased focus we've had sort of the last 3, 4, 5 years, this is the thing with the kind of business we run both Air And Sea Road And Solutions, it takes years to swing these business areas around. It's not something you can do overnight And I think it's the fruit that we harvest on some of this. And then I think we've been quite transparent about the we've had some implementation issues, and I think you can from some of our colleagues that have just reported that it's not something that is uncommon in the industry that you try to take on a task that is rather complex. And then you get off on the wrong foot. And that's sort of what has happened. We shouldn't go too much about it. We can have a sit back as well. So but right now, we enjoy it together with the Solutions division and they enjoy many questions you asked to them on a day like this, Jensperin will go to the management meeting soon, and, you will see they'll all have their head up by. What's safe to serve. And then lastly, just a follow-up on Jens Brown, you mentioned that Automotive is one of the big verticals for you guys has been fairly Most of the data we get from the automotive industry has been pretty poor lately. You haven't seen any sign of a weakness slowdown in that part of in that vertical? No. Not on the companies that we work with. We track the volumes every month and they look, they look good. I don't know, if it's other, Yeah, maybe we've been lucky selecting the successful automotive companies. I don't know. We see no slowdown in the vertical, that we are doing. So, so we are fine, we're fine in auto All right. Thank you guys. Thank you. Thank you. Our next question comes from the line of Andy Chu from Deutsche Bank. Please go ahead. Your line is now open. Thank you. Just one question for me. Just in terms of M and A, I think I agree with your comments saying that it's not a fantastic pipeline at present. Somebody's come up to a 3 year anniversary of your acquisition of UTI and probably see there's any asset that has come up for sale. So in terms of thinking now, I mean, a lot of this sort of the sort of perennial targets on the list are actually doing a lot of M and A themselves or want to do M and A sales. So I just feel as though there's nothing really available out there. So in the sort of next few years, is the aim to sort of go down the list and make sort of smaller acquisitions and or you're just gonna wait till the window opens whenever that might be. And actually just go for what's ever what is ever is available. Obviously, large scale M and A makes more sense, but how are you going to judge that? If nothing opens up, say, for the next 3 years ago. I mean, happy just to sit and wait and, maintain your sort of consistent policy net debt to EBITDA at 1 to 1a half times. A thin levy plus share buybacks. Can you just give us a bit of a flavor of your thinking because the pipeline as I see it kind of is close I don't necessarily fully agree with you that it's totally closed, then we would have communicated that so. We would sit around and wait. We would not necessarily, as you say, sit happily, around waiting. We believe And I think history has demonstrated that also that we can generate value to shareholders through M and A, also large scale M and A but we have to also remember this is very important. Then even excluding M and A, the apps grow of DSV can be quite healthy. We can probably grow it somewhere between you can do your own assumptions and calculations. Between 10% 15%. The earnings, excluding M and A can continue to grow quite significantly, I think. And we can also, I wouldn't say, boost it, but then we will we will use each year's cash flow to buy back our own stock and that can also give depending on the stock price, of course, an element. So then, of course, investors will have to to sit down and say if this is attracted to them and earnings per share growth of between 10% 15% This is what we can do excluding M And A. I think I still believe that you cannot say that there has been a lot of up for sale. It's not necessarily also that things are up for sale. We we can we can also sometimes trigger, kind of a certain situation, if you know what I mean. So it's not like we are only sitting waiting for the phone to ring. We also call up sometimes to to put it that way, to to get something going. And, I'm not as, I don't service share your kind of, opaque view on the M and A, but, but, but what I do share is that it's not easy and there's a lot of work that needs to be done, but the history has told us that, that suddenly something happens. And if it happens, if an opportunity arises, we will be ready also to act. But is it fair to say that obviously history kind of different now because obviously MC has and continues to consolidate. So actually the targets at the top table are just obviously just why you know, nature just because of the consolidating industry, just We hope we hope we hope we will be able to. We hope we will be able to surprise you, in a positive way going forward. You are right. There's more, but, but to be honest, I don't think been a lot of if you if you analyze the last couple of years, it's been relatively limited. I mean, there's been a lot of talk about a lot of companies wanting to do a lot of stuff, but then I don't actually think if you look at the different statistics also I think in our industry M and A has been quite limited in 'eighteen and to a certain degree also in 'seventeen but I agree with you We don't have a lot of a long list of open opportunities that we can just call, but we will remain this I think this is also something which we have, promised our shareholders that, that we will, we want to do transactions but only if they can generate value to shareholders. And I think that discipline is also something that we need to remember and an asset also that we need to protect in the company. Thank you. We are now approaching the end of our call and I'm handing back to our speakers for any closing comments. Okay. But in that case, I, wanna take this opportunity to thank every and each of you who have, participated, who have listened in also. We know it's not everybody who, who has, questions. So thank you to you guys also. Thanks to all the good analysts who have come up with some good questions today. We actually appreciate that very much. We like the interaction that we have with you guys. It helps us to improve the company also. We are now heading into what we are in the very busy period of the last part of this year. So we will go back now and probably use the next couple of weeks to speak to investors and then we will continue to run the company and then we look forward to speaking to you guys again in this format at least when we announced the full year results 2018. So thank you very much here from Hilla Hoosner in Denmark.