Investor Update

Aug 16, 2021

Welcome to the DSV Conference Call. For the first half of this call, all participants will be in listen only mode and afterwards there will be a question and answer session. Today, I am pleased to present CEO, Jens Anderson and CFO, Jens Lund. Speakers, please begin. Thank you, and good morning, everybody, and welcome to this conference call here from Hillhusten in Denmark. We are here this morning to communicate about the information about the closing of the deal with Agility GIL That we have announced this morning, we are exceptionally happy that we can already at this stage close the deal and get going with the integration. So we have after the forward looking statements, which are a little bit more thorough maybe than normal, which I would kindly ask you to On Page 2. Then we have prepared a small agenda for this morning on Page 3, Well, we will give a few facts about the combined company, some facts about the completion of the transaction And then something about the financial impact. And then we have also upgraded the financial guidance this morning. And then We'll conclude with next steps and also Q and A. And if I may, this time, please ask you to limit your questions to 2. So I'm sorry for all of those of you who have prepared more than that. If you have a lot more questions, you're always welcome to contact us directly. So we will go directly to Page number 4. I think first of all, I'd like to extend a big thank you to the teams From both Agility GIL and DSV, they have worked exceptionally structured hard and efficiently since the Announcement of the deal back in April. I think it is a testament to the strength in administration on both Sites that we can already now here sit on the 16th August having closed such a large and very complex transaction also. It has been exceptionally important for us to make the time from signing to closing as short as possible. It's in everybody's interest. So we are super pleased about that. And we are exceptionally eager also now to meet all our new colleagues and to get going With the integration. We actually do believe that we will generate an industry leading or leader in In logistics now by combining the 2 companies, we will be a top 3 player in freight forwarding. We are as such not Obsessed with the leaked tables, but it goes without saying that the larger you get, the more value you can create All stakeholders, this is what we have seen in the past. We will also see a significant strengthening of our very Successful and profitable Air and Sea Operations. A lot of things attracted us to Agility GIL. And the problem when you focus on a few geographical areas, you don't talk about the others. But it is a fact that Agility GIL has a very strong presence in APAC and the Middle East, which is a strong complement to our own existing network. That does not mean that we are not excited with the operations outside of these areas. I actually do believe that we get a lot of New strength also in North and South America and also in Europe. And A lot of the value in a company like DSV lies in the network. And I'm happy to say that now we will be operational with our own flag, Own identity in more than 90 countries in the world. It's also about generating value For shareholders, and I think we are actually in a better position to continue to do that now. We Have already industry leading margins in DSV, and we Have the clear aspiration to continue with that. We also do believe that we have a certain track record. We have experience Combining companies, and we will use all the good input that we have had and experience from previous transactions, most Recently, UTIW and Panalpina. We will be more than 75,000 employees, Which will be able to service our customers, supported by a very strong And very scalable IT system, which is also very important to mention. You can see on the left hand side of the chart How the network will look, and I think it is a very, very good picture. So with that said, we'll go on Page 5, it's a little bit self explanatory. You can see the number of employees, DSV Panalpina on the left And the Agility GIL on the right hand side, the combination will be 75,000 Revenue in Danish kroners, this is the last 12 months numbers, Which accounts to DKK160 billion. So with a positive trajectory, we do actually believe that it would be possible to get to a higher number than this on an annual basis. But as you know, it's not necessarily the turnover that matters, But more the GP and the EBIT. Airfreight numbers, you can clearly see the contribution also To the existing operations that we have very healthy 300,000 tons and 600,000 TEUs in sea freight, which is really good. Of that, we estimate that approximately 20% is freight management carries a slightly lower yield than what we have Road Freight, not to forget, will also benefit from this. We see that Agility GIL doing road freight business also in areas where we are not present today and also Have a decent and strong operation in some of the European countries. And I think we'll see a lot of benefits of combining the volumes To one network. The same goes for contract logistics. We call it solutions. You can see the numbers. There are different ways you can Calculate the size, we have used number of square meters where we have 6,000,000 and Agility GIL About 1,400,000 square meters. And also here, there will be a lot of benefits of combining So with that said, I'll hand over to you, Jens. Thank you, Jens Braan, and good morning, everybody, as well. I just want to skip quickly to Slide 6 and talk a little bit about The transaction and transaction details as well. We have issued shares in order To pay for the activities we have acquired and Agility have received DKK19.3 million shares. For those of you who are technically very interested, we've actually issued 16,000,000 new shares and used 3,300,000 of our own shares to pay for the transaction. This gives us a total number of shares of 2 $40,000,000 And we could have grossed the things up and had it in 2 steps on the extraordinary general meeting, but we decided to do it in this way, which This structure that will end out with the same result. If we look at Agility, there will be a new large shareholder in DSV. They will approximately have 8 point 8% of our share capital. So very nice to welcome them in as well. And if you look at it, they have also, as part of the transaction, been welcome to Join our Board in DSV. On the upcoming EGM, we will Also ask for renewal of our authorization to increase our share capital up to 20%, And we count on your support for that. And then we will change the name of the holding company. It's for a couple of years, but I think with the combination with Jill, we can In order to streamline our presence, our branding, we changed the name so that the operational entities and The holding companies are called the same. So we will call it DSV or propose that this is amended. And then as a final note, we will amend our ESG policy on the upcoming extraordinary general meeting as well, So that we are fully compliant with all the corporate governance recommendations also in the ESG area. The transaction itself, it's an enterprise value of DKK30 1,000,000,000. And basically, we've paid 21.5x the last 12 months EBIT or an EV sales multiple of approximately 1. And these are, as I mentioned, calculated LTM multiples. If we skip to Slide number 7, we can see what the contribution to DSV will be. Here you can see that we expect that The deal structure will add another DKK2.8 billion to the earnings that we have And we will do a normal integration process, and we expect that to be completed before the end of 'twenty two. And this means that we will consolidate as it stands here, operations, logistics, facilities, administration and IT infrastructure So that we run it as one company and there will be an overdone structures. If we Look at basically the last details on the transaction, The costs and also the confirmation of the numbers that we have stated here, this will all come in the Q3 announcement. So we expect that we've done our diligence so that we should basically Be on track with the things that we have reported. And I think the one thing that we will highlight is the number of TEUs where we've had Some discussions on the Panalpina transaction recently and where we would like to confirm these numbers so that there's no confusion surrounding that and Also, for the volumes in the other business areas as well. So a little bit on the transaction, and we will quickly move on to Slide 8 and just talk about what it's all about. I think we can all see that in 'fifteen, we made approximately ZAR3 1,000,000,000 and now we expect To make, if we are in the middle of a range, more than RMB14 1,000,000,000 this year. So that's a growth of RMB7 1,000,000,000. This growth is basically made of an organic growth part, but also the acquisitions that we have made. And here you can see that a little bit more than DKK4 1,000,000,000 or 40% of the growth, it stems from M and A. And the remaining SEK7 billion actually come from the development that has happened within the joint companies. So it is tremendously value creating when we are doing this and you can also see that the overall operating margin of The company has increased significantly. This is because we've gotten better within the divisions, but also because the mix is different. And we now have a much higher proportion of Air and Sea volume that we had prior to the transactions that we've mentioned here on the slide. If we move on to the next slide, we've upgraded our guidance today. We've had many conversations about that also on the last quarter The reason behind this is that we've seen stronger growth, which is a very important factor. But of course, also that the yields, in particular, in sea freight continue to be higher than we had anticipated when We gave our last guidance. These are changes, the major changes. And then of course we have added the GIL income as Well, to the numbers, and that's how we arrive at a range between DKK13.50 billion and DKK14.5 The next steps on Slide number 10. We've now closed the transaction. Actually, when you read the announcement, you can see that there's a couple of jurisdictions, outstanding minor jurisdictions, Where there's a little bit of a longer process and where we have handled this from a legal point of view so that we could actually continue with the Integration, this is normal, at least for one of the jurisdictions that this happens like this. So the next step Coming up is the extraordinary general meeting. And then, of course, our normal Q3 announcement where we will And with that said, I think we are ready for the Q and A session. And the details on that, you can find on the last slide. Thank Our first question comes from the line of Daniel Oskar of Bernstein Research. Please go ahead. Your line is open. Gentlemen, good morning. Congrats on closing the deal. And the first question, if I may, on your DKK2.8 billion contribution to the business From GIL, could you split that into the underlying performance and a range of synergies you're expecting to realize in the acquisition target? And then secondly, churn has been, as you said, a concern in the past. But could you give us some Broad overview what you're thinking currently in terms of churn. I noticed that you mentioned there's about 20% managed freight in the sea freight business. Anything to call out on air Any color kind of on how you're thinking about the business mix of the acquisition would be helpful. Thanks. I think what is important To note right here is and this is a very deliberate communication from our side is that we will have a contribution of 2.8. We are still I don't even know if it's day 1, it's day 0. We need to quantify exactly what The split will be we have a fairly good idea and we you need to at this moment in time to see this as I think that is the most important thing that we can say that we will have a positive impact from the acquisition of 2.8 €1,000,000,000 it is we think it's a more positive way of communicating the transaction. When it comes to churn, we don't expect any material churn. We have Very thoroughly been looking at the business and it's very similar to what we do in DSV. Again, we enter the company today. And of course, if we see something that changes this, we will do the right thing. But I don't We have prepared ourselves really, really well. It is correct that 20% of the number of TUs do carry a lower Profitability like what we normally see with managed freight contracts, But we are fine with that. And I think we can say, as normal, the business can still Cope or the business case can still cope with an up to 5% loss in GP. We'll of course Try to make sure that it will be less than this, but we always need to leave room for something also unexpected to happen And when we do a case like this. So overall, I would say it is our expectation that we will see Less churn actually in this transaction compared to what we saw with Panalpina, for instance. Great. Thanks. If I could follow-up on the first one because it is different from the past acquisitions you did where you kind of went out with a synergy target. Is it just difficult at this point in time, given the market environment, to separate kind of the extraordinary performance this year, the headwinds and the synergies? We have an exact number in house. I just hope you will appreciate the fact that when you are standing in front of integrating A big company, and you also need to motivate the people. It can have a little bit of negative flavor if you talk too much about Syniti is also saying that this is the most important thing. We want to show together a more positive story towards the new colleagues that we get in. And maybe also Thinking to the fact that things have changed, so the mix of the positive contribution could be slightly different. Agility have had a good development in the GP. They've also we could actually Commendum for doing a great job in cost in terms of cost control in the last period. So these things offset each other a little bit. But I think the most important thing is the contribution, and you should not Put too much emphasis in the slight change in our communication. Okay. Interesting. Thanks very much. Thank you. Our next question comes from the line of Christian Nedelcu of UBS. Please go ahead. Your line is open. Hi. Thank you very much. Just two short ones. The first one, could you remind us what are the updated targets for the second half In GP per unit in Air and Ocean and maybe in volume growth. And secondly, you're seeing a bit the airfreight in China starting to move up With these recent lockdowns there, could you remind us what proportion of your air volumes are touching China and what you're seeing there these days? Thank you. It's about a third of the volumes that originates From China, from the Far East on airfreight. And the GP per unit, yes, You're right in saying we've seen a very, very recent development. We talked about last week only some disruption out of Shanghai Airport. We still need to see how that materializes going forward. But it just tells us that these markets are Super volatile and unprecedented in nature. We do actually believe that airfreight volumes can grow between 10% 15% The second half of this year and sea freight, maybe on a good day, up to 5%. And without going into too many details, Airfreight yields, we assume around 8,000 and for ocean sea freight, somewhere between 3,600 DKK3700 per TEU. Understood. Thank you very much. Thank you. And our next question comes from the line of Michael Rasmussen of Danske Bank. Please go ahead. Your line is open. Yes, thank you very much and also congrats from my side. First question is on Slide number 5, where you compare the revenues of DSV and NGL. I noticed that when you initially reported the acquisition, Then comparing those numbers with what we see today, then I see that the total revenues up by 11% on a 12 month rolling basis, which I guess is No surprise given both the results that we've seen from DSV and also the rates picture right now. However, what seems To be a bit of a surprise to me is the fact that road freight revenues have actually gone down from DKK2.6 billion in the 12 past 12 months So now EUR 2,000,000,000 So can you please tell us what is going on here in terms of Rob Williams. My second question is if you could add a little bit more flavor on the integration costs. I do know that You've said you will give us this number at Q3. But just in terms of kind of the timing of it and also I think at And Lpina, you said that look for 1 year's synergies and that is roughly the total number. Is this also the same on Till, please? Yes. Perhaps I should answer that. I think if you look at the 12 months, the 'twenty number, we had the 2020 number at that time. That was also impacted by COVID last year. Then you're quite right that now we have the LTM numbers. And obviously, the second quarter It's where it was most impacted last year. And now you have a very busy quarter. So of course, that means quite a bit for these LTM numbers. When it comes to Road, at that time, we had estimated 2.6. Now we have rounded down to whole figures. And I think we are currently at 2.2 to 2.3 on So yes, when we've got the final numbers, when we've got them updated and when we have been in and had as much Clarity on it as we can have because you have to remember it's outside and in. We've come to a little bit of a lower number. And given the size of the company, We thought we don't want to have comments on this slide, but perhaps we should have anyway. So this is a little bit on that. Then in general, when we integrate a company, you're quite right, that synergies are typically Yes. The cost in relation to the synergies, they're typically in the same vicinity as the synergies that we expect to realize. And the timing of it, I think the integration will basically run with a similar process to the integration of Panalpina. So we will kick off quickly. And then it will run into 'twenty two and probably We finished in Q4 'twenty two. So a very similar process And in our diligence, we have basically gotten that confirmed that, that should be possible. Okay, great. Thank you so much. So yes, I do obviously understand that you did a rounding, but I was just still Surprised with road revenues gone down from even if it's 2.6 to 2.2 in kind of this environment that we've had in the past. It's an estimate. You have to remember, it's an estimate. When you get they account and have their division And they are structured in a certain way. When we then come in and do our diligence, then we say, you put it in this bucket, we put it in another bucket. So I don't think you should expect that their volumes in general have declined, but we might have labeled it a little bit in a different way. So I think that's more the way you should look at it. This is always what happens. They don't have Companies, they have different definitions of things and the way they account for things. So don't worry too much about it. Nothing has Gone. I think everybody are busy these days. Okay. Okay. Well understood. Thank you very much, guys. Thank you. Our next question comes from the line of Sudesh Srivakumar of Citigroup. Please go ahead. Your line is open. Thank you very much. I've got actually a few questions. So firstly, on the GP per TEU GP per tonne, You said about 8,000 in the air freight and around 3,500,600 in the sea freight. What is your The implicit assumptions for Agility actually your that €750,000,000 upgrade that is coming from Yes, what are your rate assumptions there? And then the second one is around the customer concentration And what has been your dialogue so far? So for Agility, who is like the top Two customers for Agility and is there any significant contract that is actually coming up for renewal or negotiation in the next 3 months? If we take the Agility assumptions, Agility have realized a little bit lower yields And we have in DSV. It's not dramatically much, but they are slightly lower. But of course, our estimations, they include Those numbers as well for the year, so that you don't have to sit and split them up. That's also the reason why we have given the range, So that's we see exactly how that pans out. And as you say, it's probably in the 3,600 Area we talk about for sea freight for the global company and then a little bit perhaps In the lower end of the DKK8 1,000 per tonne. So if that was that part, Then the other part was the large accounts. And if we look at the large accounts, it's Some of them overlap, but in general, we also get new, what can I say, accounting? And for such a large account, it's not like it's what can I say, One contract, you would typically have a master agreement, and then you'll have a lot of sub Agreements for different services that are provided throughout the group? And of course, it's normal that you have rate negotiations up till a year. And this was also, for example, the case on Panalpina. And then you will have other types of contracts that will have a longer duration. But typically, what matters is that you meet the customer and that To introduce the new and combined entity and the capabilities that we have And that we get a good rapport into what can I say their structure, so that they get confident and Basically see themselves with us as a new vendor? And we've typically been Very successful at that in the past and have managed to keep the volume within the company. Okay. So just to clarify here, so you did have a conversation with all of GAL's customers and that goes into your You cannot do that until you've closed the transaction. That is prohibited by the competition authorities. But I don't know if the mail has gotten out now, but I think we've already communicated to them, and we are reaching out to all of them. This is extremely important that we do this immediately. We have an overview of all the customers, the clients of Agility GIL, But with no names. So we don't know the exact brands that lies behind, but We know more or less the relationships and which verticals they lie within. But as Jens Lund said, this is one of the things That we are not allowed to discuss also another reason for this period to be as short as possible and it has been this time. Don't think you see a lot of transactions with the magnitude of this one being closed a little over 100 days after it was announced to the market. Okay. Thank you. That's quite helpful. Thank you. Our next question comes from the line of Lars Heindorff of SEB. Please go ahead. Your line is open. Yes. Thank you. Good morning and thank you for taking my questions. It's Regarding the earnings contribution from Jill this year, which you stated it's $750,000,000 So First of all, is this the organic run rate you can call that in the EBIT from GL? Or are there any synergies or anything else included in that number? It's approximately 1five is synergies and 4five is Basically, the contribution from normal income generated by GIL. Some synergies kicking in already last this year, but of course, limited. Yes. No, but I'm what I'm trying to get at is the run rate in terms of EBIT. So if I take €600,000,000 say that And multiply it, it suggests around about €1,600,000,000 in EBIT last 12 months. If you can say that to set up for a run rate, which suggests an EBIT margin You are good at math and us, so I guess you can calculate that yourself. But in the EBIT they have generated this year. But it's approximately correct. And you come to this margin, 5 point 6% depending on how you see the revenue. Okay. All right. And then I know there was a previous question about these things here. But just to follow-up on that, I mean, you it's regarding the 20% The freight management in Seaford that they have, yes, I don't understand you Supposed to maybe close down some of that that you bought in connection with the Panalpina deal. Maybe just a bit more favor on how you view these things. I know you have some of that in your existing business as well. But I don't know if this one here is if these freight management contracts are different from what you already have. All knowledge, they are very similar to the ones we have. We have not identified anything in GIL at this moment in time that we do not want to keep. We are super excited about all the volume that they have. It can have a different earnings characteristics, but it will also have a different cost component Associated with running these businesses also, which is important to say is much larger volumes and less work. So What is important for us is not to get too focused on the number of TUs exactly, But the GP that the business carries, we're very happy with that. Agility GIL has also fared well in this period Of time like most other freight forwarders. So we are happy about it and We have no intentions of terminating any business in Agility Okay. All right. Thank you, guys. Thank you. Our next question comes from the line of Sam Bland at JPMorgan. Please go ahead. Your line is Hi. I have two questions please. First one is just on the $2,800,000,000 by 2023, Is there some sort of organic decline in profitability assumed in that? And so basically if I took current trading plus Your synergy expectation, I get a higher number than 2.8% and then there's some decline. Maybe the unit margins are expected to Normalize in the midterm. You might not be able to quantify, but whether you could sort of confirm whether it is or isn't. And the second question is, obviously, this Ningbo situation is causing all the headlines where the Seafreight unit margins expectations for the full year maybe have been increased. Can you sort of tie an amount of that or an EBIT amount to that specific Ningbo situation or is that Too difficult to do. Or can you just say, is it having quite a material impact on trading? Maybe I'll just start with the last question and then maybe Jens, you can elaborate a little bit. I think it's It's going to be difficult to put much more flavor on the 2.8, but maybe you can try it anyway. But the Ningbo is still very early days. Of course, we have to be careful saying that it has been blown out of proportions, but I'll just caution a little bit, making it too spectacular. It's not the whole port of Ningbo, thank God, which has been shut down. It's one terminal. As far as we know right now, it's been 1 individual. The authorities are doing whatever they can to prevent the spreading of COVID. And it's so far and touch wood, It has not caused any major disruptions in that particular port. So We're following the situation. But you're right in saying that it tells us that things can easily change also. We were not expecting anything like this just a couple of weeks ago. So maybe 2 weeks from now, we talk about something else. And it just tells us that it is an unprecedented market that we operate in and we have to be super agile and flexible and always Have the ability to change and to come up with alternatives for our customers. There was also another question before about airfreight. There are certain signs also that Maybe we can see some of the Chinese origins being impacted also by COVID now again. So We are keeping our eyes closed on the situation, but we are here to help our customers and this is what customers also should expect from a good Partner, good freight forwarder that we step up to the plate and find some solutions for them. This is what we are here for. Yes. If you take the number of synergies that we typically report, it actually includes that Any decline, what can I say, in GP that we're talking about? And basically, the number we have not assumed, it's we've just used the baseline And added the synergies to it. And then, of course, if there's organic growth, it will come separately. But I guess you would model that as a whole for the group. So that's, I think, the answer to your question. Okay, understood. Thank you. Thank you. Our next question comes from the line of I just have one question that relates to the guidance. I saw that the higher end of the guidance was raised by more than the lower end of the guidance. And I just wanted to ask If there's a specific reason for this, is this related to recent developments in airfreight and sea freight or is it something different? Thank you very much. If you look at guidance, you can always talk about the relevant or the basically the relative, what can I say, range that In reality, you should give a lower range the further you progress in the year? But I guess also That's in absolute numbers. But relatively speaking, of course, the company has gotten bigger. And I think there are a number of uncertainties We're talking about here, and that's the reason why we have a little bit higher range. I don't think you should read too much into it. But of course, the range going forward, it will be higher numbers and absolute figures. So I think that's basically it. And of course, there are uncertainties out there. It's not like we can guarantee the developments in all areas. So we have to have a little bit of leeway. So if you look at the upper or lower part, just see how much we have increased it. And then I think you should be okay for your modeling. Thank you very much. Thank you. And our next question comes from the line of Franz Hojer of Handelsbanken. Please go ahead. Your line is open. Good morning. Thank you very much. Again, a question about the SEK 2,800,000,000 Bio23 on a grade. Just wanted to understand to what extent does that number of factory And return to more normal trading condition, especially with regard on yields And with regard to the merger loss, from listening to you this morning, I would say that you have not included any merger loss We have Factored in a slight decrease in the GP funds. And then you would say, again, I can reassure you that We have you should not read too much into the fact that we have not split up the different, What you say, elements of this? If we have A pretty good idea about what we want to achieve as a combination. And I don't know if we can get Any closer to that at this moment in time? I don't know, Jens, if we can say more about it. No. I think what you're concerned about is if the yields, they will decline. I mean, we have if the number that is think you can calculate the LTME EBIT if you want to in the announcement. And then I think if you look at that number, It's 12 months and 6 of them, they come from last year where the market was pretty ordinary Perhaps a little bit out of the ordinary, I don't know. And then of course this year, and we don't know what's going to happen, but we use this as a base And when you do your modeling, if you have other, what can I say, assumptions, then you can adjust a little bit? I don't think it's going to move the needle a lot in relation to what we need to do. So we are comfortable with the 2.8 that we've put out. Understood. Thank you. Thank Currently, the final question in the queue comes from the line of Alexia I wanted to ask just one question on the contract logistics business of Jill, can you give us a bit of commentary around what you've seen and whether it was in line with your original My understanding is that they're quite strong in e commerce and quite a strong performer overall. Thank you. Yes. Thanks for also posing that question, which is a Good kind of point to remind us about talking a little bit about not only R and C Because we actually do get a lot of value, we think, both in road freight and in contract logistics. Agility GIL, they are particularly strong in areas where we maybe do not have The biggest strengths in the Middle East and Asia, they have some really sophisticated good operations that we look forward to getting to know. This is also capabilities, as you point out, in e commerce and in some verticals where we are not strong. So It complements our operations really well. And we have not seen anything so far That has changed our enthusiasm also about contract logistics. And We had a visit from the senior management of the contract logistics division here last week, and They were very excited and enthusiastic about the combination also. So we look forward to this. Thank you. Thank you. And as there are no further questions coming through, I'll hand back to our speakers for the closing comments. Thank you very much everybody. Thanks for your discipline and thank you for your interest. If we have not managed to answer all your questions, you know how to find us, you know how to find Fleming and the IR team also, I'm sure they can elaborate on the discussions that we've had this morning. We will go into an Exceptionally busy period of time right now. We look forward to it. Teams have done fantastic and we cannot wait to get going meeting Both new customers, suppliers and employees, we will start already this piece of work today. So thanks for that. We will return with the Q3 numbers as you could see in the presentations and We'll also communicate around the EGM. So here from Hill Houssner This morning on behalf of everybody in the new combined company. Thank you and goodbye.