Earnings Call: Q2 2021

Jul 29, 2021

Welcome to the DSC Interim Financial Report Half Year twenty twenty one Results. For the first half of this call, all participants will be in only mode, so there's no need to mute your own individual lines. And afterwards, there'll be a question and answer session. Today. I am pleased to present CEO, Jens Andersen and CFO, Jens Lund. Speakers, please begin. Thank you very much, and welcome, everybody. Good morning to all of you. Welcome to this conference call about our half year 2021 results. It's a good day today. So we have been looking forward to sharing the results with you. It is business as usual. We have prepared a presentation, which I'm sure you know where to find. And if we start with Page 2, I kindly ask you to read the forward looking statements, which is just above the beautiful DSV truck that you will find on Page 2. On Page 3, we have the agenda for this morning. You can read it yourself. This is what you normally get. And then I know Jens will Spend a little time, Tong, also about the forthcoming closing of the transaction that we have done with Agility GIL. So let's dig straight into the numbers on Page 4. The highlights of the 1st 6 months, situation of the very, very strong performance also into Q2. The results are stronger than what we expected only a little over a month ago, at least in the middle of June when we did the last guidance upgrade, but very, very strong results. I'm extremely proud of all the individuals in DSV who have worked the under very, very difficult market conditions to achieve the results in all which is important, in all of the 3 divisions Based on a better than expected into the quarter and also based A more positive view on the market conditions for the remainder of the year. We have this morning this upgrade our guidance so that we now have a guidance EBIT guidance of between DKK 12,500,000,000 to DKK 13,000,000,000 Danish kroners, which is more than what we had initially. You can see that on the slide. The regulatory approvals in relation to the closing of the Agility GIL transaction is this Going really, really well, I must say. It's progressing according to the plan. We still expect the closing to happen during Q3. This And it is not unlikely that it will actually be sometime during the month this It's public knowledge. So we can say yesterday, we received the approval from the European Competition Authorities, and We have also gotten the approval in China and the U. S. So we are positive about that, and I know Jens will come back to that. Cash flow is still strong. We are still committed to our capital allocation policy. So we have also the announced a new share buyback program this morning of DKK 4,000,000,000. I think consistency in the way that you deal with these things are this paramount, and we will continue to do buybacks. You can see the numbers yourself on the graph, maybe one point which we find a little bit interesting in DSV. The EBIT result of the 1st 6 months the actually surpasses the full year EBIT result of 2019, where we made DKK6.6 billion also. So I think That is proof that we can generate value and results by consolidating this very fragmented industry. A part of the improvement, of course, comes from the acquisition of Panalpina, but also work that we have done, so to say, in the company ourselves. Page number 5 talks about the performance in Air and Sea, still rock solid, an this extraordinary strong performance, double digit growth in Q2 and very strong results in some unprecedented and exceptionally difficult market conditions characterized by still tremendous lack of capacity, primarily now in sea freight. As such, there's still a lot of lack of capacity also on airfreight. But in a way, you can We have gotten used to managing that. It is associated with more problems Helping our customers and their supply chain needs when it comes to sea freight. You can see actually a small deterioration in the gross profit in airfreight. It stems from a very, very strong Q2 last year, where we numerous air charters with PPE. So as such, it's not a big surprise. On the other hand, a very, very strong performance in sea freight on the GP side. The fact that we have managed to keep the cost base absolutely flat in the Air and Sea division. Also, you can see that reflected in the EBIT result and also ultimately in the conversion ratio. Had somebody told us some years ago that we would achieve a 55% conversion ratio, we would probably have said I challenge you on that, but we are very happy about it, and we will work hard to retain the high Margins as long as we can, even though we do expect yields to come down somewhat the future. So very, very strong results. Very, very fantastic work done the Airfreight is actually quite nice in a way to see that all the five quarters you can see are characterized by COVID. The So we are comparing now from the beginning of the COVID period. You can see yields a year ago went through the roof, more than DKK10,400 per tonne, which was not sustainable. I think We also mentioned that at the time, but we have seen a good development this So address is the fact that we have, if not beaten the market, then we've had a volume development in line with the markets. We can say that we have grown the tonnage by 26% in the quarter, and we estimate the market to have grown between 25% 30%. So this is also what we indicated some time ago. And you can also see the that we have had a satisfactory performance during the last So we do not expect that the airfreight markets will return to previous yield levels in the foreseeable future. We have started to see a pickup in air travel, but it is the short haul air travel. In Europe, we might Take a plane down to Spain or France, but we are not going on intercontinental flights. And before they come back the loop. We will see lack of capacity, and consequently, we will see high rates. And consequently, Also, hopefully, at least, higher yields for DSV. So next page is 7. It's a sea freight. You can see it's been a little bit more volatile in the upwards direction, at least, in Q2. The yields of more than DKK 3,900 per TEU. It's What we would expect also in this very, very difficult market, it has been associated with great difficulties at the on certain trade lanes to secure capacity for our customers. We're working stone hard to help them in a period this characterized by port congestion, emergency events happening in the Suez channel, lack of equipment and capacity that has generated great problems. This is where a good freight forward and we the characterize ourselves as that, that they have to step up to the plate and help our customers. And I think we can say that we have managed to do that. But we also have to remember that we do spend more time handling the shipments and the bookings from our customers than we normally do. And it could be now we will see the same period. If the market conditions were not to improve. But We're happy about the performance also growth wise. We see the same picture as we saw on airfreight. This We have grown the number of TUs with approximately or with 12%, and we estimate that the market has grown somewhere between 10% 15%, so we can also tick the box on market share gains or at least growth according to the market for sea freight, which is nice because now once again, when we get into Q3, we will somehow see some sort of pollution or impact in our volume numbers by the inclusion of the good volumes that we expect to get this from Agility GIL. Road Freight on Page 8. Also, they go from strength this Very, very strong results. We do not, this What you say, measure the market share gains as accurately as we can do in airfreight and sea freight. There are no really market statistics, this quarter. This also being reflected in the top line. Rates are not as volatile in road as they are in Air and Sea, Even though we have seen an increase in haulage rates, the increase in revenue is also a reflection of the The result of market share gains. We're very happy about that. Maybe Jens, you will come back to and elaborate on some new initiatives where we have also seen the results in South Africa. We We're very pleased about that with new facilities and new operational setups, which has also impacted the performance in a very, very positive way in the Rogue division. So the fact that we can grow EBIT By 82% is great. And we actually do expect also that the gross margin can Continue around the 20% level, which is quite healthy. So it's a very, very strong set of numbers, this call. And we're very pleased about the performance in the Road division. So really well done to everybody working in The last page before we hand over to Jens Lund is number 9, our Solutions division. We've had a few questions about the gross profit not growing maybe as much as people had expected and the margin deteriorating a little bit. You have to remember, I know it's probably a bad excuse, but you have to measure maybe solutions over a whole year, not only by each quarter. We do have more both positive and sometimes negative impacts by single events. The And in this quarter, we did see that the gross margin was negatively impacted by some costs related to the same customer implementations. This is, of course, something we expect to be also having a positive effect in the future when you come this and have a look at the GP and ultimately at the EBIT also. EBIT is up 16%. This And generally, we are happy about the developments, seen a doubling almost of the e commerce activities compared to the period before COVID. And it seems like that has stabilized now, but it's something which Still outperforming the normal B2B business. So we also do indicate today that we don't expect the GP margin listen to the the Q1. Both 3 and 4 are normally very, very strong months in Solutions, And nobody should be sad about achieving an operating margin of 7%. It is still the. So well done also to Solutions. And I think with these words, I will hand over to you, Jens. Thank you very much, Jens Beran. And I'll quickly Go through the P and L on Page 10. Obviously, revenue impacted both from growth, but certainly also from the yield. So the DKK37.8 billion for the quarter and DKK 71.5 billion for the half year. It's big numbers we're talking about. GP up 15% to DKK8.3 billion and of course, EBIT up to almost DKK3.6 billion for the quarter and up 40%. That means that the cost base has That's what we have promised you that we will drive the productivity up, and we've managed to do so. This. Our staff have worked very efficiently producing the extra volume and also the more, what can I say, complex the service due to all these disruptions in the supply chain that we are talking about right now? So a fantastic achievement when it comes to that and nice to see no special items because we're out of, what can I say, the integration phase on Panalpina? So everything falls to the bottom line. And I think Juan had mentioned this morning that we've now made more money in H1 'twenty one than we this discussion for the whole year 2020 on the bottom line, and we are quite pleased with that. I I think if we look at a few other items, some might pay attention to the the number of employees. It's come up quite a bit. I think here it's important to note that most of them are blue collar employees, so the people that do the fiscal handling force. We've added 1,000 employees with the acquisition of Globe Pride in South Africa. So that contributes to our distribution activities that Jens just alluded to. In South Africa, we've really made significant change in relation to our distribution capabilities. We've moved into new facilities, got a new production the system. And the organization has embraced this change, no doubt about it. I think we will harvest the benefit of that in the future. On top of that, we've also seen the acquisition of a very large automotive client in South Africa that has also added another 1,000 employees. So GlobeOne 1000 and this very large automotive client, 1,000 as call. So alone, of the 2,000 blue collars of the 5,500 blue collars, 2,000 come from the As you know, we've also acquired prime cargo, so another 500 employees coming in on the blue collar side here. So that explains a little bit that we've done some M and A transaction and acquired some businesses as well that have driven the number of Blue Collars up this discussion. The remaining part is just the organic development. And then as always, I think what is important and what we have on the bottom of the page the The diluted adjusted earnings per share, up 78% since last year. So we are now at 37.1 this and that's going to continue to develop in this positive direction. And after all, that is what your shareholders look for how much income do we generate per share. If we move to Slide 11, The cash flow statement. We can see that we have invested more in working capital. That, of course, is this Partially due to the increased revenue that we are having, but it's also partly due to the fact that we've had facility constructed that is on the working capital that we are currently divesting, and that explains DKK900 1,000,000. If you adjust for that, The cash flow should be in line for H1, and the facility should be the taken over by the new owner at the latest in Q4. So We run now the company with a leverage of approximately 1.5x EBITDA. We have issued a new bond in the beginning of July, very solid financing with the 3 different eurobonds with a total value of DKK1.6 billion, where the shortest this Tenor is approximately 6 years, and the latest one we issued here was actually 12. This. So we have a very solid financial situation when it comes to that. If we skip to the next slide and go to number 12, it's our guidance. Yes, Bjorn already mentioned it that we Have changed our guidance a little bit because we look a little bit ahead as well now. We've been very cautious to the yield levels that we are seeing, but it looks like it's going to continue for the remaining part of the year with the high yields the and probably also into 'twenty two. So our outlook is now upgraded to between DKK12.5 billion and DKK13 billion We also write here that the currency exchange rates will remain at current level. If you look at the numbers, we have this actually reported a little bit of headwind on that as well this year. So that's also something that should be taken into consideration. If we go to slide number 13, we have bought back 7,200,000 shares this year so far at an average the price just shy of $1200. So it's certainly been a good deal for The shareholder that we are reducing the number of shares in circulation, and We currently have a new share buyback program that has gone live today of DKK4 billion. And if you look in the right hand corner in the bottom, you can see that the total share buybacks that we have committed this year and this discussion and have executed amounts to approximately DKK15 1,000,000,000. And if we do another one, this, which is likely after Q3. Then we will probably add a couple of 1,000,000,000 listen to this number as well. So we are basically delivering on our capital allocation as promised. And as Jensk Garn said, this is crucial for us that we have a very predictable capital allocation model. The The final thing, GIL, what is it that we expect on that? Well, we announced the transaction on the 27th April. We've worked hard in relation to the regulatory approvals, and we've actually obtained. Most of them, there are a couple of jurisdictions still outstanding. Here, we are in a controlled process where there are certain deadlines that have to be met. And it's not unlikely that we will be able to close the transaction sometime in August. If you look at the time line here, We expect to be able to deliver on the combination of the 2 companies. And then actually, I have one important note more that is a little bit out of the ordinary. And that is that we have our extraordinary general meeting coming up shortly after we have, as part of the transaction, this. Promised to include a member for maturity in the DSV Board. So we will have an extraordinary general in the There will also be another important topic on the agenda, and that is basically that we would like to have authorization to Isoniaz renewed. We go for a 20 the 6% basically extension of our current number of shares. And it's important that we get this through so that we can facilitate our M and A strategy the going forward. So that's an important topic that will come up on the Extraordinary General Meeting. Yes, I think that was it. And if we move to the next slide, you can see that if you want to the And our first question comes from the line of Daniel Roskor of Bernstein Research. Please go ahead. Your line is open. Gentlemen, good morning. 3 if I may then. You talked about your expectations for air rates a little bit given the global development of passenger travel. Could you expand your view on Ocean rates a little bit? Is there a risk of declining rates at some point? And maybe looking a little longer out, are you expecting any drivers for higher profitability in the Ocean business this cycle in the next couple of years. You talked about the M and A. I Suppose you've spent some more time looking at GIL and preparing for the integration, any additional findings or insights you'd like to call out at this point in time that you kind of discovered over the past couple of months, the business mix, how that business will fit into DSD? And lastly, could you give us an update on your IT strategic initiatives to this client. And how happy are you with Cardinal Life going forward? Is there more internal development going on? And which areas are you trying to press currently when you're thinking about your IT roadmap. I'll kick off with maybe the first two ones, and then Jens can come back on the IT side. This In Ocean, it's exceptionally difficult predicting when this market will have actually stopped using the term normalized because I don't think we will Get back to what levels we were at prior to COVID, but to improve or to deteriorate. We have assumed a deterioration in our yields from current levels that is held in the guidance we have given. It's not like we need to sustain the current levels to meet the guidance that we have given this morning. We actually believe that we will go south of 3,500, maybe to 3 or something like that For some period in H2 per TEU. But We have actually extended the time frame from when we do believe that this Then the market gets back to where it was. Where previously, we thought it It's going to happen in during this year, we don't expect really that to happen. We think that this volatile this and difficult market will continue a little bit into next year. And then, yes, we have to see what happens. On the M and A front, the good part the good thing about doing a share deal when you acquire a company is that the seller becomes a new shareholder in DSV. So we share the same interests, and that has been reflected in the preparation work. Very, very forthcoming. I would like to extend a great thank you to everybody at Agility and GIL. They've been very forthcoming. Within the regulatory frameworks, of course, there are certain limits to us how much information we can exchange. But we feel that we are well prepared. This We have found exactly what we hope to find, a high quality company. And we look very much forward to welcoming everybody into DSV once it is possible. So Business mix, geographical mix is more or less as we had expected. We also did the spend a great deal of time looking into this in the negotiation phase. And maybe Jens, IT? The the way we exchange data with our customers. And we've consolidated our platform, as you know. This. And if you look at the production platforms that run for the division, 2 specifically had mentioned CargoWise. CargoWise 1 is part of our stack for Air and Ocean. We use other components as well. But of course, the It's the one where we do the quoting and the order management and produce the freight documentation, etcetera. So So it's an important part of it, and we continue to work towards further digitalization of the flows, the workflows that we have, so that we increase the productivity of our employees. We need to ensure that we have the right tools so that we can deliver the right service to the customer. And there's really no sort of the change in that plan. Of course, we will go to more modern infrastructure, this And we continue to modernize our platform. That is in reality what we're doing. So more open source, more cloud based, the What can I say, much more powerful computing power available? That is probably some of the things And maybe if I could circle back to the first section on Ocean. If you think beyond kind of the current and the next year, Is there anything you think that has changed throughout the pandemic that meaningfully changes the profitability levels in ocean freight for you, for Ocean Line. Kind of any hopes of improvement there? I cannot speak on behalf of the Ocean carriers. You have to this Contact them yourself, but I actually do believe that the truth lies somewhere between rate levels, at least what we saw prior to COVID and what we see now. I don't necessarily believe that we will get back to the low levels we saw. I think ocean carriers will do everything they can to sustain a higher rate environment, which is also not bad for us, and we don't need to see more Hanjin like situations either. So we want ocean carriers to be healthy so they can invest in new capacity also. So we estimate that rate levels will stabilize somewhere between maybe what we saw before and what And our next question comes from the line of Satish Sveet Kumar of Citi. Please go ahead. Your line is open. Yes. Thanks, James. I've got Actually, firstly on the add and fee rate yield. How the quarter has actually progressed in terms of Q2? So is it like Got it better as we came into June. And just on that, how is the yield performance across regions? So where did you see strength versus weakness the portfolio or network. Secondly, on GIL, obviously, we are approaching the completion now. What is your thoughts on the integration plan? Has this changed since your Q1 results? I. E, are we looking still towards like 12 months integration window. Finally, on the road, in terms of the IT platform, any update on the cargo way forward? We have some very positive news, so thanks for asking that. So we will always the Keep the very exciting news to the end. So I will ask Jens to elaborate on that later on. But I'll just on the Air and Sea yields, it's been fairly stable actually on a high level throughout the quarter. The And it's not like they have deteriorated at the end of the quarter. So a good performance has carried into the end It's not like they have spiked tremendously either at the end, but it's been very high throughout the whole quarter. And we're very Happy about that. And now, of course, the big question is how long can we sustain these high yields. But I can tell you one thing. As always, we will try to keep them as high as we can. On Agility GIL, I think you can you will have to read a lot into you can take a lot of inspiration from the Panalpina deal. This is a smaller transaction. We are more experienced. The So I don't think it will take any longer than Panalpina. We are well prepared. But we will not preempt anything. It's not our company yet. So we will have to have a little more patience, and then we will address the Put more flavor to everything once the transaction has been completed, hopefully, here during the month of August. And maybe, Jens, on the what we used to call cargo link way forward, but we have a new name now. Maybe you can It's actually it's called Roadway Forward now. It's not called Cargo Link because the project or the magnitude of the project means We have what can I say to rethink the processes and our service offering, what can I say more generally? But we've gotten live on the platform. We've had some goals at going live with different POCs. Now we have a POC that we this We believe in, we are live. And we will we are live in a country called Lithuania. And we will do more 2 more countries before Christmas. So Latvia and Estonia will go on. The go live has been good. It has been, what can I say, fewer unforeseen issues than we had anticipated? So that's certainly positive because that means we can focus on the next couple of countries. The POC will extend into next year, where we will then do Poland afterwards. And if this is done before the summer holiday, then we know that the POC has been the If it is successful, and we expect when it is completed, Then we will continue the rollout in the remaining part of the division. And we will, in reality, have this an enterprise ready solution that can stay scale. It's based on Bluejay, obviously, but it's also done in combination with the software stack that was needed. And then we will have high focus and spend significant resources on the rollout. Having such a tool in place means that in reality, it should be possible to do the same in role as we do in Air and Sea. So it's, of course, something that is very high on the agenda within our company. The So the Poland rolling out Poland next year is the key milestone? The The key next the first one was to get it up and running and then make sure that the flows stay worked. Then we go cross border. We do that with controlled volume. That's the next important milestone. And then we need to go to a country where there's higher volume. Poland is a market that we operate in that where we have significant volume. So we will now have then 4 countries on to cross border but also then with significant domestic volume. There should be nothing. We actually we used a platform, the Bluejay, in South Africa for distribution, this Where it handles much higher volume than the volume we're talking about here. But we need the cross border functionality to work in combination with that. So when that is done, we are ready to do a mass rollout, and we will then 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. Also, three questions from my side. First, on the Ocean side, Could you just comment a little bit on your recent rate negotiations with carriers? I mean, did you the were you shocked or did it work out all right considering the spot rates that we have right now? This. And also have you got some partnerships which you have expanded or the opposite on some various carriers out there? The My second question is on the Roads business. When we speak to some of the smaller freight forwarders out there, they seem to be indicating that the volume peak is just behind us, but rates really continue to be possibly even higher. Is this something that you see as well in your business? The And then finally, just on volumes in Air and Ocean. Really happy to see volume growth coming back versus the market. The Just to realign expectations a little bit, how should we expect this to play out as we move into the second half, obviously, getting Jill onboard? Do you expect to get kind of into a new period of you growing below the market? Or is there a vision to grow in line the market there despite you get the chills on board? Queue. On the Ocean negotiations, if you ask if we were shocked, we have been shocked throughout the last many months. It is an unprecedented level we see when it comes to rates. We have seen rates we have never ever dreamed about in the past. So but we have handled that. As I said, we are one of the largest procurers of ocean freight in the world. So we do have certain buying power, which Hopefully, it's also reflected in the terms that we can achieve by the carriers. Contract rates have gone up. We have the It is something that we pass on naturally to customers. And But the tendency is also that customers are asking for more spot related or more spot driven market Where you actually do not gamble on and you don't really want to log in the rates. So It depends from customer to customer, but we've actually managed to do some good deals. We always change volume from carriers to carriers, depending on what terms we can achieve. I wouldn't Say that the last negotiations here has caused any big changes in the suppliers that we use. We use most the of the world's large ocean carriers, and we have good relationships with them. On Road, it's also correct that we are seeing slowly now, some sort of lack of also capacity, which has driven up rates or haulage prices, as we call them. It's not something we could not handle. We've also managed the same store capacity for our customers. We have actually, as a part of what Jens just elaborated on in the Roadway Forward project, this Also changed some of the material that we are using, which has also benefited both our customers and also our own this. I will not go into the more details. But a big truck is not just a truck. There are many different models and ways you can this. Volumes, yes, we have to already apologize for the fact that transparency will not be as good as it has been. The In the future, once we include the Agility GIs numbers, of course, We will put a little bit of a smokescreen over the numbers, but we will try to be as transparent as possible. But we do actually expect the That the performance will continue in terms of market share gains. We see no reason for that not to happen. The only thing I would say is, For Ocean, the time might not be ideal to go out and take big chunks of new business right now when you have this difficulty sometimes just supplying your own good loyal customers with capacity. We need to look after Our own customers before we get tempted to take big chunks, but they are out there if we wanted to. We have seen volumes and customer names who are also ocean carrier customers, normally ocean shipping line customers normally that we have never been able to do business with all of a sudden. They come to us also now seeking for looking for alternatives. So of course, we try to take a little bit to establish the same connections with these customers, but we have to look after our own customers first. Great. Thank you so much. That sounds very interesting. And yes, keep on the good work there, guys. Thank you. Our next question comes from the line of Dan Chargo of Carnegie. Please go ahead. Your line is open. Thank you. First, a question on the guidance. When I multiply, so say, EBIT first half by 2, I get above €13,000,000,000 Could you help me understand why second half should be weaker the first half. I mean, you have the solutions that you state clearly will improve in second half. And maybe you should also think that When and if it continues to start to soften, let's say, not maybe in Q3, but maybe through Q4 when we exit the peak season. It should support your yields and GP in the CPAR business. So can you help me, so to say, tie these things together? Where exactly do you see the softness in second half? That will be the first question. And second question, can you be a bit more elaborate on in which verticals UCE are particularly strong. Is it still the consumer driven verticals, electronics, apparel, etcetera? Are there other verticals coming back on? I know you're particularly strong in automotive. That was quite weak last year. Is that part of the reason why Growth is also coming back, so you have easy comps in automotive? Yes. I think there's probably one place then where we have a little bit of conservative approach. We don't necessarily anticipate that the yields, they will stay on the same level as they have done. We don't know where they will go to. They have Compared to last year, in airfreight, coming down, I know that they are a little bit higher now in sea freight the per TEU. So of course, you can have various assumptions on that. We don't want to be overly aggressive. The rest of all your argumentation, we understand very well. We are then in the fortunate situation that we will come out with numbers and Just our guidance as we go along. We've already now tried to extrapolate a little bit this on current levels and come up with the guidance. And then if you do your math the way you do it, It can be that earnings, they are going to be even stronger in Q2. Let's hope that you're right the When it comes to that. If we look at the commodities that we move, of course, I mean, retailing, I guess, all over is this place where people spend money right now because people can't spend money on things that they normally did, At least not to the same extent. So that's certainly led to serious demand when it comes to that. This high-tech and other area. I guess we all invest in new equipment at home or wherever it is that we're doing it also in the companies actually the support, what can I say, the more digital way of interacting and working with each other, New equipment is needed? It can be many different things, everything from a camera to a new computer or whatever that is taking. And then actually, automotive is probably also a vertical where we have seen an increase in demand. So some of the very big volume areas, they are certainly growing these days. I think that's a little bit on the verticals. Thank you. Thank you. Stand. Our next question comes from the line of Lars Heindorff of SEB. Please go ahead. Your line is open. Thank you. A couple of questions from my side as well. First, mainly regarding sea and air. And what I'm looking for is a little bit of help about the productivity in the division. I assume that the disruption to global supply chains that caused not only customers, but also you guys some problems and maybe I don't know if you have to hand carry follow through the system on how you do it. So I'm trying to get sort of a feel for how what you think about the total CVT. I don't know if you can give us any numbers on it, how much productivity is down, if anything at all? That's the first part. Actually, Lars, productivity is actually up because volume is up and Cost is flat. Headcount has been flat in the recent quarters. But if you start to this Measure it on working hours, then you have a point. Then productivity is probably down Because of the fact that you say you're absolutely right in saying that we need to hand carry shipments in a much greater way than what we used to when we could just give an instruction, pick up 50 containers, please, on that day and deliver them at this location on that day. And then you would just assume that it would happen. This is definitely not the case this time around with blank sailings, and you always have to be alert this And first, ensure that you can get the capacity. And then once the booking has gone to a shipping line, also ensuring that the freight is actually being moved. This And in all the cases, multiple, multiple cases where that is not happening, then find solutions, alternatives the For your customers, that being airfreight, trucking to Europe, train or alternative carriers, this is what freight forwarder can do. He can use another carrier. You cannot do that if you are a customer directly with a carrier. So and as I alluded to, the There are also certain limits as to how long we can sustain this. It's we are asking a lot to our staff, and they have really stepped up, as I said, to the plate. Now we will combine ourselves with Agility GIL, and we can look at The productivity as one. So I don't expect that we will see a deterioration, this It's definitely a KPI that we have our eyes very fixed upon. Okay. And then but then in an environment with less volume growth, would it then be challenging to continue to improve that productivity? No, it's like we will it's not static. I mean, we all talk about this environment. Of course, that's also But don't talk about all the other things which are happening in DSV. We invent new ways of working, new technologies being taken into consideration. I'm sure even in the U. S, We get fewer telefaxes now than what we used to. We get more electronic bookings. We communicate internally in more the that we did. That kind of offset a little bit the negative impact that we see from the market conditions also. So I think we are in good shape. And now when we get together with Agility GIL, as I'm sure that we can see a continued improvement in the productivity. Okay. And then the second part is on solutions. You alluded to this yourself in the presentation, and I think you just talked a bit about some of the blue collar and extra staff in South Africa the as well. But I'm trying to get a better feel and understanding because online as we have in CN Air, we have some data points that we can track in terms of rates and volume, etcetera. We don't have the same possibility of tracking the development in solutions. And if you go back maybe 2 or 3 years, on a quarterly basis, actually it's been fairly lumpy, both growth But also earnings in general, I know it's been going up very significantly, but still, I would say, relatively lumpy. This is this caused by solely by start up, new customers or anything in terms of the execution. What does I mean, the deterioration on a sequential basis in the gross margin? And what is that caused by? I think if you look at it, Lars, it's the If you said we grow 16% on a quarter, then it's correct this That once we have gotten, for example, Panalpina's volumes in or at that point in time, UTI's volumes in, There were, what can I say, quite a few bleeders in some of these volumes that we acquired? The Then when we fix them, of course, then you have some fluctuations in it. On top of that, it's always been a little bit cumbersome When we have to implement very complex workflows on large accounts that we take over. And that then leads to fluctuations the And it's not unusual that you lose on a very big account the A couple of €1,000,000 in a start up phase, but it's typically then a customer you will have for 10 years the even more sometimes. So of course, you have to invest in the ramp up and taking things over. And I guess from the outside, It might look a little bit, I don't know, you call it lumpy. I would call it bumpy as such. But it's not many years ago that we made, let's say, DKK 300,000,000 in Solutions. And I think this year, we can comfortably Say that that's not the case, you know. The practical example, as you take on a new customer, you in your calculations, you estimate You need 400 blue collar workers. You put in 400, you might put 420 in. Then service levels are not this The customer is not very happy. Before you know it, you are 500 blue collar workers to get a satisfactory level. This Then the month after, you might be $485,000,000 then you might be $475,000,000 and maybe 12 months down the line, you are back to what you actually We are constantly trying to improve on this, but it's just a matter of fact that this is a problem. But on, like Jens said, a 10 year period, it's still the right thing to take on these customers. But it is larger and super, super sophisticated solutions we're also doing for our customers. And if you sit and look at it, I think the seasonality, I mean, We will definitely make a higher margin in Q3 and Q4 like last year, and I think that's also been the case historically. And I actually think that we've made significant progress on solutions. There's still some ground to cover. We put in more and more automation start ups. They're going to be more and more complex. We will start now with the largest automation that we've ever done here in in October. So that's probably also going to be challenging in the first phase. And that's basically but we drive it forward. And I think That our capabilities, they are much stronger than they have ever been before. No, I'm not in doubt about that. I just I should find out from the outside, maybe not lumpy, but then maybe a decent sense of growth a bit lumpy. This discussion. All right. Thank you. And then But just make a line over time, then I think it looks okay. Yes. Then last one, short, on the road. Given the congestion in sea Maybe also to some extent in there and the ripple effects. And there's still ongoing strong volume growth that we see also in Europe. Any signs of any tightness in the capacity or any risk, which I mean, historically, there's been a few quarters where you've been experiencing difficulties getting drivers, and that has caused maybe at least short term a little bit of pressure on the gross margin. Any signs of that? No, not to a large degree. Of course, in a few markets, we might see Lack of capacity rates temporarily spike up without us being able to pass them on. But on a divisional level, As I said, we expect the GP margins to retain or remain at the current level. They have a strong momentum now in Road. And they have not finalized we have not seen all the effects of the work, which has been conducted in road. So There will still be more to come. And normally, a high rate environment is a better environment also for GSV than a low rate environment. So we are comfortable with the development in the Road division. Okay. All right. Thank you, guys. Very helpful. Thank you. Our next question comes from the line of Hach Hoyer of Handelsbanken. Please go ahead. Your line is open. Yes, good morning. Thank you very much. Questions, I have to come back to these terms in your guidance for the second half. It sounds like you are factoring 2nd question is around the I mean, it's very good to see the organic Hopefully, the idea is to leverage increased competitiveness Actually, gaining market share organically. Is that still the game plan? Does it work? Do you see the competitiveness of the service offering having improved to such an extent that you can pay 100 percent, France, committed to taking market share. You can clearly expect that from a company this Like DSV, we are it sounds maybe arrogant and we are humble, but we are one of the world's largest freight forwarders logistics companies. This If we should not take market share, we have not done a good job. I mean, it is still profit over growth. The easiest we've talked about this a 1000000 times is the easiest thing is this to outgrow the market, but of course, profitability needs to follow. But we have so many ways this to outcompete the small mom and pops right now. So we would clearly expect that we the This is also what we have seen in the aftermath of other transactions than we have been able to outgrow the market. And back to the yields. Of course, if you're a dart player, you know you throw 100 darts against the board and you expect the to hit bull's eye 100 times, then you're right then with the guidance could probably be higher. But you also need to kind of assume that something can Can actually also go in the other direction. And to answer your questions more specifically, we have included in the guidance this yields around 8,000 for airfreight and around 3,200 to 3,300 the for sea freight yields. And if yields will continue to stay above that And if growth continues at the same pace, then you could have a point this that we are conservative, but we think that assuming to hit 100 bull sizes, also I'm a little bit Too optimistic, and you could also rightfully criticize us for that. I wouldn't criticize you. I thank you for the clarity Thank you. And our next question comes from the line of Sam Land at JPMorgan. Please go ahead. Your line is open. Yes, thanks. I have two questions, please. First one is just following on from that last point. Obviously, we're watching freight rates, keep on going higher and higher. Obviously, freight rates aren't exactly the same as unit margins. So Is there a reason why the unit margins can come down even if the freight rates move higher? I don't know whether that's sort of lower yielding types of products coming back into the mix or something else. And the second question is on this extraordinary general meeting, the 20% share issue authorization. Is there something different about that to what you've done before, whether it's just the size or whether you'd need, this I don't know, fewer subsequent authorizations if an M and A transaction came up in the future. Thank you. Quickly on the seafreight, this It's actually, you would normally say the higher the rate, the higher the yield. So it's not like the The high rate environment would be against DSV in terms of deterioration in the yields. It's just to be a little bit on the safe side that when we get to maybe the end of the half year that rates could start this drop and consequently also yields and that the whole system settles somehow and that we Could come into a situation where maybe some of our competitors you never know what happens. They start to become more aggressive. So it's just to be a little bit on the safe side that we have assumed that yields come down. When you have the highest the yields you have ever had. It's very tempting to say this will continue forever and ever and ever. But don't think that's the way you should run a company either. You need To be a little bit cautious also with the assumption that things can actually change. We had the highest rates highest yields in the industry before this spike, and now we're even higher. So it's but I can tell you one thing. We will Try our best to keep the yields as high as possible for as long as possible. And maybe Jens on the 20%. We've had authorization sometimes that have been higher than 20% as well. 20% is basically what you can Do in line with EU regulation without issuing a prospectus these days. And the reason why I call it out, there's a couple reasons for that. One is, of course, that we saw on the Chill transaction and also on the Panalpina transaction that the vendors, they want DSV shares. So in order to have the right mandate, it's just important that we have this authorization so that we don't have Strategy is in reality, of course, that you have something you would like to do, but it's also that you eliminate the dependencies so that when you negotiate, You can deal in confidence and when you sit in the at the table and do the negotiations. 1 of the proxy advisers the That is there. They don't hold any shares, but they advise many shareholders on how to vote. They have gotten out with a 10%, What can I say limitation for new issuance? And the That's the problem is, of course, then that it is a little bit against our strategy that we have less mandate this Because it makes it harder for us to execute. If we find other shareholders, we don't know what the next transaction will be and how that should be bankrolled. So of course, we want to work as much as we can for our existing shareholders. But For example, we think also that even if we acquired Panalpina or GIL through shares to the new this or to the vendor. We still think we have created value for existing shareholders. So as to have that mandate and to have that power this That we're just mentioning it here because we know that in certain cases, these, this. What can I say, authorizations when people they vote for the extraordinary or ordinary general meeting, it goes to the compliance department? And it doesn't necessarily reach the investor. So that's the reason why I'm just calling it out here so that we close that loop now that we have so many on the call. The Understood. All very clear. Thanks very much. Thank you. Our next question comes from the line of Christian Malpekla of UBS. Please go ahead. Your line is open. Hi, thank you very much. Could I please ask you, in Ocean and Air, when we look at your purchasing of capacity, Remind us how much you're buying spot versus how much you're buying on longer term contracts and if there is any reason why this should change going forward, considering the current market conditions and so on. Secondly, your Q2 conversion ratio in R and C, 55%. Could you give us a bit more color? What was the range of the conversion ratios among different regions, sort of the best performing or least performing out there. And thirdly, maybe a long term question on GP per unit in Air and Sea. Leaving aside the normalization of the rates, can we talk a little bit about the other drivers that are impacting the GP per unit the and how you see that playing out in the long term, either it is competition, either it is mix, increase in purchasing scale or maybe automation of some value add services? That's a lot of questions. When it comes to spot on contract. To give some guidance, it's close to fifty-fifty, I would say. We have seen though with the new scale we have after acquiring Panalpina mainly on air but also more and more the We are doing BSAs or block space agreements. We have more charters ourselves. We have the legacy Panalpina charter network, where we do get in and actually gain access to a fixed capacity. We are not as such speculating massively into filling capacity. So we have run the risks of having vacant capacity. But this is maybe something which will change. It's an evolution where we need to maybe change the procurement strategy in the just a little bit going forward where we do take larger blocks based agreements with both airfreight and sea freight areas. I know Jens will talk a little bit about the regions. But on the GP per unit, there's a lot of levers we can use going Forward for the GP to increase, I think the size, the buying power of DSV is 1. I don't think as such the competition will change dramatically. There will be some consolidation in our industry, but there will still be a fragmented the industry, so competition will still be very hard. Of course, automation, the productivity this quarter. Yes. So For a long, long period of time going forward, there will be ways for us to improve the margins in respect of how we operate. I don't know, Jens, if you have any numbers on the regions. But if you look at the conversion ratio, it's clear that it's higher in the Asia Pacific area and in the U. S. As well. And then, of course, in what we call the Europe and Middle East and Africa, it's a little bit lower, the productivity. So if you look at that, and it's been like that for years actually. So I think that, that is what we can say about that. I think actually all areas have improved over time, and they At an extraordinary high level here in Q2, we will now have to see how it pans out the next the mid- quarters. If you look at our long term guidance, we have said higher than 47.5% for the Air and Ocean part. So they are allowed to go higher. It's not illegal in our company that they have a higher productivity than that. And we're actually very pleased with the way Thank you. And the final question comes from the line of Alexia Dugani of Barclays. Please go ahead. Your line is open. The Yes, good morning. Thank you for taking my question. Just I'll keep it short. Just firstly on the JIL performance to date, I mean, should we expect that they're benefiting from similar trends to DSV and so most likely kind of the view in April has the strengthen over the past couple of months. And then secondly, on conversion ratio, I mean, from the comments you just made, Should we therefore expect to see maybe the mix changing a little bit of how the conversion ratio the driven, but that levels shouldn't necessarily retrench too much post normalization. And then finally, I just wonder if you had any comments on the air cargo market once passenger barely holds capacity comes back. Do you think the provision of capacity has structurally changed? I mean, do you expect Yes. Thank you very much. Again, three Very good questions. On the JIL performance, we cannot comment too much on that. It's We have the information, but we are not in a position to share that with you. You have to take maybe inspiration from what is happening in the industry, and then you make your own assumptions what is happening. We will, as Jens has said, come back with more solid this information once the closing has been done. It is we think it's a little bit inappropriate to comment on the company, which is not ours yet. It will be soon. This. So a little more patience and then we will get back to this. Airfreight, it's again a little bit speculative, But you're right in saying that some structural change could happen. We have grown Very happy with the freighter systems that we have at least in DSV, and we expect to continue to develop that. So in the future, I actually We believe that if you compare to the period a lot of things have also happened in DSV, not least the acquisition of Panalpina. But if you look back to the period before Panalpina and then 2, 3 years out in the future, I would expect that we would use more freighters than what we did in the past. We have more volume. We are better at utilizing this equipment. And actually, the service Customers are getting on the freighter service. It is a premium deluxe, which is a service, which is very, very good. It's something we are proud about. Conversion ratio, Jens, anything to No. I think I don't think that of course, now we produce extra high GP. We have very high yields. Our staff have worked really hard in order to do so. Normally, what will happen is then that it gets less complicated, so the yield will come a little bit down, but hopefully, we will produce more shipments then. So where the GP balances out, right now, we have a little bit more than 20% in GP, and we've had that for a long time. So we will have to see. What you can count on is that we drive the productivity, obviously, as Per and talked to, before we talked about digitalization, this and that we will continue this. And I think the regions or the areas where we operate are very similar to GILs. This is It's typical for a company like this. The only thing that is different about GIL is that they have a larger footprint on road and solutions in the Middle East than us. But apart from that, it's very similar to us. So I think we will continue this development, and I don't think we've never really had a long track record of going back from productivity levels to lower levels, at least not in the 20 years I've been in this And Jens Bernd has been there longer. I don't he's shaking his head, so he can't remember it either. I cannot even remember how long I've been employed. So if you look at that, I think we will continue to drive it forward. That is actually the reason why when we did the financial guidance this Then when we buy a company, it will come down initially and then we will merge the companies. And then typically, we will end with a higher productivity than we've ever seen before. And we plan to do the same also with GIL. And this Then when that materializes, we will see what then happens. Excellent. Thank you. Thank you. And as there are no further questions on the queue at this time, I'll hand back to our speakers for the closing comments. Thank you very much, everybody. Thanks for all your very good questions. If we have not It will be a little bit to my surprise, but if we have not been able to answer all your questions, then you know how to find us. Find the contact details of Fleming and the IR team on our webpage. If you have any investors who wants to speak to us, please reach out as well. Once again, we are extremely happy and proud and satisfied with the performance of our company. I think The future looks good. We are excited about welcoming a lot of new good skilled, talented colleagues into our company from Agility GIL. We will become a stronger company together than what we are as 2 individual companies. So We will get back to you before you know it with more information when we get to the closing of the deal of JLCG IL. And until then, we will wish you, those of you who have not finalized your summer holidays, a continued good summer,