Earnings Call: Q1 2018

May 1, 2018

Ladies and gentlemen, welcome to the DSP interim financial report for the first quarter of 2018. Today, I'm pleased to present the CEO, Jens Buen Anniston and the CFO, Jens Lund. For the first part of this call, all participants will be in in only mode and afterwards there will be a question and answer session. Thank you very much, and welcome to this presentation of the Q1 twenty eighteen numbers. As you heard. I'm joined here today by Jens Lunden, here now our head office in Hillhoosnner, and we have, for a long period of time been looking forward to sharing these numbers with you here this morning. And, I just suggest that we will go straight into the result And after the forward looking statements that I would kindly ask you to read on page number 2, you can see the agenda this morning on page number 3, it looks pretty much like it has been for many quarters now where we will go through some of the highlights of the previous quarter, talk about the 3 business units, the divisions, how they have done. And Jens Lund will conclude the search with a financial review, whereafter, we will leave the floor open for questions and answers. And I'm sure you know how to your answers on the conference call. So page number 4 is the highlights of what we consider a very, very good quarter in DSV. We tracking our plans in many areas. We are actually slightly ahead of where we expected to be after Q1. So, I think we can say that the very strong and good momentum that we saw at the very end of 2017 has continued into 2018. Which is, of course, something we are very pleased about. The gross profit of the period grew 3% driven by a very solid growth in volumes and I will come back to that later on. And sometimes frustrating, but we still have to draw your attention to the fact that we did have fewer working days in Q1. Because of the way that the Easter was and we in the European part of our business, it's about 2 working days fewer. Which does have a negative impact. What has our biggest interest is, of course, the EBIT in constant currencies, the EBIT grew 9%, which is something we can be pleased about. The growth was driven by a very strong performance in both Solutions And Air And Sea. And of course, I will come back to that later on. We have, as one of the few players in the market, a very solid outlook we give every year before the year starts. And We have now found it correct just to adjust the range a little bit. So now the EBIT, the hard guidance we give for EBIT, is now a range between 5,100,000,005,400,000,000 damage chromes. And because of the fact that the cash flow has been strong as expected, we have also announced a new share buyback program this morning of 1,100,000,000 Danish Kronos, which will be launched actually as we speak or it has been launched this morning. And again, we'll come back to that later on. If you want to see how the growth in gross profit and the EBIT has been put together, you can see it on the illustrations at the bottom of, of the page. So digging into the divisions, I have to say that once again, we have been extremely pleased with the performance, very, very strong performance of, the Air And C division. They've done, once again, fantastic, strong performance, especially in air freight. Driven by export from the EMEA region and the Americas. You can see that the bottom of the page that, we've grown air freight, a 10.3% number of tons. And it has to be mentioned here that this is a pure organic growth. This is excluding any M and A or any, it's a clear, organic rate in comparison with the same period last year and we've moved 162,000 tons of air freight which is nice. And it is about twice as, as higher growth rate than the market that we which has grown about 5% to 6%. What does police us very much is that we have seen this growth without diluting the GP per ton. In constant currencies, it's up almost 1%, which is, of course, something which is extremely important. That we always, as we talk about, the growth should be a profitable growth, and this is also what we have seen. So super, super performance on air freight. And we expect that the growth will continue. If it's going to be double digit, it remains to be seen. But we have a very, very good pipeline of new customers coming in with significant air freight volumes to DSV. Seafreight has grown slightly ahead of the underlying market. You can see that also, on the on the Seafreight section of the chart, We've grown the number of TUs with 4.2%, which is slightly ahead of the estimated market growth of 3% to 4%. Here, we have seen a slightly or a more positive development on the units on the yields in constant currencies. We've actually grown the GP per TEU with approximately 3% which is very good to see. So overall, this has led to an EBIT growth of almost 25%. And, once again, we demonstrate, a set of margins, which, I have to say, if not, industry leading then very close to industry leading. And as we are still not where we should be in terms of the long term financial targets of DSV, we still expect these margins to go up even though they are very, very high. So Good momentum in the division, it's a true pleasure to be able to see this development. Next page is page 6. It's the growth division, where we say that the gross profit has grown almost 3%. You have to, in the road division, adjust for a property gain we had in Q1 of 2017 of $125,000,000. And, when you take that into account, we also believe that the vote division has done well. The underlying EBIT is, is on par with Q1. 17, in spite of fewer working days. And if you actually take the fuel working days, which has a higher effect in growth and in air and sea because we are bigger in the Nordics in road as a proportion to Air And Sea. I think it's fair to say that the underlying EBIT growth of road is a 15,000,000 to 20,000,000 Danish Kronos. And of course, we have put something in the bank for Q2. You know, this will be something that we expect and we expect to see in the coming quarters. We've also seen this is something we're very happy about a sequential improvement in the gross margin after we did see the gross margin dipping below 17% in Q4. We are now back on the 17% mark. And we hope very much that we will see the gross margin of the road division stabilizing at a level between 17 18% for the whole year 2018. You can also see on the very low end, that number of shipments have grown 3%, which is slightly above or in line with the market. So everything taken into consideration, a good result for road that also gives hope for future EBIT growth. So the last slide before I hand over to Jens is the is the solutions division. It's a strong operational performance that has led to this EBIT growth of course, when you compare with a low number last year, the The growth seems very high. So we have to remember that the $66,000,000 that we made in 2017, I think we also said it at the time was not satisfactory. And when things are going in the right direction, of course, we see a big impact. We do see a big, contributor, being a, growth in e commerce, which is growing faster than the normal business But we've also seen growth in the more traditional 3pl business with last year, retail brands and also within the automotive industry. What also helps on the profitability is that we have managed to to, we've seen a positive impact from the focus we've had on consolidation to fewer sites. And, I think it's also fair to say that what we internally call the so called the leader list of unprofitable sites, countries and customers have significantly shrunk during the quarter, which has also meant that the result has been good. And last but not least, we also have to mention that we do see some impact of also synergies on the cost base So overall, strong performance of solutions, there's a lot of, of demand out in the real world scope sake from our customers to buying these extremely sophisticated solutions that, that the division is capable of producing And I think the division will continue to report fairly strong numbers. So, with that said, I will now ask you again on page number 8 to go through some of the financial numbers. Thank you very much. And I'll just have a quick rundown of the numbers. I think the first thing that we've noticed in the conversations we've had this morning is that there's been a little bit of confusion as to our revenue growth. Actually, in constant currencies, we have grown 5.6%. And I think the confusion relates a little bit to the fact that we also operate solutions and some road activities overseas. So they've also been impacted by the weak U. S. Dollar. On the GPU level, I think everybody has sort of followed that translation risk or exposure and we see that we have a growth of 3% So that's fairly okay. On the cost side, we can see that we've taken cost out and the conversion ratio has increased compared to less are now at 28.1 percent on group level. So that's pretty good. This leaves us with an EBIT margin of almost 9% or an EBIT growth of almost 9% and the margin of of 6.3%. So all in all, very solid income generation out of our activities one item that has caught your attention is, of course, the FX on the financial items where we see that we've had a loss of more than $80,000,000 in the first quarter. Now the dollar has actually swung from 20 on 1st January, it's an approximate 6 on the end of March. Now it's back at 6 19, so we expect to recover this in the second quarter. The dollar exchange rate continues to stay where it is. This is internal loans we have in U. S. Dollar that we do not hedge and this is the way you account for these loans that leads to these rather technical adjustments. If we take the tax rate, it's 23.2 percent. We're still working a little bit on the structure that we need to have in place for the U. S. Tax reform. But so far, we are going to stay of the current tax rate and level. If we look at the EPS growth, as we can see, that we've now grown the EPS almost 24% over the last 12 months. And some of you have also asked about the HD headcount. We can say that the swing mainly relates to higher activity that Jenkins plan just mentioned on solutions. We can see that with higher activity, relative higher activity on road, and this leads to a higher consumption of, blue collar. We a little bit down on the number of white collar employees. If we move to slide number 9, look at the cash flow, I think, Midland Capital at 3.5 percent of revenue at the end of Q1 that is satisfactory. We think that Easter has impacted collection a little bit because many people have been on vacation at quarter end. So apart from this, I think the cash flow statement is pretty straightforward. And on it, it's interest and benefits. It's at $6,100,000,000. So it's a 1.1 times EBITDA. And we have a commitment on our loan portfolio of 3 years. So we are also in a solid position there. I should say. I think if we look at the return on invested capital and exclude, you know, equivalent customer relations, we are at a fairly high percentage. We almost reached 100%. So we deploy a very little capital part on the intangibles in our company. If we move to the next slide, slide number 10, Just a quick overview of the allocation to shareholders. We normally have this overview as part of our presentation and you can see what they've done in Q1. That's the actual figures. And of course, the newly established share buyback program is just in the distributors over the period. So we expect to allocate another $1,100,000,000 before we will speak to you the next time. If we take the outlook on page number 11, I think, yes, Bruno already mentioned that we just narrowed the range for operational profit to 5.1to5.4. Some of you have, as I said, why should we not adjust the cash flow? It's a single figure and we think that having guided this figure, it's still the relevant figure to show given the other assumptions that we have there. I think that was what we had on the outlook that is worth paying attention to because I already spoke about the tax rate, which we expect to keep at 23%. If we move to slide number 12, we can then go to the Q And A session. And as well, I'll be ready to take your sense. Thank you Our first question comes from the line of Casper Blom of ABG. Please go ahead. Your line is now open. First of all, I suppose it's maybe not that easy to separate anymore, but do you have any sort of feeling as to how much the UTI synergies are helping you here in Q1 more to get a feeling of sort of what should expect from that side in the remaining 3 quarters of the year to sort of really reach our way through? That's my first question, please. That if we look at the UGI since it's, it seems as we're speaking that we will have approach that we had guided $200,000,000 of impact in 2018, and we will receive the the recent effect basically in Q1 and Q2. So if you calculate with approximately 100 or something like this, I think you are not too far off. It's very hard to say for us exactly what one that we actually see the impact of all the initiatives we took last year. But we get the full year impact this year of things we did last year. Okay. But basically you get it in the first half of the year. Very straightforward. And then secondly, coming back to the world business, as you point to your conversion rate sorry, your margin is back on track after the dip in Q4. Can you speak a little bit about the dynamics in pushing through these higher prices in with regards to having higher costs. For the lack of drivers that you saw in Q4. What is sort of the dynamic now and is it still a little bit too hopeful to sort of hope that you would be getting some pricing power back for real here? It seems like the market has improved. We had also that Q1 is normally a soft quarter in terms of supply and demand, except for just a period the right up to critics who are not to Christians but to Easter. So, it seems like, or we have been able to get higher increases from customers enrolled and then what we have normally seen, some of them have not been, kind of having a full effect of the whole quarter. And it seems like we have gotten some of the pricing power back when it comes to dealing with the suppliers. We've also strengthened the central procurement team of capacity. So we saw a larger part centrally now of trucks than what we did in the past It's also important for me to say that, of course, we are happy that we are 17% now, but it's not the end game, hopefully, I think it's still our ambition to grow that to see if we can get that slightly off, as I said, because between 17% 18% would be really good, but it's, it's unfortunately not possible for us to, to account for exactly when did we get the increases overall? Because it also happens in different phases in the different countries. So, but overall, it's seemed like we have had a higher penetration when it comes to increases than we've had for some time at least. You I mean, you've been talking about the 17 to 18 range for a while now. What would it take for you to sort of become a bit more bullish and say, okay, now we want to get above 18%. Of course, it's tempting, but I mean, we are you also know, think that it's extremely important that the investors in DSV, they can kind of rely on what we say. So we would like to say something that we can deliver on. So we have to take this in a couple of steps. Now we've said, let's stabilize this above 'seventeen, between 'seventeen and 'eighteen. And if we get to closer to age in, you can rest assured we will not be satisfied with that, then we will see if we can take it higher, but the it would kind of take, that we would see probably a more, supply coming in. So we would kind of stop the increase that we have seen that that would kind of not happen, that the rates that we pay through the whole years would not go up any further from where they are today. It's still very competitive. And it's not so easy. I can tell you that just to go out to the market and increase the rates. But then it's the first step. We are happy about this and then what we can promise is that we will work hard to get more, what you say, out of the new GP in terms of conversion ratio. I think we still have a good potential to grow the EBIT because of our productivity improvements and the new technology that we take, introduced in TSC. Thank you. Our next question comes from the line of Mark Macsicker of Barclays. Please go ahead. Your line is now open. That's great. Thank you. I have two questions. First one is there's quite a lot of talk around at the moment about a slight slowdown in the global economy or there being a soft patch out there. When you look at your order books and you talk to your customers about their intentions, for second quarter and later in the year, you detect any sign of that or is this just, sort of economists running around? It's tempting to say it's the latter, economies not running around. I don't know if I would choose that phrase, but We actually see no slowdown. We spend a lot of time. The senior management of DSV speaking to was for natural reasons. It seems like they are still optimistic. You could argue that comparisons are becoming tougher But when you look at the volumes, I think they're still looking pretty decent. So in our forecast, we have not taken into account that we will see a slowdown in the economy. And I with the knowledge that we have I don't see that as very likely either. Okay. Thank you. And then my other question was really linked to that and to do with, with capacity. Obviously, particularly on the air freight side, the market is pretty tight and obviously you're working hard to manage that. Do you see from here the air freight and the seafreight markets tightening as we go through the year? Or is some of the softness or softer conditions that we've seen on the particularly on the on the ocean side likely to persist. And therefore, and therefore, directionally where do you think your GP is likely to move over the balance of the year? I think that the ocean market will continue to be soft there will still be a lot of new capacity coming into the market. The growth is, it's okay, but it's lower than what we see in air. We get all the capacity that we need. Of course, as you know, very well, it's a super volatile market where the ocean carriers constantly try to get the rates up So we have to be super aware and be close to both our customers and the suppliers. So we are not concerned at all to get the necessary capacity on an ocean. Air is a little bit different. We have to right more in certain weeks of the year to get the capacity that we need. It helps us tremendously that we are one of the larger players now in the market. It clearly benefits us. We do get some, what should you call it, kind of preferential treatment in terms of space allocation from from the airlines, which we would also expect when we are a large customer. So I think that we will we could probably see for the rest of the year also, a continuation of what we saw in Q1, meaning that that ocean yields could improve maybe slightly more than what we have seen in air, but being offset by a higher growth in air. So the absolute earnings can still grow pretty nicely also for airfreight. Our next question comes from the line of Damian Brewer of RBC. Please go ahead. Your line is now open. Good morning. Also two questions for me, please. First of all, can I just turn to the Road division? And in particular, we've got some capacity issues, fuel is up again. Could you give us a little bit of overview or elaboration on what you think happens to the market is like you to trigger any further either passive or active consolidation? And given you've announced another share buyback, it sounds like at least you're not going to be participating in that in the next 3 months, but just your general views there would be very helpful. And then secondly, on the solutions business, you've grown the business, you've grown the EBIT, but the net working capital has been stable, but still is relatively high. Can you give us some feeling for how far you are through working out the working capital issues in the solutions business, particularly with the capital charge now being implied or applied internally within the business? Thank you. Yes, I'll just start off with the first. If I understood you, correct, Damien, it was the consolidation within road. I think we are we are we can say on 4 that they're not in a position where we can participate greatly in a consolidation and do large acquisitions for road. We need to to finalize the implementation of our new TMS trench commencement system for road we are, it's still early days. It would be too risky so to say to do a large acquisition in growth for the time being. So it's not very likely that that would happen. That does not exclude that we can do small local initiatives by niche players in certain markets that could give us an advantage, but you should not expect a larger acquisitions when it comes to road So, that's probably what I can say. And then Jens, maybe a little bit on the net working capital and solutions. Yes. And what we're doing in solutions and actually throughout the group is that we've applied some networking capital charge, and that's, of course, created a lot of attention. We can see that this has led to change behavior and, that we try to collect our money faster. But it's also clear that many of the arrangement we have on solutions is like 3 year deals and sometimes even 5 year deals. So it can be a slow process to improve it. But I think we see things trending in the right duration and I've just had a number of board meetings internally sort of for the last weeks, and I can tell you that it's something that is very high on the agenda. Both from my side, but certainly also from the countries trying to improve it because it has an impact on the results they are able to report. So I think that's what we can say at this moment in time. Okay. And just to be clear, the movement from the 2.5% to the 2% full year ambition on the net working capital intensity. Is that purely Easter timing collection or is there some fundamental structural changes you'd expect within the solutions business within the 2018 year? That the Q1, I think it's, of course, impacted by Easter, but it's also normal that we have our best situation on the net working capital the end. So having 2.5% here at the end of Q1 is actually of the acceptable rains. Of course, we like to do better and we have a lot of focus on it, but I think we are satisfied. Okay. Thank you very much. Our next question comes from the line of Neil Glynn of Credit Suisse. Please go ahead. Your line is now open. Good morning. If I could ask firstly on airfreight, obviously an impressive volume performance which on which you haven't had to concede on pricing. Just interested, would you characterize the businesses as that you've won as driven by your expanded footprint solely or are you providing new solutions to the industry? Just a bit of color on that would be useful. And then a couple on solutions. First of all, Yens, you mentioned dealing with the bleeders and working capital was obviously just touched on in the last question, but just interested can you provide some more detail on what you've actually done to deal with the bleeds? Has it been a question of, terminating contracts early or how there been a labor solution, for example, or an automated solution. And then finally, on the solutions broader competitive landscape, it's obviously a localized market and fewer larger players than in Air And Sea. But there just seem to be some sense that the market this change with new players looking to position themselves for the future. So just interested in terms of whether you're seeing any change in competitive forces and and what this may ultimately mean for pricing that if we start off with your first question about air freight is what pleased us the most when we saw the numbers coming out was of course the fact that we managed to grow much as we did without sacrificing the yields. This is an underlying, it is what you say logic that we always client DSP is when we talk about growth, there needs to be a profitable growth and not just growth for the sake of growth. All growth with the hope that you will somehow turn new loss making customers into profits in the future. We simply don't believe in that immediately. I think it's, it has to do with something, the reason that we are growing, it has to do something that sounds very simple, but it's a good service we deliver on the promises that they give to our customers. They like that. Somehow, we have managed to keep our our once we say, culture and tech from when we were a smaller company than what we are to buy today. So it's a combination of the strength of a big player, acting still like a local player, customers can contact us 20 fourseven and it's something as simple as that. So we've grown a lot with both brand new customers, but also existing customers just allocating more business tools. So we are very pleased about that. And as I said, the pipeline for new customers, which are on their way, introduce me now is looking really, really good on air freight. Solutions, it's correct. It's maybe it's a maybe a dramatic term to use the breeders, but we call things what they are. When we talk about breeders, it's simply a list, a top 10 list. And I can tell you, it's a top 10 list. You don't want to be on because it's, it's the least profitable countries. It's the least branches. It's the least profitable customers that we're dealing with. And of course, when you have, multiple locations, which are maybe not, they are actually loss making. It would present a big uplift if you can stop that. So that was the We've had that for many years and it seems like we've been successful. We have terminated some contracts. We have set your customers These are the terms. If you don't like them, we will have to cease operations. We've also managed to improve operations, other places by improving the efficiency, productivity. We take a new technology introduced, and of course, just as using new technology can also improve the productivity tremendously and also hence the the profits ability. When it comes to new players, it's It's a gigantic market. We have recognized the fact that new players are coming in, but so far it's not something that we have really seen impacting our operations. I think that's what I can say. Thank you. Our next question comes from the line of Edward Stanford at HSBC. Good morning, everybody. Two questions, please. First of all, perhaps following off from Solutions. Strong performance was produced. Are you able to say and differentiate between whether the growth is coming just from existing customers or have you had an unusual a number of new contracts coming on stream in solutions in Q1 and how might that look perhaps for the next periods coming? And secondly, in the air freight market, some of your competitors have talked about anticipating quite significant increases in rates over the next few months is, is that your experience too? And to what extent are you now given the capacity constraints have been an issue for you sometimes? Already looking ahead and pre planning for the peak season. How important is that for you to do as well? When it comes to solutions, you have to, as I said, initially, you have to take into account at first glance, it looks excessive improvement that we have, 92% growth in EBIT or whatever it is. So You have to take into account that Q1 last year was a, it was a weak quarter. We were not happy with the performance it's like we cannot point to one fact that has led to this improvement in EBIT. It is a combination of, as you correctly pointed out, new activity, both with existing customers that has grown with DSV. New customers coming in also And then as we just touched upon previously, an improvement of loss making customers or activities, which start the loss making contracts. Of course, that has also been, been been helpful for the profit in the solutions. Airfreight, it's correct that with the high demand, we could look into a period where rates would go slightly up. It's not like we expect weights to skyrocket in the future. But with the new size we have in air freight, it also means that we have to look at the planning in a little bit maybe more sophisticated way than what we did in the past. We have strengthened the central procurement of air freights. It sits now in New York, in the U. S. And I think it's fair to say that we have secured more capacity, a long term than we would have done maybe a couple of years ago before we bought UTI, but it's also fair to say that we are not in the market of speculating in rates it's not like we take big gambles about what will happen with the rates going forward. I think we are highly conservative when it comes to that. But air freight, it's a good, it feels like it's a good business to be in right now. It has, it has it generated a lot of proper forms in the past quarters. Our next question comes from the line of Daniel Rotkow of Sanford Bernstein. Please go ahead. Your line is open. Good morning, gentlemen. 2 for me, I'd like to back on the Road division for just a second. You mentioned the new TMS you're putting in Road. Could you give us a timeline and possibly also kind of what you're expecting in terms of this impact from that in terms of conversion rate. Once that transformation is over? And second question, maybe a little bit detailed, we've seen the rise of labor costs for drivers, especially in the U. S, that's been the topic. Are you seeing similar trends in the other markets, especially Europe, for yourself? Thanks. When it comes to the GMS platform, I think we are piloting, as we speak and making a a complex thing to replace our old system because it includes a lot of functionality that has been now build up through many years. So once this is done, I actually think in the beginning, we will go up with phase productivity that is not higher than the one we see today. But then afterwards, we're planning capabilities and stuff like that. We should be able to see some benefits, but that's probably 3 4 years ahead of us right now. So we will not speculate too much about it, but of course, we do have ambitions to automate more and to take advantage of the planning capabilities and work as well. And utilize the capacity we have. On the labor cost, I think it's clear that Of course, we see also increased prices for subcontractors on the driver side in Europe. As well as in the U. S. So that clearly has a spillover impact and that leads back to what you've done mentioned earlier. That, yes, we'll get more from the customers, but the subcontractors actually also ask us to pay them a higher rate. So it's a similar thing we see in Europe. Yes, thank you. Thank you. Our next question comes from the line of Bruce Chan of Stifel. Please go ahead. Your line is now open. Yes, thank you and good morning, gentlemen. Most of my questions have been answered, but I just want to take a moment and go back to some of your commentary around from our positivity and the general feeling, about the economic climate here. Specifically, looking at some of the, you know, rhetoric that's been going on around trade, especially, you know, some of it that's been originating here in the U S. Has that started to enter any of the customer conversations so far as far as, you know, if not, maybe expectations for lower volumes and at least planning for some, you know, possible disruptions? We haven't seen that from the conversations that we've had with our customers. Of course, it goes without saying that We are great believers in free trade and any restrictions to free trade is not beneficial to DSV. If we do enter a period of time when we see big trade wars, That is definitely not in our interest. If that is just around the corner, I just don't know. It doesn't seem to be the case. And of course, if you hit the big volumes like, like, like steel and stuff like that, it's not something that we are at first hand, really exposed to the good business, the global effects. I do understand that. But for the time being, it's not like we see a big rock where customers are placing additional bookings to get ahead of a potential, what you say, a new check which have been put on certain products. So we haven't really seen it, but it's not a scientific explanation. It's extremely difficult for us to track. We have 100,000 of customers, and we cannot get the intelligence from all of them. But it's not our understanding that we are just heading into a big storm that will significantly, what you say negatively impact the volumes that we are handling. Thank you. That's very helpful. And just one quick follow-up here. You commented earlier this morning that you're not planning on making any acquisitions in the Road division, of course, over the few years. You know, you've also got the new share buyback program in place. I'm assuming that this doesn't change anything with regard to your capital allocation strategy. You know, specifically with regard to M And A, can you give us maybe an update on on M And A and then your pipeline there, if possible? We've always initiated a new share buyback program every quarter. We do truly believe that the money rest best with the shareholders. And as the cash flow has been strong, we felt that doing a 1,100,000,000 share buyback program was appropriate. We think shareholders should expect GSV is a consistency, and we will, it's extremely important for us that you kind of know what you get in GSV. So we cannot go into a situation where I would suspend all of a sudden cease this policy because of M and A. But we are still very committed to M and A. We are in a fragmented industry. We've said this 100 times, It's a it makes sense for us to take part in this consolidation. We feel that we have in all modestly created some value for shareholders in the past by doing M and A. So we are encouraged by the latest acquisition we did of UTI to continue Unfortunately, the attractive candidates are not really kind of ready to to enter into negotiations with DSU for the time being, but there will be opportunities arising and Of course, we have some plans also in the company and we will work hard to make a transaction possible. But We will also have to remain disciplined to pay what we feel is the right price also for these assets. And I think it's only recently that we have kind of entered a phase where we are ready to do acquisitions after the integration of UGI, but I think that it's it is at least part of the strategy and it's something that we will work hard to make possible also in the future. Excellent. That's very helpful. Thank you. Thank you. Our next question comes from the line of Lars Heindorf of SEB. Please go ahead. Your line is open. Yes. Good morning, gentlemen. Just one question for me regarding overhead costs. When you sum up the cost and EBIT and gross profit of the business and then compare that with the actual reported numbers you normally get select the overhead cost, which last year was around $40,000,000, a significant decline compared to previous years when you were the process of cutting back on UTI and the overall cost there. So just a question, if that's sort of the level that we should expect for this year as well. Yes, I think the level that you see in the cost side, in Q1, there's been a lot of changes. There was also some issues with Blue Classic locations last year and so forth. And then I think that is what we should expect last, that the way we've reported it yet in Q1 is is what we expect for the main part of Thank you. Our next question comes from the line of Jurgen Brou asset of Nordea Markets. Please go ahead. Your line is now open. Thank you. I think most of my questions have been answered, but probably just one on Ocean Freight, which is a bit sort of more high level. I mean, on your sub suppliers and ocean freight, we now have seen the alliances taking place and consolidating being executed on the container carriers. Do you see any real impact in that to your business model? And Also, when looking at Q1, it looks like reliability amongst the ocean carriers have been record low. How does that impact your business? And and final, so if you publicly could, address some of the changes we see on the on on on the supplier side in terms of integration. Now with CMA moving into to CEVA, how do you see that in context of of your business model going forward? Thank you. We cannot comment on the specific transactions of CMA intention to acquire a small or a certain proportion of, of CEVA. But it seems like it's a strategy of this particular ocean carrier and there's nothing really we can say about that. We will focus on our own business and make sure that we have a value position that is, remains very strong, and we will focus on our, to make sure that our processes are very efficient. It's very important to say that there are great differences between being an ocean carrier and being freight forwarder, it is 2 important functions that each part deliver, so to say, but there's 2 choices of different products. And I think we are well positioned to to kind of take market share in this market that we're in now. But of course, it's something that we are tracking. These these new developments from the ocean carriers and we will draw our own conclusions when we fully understand what it is that they are trying to develop, so to say, I didn't really get the first part of your question. What was that about with the ocean carriers? In terms of reliability, for instance, how does that influence your business planning? I mean, now we've seen record global reliability on ocean carriers do you see any shift from ocean to air volumes in terms of the liability being too low or do you see reliability being a bottleneck for your business planning? Basically, it's an nature of the freight forwarder to handle exceptions. So, of course, we like to have that we can rely on the lead times that we get from the carriers. But I mean, we have to deal with the we get, I guess, that's a market issue, and our customers are well aware of this. So we have to handle these exceptions and and offload the container soon as I move the cargo if relevant. It's not that big issue that sort of causes dramatic commotion in our business, but we certainly do see that from time to time that there are disruptions in the supply chain. I think that's as close as we can get it. Our next question comes from the line of Andy Chu of Deutsche Bank. Please go ahead. Your line is now open. Good morning. 3 questions, please, all on solutions. Could you on your top 10 sort of list of sort of bleeders, what sort of annualized losses there contributing, or they could contribute going forward. So it just gives flavors to what that book looks like. And secondly, in terms of the average contract length, could you just date as where you are in terms of your solutions business? And then in terms of your sort of current sort of book of business, is there much seasonality around the way those contracts are set up as there's a little bit more weighting towards Q4? And less in Q1? Was it pretty evenly split by profits, as you look at it today? Thank you very much. I think if we look at our updated list, I think we keep that internally. I don't think we would like to share that with you guys. So I think that, that sort of answers that one. Then I think if we look at seasonality, I think as John explained, we had a weak first quarter. We normally have the lowest income in the first quarter and then we generate higher income in Q2, of course, also in Q3, building up Christmas. But certainly also having a very strong quarter in Q4 as well. So I think that would be the, you know, the normally split of or distribution of income. When it comes to the contract then, many contracts, if it's like normal or operation is a typical, a 3 year contract, so you would have an average to raise not these up to, of 1.5 years. But you also see that for a larger customers that we move into big distribution centers in particular sort very large operations, you would typically have, let's say, a 5 year contract or a 10 year contract with a 5 year clause where somebody can step in. And we actually see that we sign quite a few of these also a little bit longer contract. So if I should give you an estimate on the duration of our whole contract portfolio, it's probably between 2 2.5 years with we believe is actually planned quite good. And then, of course, knowing that it's skill on the large accounts where we have an even longer duration. So, and we've gotten it fairly well organized. If you're listening to previous calls, you could see that we were talking about customer implementations all the time and having big issues in relation to that. I don't think we have solved implementing customers completely. We do make mistakes from time to time. But I think overall, we've gotten better at implementing new volumes and this certainly also has an impact on the profitability that we show. Okay. So you think from an industry standpoint, from your standpoint that the sort of loss making contracts that I guess as you say been talking about or the industry has been talking about for more than Okay? Do you think that issue is certainly from your point of view, are you signing contracts at, at a good prices and sort of able to execute against those those targets. So the sort of the top 10 list shouldn't be an issue going forward. Is that all or at least from material issue, I mean, because I guess the problem with contract logistics is almost just as easy as one thing I think we're going well in an industry has a bit of a sort of, in a hit try record of 10 steps forward 2 or 3 steps back or maybe sometimes more. So I assume the outside is obviously very difficult to get a sense of the sustainability of any sort of recovery. I think basically it's a big change process when you implement a new customer. I think that is the risk. I actually think that most customers, when they are up and running their price correctly, we've got business to install it out. I think one of the things that has been our focus is to have a much more control in the implementation and also that we standardize our processes. Because if we do this, then we will have staff that can work these processes in an efficient way. Which is good. And then I think the whole project management in relation to an implementation, we see the gaps scheme and then we can deal with them without it becoming too costly. I think that is some of the things that we're looking at of course, going forward, we face another challenge, and that is that we need more automation in the way we run our setups. So what one hand, you standardize and then you will have a more automated way of producing, I mean, you've seen many videos on YouTube, you know, and we implement some of these technologies as well. So we need to be also diligent going forward because the complex year increases, but given the current complexity, I think we're in good shape when it comes to implementations. We've just implemented some last e commerce contracts, big volumes, a lot of small paid thousands are fixed. And actually, you know, if you sit in the in front of my office, you know, we don't see it in the month of reporting. So we can only say to the division that this is really, well done. And years back, you know, sometimes we had implementations we were talking about for quite a while. And But the industry does, I think everybody is facing the same challenges on this one. So we just have to do better than the competition and we're okay. Thank you. Our next question comes from the line of Finberg Peterson of Danske Bank. Please go ahead. Your line is open. Yes, good morning. Talking about IT, could you, I can see you spent 1,000,000 on unintangibles investments in the first quarter. And you're mentioning a rollout of IT systems. Could you give a status of where you are with your IT in all three divisions and what is your expectations and for the rollout of new IT and also what should be the CapEx going forward? I think if we take it overall, the overall topic of DSV is consultation. So we have our standard platforms for each division. And then we consolidate volumes on that. I think it's clear to see that on the ANC side, if we start we actually have one country that doesn't operate on cargo wise, and that's what we moved on this year. Apart from this, all the volume is basically on our CargoWise platform. So that's fairly consolidated here. We then work with milestones, increasing productivity, customer reporting, additional tracking information so that we get the last mile confirmation on and stuff like this. So that's certainly a key topic for the MC side. On top is, of course, our IDSP platform where we have online booking and we have Dragon Trace as well. So also this customer interaction is supported and digitized. Please remember as well that we do have on the MC side, significant interaction with the customers where we receive bookings electronically. As well. So we are digitized to a certain extent, and we are moving forward digitizing operation, even more so on our file handling, we are basically paperless. On this, the authorities, of course, require paper documentation, which they do in certain areas. So that say Anshri, I would say we are very advanced on the Anshri, if you look at it on the road side, I already talked about the cargoes and the consolidation of systems. That still has to basically go from the pilot phase, which it will do within the next 12 months or so, then we have a fairly good idea if the system can scale. And if we have the functionality, we need the progress we're making shows us that we are on the right path and I think we'll be able to make that. We then sit with also production systems enrolled in other areas. And here, we are also consolidating So still some ground to carve on road, but I think we're in good shape. And solutions UTI, we were working on consolidating on 1 VMS, not TMS, but warehouse management system for the solution side as well. And then we acquired UTI. UTI had a very scattered landscape of systems So basically, you could say that we will then back to square 1 and we've done a lot of work on the DSV side. Check taking our old legacy systems out and now we're working on the UTI side. I think we'll be grinding for the next 3 to 4 years. It's a rollout we take it a customer by customer side by side country by country and move that out. I think on solution some of the most exciting thing is that we actually now managed to establish a service catalog for a number of different things can use as automation tools that will increase the productivity. I think many have seen the videos of reasons that can move the cargo autonomously all different sodas, print and appliance, loosens, whatever we are talking about, voice pick or some used glasses, whatever. These things, we standardize in a service catalog and then we can roll them out as well. And we see that many of the solutions we now deliver to our customers that deliver include some kind of automation as well. So that we increase the productivity. So I think also on the solutions side, many interesting projects that should differentiate us from many of our competitors because not all of them have the capacity to invest in projects. And this is sent back to the figure of $113,000,000 in intangibles I think you could easily see us spend between 1,000,001,000,000 on intangibles on a yearly basis. And going forward, if you have your model, you perhaps need an even higher number. And this is also the reason we have a relevance because we automate many of these processes and squeeze out many of the small competitors because they can't invest a similar amount. So IT, it's an ever important topic and it will only become more important in the future. So I don't know if that sort of answers your question. We have many other IT things, but I could of ours and then Orange Brown is going to fall asleep. So I think we'll stop here now. I think we should let teams come back to life and And it's about noon. So thank you very much for the answer. Thank you. Our next question comes from the line of Stuart Todd of Lloyd's loading list. Please go ahead. Your line is now open. Yes. Good afternoon, gentlemen. Just a couple of questions around the effort. First of all, is the, is the growth across both, as I said, geographical zones and trade lines are more dynamic than others at the moment. It's a quote. The boat, we are, of course, it's the traditional in Meera and Americas export out of those areas. Who's driving the airfreight for us for the time being. So, and it's normal in Australia, it's not like we have won some, 1 extra perishables account with a high profitability. So it's it's out of these regions and it's such as many countries in DSV. Yes. Just a follow-up. If there's anything you said about the 30 that are particularly dynamic at the moment. Are you seeing any, any comeback in the, the oil and gas vertical given that oil prices are increasing? No, not at all. We are very limited in oil and gas. And we have won some business out of Houston. I know for some large clients recently, but the oil and gas vertical has deliberately been is small in DSV for some years, but you're right. It seems like, of course, the oil price is stabilizing. So you could speculate that that it would be a better place to be in the future, but it's for us. It's pure speculation. There's nothing we can really do about that. Okay. Thank you. Thank you. And there are no further questions at this time. Please go ahead speakers. Sounds good. Thanks very much for all your good questions. You keep us alert here for more than 1 hour. We really appreciate thank you, to everybody who has listened in. As Basil said, you should go to the 46,700 67 TSC employees who has made this result possible without you, Vince Lorna and myself, we could not sit here today with a big smile on our faces. So thank you guys. You really rock. So we, we conclude this presentation now. And as we are in the middle of Q2, we will continue to work hard and we will get back to you just after the summer holidays here in the Nordics with the, with the Q2 figures. So on behalf of everybody here at the DSV team, Thank you very much and bye bye. This now concludes our call. Thank you