Earnings Call: Q4 2017

Feb 8, 2018

Ladies and gentlemen, welcome to the DSV Annual Report twenty seventeen. Today, I'm pleased to present CEO, Jens Andersen and CFO, Jens Lund. For the first part of this call, all participants will be in listen only mode. And afterwards, there will be a question and answer session. Speakers, please begin. Yes. Good morning, everyone. Welcome to the conference call for the full year 2017 results of DSV. Today, here from Hill Huston with myself and Jens Lund. We have prepared a small agenda for you. You can see it on Page number three, which is shortly after the forward looking statements that you should also look. But on the agenda, we will kick off with some highlights of the 2017 results. We also have a slide on the outlook, and then I will go through the business segments before Jens Lund will take over, giving the financial review, talk about the revised 2020 financial targets for the company, and then we will open up for Q and A. If we go to Page four, you can see that we have highlighted that we have we believe ourselves, we have achieved very strong financial results in 2017. We're extraordinarily pleased with the performance of the company. Results have been primarily driven by a very successful integration of UTI and also a very good operational performance. It is a pleasure now to be able to say that we have concluded the integration of UTI. We will not speak about UTI anymore. Not that we don't like UTI. UTI is a part of DSV now like other companies that we have bought. And it is very satisfactory to be able to say that what we did guide to the market by buying UTI that after an initial dilution of our margins, we would be able to restore margins to what they were before buying UTI is now what we see in the books. Actually, the margins are stronger than they were before UTi. So we believe that M and A has once again proven the right recipe for DSV and for the shareholders of DSV. What we also saw in 'seventeen was an acceleration in the volume growth in the second half of 'seventeen, also something we had indicated to the market. We have taken market share gains both in Q3 and now also in Q4, which is also the strategy of DSV for the future. Cash flow, and I know Jens will come back to that, and there are good reasons to come back to that also. The adjusted free cash flow came to DKK4.835 million, which is or DKK4.8 billion, which is extraordinarily strong, and it is something we are very pleased about. So very strong cash flow for the year. We've revised the financial targets for 2020 as we have reached them. Let me also just point your attention to the figures at the bottom, maybe to the right. It very clearly describes what has been happening in DSV in 2017. We have managed to grow the earnings of our company 43%, going from EBITA result of close to SEK3.5 billion to now an EBITA result of close to SEK4.9 billion, which is far better than we had expected at least when the year started. So super good performance of the employees of DSV, very strong results. When it comes to the outlook for 'eighteen, we have guided an operating profit before special items of between DKK5 billion and DKK5.4 billion. The tax rate is guided to 23% and the adjusted free cash flow of DKK4 billion. There has been some discussion already this morning about the guidance, no surprise. And I think you have to take remember to take into account the negative currency impact of about DKK150 million when you look at the outlook for 2018. And we can, I'm sure, come back to this during the Q and A. So Page number six is the R and C division. Very, very strong results. In constant currency, they have grown our result 53%. It speaks for itself. One of the best performances in the industry. We are very, very happy with the performance. Extremely strong margins. We stand any comparisons with any of our competitors with an operating margin for the full year of exceeding 9% and a conversion ratio of 37%, which is really, really good. We've gained market share. And this is something that, of course, is important for us. Sea freight in Q4 grew 4% and air freight grew 10%, surpassing the estimated market growth. What also should be noted is that we have managed to grow the yields. So the income per unit has, in constant currencies, gone up year on year with, respectively, 2% for sea freight and 1% for air freight. So I think that we have managed to keep the margins stable in an extremely volatile market, where also freight rates, especially air freight, grew tremendously at the end of the year. But the division has delivered fantastic results, and we have a very, very strong foundation for future growth and success and earnings prosperity in the future. Road freights. The Road division has grown its earnings 15.9% and the gross profit of 4.5% in the year. And we have to remember that both were impacted positively by property transaction in Q1 of million. We were not extremely happy about the fact that the gross margin dipped below 17%. It was impacted mainly by a constrained capacity in the market, which meant that the gross margin came a little bit under pressure. We have been out discussing this with most of our customers, and we have implemented increases, which makes us believe that we will get back above the 17% mark in 2018. Laura, also point your attention to the fact that the Road division has produced a record breaking result also of billion for the full year, which is very good to see. And also the fact that from a return on invested capital point of view, we have achieved for the full year a remarkable 32%. So this is the highest ROIC that we have ever seen in any division in DSV. So this is also an area where the ROIC division stands out in a very, very positive way. The last slide for me in this presentation before Jens starts will be on Page eight, where we have in Solutions, seen a very good growth of EBIT of 28%, slightly more modest growth in GP. But the GP has, as we have talked about earlier, been impacted by some reclassification. We are very happy that we are now beyond the issues with the comparison problems or issues due to different accounting principles in UTI. So from now on, we will be able to compare apples to apples. But the performance of the division has been very strong in particularly the second part of 2017. We're pleased about that. We have often, on calls like this, been trying to explain less positive development with issues like customer inclinations and stuff like that. That is not the case this month. This is a normal month, so to say. And also, we would say that the foundation for future growth in particularly, I would say, retail and e commerce is looking very, very good. So very strong result from the division, which we also are very, very pleased about. So overall, I think we are happy with the status of our company. And we are ready now to meet the targets of 2018. Before we get over to Q and A, maybe Jens you will go through the financial review first. Sure. We will quickly flip to Slide nine and see the revenue. So good to see that revenue was up and also that GP was up. And I think it's worth to notice here that the FX impact that we've seen of the declining dollar in particular is already seen here. So it's also impacted the results that we've delivered in Q4 quite a bit on a group level. But I think we still managed to grow 5% in constant currencies on the EBIT, both on the GP level and on the EBIT level, of course, somewhat more in constant currencies where we are up almost 34%. So that's been very good for the group. If we look at amortization and depreciation, that's probably one of the things that have stood a little bit out. We have written down a few assets in Q4. So the run rate you should use for your model is probably more on like the full year figure if you look at this. On special items, we spent a little bit more than the DKK1.5 billion. We had said to the market that we will spend DKK525 billion this year, but we consider that as sort of spot on. If we look at financial items, this has also been a little bit affected here in the last quarter because of the decline in dollar. Internal loans in dollar have to be written down. And we see the FX impact of this in the numbers where we have million for the quarter. In a normal quarter, that should probably have been in the region of DKK75 million if we look at normal interest expense. So there's been quite a few adjustments there. Now we are at sort of the more or less DKK6 level per dollar. So we should hopefully see a more stable development in this going forward. For the full year, we have seen an impact of DKK $260,000,000. And it's basically internal loans that have to be currency adjusted. So there's no cash impact for the group. If we look at the tax rate, I think this is also quite interesting to have a look at. We can see that it's 21% for the year. It's been rather low here at the end of the year. As some of you may know, the IFRS rules prescribed that we reevaluate our tax assets at year end. And there's also been some countries that have changed the tax system. All these things have impacted our numbers here in Q4. And that's the reason why we are a little bit lower than our long term guided tax rate of 23%. So we came out at 21% this year, which we are also very happy about. If we move to the next slide, it's, of course, a slide that we are particularly proud of, 37% EPS growth this year. It's also what we had promised when we made the business case that we will deliver on. But I was also glad to see that now the fifteen year development is 17.6% on average per year. So very positive development in earnings per share. If we move to Slide 11, we can see that, of course, the operational result filters through in our cash flow, but we've also managed to get a better grip of our working capital, which has led to a significant inflow. This has been hard work and it's an achievement of all the employees in the group that they have chipped in. We have actually introduced something new on net working capital sort of chart if we spend too much working capital here from 2018. So we expect that this will help us to keep the working capital at the level that we're currently seeing because we do expect that we will have a level of approximately 2% in net working capital in the group. Apart from that, we can see that our financial gearing is now at the lower end of our range, between 1x and 1.5x EBITDA. So it's an area, of course, where we then have to reallocate funds to our shareholders. And if we move to Slide 12, we can actually see what will happen here in Q1. We will be allocate billion almost to shareholders. And we, of course, follow our normal policy that excess cash and if we are within the range will be distributed to the shareholders. We primarily do this via share buybacks. Then Slide 13, our long term financial targets have been revised a little bit. Please pay attention to that the time line of 2020 is maintained from our original targets that we gave, but we had to upgrade some of the targets because we'd already delivered on them. Road and solutions are basically the same. But for Air and Sea, we have increased the margin expectations and also the conversion ratio a bit so that we are now on 10% in operating margin as a target and 42.5% in target for the conversion ratio. Overall, this has also led to some minor adjustments where we have basically upgraded the expectations to operating margin to 7.5% from a little bit more on the conversion ratio to 32.5% and then that we can generate a return on the invested capital above 25% on group level. We know that some divisions are somewhat higher, as Jens Blan just mentioned before, and some are a little bit lower. But on group level, we expect to deliver under 25%. Our CapEx, we still do not expect significant investments going forward. So you should probably budget 05% of the revenue. And the tax rate is still expected at 23%. Some of you may be aware that the tax regime has changed in The U. S. We have not finalized our analysis of this because there is also some adjustment to the tax base in The U. S. So they have tried to broaden this. And before we are certain on how to deal with this, we cannot be more specific about the impact for us. We expect that we will not get a higher tax rate than what we see today. But it may end out in a situation where it's actually positive for us. I think on the financial targets, the last thing I would like to mention is that there will be a new leasing standard from the 01/01/2019. And actually, we also have in the annual report a specification of what it would mean for us. So for the very interested reader, this sort of discussion can be found on Page 51 in the annual report, and we can have a look at what it means for DSV there. In general, it will add some debt to our balance sheet and also some assets will now be included. And leverage will increase approximately 0.7x EBITDA if we had implemented it today. So we've tried to give some guidance on this going forward, and that will mean that we will also, when this is implemented, upgrade the financial targets for 2020 accordingly. This will impact sort of things like work calculations, etcetera. I think that was it for me. And now Jens Bran is already ready with the pen. And I'll also be ready to take questions and note, and then we'll be happy to answer them. And our first question comes from the line of Casper Blom from ABG. A couple of questions from my side. First, regarding Road. Jens, you mentioned that you have been able to push through some price increases. I think it's been a long while since you've been able to do that the last time. Is it too optimistic to start speculating that finally you're getting a bit of pricing power back and that maybe this could help support your gross margin within Road going forward? My second question is also mainly regarding Road. We have seen the oil price tick up here in the beginning of the year, suggesting that you might see higher fuel prices. Should we fear that in Q1, there will be sort of what we've seen before, a little bit of a delay in terms of passing on fuel prices? And then my last question, a little bit speculative maybe, but it seems obvious that you are on the lookout for new large acquisitions. How should we think about your financial situation in such a scenario? How far would you stretch your balance sheet? And would you once again consider doing a 10% share issue? Those are the three questions from me. Good. Thank you, Casper, for the questions. I will go through a couple of them. Maybe Jens will talk about the financing of potential acquisitions, even though that is quite, of course, speculative to comment upon. But when it comes to Road, we have seen a little bit the same situation as we saw, not to the same degree, but it reminded us a little bit about, for some months at least, the period we saw leading up to the financial crisis where we had a tremendous lack of capacity in certain areas, we actually were disappointed by the fact that we could not live up to our service obligations to customers. We the service levels dropped. This is normally a good environment to negotiate rates with customers. It is correct that rates for transportation had been very low for a long period of time. And speaking very intensely and thoroughly to the Road division in preparation of this annual report, Jens Schlomo and myself have kind of realized that we have seen that we have managed to get the increases to a larger degree than what we have been able to get before. If this will be enough to supersede previous gross margins, I don't know. It's too early to say. But at least it gives us confidence that we will get the margins in the first instance back to where they were before. When it comes to the oil price, we are not super concerned about this because it is something which is built into the customer agreements that we have. We have by the most of our customers a fuel surcharge, which is automatically being calculated or changed almost on a weekly basis. So if the fuel price goes up, the fuel surcharge is also going up. So I think we are on pretty safe grounds when it comes to the oil price, and I don't expect that to be negative for DSV. So seems like we have covered a lot of ground and prepared ourselves. And the Road division, they seem pretty optimistic for what is ahead in 2018. And maybe, Jens, a little bit on the financing of acquisitions. Yes. If we look at it, I think we can now see that we are approximately at 1x EBITDA at this moment in time, given the fact that the EBITDA is DKK5.7 billion. And as argument's sake say that I don't think we would consider equity below 3x EBITDA. Perhaps even we can go little bit higher. I think the firepower we have is perhaps billion without having to issue shares, but also then the target will have to have zero income as well. This would, in reality, mean that we could buy a company that was larger than UTI without printing shares. I would still say if we found something that was larger than this, it's I would hope that the shareholders would think that even if we printed shares on UTI, it was okay that we did it because I can see that the share price has increased. We printed them on $2.75. And I think it's $4.70 or something like this today. So it's not that we won't use shares, but of course, we will try to debt finance significant portion of whatever it is we're doing. Okay. And on that matter, you would say that sort of around 3 would be a guiding star or maybe a little bit 3x would be a guiding star or maybe a little bit more? Yes. I think we have seen that we went up to 3x on UTR. It gave us a very good environment to focus on the integration and get the synergies out. If we take on too much risk, we have to focus too much on the debt side. And I think this is not the right combination for the shareholder. So we can do a lot. I think that's the bottom line. But if we want to do something over a certain size and there's no income in what we buy, then of course, we will have to ask the shareholder for support. But it's not necessarily that likely that you will see that scenario. It has to be a very big company then. But if it adds value, we will have a look at it. And our next question comes from the line of David Gasson from Jefferies. Two questions, please. First of all, on your increased targets, I think some of your peers have recently dropped their hard EBIT margin targets in inflationary rate environment. You are increasing your target. And I just wanted to get a better understanding of what makes you so confident when you talk about your ambition to grow ahead of the market and also about tight capacity in air and road freight. What is your outlook for yields in the different businesses when you expect to grow ahead of the market? And specifically with regards to Road Freight, you indicated there would be a timing effect before your gross margin is back up at 17%. Is that now your new target for gross margins in Road or is it still at 18%? And then finally, in Airfreight, you managed to increase your underlying yield by 1% in Q4 despite very tight capacity. Will there be a delayed effect on yields in Q1 or do you expect to be able to maintain yields at current levels? We can say a lot about this. We have always been extremely protective of our yields. We have a superior income per shipment than most. And it is something we have been protecting. Sometimes it means that we are not growing as much as others. But we have a saying, it grows profitable growth. We need to make a profit when we grow. We are happy about the fact that we have not diluted our yields year on year at least in both Air and Sea. And we expect yields to continue to be fairly stable going forward. And there's nothing that leads us to believe that yields would go down from this present moment in time, also not in air. It's correct that there was some pressure on the rates, but that is captured already in the Q4 numbers. It was in the last part of Q4, of course, when there was tight capacity and in some weeks almost impossible to source airfreight. In that scenario, I'm telling you, it's good to be one of the bigger guys in the industry because then at least we can use that buying power against some of the suppliers to get the space that we need, where I could envisage some of the smaller players really becoming more under pressure. I think when it comes to road, I think we will have to say that we will take small steps first, go back to 17% and then see what we can do after that. It's not like it's an official long term financial target. Jens just went through the, what should I say, the long term financial targets we have in road. And we will see how it goes. It's also important for us sometimes to see what we get out in absolute earnings growth. Sometimes we can live with a smaller margin. Growth is very strong, then the earnings can actually grow quite nicely as well. So I think this is what we can say at this moment in time. So even though we're focused on gaining market share at stable yields, is that correct? Yes. That is what we expect. Yes, it's right. And that is our ambition, yes. It's also fair to say that we've done this in the past as well. So but we as Jens mentioned, perhaps we don't grow as fast as some of our peers. And our next question comes from the line of Andy Chu from Deutsche Bank. Three questions from me, please. Firstly, in terms of the volume environment, you're up 10% in Air and 4% in Sea. What's the sort of exit rate and sort of current rates of growth, please, that you're seeing in Air and Sea? And secondly, in terms of just going back to Road, in terms of your negotiations with your customers, what sort of level of pricing increases are you trying to put through? And what proportion of your sort of revenues do you think you're achieving this sort of price increase with? And then just in terms of writing off assets, of D and A up a little bit in Q4, what do they Are they sort of legacy sort of DSV assets or UTI assets? Yes. We can say that when it comes to R and C and the volumes, we don't guide specifically on the market. We did do that in the past for many, many years, and every year, we were wrong. It's impossible to predict what the markets are growing at. I think what we did see from the statistics from IATA is that the very, very strong growth in air freight, it dampened a little bit in the very last months of the quarter. So I think it would be difficult to expect the same levels of a very high, almost double digit growth in airfreight. But we expect it to grow in line with world GDP, and then we have a very clear ambition of growing faster than that. We need, as one of the bigger players, to take market share and also do that without diluting the margins. So we are very happy about that for the time being. When it comes to growth, we are in 35 countries, and every country has its own characteristics. Some countries are very much a spot market where we have tried to increase the spot rates that we offer. Other markets are more contract markets. But so it's not possible for me to say to guide exactly as to how much we have gone out with. But of course, we have tried to get the most we could. But it's also, of course, easier said than done. Sometimes there will also be some sort of negotiations. But as I said, we've been more successful than in previous years. Customers have understood that if they need to get the right service levels, they need to pay a little bit more. And we believe that what we have done now is enough to support the gross margin in the coming quarters. So we're very excited about this, and we look forward to following the results in the bookkeeping in the months to come. Yes. And when we come to the assets, it's some TSV stuff that we have written off. I think we have taken care of most of the UTI stuff in the opening balance and integration that we have made. But there's been a few things that we needed to remove from the balance sheet, so nothing major. I think that's it. Thank you. And our next question comes from the line of Neil Glynn from Credit Suisse. Please go ahead. Your line is open. Good morning, everybody. If I could ask three, please. The first one, a big picture question really. Just interested in your thoughts as to how you best take advantage of the e commerce opportunity in both Air and Solutions and how might some of its features, e commerce features such as customers wanting delivery immediately and also for free impact how you structure your Air business as well as your Solutions business on a multiyear view, not really focusing on 2018? The second question, maybe more shorter term. Obviously, you've got some of your major suppliers looking to rewire their businesses on the Seafright side, not just one, but a few. Has that impacted, for example, rate negotiations at this point or physically the way you actually contract business with them at this point? And then the third question, you talked about being able to gain market share at stable pricing. Just interested, you've clearly provided commentary on medium term net working capital. But is net working capital increasingly being sought as an incentive for market share gains from your customers? Or is that not a theme? Very good questions. Thank you. It's correct that e commerce is growing tremendously. And as consumers ourselves, I think we can all recognize that from my part as well or at least I can. It seems like some part of the strong growth in air freight comes from e commerce. So that has a very positive effect. A lot of both in especially European but also American consumers are now buying from web pages in the Far East. And that has driven that is one part of the e commerce. And I believe unless new restrictions are being put in place, I think that will continue and that will also continue to, what should we say, underpin a very strong airfreight market. Then we have other e commerce solutions. We have we do very sophisticated e commerce operations in mainly Europe, but also in North America actually and some places also in the Far East for an excess of 100 customers where we, to different degrees, handle our e commerce needs going from extremely sophisticated warehouse operations, pick pack, inbound to full blown consumer deliveries. So this is, of course, also something which is driving the volumes and the line activities and the volumes in our Solutions division. So I think e commerce will continue to drive good momentum and good opportunities in DSV. To be honest, we see no big difference from the C carriers. It's very, you can say, old fashioned still the way we contract with them. It's we are excited if some of this can be modernized, if it can be digitalized. But for the time being, it's we haven't seen a big change in their approach to the way that we contract with them. So I guess we can say it's business as usual when it comes to that. Market share gains, it's not like we are going out and extending payment terms to customers. We will always have to do a ROIC analysis if we extend payment terms to customers. We have extremely strict rules about this in the company. But you're also right. There is an expectation sometimes from new big customers that we will be competitive on the payment terms. So it's a tough, tough battle. But I think that what we see now will still be captured in the targets. Well, it's another hard target, but the guidance we have given now of keeping the net working capital below 2%. And I don't know, Jens, if you would like to elaborate more on this. No. I think it's always a negotiation point, of course. But as Jens Bjorn rightfully mentioned, we have some calculation that we have to do in order to get the capital allocated for these clients so that it has to make sense that we do the business. If the only value proposition is that we can give a guy some money, then we shouldn't really do it. So it's a fine balance. We have to be able to do the business, but we also have to make it work for our shareholders. And our next question comes from the line of Robert Johnson from Exane BNP Paribas. I have three questions, if I may. One on Road and then two on customer relationships. So first of all, on Road, you talked about the constrained capacity in the market impacting the conversion ratio in 2017. Could you maybe provide some color on the supplydemand outlook for that market in 2018 and maybe 2019? And I'm thinking in particular about the outlook for truck deliveries and if maybe that could ease the supplydemand constraints that we're seeing at the moment. And so secondly, on customer relationships. I know that one of the key objectives for 2017 was to improve DSV's cooperation with large customers. Could you talk about the extent to which that was achieved in 2017? And also how much further progress you would expect in 2018? And then the final question, I noticed that you mentioned in the accounts that DSV has now introduced predictive analytics, which can provide an early warning with respect to changes in customer behavior. Could you maybe just provide some color on how successful that has been so far? Good. I think I'll take the last one. We actually have these analytics running, and it will create warnings or signals or whatever we should call it to sales and also to our operational staff. And we can see that when we then go and see the client, there's a fair chance that there's something we need to deal with. And of course, then in most cases, if we react sooner, then the client is happy about this and will most likely stay with us. So this is basically that we predict this churn. It's important and it's something that we are rolling out in the company and it's being used. I think if we are successful with this, we may be able to grow a little bit faster in years to come. But it's still too soon to say too much conclusive about, but people are quite enthusiastic about it. And it's one example of new digital initiatives that we have implemented. So there are a lot of new things also coming in the future when it comes to SNDSV. And that maybe leads me to maybe a little bit about the large customers, the mix. It's a very good way of us to grow in the very way it sit this with existing customers who know us, who know the reliability, the service, the quality, the customer friendly people that we have and the commercial people that we have in the company. So it's very high on the agenda. We have divided the close to 150 largest customers amongst the senior management. We act as sponsors to these customers. We have management plans or accounting plans with the customers internally. So we see how we can develop the relationships. It's a very important part of our future growth plans. And when it comes to road and the capacity, again, the problem is not so much lack of trucks, so to say. It's more lack of drivers, which was the problem. Some of the Eastern European capacity left Europe during the last part of the year. But by speaking to haulers who owns the capacity, it's a very, very fragmented market. It's our very clear understanding that there is a strong willingness now to invest in more trucks. And if we are willing maybe to commit a little bit more than what we did maybe in the past, I think we will also get access to much more fixed capacity in the future. We have already been in dialogue with numerous Eastern European holders who have indicated that they are willing to invest in hundreds of trucks, which will help us. We have a very strong, what's this, a department in DSV who sources trucks on behalf of the whole network. This is also something that we will have to invest further in the future. So it's not going to be individually done from country to country. And I think that will also help the problem. And our next question comes from the line of Chris Chan from Stifel. Good morning, gentlemen. Two questions from me, if I May. The first one, DSV has been very disciplined or opportunistic about its M and A strategy in the past. And I guess I'm wondering with this favorable market trajectory and with some of your competitors also actively shopping for deals, especially maybe in The U. S. Where some of them have some newfound tax windfalls, have you seen multiples appreciating and has the market for M and A gotten more competitive? And then the second question, you spoke to the lack of drivers in the road business and its effect on capacity. Can you talk about labor availability across other parts of the business? Are you seeing any difficulty adding headcount where you need it? And should we expect any meaningful labor cost increase going into 2018? I think if we look at the labor situation, it's clear that the economy is going well these days. So it's not necessarily that easy to find capacity. So we have to work harder to find the staff. But so far, we've not seen dramatic wage inflation. This might have happened in one or isolated markets. But we see that we have to source, for example, blue collar workers. We have to drive them sometimes 70 or 80 kilometers to the warehouse and organize bus transport and stuff like this. So these type of things happen. Of course, IT experts or whatever is also sometimes hard to find, but we still manage to deal with it. We are fortunately on the IT side presence in a number of geographies such as South Africa, Manila, Poland, The U. S. So we will normally be able to work our way out of it. But it's clear that if the economy continues to grow, as we have seen, there might be some, what can I say, some bottlenecks here and there? But we've not seen a dramatic overheating like we saw in 2007 yet. But I guess this will probably come within the next couple of years as it normally does. And then the economy, global economy will rebalance itself like it normally does. But that's out of our hands. And so far, we can manage to operate. When it comes to M and A, it's correct that there are companies that have been looking for targets. And there's been deals done. I think if we looked at UTI, we were the only company. I think this is also publicly stated in the author memorandum for UTI. So I would say that there's probably not that much appetite for large assets that are a little bit complicated. So and not many of our competitors that have infrastructure that is that can scale, at least not to the magnitude that we have. So we see that we still have a good situation in this and we have a lot of experience. And then if there's somebody who would like to buy an asset for a very high price, then they're welcome to do so and then we will find another. And our next question comes from the line of Jan Nauman from DVD. I have only one question. Statement this morning, sent out via newswire, you said Jens M and A are still our still on our agenda, and we will continue to look for relevant opportunities. Can you maybe explain a little bit more what you mean about this? Especially, are you looking for companies that you can buy more locally? Or are you still looking for some bigger company? I can remember that you mentioned India, for example, as an interesting market. Thank you. Good to hear from the German press also. I was correct that what I said was just to confirm the strategy that we have had basically since the last twenty years in TSB. We're a fragmented industry. Consolidation makes a lot of sense, we think. As Jens just correctly mentioned, it seems like we have built up some good capabilities within DSV. We can extract value by buying companies which are also suffering. We saw that latest with UTI. And had we ever been in doubt about our ability to create value for shareholders, then, of course, buying UTI raised those doubts. So that does not mean that our feet has left the ground. We are still humble. We are still disciplined. We will make sure that any acquisition is value creating for and accretive for our shareholders. So back to the alternatives. We have come to realize that very small local companies is probably not the right thing for DSV to do. So in an ideal world, we would prefer to buy slightly larger companies. It could be of the size of UTI. It could also be smaller. It could also be bigger. But it doesn't you cannot expect that every acquisition is necessarily bigger than the last one we did. From a geographical point of view, we actually gained a lot of new expertise in India. And now that you mentioned that by buying UGI, we have a very strong setup in India. That does not mean we will not buy anything again in India. But India is not a particular specific focus for us. We would look for more a global company with presence in multiple countries. Like UTI, we're probably present in 50 countries. People said we bought an American company, which is partly correct because it was actually a South African company, but they were listed in The U. S, had the head office over there. So by buying a company in a particular with a head office in a particular country gives us also access to other areas than just where the head office is. So Barents Sea is our probably say it's still our preferred area to grow. This is where we have the highest margins. This is where it seems like the integration is the less troublesome. It's because it's not easy. But we have the infrastructure from an IT point of view to add more scale. And we also see that the market is growing more than in the two other. But it's seldom that you can buy a crystal clear LNG freight forwarding company, so on. It could also be it's very speculative. It could be a company that has a little bit of everything like we saw with UTI. I think this is as much as I can say right now. It becomes very speculative. And we will keep our eyes open, and we will also have our own deliberations here. We, of course, know the marketplace. We know the competitors. And yes, we will see how it goes. Okay. Thank you very much. Thank you. And our next question comes from the line of Damian Burrow from RBC. Please go ahead. Your line is open. Good morning. I just have two, three questions as well. First of all, can you just talk about a bit about the diversity or the variance in the return on invested capital across the Solutions business, either by geography or by contracts? Just give us a feel about where there's still work to do. And also within that, how that working sorry, the working capital charge or the ROIC charge will impact the way the business is run-in 2018? How does it work? Over what duration is that measured? I'm interested not just in terms of how it might deter working capital focused growth, but also the time scale of the charge. Is there any risk that it deters growth that would depress returns initially but could generate better returns long term? Secondly, going back to an old topic, but again on the Road business, if we go back about ten years, Germany was always the challenge. Where is that now versus average returns? And where have other parts of the business moved to? And then very finally, kind of return to what's maybe elephant in the room, which is Brexit. So far, it's not, how can I put it, proving exactly stunningly successful in terms of what we're seeing from the U? K. Government. Given the lack of progress in The U. K, what kind of contingencies are you making for not necessarily what it might do in terms of trade, but the disruption in cost that might cost you? And are any of those costs already beginning to turn up in the income statement now? Maybe I'll just briefly go through the Germany question. I think it's a fairly good sign that, as you say, we have not mentioned Germany many quarters in a row. We just had the pleasure of spending a couple of days in Germany last week. And it's we have a very solid operation in Germany when you include especially especially if if you you include include all the three divisions. But the problem, so to say, we had in the past was in the Road division. They have margins now, which is very close to the average of the division. And we don't consider Germany as a proper country, so to say, anymore. Having said that, Germany is not an easy it's a very attractive country and market because of the sheer size of the market. When we say the margins are good, they are also very relaxed. So there are still some things that we can improve, you will find that in many countries. But we don't have it on a particular vet alert list anymore. And this is, of course, something that we are very pleased about. And maybe Jens, a little bit about Brexit and invested capital solutions. I think on Brexit, if we take that first, of course, we do prepare ourselves in particular on the cost and clearance side so that we can keep the cargo moving. We don't know what will come out of it. I think it's very complicated negotiations. And I think the politicians, they have enough to do just to figure out what it is that they can agree, and they don't really focus a lot on what the industry would like. So we have to prepare a number of different scenarios from something that is very efficient and very fluent and then to something that is more manual. We have consolidated some of our cost and clearance activities already in our shared service center in Warsaw. And this means that we have actually a lot of capacity sort of in a consolidated area. So I would like to think that no matter what comes out of it, we will be able to handle the different situations. But it's definitely something that we are planning for and trying to anticipate what will happen. And then I think we are good to go. But I'll take it from your question that you are not necessarily that pleased with the way that the Brexit is being handled from a commercial point of view. And we can certainly confirm that we could do with a bit more guidance that would be good. So I think that was a little bit on Brexit from us. Then if we look at the net working capital charge, we've introduced a charge now on the units that have a very high consumption of working capital. In certain areas, you do have a higher consumption than in other areas. And I think it's important here that we focus on the outliers in the beginning. And then, of course, we can then, what can I say, tighten the belt a little bit as we go along and get some experience with it? But it's also important that we keep on driving the business forward. And then if we have some very unhealthy customers, we have to say that we cannot continue to bankroll them and focus on other customers instead. So I think that's the direction that we would like to move the company in so that it's evolution and not revolution. If we look at which areas are good on working capital, it's clear that some of the old areas of DSV and the Solutions division does make a nice return. We also have a few probable DSV problem DSV areas as well. And then we've taken over a number of activities with UTI. Some of the areas are good, but there's also a few areas where we can improve a little bit. These areas are not necessarily located in Europe. I think that's as much as I can say. There's also a little bit outside of Europe that can be done better. For example, in The U. S, we would have such an issue on the UTI side. So there's something that we will be dealing with going forward. And I think this net working capital charge will help us to create additional focus on this. And then we will see that we perhaps will let a few customers go that sort of consumes too much capital without creating a return. Thank you very much. Thank you. And our next question comes from the line of Edward Stanford from HSBC. Please go ahead. Your line is open. Good morning, everybody. Most of my questions have been asked. But if I may ask a slightly arcane question about the new data protection regulations. Has that had any impact on your business at all? See. You think we get something out compliant. Yes, actually, it's of course something that everybody has to live up to. So given that we actually have quite a consolidated infrastructure, it's probably not the worst situation for us to be in. But we need to document all the flows and also to make sure that they are adequately protected or taken care of, the way we store the data and things like this. So we've had to make a number of changes, and we expect to be ready for the launch. I think it's on the May 1. So we are in the middle of this project or actually it's coming to an end now. And I think that it's clearly something that we have to spend a little bit of resources on, but it's not a major change. I would also expect we are very much B2B. So the more B2C you are, of course, the bigger the issue is. And of course, the more sensitive data you have for the person or the individual, then you would also have a, what can I say, a more outspoken issue on this? So we're probably in the lower end risk category and we have consolidated infrastructure. From that point of view, we're probably also on the less complicated sort of end of the scale. Yes. Can I just ask a follow-up as well? I think you mentioned in the report on accounts that you've stepped up your investment in cybersecurity in light of recent developments. Can you perhaps give a little bit more flavor of what you felt you needed to do last year? Yes. We can go a little bit into that as well. So some of the stuff that you need to do in order to be protected is, of course, that you need to have different kind of solutions in place. It will be a little bit detailed, this. But you need to patch, you need to have antivirus, you need to have advanced malware protection in place. We have introduced something new called two factor validation where you have to have a token if you are an administrator to, what can I say, on top of just have your normal administrative rights, you will have to have a separate thing that is very hard to get in control of if you are a third party that is not in here? We've done a lot of work on firewalls, stuff like this. And then we'll spend a lot of resources under governance. Disaster recovery. We disaster recover all our large production platforms every year. That's also a major step for us. I don't think there's many that do that. But so that we are prepared if something should happen. And then I think the last thing I would like to mention here on the call, not that it gets too technical, but if you take segmentation, our data centers, they are segmented in many different segments. And the people that have sort of privileged rights, they don't have that across the data center. So it will take a lot of resources. It's not impossible. Nothing is impossible these days when it comes to cybersecurity. And of course, we have established the SOC, if you know what that is. It's a security operations center that monitor our systems twenty four hours a day and looks for mysterious behavior and stuff like this. And they have a number of IT tools as well. So I would say that we've done a lot and I think we shouldn't bother the people on the call here. But if you like, we can also talk a little bit about it afterwards. Think you can hear that it's something that I unfortunately or fortunately I don't know had to spend a little bit of time on. And our next question comes from the line of Lars Heindorff from SEB. Yes. Morning. I have a question regarding the Road division. You've been talking a little bit about the pressure on the gross margin caused by both price increases, which, of course, is positive, but also the lag of drivers. I just wonder if you've moved those things together and then combine it with the split between domestic and cross border volumes, what is actually having the biggest impact on the pressure we have seen in gross margin here in Q4? And also maybe a comment on what to expect going into 2018? I think it's very difficult to distinguish those two. I think that it seems like it's always been like this, Lars. When you get into Q4, we are always extremely busy in Road. And then when you come into January and February, we're not their activity levels seasonally always drops. So it seems like already now that it has never existed. We are back to total normal situation when it comes to capacity. Of course, then when you get into the busy period leading up to summer, of course, if no actual additional capacity has come in, then it can be a problem. Actually, have seen, when I think about it, the biggest problem in the big domestic operations we've had in Sweden and Germany and a little bit in Denmark because we have restrictions on which drivers we can use. You only are allowed to use, with certain exceptions, domestic drivers. So it's a more closed circuit, so to say. So the big international network, which is much bigger than the domestic, has not to the same degree. They have also been affected but not to the same degree as we saw in the domestic. So I don't know if it makes sense. Yes, it does. And then maybe a follow-up on that. And so the split between domestic and cross border, has that changed? Do you expect it to change going forward? No, not really. It hasn't changed. It's the same. It's gone down domestically a little bit. As you can probably envisage, we've closed down some activities in our country, which lies a little bit north of here. So that starts with NHFA. So from that perspective, the mix has changed the middle a little bit by the way of time, but very small percentage points here. And our next question comes from the line of Stuart Todd from Lloyd. A couple of questions from me. First of all, can you give us some color on first quarter in LMC? We haven't heard there has been a material dip in demand after Christmas New Year and that things are very strong in the run up to Chinese New Year. And that's my first question. The second question, could you comment also on the contract negotiations in The U. One of the big issues last year being the fact that you couldn't pass on the significant rate increases in the air, for example, to your customers. Even more of a willingness now given that capacity is tight for shippers to accept load increases more revenue? We cannot, I'm sorry, comment on current periods, Q1. You can read the statistics from those statistics and the IR statistics yourself when they come out. We're not in a position to comment on that. And I think it will also be incorrect to comment too much about how we deal with and we negotiate with both our carriers and our customers. But of course, if I could say a little bit when capacity is tight, the normal mechanisms means that the rates will go up. And we, of course, have to recover that by the customer. This is not a pain we can take as a freight forwarder. So this is what has been happening, and this is also something that we will believe continuing to happen in Q1 and for the rest of this year for that matter. And as there are no more questions registered, I hand back to you, speakers. Thank you very much. Thank you all of you who have listened in to the call. We appreciate your interest in our company. We are now busy speaking to investors on roadshows the coming weeks. If you have any further questions or remarks, know you are always welcome to contact us. You know where you can find us. But we, on behalf of Jens Lund, myself and the whole team here, we would like to say goodbye and thank you. And we will speak to you when we announce the Q1 numbers. Thank you and goodbye.