Earnings Call: Q2 2020

Jul 31, 2020

Ladies and gentlemen, welcome to the DSV Interim Financial Report H1 2020. For the first part of this call, all participants will be in a listen only mode and afterwards, there will be a question and answer session. Today, I'm pleased to present CEO, Jens Bjorn Andersson and CFO, Jens Lund. Speakers, please begin. Yes. Hello. Good morning, everyone. Welcome to the conference call here from Hillhousne. I'm joined today as normal by Jens Lund, and we are extremely pleased to be able to go through the half year 2020 results with you. We have, as we always have prepared a presentation and you can find that online. So after you have carefully read the forward looking statements on Page number 2, you will find the agenda on Page number 3, where we will start with some highlights about the previous 3 months' performance. We'll talk about the integration and cost saving initiatives we have implemented in DSV. I'll go through the 3 divisions, and Jens will conclude with a financial review and talk about the outlook also for the full year, which we have reinstated this morning. And we will, of course, conclude the presentation with Q and A. But if we go to then Page number 4, it is a great morning for us here in DSV Panalpina. Today, we have delivered the by far best result we have seen in the history of the company. We see it as we've considered ourselves a pretty strong performance in what must still be considered a very challenging market. You can see on the bottom of the slide that we have been able to grow both the GP and also the EBIT considerably. And the fact that we have actually achieved an EBIT result, which is exactly or close to exactly at least DKK1 1,000,000,000 more than what we did a year ago in Q2 is extremely satisfactory for us. And we will come back to some of the reasons behind this strong performance later on. We have seen a continued successful integration of Panalpina. The integration synergies and the cost savings are slightly ahead of plan. We will also revert to that later on. And then as we have touched upon in the past, we have also in Q2 seen an extraordinary airfreight market and also a temporary cost savings, which have had a positive impact together with the integration of Panalpina of the results in the quarter. Due to the fact that we have slightly more solid ground beneath our feet, we have reinstated our financial guidance and we now expect an EBIT before special items for 2020 in the range of DKK8.2 billion to DKK8.7 billion, which is exactly the same guidance as we had when the year started. It is a little bit of coincidence. There's been a lot of moving parts in this calculation. But based on the different scenarios we have used, we came to that range. And Jens will elaborate on that later on. So with that said, we will flip on to Page 5, where we will talk about the given short integration update, we might touch upon the integration a little bit also. Next time, we address this with you guys after Q3. But then after that, we will phase out the communication about the integration of Panalpina. We are close now to a situation where we can consider the integration work as something which lies in the past. But we are pleased about the fact that Synagis is still rolling in and they have rolled in also slightly faster than what we had expected. We've seen a great transfer of customers to our systems and it is progressing really well. And we have seen no significant service issues as a consequence, which is good to be able to establish. Around 50 countries have been on board now, and they represent at the time of the end of Q2 90% of Panalpina's volume. And since that, an additional estimated 5% of volume have been moved to the GSE platform. So as you can hear, we are close to a completion, where we can say all volumes are on our systems. We are also pleased to be able to announce that we have been expanding the legacy Panalpina air charter network in a slightly different format in DEC that fits better to our structure. But we fully recognize the capabilities that we got in from the Panalpina operations organization when it came to the charter network. This is something which has been highly beneficial for us in both Q1 and also in Q2. And we are now in a situation where we have significant more air freight volume that where we can kind of work with a slightly more fixed capacity situation than we could in the past. This is something which is also highly appreciated by a number of our customers. So on Page 6, you can see that the total synergy estimated number stands at SEK3.7 billion. This is the savings target we have by combining both Panalpina Synodecase and the so called COVID-nineteen initiatives. It is not possible for us to split those two plans. I know some of you have asked this morning if you could get a split. Unfortunately, that is not possible. It is 2 cases, which we have integrated into 1. You can also see that we have we are slightly ahead of plan, where we said now this morning that SEK 2,100,000,000 will be achieved this year. And previously, we said SEK 1,900,000,000. What is also positive is that we now expect to use slightly less costs in relation to achieving the synergies. Now that number stands at SEK3.1 billion and it was previously SEK3.3 billion. So overall, the savings are ticking in. It's not just something that we see in PowerPoint. We can also see them clearly coming into the monthly P and L. And it's only when they hit the P and L that they actually count in GSV. So we are very pleased about that, that we can see that the overall cost base of the company is coming down as we had expected. And in a situation where volumes are still under pressure, it is really a great thing to be able to establish. So on Page number 7, I don't know what to say. It's out of this world results performance that we have never seen before by our Air and Sea Organization. They have doubled the EBIT from last year due to a number of issues. Of course, we have had the impact on acquiring Panaltena, of course, which we had expected. But then we also, as I said, have had a situation where the fixed capacity that we have access to in airfreight has helped us also even though volumes are down, as you can see in a second. The R and C operations have also been really fast when it comes to restructuring their businesses and working on their cost base. They do operate in a number of countries where you can adjust the so called fixed cost base faster than what we can for instance in Europe. But a super, super strong result that those of you from Air and Sea who are listening in on the call, you can be extremely proud of the work you have done. We clearly recognize the performance here from the head office in Denmark. It's just it stands up to anything else that we see in our industry. So congratulations with that. We are extremely happy with the results. We elaborate a little bit on the volumes on Page number 8. As you can see, also the page describes a little bit the situation we are in when it comes to the market. We are still significantly down on the market. When it comes to airfreight, we estimate that the market in terms of volume is down between 25% 30%. And when it comes to sea freight, between 15% 20%. We do see slow improvements in these numbers, but we have seen a slow improvement during the quarter, but it's not like it is improving at with big giant leaps. We are very, very content and happy with the yield development in airfreight. Have expanded the service catalog we do for our customers also. We do a broader range of services for customers now, a more full scale operation with more door to door services, with more kind of urgent express systems also for customers, which has also helped on the yields. The legacy Panalpina freighter network has helped on the yields. And we should not forget, this is also the fact that we do see an improvement in the yields is also something that we would have expected under normal circumstances as we see the integration of Panalpina also transpiring into improved yields. When it comes to sea freight, a more normal, if you can say, situation. The sea freight market has not been as volatile as we have seen in air freight. But also here, we have seen a stable development on the yields, where we now are up compared to both Q4 and Q1. And we do expect those yields to continue going forward. And of course, I know that we will get a lot of questions also about how we the yields going forward, especially airfreight. So I can maybe touch a little bit upon that. It is a little bit too good to be true what we are seeing in Q2. It would be nice if we could stay at above 10,000 per tonne. But it is our estimate that, that number will gradually come down over the next quarters. And if we are around, we do estimate that we could land at somewhere between 7,000 and 8,000 for the rest of the year. But it still remains to be seen. It is still highly uncertain. Then we go to Roads. Not to forget also a great, great performance, especially in the last part of the quarter. Air and Sea came out firing on all cylinders, so to say, from the beginning of the quarter, also ending slightly stronger than they started. But net development had been more significant in Road and for Solutions also as such. A very, very strong end to the quarter. The month of June was really, really good for the Rogue division, which was nice to see also. The COVID-nineteen situation have somehow not really impacted our domestic operations to a great deal. We have seen the a more negative development on the international. But we have seen a gradual recovery, and we are super happy about that. Road being mainly a European activity, it takes a little bit longer to get the cost out of the systems. But we have plans. We are executing on the plans, and it's also good to have a little bit in the bank for the coming quarters where we do expect the cost base to continue to fall. So last quarter, before I hand over the last division sorry, before I hand over to Jens is the Solutions division, some of the same characteristics as we saw in growth. They have managed to have a stable development in EBIT and almost achieved the same EBIT as they did 1 year ago. And I think everything taken into consideration, we can be very, very pleased about that. As I said with Rogue's, we have also seen a strong finish to the quarter, which kind of is a great thing looking into what happens after the summer holidays and the normally busy part of the year. Again, depending on which vertical we service, our customers have to various degrees, of course, been impacted, but also solutions and the operations can be happy and be proud of the performance they have delivered. We have a good momentum, in particularly in e commerce and pharma and healthcare, where we have actually seen a very positive development, which we hope and believe will continue going into the future. So all three divisions actually in the quarter doing really well. It's important to stress that all the 3 divisions, they are working together. You cannot see them as 3 individual units. They all depend on each other and they are each other's, in many cases, biggest customers also. So it is the sum of all parts that make this result as good as we have seen this morning. So I'm sure you might have a few questions to what I've said later on. But before that, I will just hand over to Jens. Thank you very much. And I'll quickly run through the numbers on Slide number 11. And overall, of course, we see an increase in the GDP of 42% for the quarter year to date, 36%. So that's the value we have created in the quarter. It's been a little bit higher than the average for the year. And we see, of course, that the EBIT, it increases significantly more, namely almost 63%. And that means that we have a fairly good conversion ratio in the quarter. Actually, it came to 35 percent, and we're very pleased with that because year to date, this conversion rate has been basically on the same level as it was last year pre Panalpina. So as Hans Peran touched upon integration going well, we get the productivity up to levels that we have seen before. There's still some work to be done, but we are glad to see that our infrastructure scales and that we move in the right direction. Then I think one thing more we could touch upon, special items. We spent a little bit more than €500,000,000 this quarter. We're still moving ahead according to plan, perhaps a little bit better. On the integration side, and we actually reduced the total expected integration cost a little bit, a couple of 100,000,000 dollars but we still have some important tasks outstanding for the remaining part of the year. The tax rate, 25.9%, a little bit higher, mainly due to integration. So also on the tax side, we are suffering a little bit because certain of these restructurings we're doing, they will have some onetime negative tax impact. If we look at the number of employees, we are 53,400. And we can see that compared to where we just integrated Paratina, we have a reduction of 8,600. Here, 4,700 is white collar employees. And that is more or less the permanent saving because the blue collar employees, they vary depending on the activity. And we have seen that, of course, there's been a reduction in the activity levels due to COVID-nineteen. But some of these jobs, they will slowly recover. So I think that was what I was to say on Slide 11. So if we just quickly skip on to the next slide, Slide 12. I think the cash flow speaks for itself. We produced quite a good cash flow here in the second quarter. We're still under pressure on the working capital due to COVID-nineteen. But I think we managed it in a good way with our customers and found solutions where they were required, and we were quite pleased with that. Then if you take the leverage of the group, it's clear that now it's calculated at 1.6x EBITDA. And actually, 1 quarter ago, we just went out and got new extra credit lines because we were uncertain due to the guidance that we got from the political environment, what was going to happen in this crisis. And we're actually pleased with the fact that we went better safe than sorry and got extra credit facilities in place. Right now, we don't feel that the time is right to go out and do share buybacks. But of course, at a later stage, this the policy is unchanged for the group. But right now, we just want to be on the safe side. If you take the duration of our loans, it's 5.4, so we have very much capacity or stable financing in place, you could say. So also that is very solid. And if you look at the ROIC, it's still trailing last year, but we are slowly improving the return on the invested capital so that we return to normal levels. And if we move on to Slide 13, I think this is the outlook, as Jesper already touched upon, dollars 8,200,000,000 to 8,700,000,000 and that we will spend €2,300,000,000 of special items this year. That's been reduced a couple of 100,000,000 euros And I think what is important here, the assumptions are below. And I think it's very important this time that we sort of just look at the assumptions for a short moment because our guidance is more unsecured than normal. And this is, of course, because it's hard for us to see through what can we expect on the pandemic. Will it increase as it seems a little bit now at least? Or will it create a stable environment? We're not certain. Then, of course, the freight volumes are dependent on that. What capacity is available, We see that passenger planes that go into Continental, they are not that much in service right now and so on and so forth when it comes to that. So we will then continue to focus on the things we can control, mainly to complete the Panalpina integration and to complete the COVID-nineteen initiatives that we have put in place as well. So outlook, I just want to say more uncertain than normal, but we gave a guidance because we believe that we were in a situation in spite of these uncertainties where we could. And with that, I think we're actually ready for the Q and A session. So I think that we can move on to that part of the session. Our first question comes from the line of Daniel Ruska from Bernstein Research. Please go ahead. Gentlemen, good morning. Maybe first of all, on the volume you saw in the quarter, given that many of your smaller competitors are struggling and we saw some share gain at larger competitors of yours. How do you kind of rate your performance in the quarter? Was that kind of a targeted decision not to go for as much volume growth on a pro form a basis? So how do you rate your performance on the volume in the quarter? And then on the increase or on the stellar performance of airfreight, could you give us kind of a sense of what the price impact on the GP per unit and the mix impact on the GP per unit was? And also, how do we think about the EBIT tailwinds you're getting from the charter network in Air and Sea looking at the market rates where we are right now? I can talk about that a little bit. Volume, we go to work every day in our company in DSV to outperform the market on many kind of terms. We have always said that during an integration, this is not the finest hour of DSV when it comes to market share gains. It is difficult when you sit during a large integration because between 2 companies to take advantage of that. We are slowly getting to a phase where we will expect that we will be able to go out and grow faster than the market. I think we kind of were on level, on par with the market for airfreight. We might have taken a little share. We might have lost a little depending what the market if it was 25% or 30% down. But on sea freight, we probably performed or we did perform slightly worse, also a consequence of some business, which was lost by Panalpina before we came in and some contracts that we terminated early on in the process, which still have a full year impact now going into Q2. Of course, we have said on many other occasions that it is yes, it needs to be profitable growth and not growth for the sake of growth in GSV. But then we do expect that we will soon see a bigger improvement on that. So it was not like a deliberate choice not to grow, to put it that way. When it comes to airfreight, it's simply there are simply so many different topics that touches the results, the P and L. So unfortunately, we cannot say for sure exactly how we derive that the we can see it in our numbers, but we cannot see the moving parts. So it's not possible for us to split the GP per unit into different segments, saying mix was so much, price was so much. But then I will still, of course, say that the access to a fixed capacity, the Panalpina Freighter network did play a role. We should not put overly too much emphasis on this alone. Of the freighters we have used in the quarter, it only accounts for approximately 5%. So it's not that at all alone. But of course, also we have seen also the positive effects of combining the volumes of the 2 companies into one system, which normally also have a positive effect. So if the split between mix and price isn't that easy, maybe could you comment on kind of the development of the different verticals and products you've been seeing on air? I'd assume kind of more pharma and PP and E, but does that hold true? Kind of was there growth in some areas in airfreight and kind of maybe contraction in perishables, I guess? Yes. For sure, perishables, fashion has been under pressure. Also motive has been under pressure. Other industries have done really well. As you say, PPE has been doing well for natural reasons. That has slowly been fading out. Pharma, Healthcare have been doing fine. And a couple of other electronics have actually also been okay. But it would be too much to go into a large kind of description of the developments of all verticals. But it has been very, very different, the developments we have seen. That is correct. So it would be fair to say that there is a mix shift in the price somehow, and that probably is part of what you were expecting to return back to normal as we go into next year? Yes. You could say that to a certain degree at least. That is correct, yes. And the next question comes from the line of Dan Togo from Carnegie. Please go ahead. Yes, everyone. Thank you. Firstly, a question on Air and how much of, so to say, the profits, the question we see here, you can consider windfall in Q2? It's not possible for us to account for that 100%. But we have said, as I said initially, that you should unfortunately not expect us to be able to stay at this high level. The volatility has been extremely high. We do expect to get to a normalized situation soon. Not a normalized, but a situation where we lie probably somewhere between 7,000 and maybe 7,500 or something like that, just to give a rough estimate on and then if the rest have been a windfall or not, I don't know. I guess you could kind of brand it that way also. Could I just say something as well? I think then you have to look into a situation where you will do much more chartering at least in the foreseeable future. I hear that some of the airlines, they only think that the passenger planes, they're going to come back fully in 2023. So in this, when you move with charters, the rates and the rate structure is different. So is it in a windfall or what is it? But there's some $100,000,000 of course that we have made because we create more value and produce in another way. And somebody even estimated up to $300,000,000 dollars That's sort of the combination of the charter network and the chartering in general, where we have chartered thousands of planes at least measured in capacity in the first half year. So it's like a mix of many different things. And it's very if you then go back to your spreadsheet now and then you say, now I pulled $300,000,000 out, I don't think we can do that. Because if we were to return to normally, we'll get very high volume, but then you will produce it in another way. Now we have lower volume, but we produce it in a more complex way where we can add more value. But the rates that you pay to supply us have also come down from peaks, right? And that should at least benefit you when you go out and purchase capacity now? No, no, no. Shadowing on air freight is more expensive than I've ever seen in the time I've seen in the company. Yes. But I think sequentially here compared to where it was, let's say, at the peak in Q2. Yes. But you have to that's correct. But you also have to remember that we have moved with customers away from contract rates. It's been a spot market then that where we have almost had to agree the rates with our customers from each shipment that they book with us. We had to do that immediately when we saw what was happening with the air freight rates. So it's there would be a pass through, you can say, to customers on that to a large degree at least. Okay. Then moving to another business area. Well, it's a bit the same discussion here, but the road is really performing well. Can you elaborate a bit on if there's any positive effect from the decline in fuel prices we've seen during the first half? Maybe not so much the fuel price in itself because we have some fuel mechanisms also where we have passed that on to customers in the past. But probably more where there has been maybe in some weeks some overcapacity where we have been able to procure the haulage services slightly more favorable than what we have been able to do in the past when things have been really booming. So that is one of the reasons that we have seen a fairly okay development also in the gross margins. Yes, because I mean, especially the gross margin looks particularly strong right now. Is it sustainable at these levels, you think? Or should we expect to I wish I could say yes to that question. You cannot expect us to be able to. But we will work hard towards that. It's 1 quarter and let's just wait and see. We will do our utmost to keep it, yes, around the levels it is now. Sounds good. Thanks a lot. And the next question comes from the line of Mark McVicar from Barclays. Please go ahead. Good morning. Two questions, one for each of you, I think. First of all, on working capital Jens, do you expect that to get worse through the second half as we start to see furlough schemes unwind and companies getting to possibly to a truck more? Or do you expect that to get better is the first question. I don't think you know that we should get our hopes up too high because I think actually you're quite right that we're just in the beginning. We're going to see more impact from some of the businesses that are suffering. So some businesses will come back to normal and that will actually be an improvement. And then there are certain companies that will be struggling. And how that will pan out at the end of the day, we are happy with the 3% we're at right now. I must admit that when we sat here a quarter ago, I thought it would have been worse. We'd also then, of course, went out and get some capital got some capital in place for this. Unfortunately, we didn't need it. But I think we're going to see a little bit we haven't lost a lot of money on our receivables right now, and we've managed them fairly well. But we are just not out of the woods yet. I think that is the key conclusion when it comes to that. Yes. And just one follow-up, really. Have you held a similar level of credit insurance to what you historically cover? Or has less of that been available? Yes. Actually, we've been very fortunate because in many areas, the governments, they have gotten in and supported these schemes because they knew it was important that if these credit insurances, they were withdrawn from many of the small and midsized companies, then they will not have access to funding. So they have actually gone in and in a number of countries, not least in Europe, actually taking over the role of our credit insurance company or somehow made a deal with them, but they supported in an intermediate. So we have had fewer withdrawals than we have feared. So in reality, we have a stable situation when it comes to that. There's been a few extra but nothing material that has been going. And my other question is just on it is on airfreight, but it's more on capacity. Could you give us a sense in Q2 how much of your airfreight moved on freighters and how much of it was belly hold space? And how you see that panning out through the second half of the year? Because clearly, the airlines are sequentially adding capacity, but there's much more going into short haul than there is into long haul, which is clearly where the heavy belly hold space capacity comes from? Yes. It's absolutely right. Thanks, Marc, for putting that question to us. And this is, as Jens alluded to before, this is actually a development we would expect to see continuing into the future. By far, the largest proportion of what we have done, up to about 75% have been flown on full apart charters in the quarter. So of course, this has been a dramatic change to what we have been used to. Of course, as passenger planes go slightly more and more into service again, we will probably see that change a little bit. But it's still a whole new way of operating for the whole market. So this is something which will also mean that probably the volatility in rates will continue going forward, which is not necessarily bad for a company like DSV. And then that we have access to a small proportion of fixed capacity ourselves in the charter network of Panalpina has, of course, been super beneficial for us in the beginning of this year. Yes. And again, so a follow-up. You also said as you when you talked about expanding the old Panalpina charter network that you've done it in a slightly different way to the way they did it, which was simply to lease a 747 freighter. Could you explain that a bit more? Yes. We had it was almost like only your own plane. We had the obligation to buy food for the pilots and take total ownership like it was our own plane. It was branded with our name or the Panalpina name. It was great. It was a beautiful 747 plane also, very, very nice and all that. But we just we have structured it in a slightly entered into an agreement with some commercial airlines, where they put the capacity available to us, where we take over the ownership, but where they operate the claims to a larger degree than what we did in the past, where we just leased the claim and handled the crew, as I said. And then combined with a lot of block space agreements is put into this network with a fixed schedule going into different airports than the traditional airports, meaning that we can actually get the cargo either to a different plane earlier or get it distributed through our road network also much faster than if we go into the traditional airports. So this is something that our customers, the legacy we have say, PANELINA customers and also some old TSV customers actually, highly appreciated. It is a premium product for certain parts of our customers. And we are actually we have I must say, we have gone from being somewhat skeptical about this operation to being much more enthusiastic about it. But it's not that we are changing our asset light business model and that we are taking a big gamble on capacity. But it's something which will fit into the new company, where we have also almost doubled our total air freight exposure. Yes. And that just comes with a structurally higher GP, doesn't it? Yes, exactly. It does. And the next question comes from the line of Satish Sivakumar from Citigroup. Please go ahead. Yes. Thanks, gentlemen, for taking my questions. I have two questions. So firstly, on road freight. Could you please comment around the progress of rollout of EMS, cargo linked way forward? And what has been the outcome of pilot rollout so far? And secondly, on the market share loss, if you could comment, is it very specific to any vertical or a market? And if you could shed some light on your plans to get back to market level growth? I'll just take the last question first. As I said, it is exactly as expected. It's exactly as we have communicated through many acquisitions it's not the time where we excel in terms of market share growth. Customers are slightly reluctant, giving us more business because before we have proven that we can handle the integration in a positive way. So the fact that we have actually kept the skin on our nose on airfreight is actually positive. We have also, I would say, we forget that sometimes. We have actually taken market share gains in both Road and Solutions. So out of a lot of things in DSV, we have a slight underperformance on sea freight. We will never be happy about this even though it's expected. So I would hope very much to see we need to get the numbers aligned, so to say, and have a proper like for like comparison. So when we get to at least Q4, we should be able, hopefully, to prove or to the market that we have a much, much better situation. And Jens, I know you spend half and I wouldn't say half of your working hours on CargoLink way forward, but in some weeks, you do definitely. So I will leave that question up to you. Yes. But as you mentioned, we've done some piloting. And these pilots, they have led to that we had as the vendor to make some changes to the software. And right now, based on these change, we should then be able to roll out a pilot that should more or less, what can I say, be the pilot that confirms that we can use it? And the most important thing is that it can scale. I think you should be aware that many of our competitors in Europe have tried this like we have done for quite some years to create this platform. And I think once we have this in place, we will be able to do exactly the same thing in this road that we've done with the ocean. So it is definitely an important milestone for us. But we need the outcome of this, what can I say, change and then try to roll it out and then see how it performs with the changes that we will implement once it's completed? So we're still grinding. It will take some time, some years, but it's a very important project because that will, as I said, help us to create a situation on road where we can go heavy into consolidation. So just a follow-up on that. So when do you think you'd be in a position to scale the volumes onto the platform? It will probably take 3 years. Okay. So is it fair to assume that until then, we might not see any big M and A in Road Division? You'll probably do some M and A, but I think it will be more fair to say that it's harder. If you look at the value we extrapolate when we do acquisitions in the R and D area, it is because we have consolidated our infrastructure to a very high degree, and we can take advantage of our software stack when it comes to the R and C. Throughout, we will be able to consolidate and take advantage of our software stack to a lesser extent, so it will be harder to create synergies. So you can do it, but you will get the benefits a little bit later. And the next question comes from the line of Lars Heindorff from SEB. Please go ahead. Yes, good morning. Thank you for taking my questions. The first is also regarding the airfreight markets. With a obviously, a larger share of volumes going through this freighter network. I'm just curious to find out, is there any sort of risk associated to that? Normally, you do back to back contracts. Is that also the case in this freighter network? Or how does that work? And also, maybe as a part of that question, can you actually produce at the same cost in Q3 as you could in Q3, given that you now hand back the 747? Lars, actually, Panalpina had longer commitments on these things than we have. We have longer commitments than we've had historically on some of these things, but we then have worked with our customers to make sure that the commitments that we have from them, they are, to a large extent, aligned. So it's not that we all of a sudden change the policy of the company where we go out and take big gambles or things like that. So I think you can rest assure that this culture, that will not change. It's simply so embedded into our group, I would say. But you can get it organized, and you can also explain to customers what is required in order to have this premium product, as James Bjorn just said before. It's not like we start with a blank piece of paper every morning, and we have to fill up this plane. But of course, it's not a 100 point zero zero zero back to back agreement that we have. So we lean out a little bit. But the beauty is, of course, that the potential for much higher GP is very large. So it's a trade off. And we have all the experience of Panalpina, and we have learned about this product ourselves with our air freight specialist over the last 12 months. So it's a very, I would say, conservative and cautious, what you say, small new initiative that we implement. And I'm happy about this because it tells us also, Lars, that every time we buy a company, we are able to learn from the companies that we buy and adapt new ways of working also, which will help us to improve going forward. Okay. And then on the cost on the production cost. The question was if you were able to produce at the same cost in Q3 as in Q2, given that you now hand back 747s? Yes. But that's the 747s in general. They are not cheap. So depending on what type of capacity we get in, it's probably something that we can compete with. So it's not so that when we make other deals that all of a sudden this cost, it skyrockets somehow. So we should be in good control when it comes to that. Okay. And then lastly, regarding solutions, also there quite a bit of impact from the acquisition of Panalpina, of course. I'm just curious to find out what kind of underlying revenue growth you believe you had in the quarter and maybe also indications here for the second half, if you have any that you will share? It's probably, what can I say, a contraction of, I would say, around 5%, perhaps a couple of percent more that we have seen? So of course, we get, what can I say, volume in by the Panalpina acquisition, but the activity levels have, of course, been a little bit lower in some of the areas? Last. So that should be something that you could work with, I would say. Okay. All right. Thank you, guys. Thanks. And the next question comes from the line of Andy Chu from Deutsche Bank. Please go ahead. Good morning. Two questions for me, please. Just firstly, in terms of, again, just the market in terms of the shorter term data that we can see out there. And that seems to point to sort of sequentially improving sort of air yields in the market over the last few weeks. And I just wondered if you're seeing that. Is that translating into sort of better pricing from what you're seeing currently? And then secondly, just in terms of your perishables business, I understand that you sold about 5% of your volume to a Dutch specialist freight forward, at least you probably did about 10% of volume on the perishable side? And then just maybe an update as to what you might be thinking on perishable. Is this the sort of the start of the end for perishables? I mean, if you look at the rates and being a broker, of course, there's a pass through when things, they move in a certain direction. So this is also what is going to happen. It's all the transports that we do, they are basically tested with the competition because as you can imagine, the rates are higher right now. And everybody has been looking for solutions. You don't move it in the traditional way. So people, they try to test the market. So when things they move and things they try to or they do improve, then you will see that in the rates immediately. So that's certainly the case when it comes to that. And the other one was the perishables. The perishables is correct that we have divested a little part of the perishables operation. It didn't fit into the network and the way that we operated. And right now, we actually see that the other perishable activities, they fit in okay within the group. And we have no ongoing activities to divest any of them. So they can be combined somehow with some of the network activities that we had. But this particular one was not something we could combine with our existing activities. So that's, as I said, been divested, and it's a small part of our operation. But we think it found a very good home with some specialist owners, as Jean mentioned. Just remind me, just what are you left with now in Periscope in terms of verticals? So I guess, are you sort of out of flowers in those on that topic vertical and sort of still in sort of fish and what so just what is that what does that perishable verticals look like, please? That was a very specialist flower operation. I think we do, depending on, let's say, you go from to the U. S, you'll probably do more some food. And of course, let's say, you go out of South Africa, there's certain product down there. The way I believe that's also actually some flowers and some vegetables as well from down there. So it depends on what market you are in. And we also still have actually a little bit of flowers, but certain parts of health care. Of course, the main part of the flowers, they go into the certain parts of health care. Of course, the main part of the flowers, they go into the Netherlands. But it is a little bit scattered. But as long as it works and it can fit in with the other activities that we have, and we can sometimes make good arrangement with the airlines so that they have cargo in both directions. And it actually works okay, the perishables. It is very specialized business. Doesn't really, apart from this, combined with network cargo. And that's the reason why we, in certain areas, find it difficult to operate because we are a network company, as you know. And the next question comes from the line of David Kerstens from Jefferies. Please go ahead. Hi, good morning, gentlemen. Two questions, please. First on the Road Freight business. I was wondering, can you please provide some color on the exit rates in June in Roads? I think you said in the trading update that on average, the market was down 15%. April was likely substantially worse than that. But how good was the market in June? And do you already see the international transport business picking up again? And would that have any implications for your gross profit margin? And secondly, on the timing of the resumption of share buybacks, you have the leverage ratio rapidly coming down to 1.6. Is the main reason that you're still reluctant to resume the share buyback program that you still see a risk to working capital in the second half? When do you expect that it will become more that's more likely to continue buybacks? Thank you very much. To start off with Road, it's correct what you pointed out. We have seen a pretty good development during the quarter, where June actually ended up. We don't have as many fixed points in terms of market developments as we have on Air and Sea than our official statistics. But our best estimate is that the market is still down something like maybe 10%. It has improved as Europe has opened up fully, you can say, during the month of June. It still takes some time before the wheels really get into motion also. But that has basically been what we have seen. So we are happy about that. And Jens maybe will elaborate. But I can just say on the buybacks that it would have been the easiest thing for us this time just to have initiated a new share buyback program. But we are also here to protect the company also. And we just need a little bit more solid ground beneath our feet also. But I can just reiterate again just so to make that crystal clear for everybody. There is zero change in the overall capital allocation policies of DSV. We have throughout many, many years, I would love to say, decades, been doing large buybacks, and we also expect to do that again. So let's get another 3 months below our belt and see how the situation develops. And then we will readdress the issue then. Can I ask a quick follow-up on the momentum in solutions? Is that similar to Road that you also saw solutions down around 10% in the month of June? Yes. Yes. We just in June, probably less, the market It's even more difficult to look at the market. We had also because it was impacted by actually some relatively large customer wins we also had in Solutions. So that disturbed the picture a little bit. But overall Pick and tag activity in Solutions, of course, in the quarter has been lower because of the shutdown and also certain verticals where we didn't really do a lot of work, let's take automotive, for example. But I think it's fair to say that on the customer win side, I cannot remember that we have had can you just as much traction as we have right now on solutions? So I think there's an accelerated trend towards consolidating, not least fashion retail and do e commerce, stuff like that in our warehouses, no doubt about it. And I think that also the PPE, of course, is looking for space because everybody wants security stock on that. So it definitely drives some, what can I say, momentum on the sales side? Then on some of the other verticals that have been shut down, it's clear that we have seen less activities and that's for natural reasons. That's picking up. And then all industries, they open again. And we just cross our fingers that COVID-nineteen stays, what can I say, it doesn't? When you look at the media, it seems like it's not going in the right direction right now. So we hope that it will soon come back to being under control. And the next question comes from the line of Markus Bolender from Nordea. Please go ahead. Yes. Thank you. Just a quick detailed question. Special items, you said they will amount to 3.1 €1,000,000,000 in total, and they were €800,000,000 in 2019. So that leaves €2,300,000,000 in 2020. And then they were about €1,000,000,000 in the first half, which leaves €1,300,000,000 for the second half. I'm just wondering why they are so back end loaded. If you could, yes, explain that. It depends on which areas that you have to, what can I say, make these retrenchments in? Some of the areas where it's easy to make retrenchments, it's also mostly, what can I say, not that costly? Then if you go to the European area, it's harder to make the retransmissions. Retransmissions, it takes longer time. And then it also costs more money at the same time. So there's no real logic to it. And of course, we would be happy to come out and say that we could do it a little bit cheaper because sometimes actually people they find another job themselves. And that's the reason why that we already could come out and say, listen, we can do it a little bit cheaper than we had originally planned because people, they luckily found other positions, which is very good. And of course, we hope for some of the European ones that they will find a job, we will then save some money and they will have a new job, which is, of course, the ultimate thing. So I guess that explains it. And then we will see how it pans out. If many of them, they find a job themselves, sooner we will have to come back and say to you guys, listen, we could save another $100,000,000 or 200,000,000 dollars So but as I said, the European one is more expensive than the other ones. And the next question comes from the line of Muneeba Kiani from Bank of America. Please go ahead. Hi. Just wanted to talk a bit on the C side and yields in C have been strong. How are you seeing yields in sea going forward? And also secondly, if you could talk about the exit rate on Air and Sea volumes in June? Sea freight has, in a way, locally because it's been difficult enough to track what has happened in airfreight. But Sea has been more stable. From our point of view, I know some of the carriers, they have also had some issues to deal with, which has not been affecting us. But we expect actually that the level you see now, it's kind of a level that we would continue to see going forward. Also, this is our aspirations, at least. So you could kind of assume that the rate levels would kind of stay at what they are. And we have also seen a tick up in volumes throughout the quarter, but unfortunately in Air and Sea, but unfortunately not to the same degree as we have seen in Road and Solutions, which are still, again, mainly, with some exceptions, a European business. So you can actually kind of map out where the COVID is improving and then you can assume that the situation will improve in those countries also. Of course, the fact that some of the larger areas we're in, like the U. S. And also Latin America, India, South Africa are still deeply impacted by the COVID situation. That does not have a positive impact on volume. But having said that, we have seen an improvement, but not to the same degree as in 2 other divisions. Thank you. And the next question comes from the line of Franz Heuer from Handelsbanken. Please go ahead. Thank you very much. I just wanted to understand the point about rightsizing and the savings you are making from that and how that will evolve in going further out? When if and when volumes do recover, how will the savings evolve then? Will the costs return when volumes return? What we have said, Frans, is that we have a very, very clear ambition for this to be permanent savings. This word is extremely important. We have an aspiration to increase the productivity of our company. You can say actually that the productivity right now is not higher than it used to, even though we are several 1,000 employees fewer than we used to because of the fact that volumes are also down. But when volumes come back in, we will see if it is possible, and we do believe that is possible due to the highly digital way that we work now, use a lot of new communication skills and technology, that we will be able to see an improvement in the productivity. And if we succeed on that, that will, of course, be a tremendous when it comes to the future results of our company. This is something we've spent quite a bit of time discussing internally also because you're right, if we were just to let people go now, spend a hell of a lot of money to achieve this. And we hire all those people back maybe 1 year from now, we would have shot ourselves in the foot. So you should look at this to a very, very last degree at least as permanent cost savings. And I just should give you some guidance on how to look at it. Look at the conversion ratio in the past and see how it's increased. This is in reality the same thing that has happened that we've increased the productivity over time. So that should also give you a little bit of confidence that we, what can I say, managed to increase the productivity? Great. Thank you very much. And the last question comes from the line of Sam Blen from JPMorgan. Please go ahead. I've got 2 questions, if I can, please. The first one is, obviously, you had the prerelease towards the end of June, and the EBIT turned out to be a little bit better than maybe it was indicated at that stage. Could you just talk about which things went better towards the end of the quarter than you perhaps expected them to? And the second question, just a short one on you. Just talk about your ability and willingness to look for and execute further M and A in this environment. Yes. It's correct that we in the pre release, we said we would achieve an EBIT result of minimum, not exactly, but minimum, SEK 2,300,000,000 and it turned out to be SEK 2,600,000,000 That was somewhat better than what we actually thought at the time. You're right. Actually, all the 3 divisions did better than we expected in June. June was the best month we have ever had in DSV, a very, very strong performance. So that was basically what caused it. We did see cost savings coming in also at a higher degree than what we expected. And to be honest, we were also a little bit surprised about some of the temporary cost savings also being slightly higher than we had expected. Try to imagine large companies like DSV, everybody basically sits at home. There's no, unfortunately, visits to restaurants with customers or business travel, it actually has an impact. This will also unfortunately be temporary. I hope these activities, so to say, will start up again at least partly once this situation is over. But it was kind of the sum of all parts. When it comes to M and A, we still have an appetite to do M and A in DSV. Small bolt ons could happen basically soon, if you know what I mean, as we are ready to do that in certain geographies if an opportunity were to arise. But to do larger, more transformer acquisitions, we need to sign 100 percent off on the business case of Panaltoina, finish the integration and then hopefully also have seen the back of the COVID-nineteen situation in the ideal world. But we've said it many times that we don't hope that Panalpina will be the last company that we acquire in GSV. We have been able to generate value for shareholders by doing M and A. Our industry is still very, very fragmented. So the overall fundamentals of value creation through M and A is still very, very much intact for us also going forward. Understood very much. As there are no further questions, I'll hand it back to the speakers. Thank you, everybody, ladies and gentlemen, for taking time to listen to us this morning. We appreciate all your questions. You know how to find us if you want us to elaborate on any of the issues we have touched upon this morning. Feel free to contact us. We are super pleased about the performance, and we will now do everything in our powers to also go out and deliver some nice and good strong results in the quarters to come. In the meantime, I'm sure we will speak to a lot of you bilaterally. So here from Hille Husner, on behalf of the whole team in DSV and Jens Lund and myself, thank you and bye bye. This now concludes the conference call. Thank you all for attending. You may now disconnect your line.