Earnings Call: Q3 2019

Nov 1, 2019

Ladies and gentlemen, welcome to the DSV Interim Financial Reports Third Quarter 2019. For the first part of this call, all participants will be in listen only mode and afterwards, there will be a question and answer session. Today, I'm pleased to present CEO, Jens Andersson and CFO, Jens Lund. Speakers, please begin. Thank you very much. Welcome to this quarterly update Q3 conference call, where I'm again today happy to say that I'm joined by Jens Lund, and we will go through the presentation, which you will find online as usual. So I suggest that after you read the forward looking statements on Page 2, we will go to the agenda, which we have prepared for you on Page number 3, where we will go through the highlights of the quarter, a little bit about the integration in 3 divisions, and Jens Lund will then take over, giving an overview of the financial side, talk about the synergies and integration costs in terms of the ongoing integration of Panalpina and also spend some time on the outlook. After that, we will go to Q and A. And as always, I would please ask you to restrict yourself to only asking questions which have not been asked before and maybe also restrict yourself to maybe a couple of questions. But on Page 4, we have presented we're presenting the highlights of the quarter. Very, very busy quarter we have done through in Q3. We've managed to strike a good balance between 2 very important things. One is to focus on the integration of Panalpina into DSV. And then at the same time, running the old DSV business up to the end of August where we started the integration. In all modesty, we think we have managed to strike that balance and to do a good job on that. We are overall very happy with the performance of our company. And I can say for sure that we have had a very, very good start with the integration efforts of Panalpina. This morning, we have also upgraded the synergy estimates from DKK 2,200,000,000 to DKK 2,300,000,000 and this is based on a bottom up approach exercise, meaning that these SEK 2,300,000,000 are now anchored out in our organization to the furthest possible degree. This gives a very good feeling for us here at the head office. The integration cost is expected to be in line with the synergies, and I'm sure Jens will come back to that. We have also reinstated an outlook. We had to take away the financial guidance, eliminate that early on in this year. Some of you have asked if you should get used to that. That is not the case. We are happy to be one of the only companies who give a solid guidance to the stock market. We have always done that, and we believe that, that is the best way to communicate with the market. So this morning, we have given an outlook for the full year 2019 of DKK 6,600,000,000 And please bear in mind that, that includes approximately DKK 100,000,000 in amortization of customer relationships. I'm sure Jens will come back to that. We will see an increase in amortization of customer relationships due to the acquisition of Panalpina. The markets that we operate upon are volatile and they are not the best, It's basically air freight is a little bit shows some weakness. This is primarily due to trade wars and, of course, there are general macroeconomic uncertainties also. You can see the numbers. I'm sure you have read them yourself, but the fact that EBIT is up 6.1% in the quarter and 7.9% in year to date, We are pleased about that. Page number 5, integration updates, we say it's on track. We are we've had the pleasure of putting the 2 companies together and spending time on that for a little over 2 months only now and in the quarter only a little over 1 month. So it is limited. The impact in this set of numbers is relatively impacted relatively limited. But so far, all lights are green. We are happy with what we have seen so far and fully lives up to our expectations. We've split this overview into 3 segments: operational, IT and business segments, and you can read some of it yourself. But management teams have been appointed or, in some cases, reappointed. We have had kickoff meetings in the countries. We continue to be very close to our customers. This is extremely important for us. And so far, we have not seen any material customer losses. We are also making a plan right now where we will merge the head office functions together in one place. When it comes to IT, I think we've spoken about that before. We have chosen the DZ Air and Sea platform, CargoWise 1, as the future TMS system for the Air and Sea division, and we are in the process now of training our employees in certain areas. For instance, the U. S, we are already in some offices in the U. S. Working on CargoWise or CargoWise 1 already. It comes to the business segments. We have spent a lot of time on getting the global commercial organization together. It's extremely important to stay close to the customers, as I alluded to, and we have retained the Panalpina way of dealing with the large corporate blue chip companies in certain industry verticals that we are happy about. Panalpina came in with a lot of expertise when it comes to perishables and also a little bit of different way of procuring airfreight in a so called charter network that will continue in DSV, Panalpina as a separate business area in the R&C Division. So, so far, we are happy with that also. So let's go to Page number 6, where we see the result of the Air and Sea division. I think both as a stand alone and also as a combination with the Panalpina volumes. Once again, I can only repeat myself from previous quarters, a very, very powerful, very, very strong result that once again beat our own expectation from the Air and Sea division. Very nice to see, but also a significant GP impact, of course, from the Panalpina acquisition, as you can see. I will come back to the volumes on the next slide, but we are super happy to see that the legacy DSE volumes in sea freight grew 7%, whereas we had a slightly more negative development on airfreight where we had a 6% decline. We never made as much money as we did in the quarter, And we of course, it is fantastic to be able to see that when we stand on the brink of a very big job when it comes to integrating Panalpina that our own company is in very, very good shape. You can see we have, of course, been diluted a little bit as expected on the margins. But if you see what the margins would have been excluding Panalpina, we would have achieved a conversion ratio of 45% and an EBIT margin of almost 12%. I think that stands comparison with most. So Page 7, a little bit on the volumes. We have warned everybody a little bit that a certain alignment needs to be made when it comes to volumes. So the old DSV volumes, you can see we have separated them from the Panalcina volumes. We, of course, need to align certain principles as how you count the volumes, and it could be that we need a couple of more quarters to get that fully into effect. So be a little bit careful doing too many calculations where you take the volumes and They excluding the Panalpina, volumes have gone up to They excluding the Panalpina volumes have gone up to almost 7,900. Some of you have this morning asked if that is sustainable. Also here, just a word of caution, this is due to the fact that we are in a declining environment, and I think it would be correct to assume a slightly lower, maybe the average for the last three quarters or something like that. But you see on this slide also that the markets are still down 4% on airfreight, slightly less than what we saw in Q2, but it is a market which is not growing for the time being. As we enter now into Q4, we do believe that we will see a slight small improvement as the negative trend in airfreight actually started Q4 1 year ago. On sea freight, we have a much better development. We've grown 7%, where the market only grew 3%. So a strong performance in sea freight. And it's worth noting that, that performance also came with only a very, very marginal drop in the profit per unit. So we have managed to maintain what we had even by growing as much as we did. So the last two divisions, Roche, at first glance, it could look a little bit disappointing that you are down 10% organically on EBIT. This is, of course, something that we are normally not satisfied about. But when we look as management on the underlying developments and exclude a few one offs that happened in the quarter. We're actually very, very pleased with the development of the road team. We had some down trading because of Brexit, of course. We are very big when it comes to automotive in Germany. It's an area which is in relatively strong decline right now. And then we have a miss in Austria that costed us also in the neighborhood of 10,000,000 dollars And if we exclude the impact from these activities, we actually saw a satisfactory performance in the Road division. And apart from this, it was also a little bit more slow over the summer period than what we normally see. But I'm happy to be able to say that this quarter has started fairly well and that we are relatively confident that we will, during Q4, see EBIT growth year on year. I'll put in another word that Q4 this year will be stronger than what we saw a year ago. A little bit the same for Solutions on Page 9. It replicates a lot of what I just said on road, also impacted by a decline in automotive, Brexit and also, again, we have invested in automation and new facilities, which could have had a negative impact of somewhere between $10,000,000 $15,000,000 in the quarter. And as I said with Road, we also believe that Q4 in Solutions will be better than what we saw in Q4 last year. And then please bear in mind that Solutions has taken some giant leaps in the past, significantly growing their EBIT, and they are at a very high level now. That still means that we will ask them to improve the results. The EBIT, don't misunderstand me, but they are at a new level now. And overall, we are also confident with the future prospects. And we are actually also here happy when we analyze the underlying results in most countries in Solutions. So with that said, I will hand over to you now Jens, Page 10. Well, thank you very much. And as you can see, Page 10 is now so busy that we don't have any comments left. So I will try to guide you through it so that at least you can see some of the places where we think we should focus a little bit. So first of all, for us, it's interesting to see the revenue, but basically the focus should be on GP and the like for like comparison on GP. And also, if you go back to the Q3 release, you can go on the Page 3, you can see the split between what is organic and what is IFRS 16 impact, what is acquisition impact and so on. And as you have done already told, we've had organic growth of more than 4% in the quarter and actually year to date 6.2%. If you look at the numbers, you also can find in the release. So of course, that's a representative of the value that we create. And then it's always interesting to see what's the conversion ratio on that. Do we get to keep a larger proportion of that? And here, it's good to see that in the quarter. We managed to keep increased the EBIT with 6%, so there's been a higher margin or conversion ratio on that. And of course, also year to date, it's the same picture. We are on approximately 8% growth on the EBIT level. So I think we're seeing that all the things we've seen in the past, they continue, and that's exactly what we're looking for. If we look at the financial items, they are fairly low this quarter. It's because, as I've explained before, the way that FX gains and losses are calculated, some of our intercompany loans have a huge impact on that. This quarter, it's been favorable, so that's always nice to be able to speak about that. But I'll just remind you that the dollar or some of the other currencies can go in another direction as well, and then you will see the opposite impact. Given the way the company is organized and the large presence we have outside of Europe, these fluctuations will be larger than ever before. Tax, sort of fairly stable. And of course, now 61,800 employees will probably be the baseline for many of your analysis going forward. So also an important number to pay attention to. On the cash flow side, the first thing we should talk about on Slide 11 is probably working capital. You need to calculate the new level of working capital visavisa normalized revenue, and we sort of provide a pro form a number over there of 3.2%, which is higher than what we've seen before but also expected due to the larger proportion of the AMC business. They typically carry a higher level of working capital investment than the road business. That has been a larger part of the GSV Group. If we look on the cash flow statement, I think it's fair to say that it becomes more and more meaningless the more IFRS impacts it. You can see that the investing activities $1,400,000,000 but we paid $35,000,000,000 for Panalpino. So how can that be? Well, according to IFRS, you have to net it out because we paid the shares. Had we paid in cash, it should have been disclosed in another way. And yes, it doesn't have to make sense at all because it doesn't. So a little bit about the cash flow. So if I was you, I'd make my own indirect cash flow statement and use that for my analysis. I think you're better off with that. The cash flow for the period, dollars 2,500,000,000 2,600,000,000 last year. So a little bit more should have been produced actually from GSV. But I think we are on track to deliver good cash flow for the year end. If we take the invested capital, dollars 70,000,000,000 comparable figure, dollars 21, IFRS impact, dollars 12,000,000,000 and then the rest relates to Panalpina plus normal development. So here, a significant swing in the number, and this means something for the return on invested capital. But I think there's not much more to say on this slide. If we take the Slide 12, you can see what is it we expect in the books when. So 5% in 2019 of the $2,300,000 will be a part of the number that we have guided. So you should expect that in synergies. Add another 60% on top of that in 2020, so the accumulated number will be 65%. And then add another 35% in 20 21, so the accumulated number will be 100%. So actually, we expect to see the full year impact in 2021, and we think we've gone off to a good start with the execution on the integration programs. If you go to Slide 13, of course, an integration always comes with cost. And you can see that we expect to pay 30% of the one off cost in 2019, another 55% in 'twenty and then the remaining 15% in 'twenty one. You should expect more or less a one to one relation. Of course, there's going to be a few accruals, but we simply don't have the visibility to say something about this. It shouldn't impact your cash flow too much. It will be smaller numbers we're talking about. So glad to see that the plans that we've made on the top down approach now also is confirmed in the bottom up approach that we've made. So it means that the synergies, they are part of the local management's ownership today. Of course, it's our overall responsibility, but we're really happy for this bottom up approach we've had. On 14, just the customer relationships, the number you calculate in XL, there's no cash flow behind it and that used to be just goodwill in the good old days. Now you can see how it's amortized over time. You can see there's a little bit left of the Ushahi acquisition. That's the light blue in the bottom. And then the Panalpina in the top, there's approximately $800,000,000 we talked about a couple of percent on the last call. So when we've made a more structured rundown of the IFRS standard, it turned out to be or assumptions turned out to be correct. And sort of that's where the number comes from. It is a diminishing balance method we use in order to amortize it. So we've just chosen to give you some guidance on how it should impact your models. The outlook for 2019 on Page 15, dollars 6,600,000,000 in EBIT before special items. And special items around the sort of $700,000,000 figure, And this includes then $100,000,000 of customer relations, where of 80% relate to Panalpina. I think that was more or less it on this. Then I think the last slide we have is the share buyback. And I can say there's a small mistake that a former CFO, Robert Ernie, has mentioned to us that we should make sure that the share buyback program runs until the 6th February 2020 on the second bullet. So just call that out here. And of course, that was our original plan anyway. So you can see how the allocation of capital to the shareholders will pan out in the bottom. So this year, we expect to repay more than $5,300,000,000 and we will continue down this path with rightsizing of the balance sheet so that we get a more optimal capital structure than we have today. As you can see, we today hold 4,300,000 Treasury shares, so also a little bit of information on that. With that, I think we're on Slide 17, and then we're ready to take your questions, and we'll be happy to answer them. Thank you. Our first question comes from the line of Daniel Roshka of Bernstein. Please go ahead. Your line is open. Good morning, gentlemen. Congratulations on a successful start with integration here. Two questions then, if I may. When you mentioned the GCO structure earlier, and could you kind of put that into context of the wider sales organization and kind of elaborate a little bit what you changed? So how will these changes be felt in the regions and offices? How does that relate to your kind of country P and L structure? Does it change the way decisions are being taken? Are you changing incentivization KPIs? Just a little bit more color on that reorganization in the GCL, please. Secondly, on the IT event, if I can ask, deciding for CargoWise, what are kind of the things you then still need to do to kind of transport the Panama business onto CargoWise 1? Are there any additional functionalities you need? Do you need to adjust the IT stack around cargo wise? And maybe if you could comment on the airfreight gateway concept Panalpina was using, how that kind of fits into the planning here? Thanks. Yes. I'll start with the TCO structure and then maybe Jens you can elaborate on the IT. We have probably in the in the past had a little bit more opportunistic approach to some of the larger accounts where we saw that Panalpina was much more structured with industry vertical heads and the structure that we actually like very much. So we have retained that in DSE under the management of Karl Winth. We are very happy about the fact that he is part of the team, and he heads up this under Rene Fjall Gollersen, who is the Chief Commercial Officer in GSV. One of the main differences, though, that we will ensure happens is that the pricing power in DSV lies in the divisions are not only in the sales organization. This would be more like a joint, what should we say, operation going forward. But the fact that we have industry specialists heading up the large customers in GSV is extremely welcome. We have already had the pleasure of meeting several of our new large customers, and they appreciate very much this new hybrid between the way we did it in DSV, where there's a very strong local empowerment, making sure that the customer will see a top execution, but also an account management structure where the customer is dealt with by specialists who have a very deep understanding about the industry. So I think we have managed to take the best of 2 worlds here. Yes. And then on the IT side, I would say that the functionality we have in cargo wise, it's probably and the software stacks surrounding it, really it's not only cargo wise. I think that's very important to mention on the DSV side. It can replace the solution that was in place in Panalpina sort of for most of the volumes fairly easy. Of course, then there are some of the more complex solutions that you would have for PO management and certain 4PA capabilities, where we have the tools in place in DSV that is needed to replace them actually out based on information, say that they at least have the same functionality and they are connected to our systems. But it's a transition for the customers. You have to explain where it is that we're going and where we're coming from, and that's something that we have experience in. And then I think it's fair to say that the productivity you'll see in DSV, it relates data quality. And since we have a higher productivity, it's probably the assumption you should use in such a debate is that this also benefits the customer because then they will get better reporting, they will get better interaction with us for many different things, could be booking, could be status information, could be various things. So we actually see that it's a good journey, and we've even found some very good temporary solutions that will help us to keep the service levels with the customers in the transitional phase so that we can have a very structured switch from one platform to another. So all in all, I would say that we are in very good shape, and we know exactly what we need to do when it comes to this. Of course, another big thing is, of course, the basic infrastructure we have in place on master data as well as some of the other tools we have in place so that we can provision the new users. We have gone live now already with the 1st country. And actually today, 3 more countries move on to the DSV platform. I just spoke, for example, here before the call with the UK. And they are now taking bookings and moving cargo, so printing the freight documentation and also writing invoices on the CargoWise platform. Yesterday, they worked on the Panalpina platform. So it just tells something about the scalability that we are capable of given the way we've organized ourselves. So I hope this answers sort of your concern, and I'll just sort of also say that we feel confident if it sort of doesn't filter through. Excellent. Could I ask 2 clarifications just to put this into relation? Kind of how big is the new GCO compared to the rest of the sales organization? And you said kind of most of the volume is fairly easy for Paralpina. How much is fairly easy? Are we talking about 10%, 20%, 30% that are more difficult or a much smaller number in terms of the Palalpina volumes where you're looking at kind of enhanced functionality? I think that the GCEO structure is much smaller. I mean, we have thousands of salespeople in GSV servicing the local customers. This is the most important thing for us. So GCO is something that we have put in place for the largest accounts in GSE. And you need to achieve a certain threshold to be dealt with by the Global Commercial Organization. When it comes to IT, I think it's I have I can maybe add a little bit to what Jens said. I've spoken to some of the people who've been trained in CargoWise. They're extremely excited about going moving over to CargoWise. They feel it's a more smooth system to work upon. It makes their life much easier than what it was before. And it's not only replacing what was in place in Panalpina. I think actually CargoWise in many instances are superior to what we the functionalities that we saw. The fact that you can reuse data in a much smarter way, it is more efficient. I think that is what we can say at this moment in time. Brilliant. Thank you. Thank you. And our next question comes from the line of Damian Brewer of RBC. Please go ahead. Your line is open. Good morning. I really do just have two questions. First of all, within the business, given the auto exposure, could you just give us an update on across the group as a whole, how much of your GP at the moment is related to the automotive industry? And then secondly, I just want to come back to what you're getting from Panalpina. If I look back at the Q3 2018, it would appear that the equivalent in Danish kroner EBIT was about €190,000,000 And yet for Q3 or rather for half of it, you've got roundabout 60, which applies about to 120 run rate. As you look at Panalpina, has there been a very significant deterioration in profitability in the business? And although I appreciate that it's hard to parse out the more you integrate, how much more deterioration do you assume in the coming quarters within the targets and goals you've outlined today? Thank you. Damian, first on the automotive, we haven't aligned the figures totally, but I think it's fair to assume that the automotive exposure for the whole of DSV could probably be a little over 15%. But what is important to say that, that is not only European or German automotive. This includes also automotive in the U. S, which for us at least has a much, much better development than what we see in Europe. So this includes what we do on behalf of all of the 3 divisions, not only the Air and Sea. So you should calculate with a little over 15% as the right number. And then maybe slightly below 10% is probably, I would say, half of that relates to Europe. And then on the housekeeping exercise, I think when you look at the number, it's a net figure. So you have to take customer relations in place. There's already amortization in the numbers in Q3 as well. So it's not really 60, but it's probably sort of 75 or something like this that you should look at if you adjust the customer base in 75 to 80. And then if you double that because it's only half of the quarter, you probably come to, let's say, a number of 150 ish. If you then look at the next quarter, I'll probably look at a run rate between 150 and 175. Of course, I think it's fair to say that I think you could rely on the reporting you got out of Panalpina. But given where they were at, I guess, also there was an interest to make sure that everything was reported as it went along. So it's not that big deviations, but probably going to be more or less on the same level as the year before when you make your models and all that. I think you can stick to that, but certainly not more. Okay. But just $175,000,000 for Q4 versus if you translate what that you reported in Q3 2018 was equivalent to €230,000,000 So I just want to be clear the €6,600,000,000 for this year and the implied round of our 8% for next year, if you look at the synergies, that includes the sort of 25% deterioration year on year in the Panalpina profits that we're seeing at the moment? Let's see well, let's see how that pans out. It's also very hard for us to say exactly where we end out. We are trying to have a little bit of a conservative approach on this thing, and it's hard for us to be more specific about it. I don't think that if I look at it right now that we have the full visibility on this and how has it been accrued up to the switch over and all that. So I'd be cautious to wait too much into that. Okay, understood. Thanks very much. Thank you. And our next question comes from the line of Lars Topham of Carnegie. Please go ahead. Your line is open. Lars, if you have your phone usage, you will need to unmute that. Hello. This is Dan here. Can you hear me? Yes. Sorry, sorry. I don't know why he meant just last, Dan here anyway for a question. On the customer base, how are they do they compare? Because Jan, you mentioned that you have not seen any major client losses so far. Still ahead of this, you usually expect that you can see a loss of up to 5% of the customer base, and you've not seen anything so far. So the 5%, is that a bit stretched or a bit too aggressive on a negative side? A bit more flavor on how these two customer bases compare, please. Yes. I think we need to be a little bit careful also being too optimistic. So we still count with the 5%. We will enter now into a season where there's more tenders coming up. We need to retender for some large chunks of business, but that's nothing that tells us we will not be successful in those. But still, we have 500,000 active customers in DSV or in excess of 500,000. So of course, there's a constant change in the customer base. But logically, we have for the large accounts some sort of surveillance where we are on a monthly basis calculate how they develop. And apart from the normal, unfortunately, I would say, down trading that some customers are having, we talked about others. We talked so much about this down trading. We also have customers who are if you're exposed to, for instance, some retail business in the high end in Asia, for instance, you have a very, very strong growth. So they are not down trading at all, contrary to that. So we have to remember that sometimes. But I think it was a little bit of common misunderstanding before that Panalpina had customers who were far more complex and far larger than that of GSV, it actually turned out that the customer bases fairly similar. And we now have a system in place where we have taken the best of 2 worlds, and we are now, let's say, able to handle all types of customers also. But I would still keep the 5% in the calculations. But are there more or less all absolutely between the clients than you originally thought? Actually, I would say less. We were happy to see that. There were some customers that we have to we were a little bit embarrassed, but we had to say that we have never moved a single kilogram for these customers. And that's a good question we can ask ourselves, why could that be that these customers did not know DSV before. But that was the case, and that is, of course, positive because it means that we don't go in and take too large a share of wallet with these customers. And then just sticking to my allowance of 2 questions. Maybe a bit of flavor on the aircraft market, what you see there right now. When can we expect some sort of return to growth? Because comps should become easier now, I expect. Yes. You're absolutely right. But Dan, to be honest, your view is probably as good as ours. I know you follow this very closely also and have a deep insight into this market. So I don't think I have more intelligence. But you're right, the sharp drop in volumes, it's as far as I remember, it did start in Q4 last year. So comps will become easier for what it's worth. So and we have seen 1 percentage point improvement from Q3 to Q2, but I think that will also will continue. And let's hope for year on year growth when we get into 2020. But there is a little bit anybody's guess right now. Very helpful. Thank you. Thank you. Our next question comes from the line of David Kerstens of Jefferies. Please go ahead. Your line is open. Good morning, gentlemen. Two questions, please. Maybe first on the potential of the global commercial organization. Where do you see most scope for commercial opportunities from the integration of Panalpina? And then what verticals? And is there also potential here for yield improvements via cross selling of value added services and increasing Panalpina's gross profit per unit? Then my second question is, with the faster than expected synergy target, are you still targeting EPS accretion for 2021? Or is it fair to assume that, that will now likely be realized already in 2020? I appreciate that it's partly dependent on the pace of share buybacks. And is 8% a fair run rate to assume for 2020 based on your latest share buyback program? Thank you very much. I'm happy that we get so many questions on the TCO. The team will be pleased about that because they actually do a fantastic job. What has struck us is not necessarily a surprise, but that is that there is a big interest from the former Panalpina customers to get to know our road and contract logistics capabilities. It was of course, we respect Panalpina was into contract logistics, but they were probably a 10th of what we are in DSV. So we are 10x bigger, and Panalpina didn't really have a road network, I guess, we can see to sell at least nothing that stands comparison to what we have in DSV. So these are, of course, different projects that we have now that we need to get going on these cross selling initiatives once the integration has been started. And this is not part of the synergy number we have given today. We cannot measure it really, but I would hope that we would be successful and also convincing some of the customers that they should look in our direction when it comes to road and contract logistics services. And maybe Jens on the last. Think basically, if we look at the sort of acceleration or whatever you want to call, I'm not so sure that is. It's that accelerated, but I think we still look for head secretion in 2021. It may be that in the last quarter of 2020, we will realize something. Time will tell. And of course, the level of share buyback, I think you're alluding to with 8%. I think that will still be the plan that we will execute on that. And we will is it 8% or is it 7% or 9%, we will see how pants out during the year. I can't remember we have communicated the 8%, so that must be something that stands for your own account, but it's probably not a bad estimate. Great. Thank you very much gentlemen. Thank you. Next question comes from the line of Andy Chu at Deutsche Bank. Just one question for me, please. Just in terms of WiseTech share price performance, the short selling attacks on that company, does that cause you to think about any sort of operational risk? Or is that just off the radar screen, please? I think on the WiseTech issue, it's a software. It's a product. It's a service we have bought. Of course, we have a whole software stack surrounding it. I think that's very important as well. And there's a road map for development of the functionality of the YSA platform, and we don't see any impact from what is going on in the stock market when it comes to this. You will sometimes find some short selling activities, and I don't know exactly how they have communicated to the stock market. But apparently, there's been a gap of information because it's been used by somebody. And whether it's relevant or not, I'm not so sure. So we can't really say more about that, but we are okay. Okay. Thanks. Thank you. Our next question comes from the line of Lars Heindorff of SVB. Please go ahead. Your line is open. Yes, good morning. Thank you. A follow-up on the question regarding the air cargo volumes. I know that the market is soft and it looks like you've been sort of doing slightly worse than the market. But in terms of yield, which was up on DSD stand alone very significantly. Could you elaborate a little bit on that, how that has developed during the quarter and what you see going through the Q4 as well? Yes. We saw actually the development that we wanted to see, not necessarily the drop in and that we lost market share, but when we see that, when we see a weak development in terms of volumes and if we are even worse than the market, we would hope and expect a good performance on the yield. It's always been like that. Volumes are very, very strong. Yields drop a little bit. If volumes are weak, then yields should go up. We did we I think we talked about it a little bit on the last call as well. We have shredded at least 1 probably one of the largest airfreight customers we had in terms of number of shipments because of unsatisfactory behavior, you can say, from the customer, also in terms of payments and just not living up to the terms we had with already very long term with very long payment terms agreed. If you don't adhere to that, the return on investment for us is simply not satisfactory, and we kind of came to a conclusion with this particular customer from a country not so far from here that we had to cease the operations. So that is probably the whole reason for the nonperformance in terms of volume in airfreight. So can that continue? Again, first of all, I'll be careful that we're putting these yields in. And then I'll also be careful doing the normal calculations that you do. You have to accept that, that the volume predictions and multiplied by years, that exercise is more difficult to do. You will probably not come to a total accurate result right now as there are uncertainties also in terms of the volumes. The way they are being reported in Panalpina was very different from what somewhat different from what they are reported as in DSV, that's the perishables element as well. So but we think that if the airfreight continues to be weak, we expect yields to continue to be high. Okay. And then another question. The second question is regarding the net working capital. Obviously, you need to tie up a bit more in connection with the integration and also now with Panalpina on board. Any comments on, I assume that you aim to have a network in capital which is below 2% longer term still stands? And how to get down to that again? We'll see why in Zouklas, it's another customer mix, and the jury is still out on that one. I would actually suspect that we have to move the target because of the Air and Sea sort of overall representation. If you look at our numbers, it's clear that road has the lowest and there's none of that volume in Panalpina. Whether we will then be able to improve the situation on the working capital, time will tell on the Panalpina side. They have not been doing too bad a job themselves, but it might be that the combination of the DSV capabilities and the Panalpina capabilities can lead to us squeezing out a few extra Swiss francs or dollars or wherever they're lying this money. Thank you, guys. Thank you. Our next question comes from the line of Markus Belanda of Nordea. Please go ahead. Your line is Two questions, if I may. The first one on synergies. You upgraded them slightly. I'm just curious as to what the reason for that is? What is it you have found in Panalpina that made you upgrade the synergies? And then my second question concerns the road business. I believe you're right in the report that the European road market stalled in Q3. Just wondering if you can elaborate a little bit on that and maybe also say something about whether it stalled at the end of the quarter or at the beginning of the quarter or what's going on there? Thank you. Yes. On the Road side, as I said, it was a little bit more quiet over the summer period than what we saw a year ago. So we saw some weeks with very little activity. And even though we are asset light, we do have some fixed capacity in both in some countries at least. So that deteriorated or that had a negative impact. As I said, maybe not so much in the quarter, but after the quarter, it's been fairly okay. We've had a pretty strong start this quarter, which is nice. Unfortunately, there's no statistics that we can use to measure the activity that I know some of you guys who measure bridge crossings. I saw some statistics on domestic bridge here in Denmark, which looked pretty good. So I think it's a fairly okay start to the year or to the quarter in road. When it comes to synergies, I think Jensy went through it, but it is simply a fact. It's not that we have seen anything else. When you go out in many, probably 70 countries and ask them to do an integration kind of type of exercise, you don't have to get a lot of positive variances from each country before you find €100,000,000 as we did. We were, of course, very pleased that the top down exercise we have done here together with some senior management before, I have to say, it's not just something Jens and I do here in our office. But that was replicated with a bottom up process. So now it is the best feeling we can have is that this number, dollars 2,300,000,000 is anchored out in the organization and they are confident that it's a lot of, what you say, positivity and excitement when we speak to our people. They are they cannot wait to get going and they are very optimistic about achieving the business case, which is nice that they are so enthusiastic Thank you. Thank you. Our next question comes from the line of Mark McVicar at Barclays. Please go ahead. Your line is open. Hi, good morning, everybody. Two questions. One to do with the integration. Given that you've only been in control of the business, what, 9 weeks or something, what has caused you what have you seen that's caused you to bring the achievement of the synergies forward by effectively a whole year is the first question. And the second question is, you said very much in the presentation that you would keep the Perishable and Charter operations as separate activities within Air and Sea. Do you see yourselves leaving them completely untouched? Or do you plan to make some changes even though they are, to a degree, stand alone? What's the sort of what's the thinking around those 2 activities? I think I can perhaps reply to, first, the synergies. If you look at also how they sort of realized when it came to UTI, it took us back then 11 months to move all the volume out of their platform. I think here on Panalpina, it will probably take us a little bit more than 12 months to switch all the volume over to the DSV platform. And now that we bought the company, sort of or closed the deal on the 20th August, this ties in nicely actually with having done all the activities before year and next year. We are confident given the plans that we have in place that this could happen. Could there be one country then where it's still missing due to some negotiation with some union or whatever? Then we will live with that. But I think the majority of the countries are the 98% to 99% will swing over quickly. So I think we are confident when it comes to that. When it comes to the activities you mentioned, I think it's back to something that we do quite a bit in DSV, and we call it fact phasing. So it could be there was also a question about IT and gateway that I forgot to answer as well. But our IT platform, we measure all these things in a certain way so that we can measure the profitability. It's probably a more granular approach than I have seen at any other company with both that we do it with. And this means that we then have facts on how are things performing and what is doing well and what is doing not so well. So that could be the gateway for the charter network or it could be the perishable operations. And of course, then it is like everything else in DSV. We deploy some capital. We get that from the investors and then hopefully some EBITDA. And it would be you alluded to it yourself, Marc, that we've known the business for 9 weeks. It would be a little bit disrespectful to have a lot of views on this already. We I know we want to do the integration as fast as possible, but we also respect the significant size of these two operations. And I must say, both, they look pretty promising. And I'll say, especially the charter network, it is an excellent product that is of a very, very high standards. Of course, we just now, as Jens said, we need to isolate it in the DSV P and L. And then, of course, also see if there's a willingness amongst the air freight transport buyers also to pay for that excellent product. But it's something that we can definitely our old airfreight guys in GZ learn something from. And so far, we are still it's still work in progress to put it that way. Our next question comes from the line of Arthur Truslove of Credit Suisse. Arthur Truslove from Credit Suisse on behalf of Neil Glynn. So obviously, the synergy targets don't include any revenue benefits. But we're just wondering, have you sold any value added services in the Ocean segment or indeed any road forwarding services to Panalpina customers just yet? And in addition to that, how do these pipelines look for that sort of business? Thank you. We wish we could include some of the softer synergies, procurement synergies, cross selling synergies, but it would be too easy for us to sit here and promise all that because you guys could probably never hold us up and hold us accountable for that. So we have a restraint from doing that. We've never really talked about that. What we are super confident about is the cost synergies, and you can find those cost synergies in the P and Ls in the coming quarters, and you are more than welcome to hold us accountable for those. Also, we think that is the most fair way. It would have been nice if we could also guide a little bit on the others because hope I agree. We hope very much that we will see also synergies in terms of cross selling and also some procurement synergies. We haven't really it's too early to say that we have seen any benefits yet. I know a lot of meetings have been taking place between the parties, customers and our divisions. That's expressed some excitement also from some customers. But to my knowledge, we haven't signed any kind of material large contracts at this moment in time. But of course, we hope it to take place going forward. Thank you very much indeed. Thank you. Our next question comes from the line of Amit Poulomb of Kepler Cheuvreux. The question I have is on the synergy benefit being advanced a bit and how quick you're able to extract them. So my question is, is it because the market the FX market in particular is weak and therefore cost saving can be achieved faster? And if indeed we had a turning of the market, rapid growth in the second half of next year, would that compromise your synergy benefit Or would you recover that through the low attrition rate perhaps that it would imply? Could you explain us how flexible this strategy is regarding cost savings and obviously investment for growth? I would say that we've always managed to increase the productivity all the time by the way that we make investments in infrastructure that simply is more efficient. So we right sized the business and have done so for many, many years to the current capacity that is on the demand in the market. And when we grow, we've always been able to scale. I think that's sort of been a trademark of DSV that we can do that. So I wouldn't expect us on this. We get growth of double digit magnitude for a long period in time that we will have capacity constraints on handling the volume. The synergies, I'm not so sure that they are that much faster because as I said, on UTI, we took their production system out of production within the 1st 11 months. Here, we'll probably take a little bit more than 12. Of course, the company is larger. So I would say we are moving ahead more or less at the same pace as we have done before. And I think we experienced the things that we normally experience. Of course, our teams, they know how to deal with it. They've done it several times before. Not really for us, people, they stay on for a long period in time, so we keep the expertise in the company, and I think that's what it's all about so that we are comfortable that we can execute on the plans that we originally made on the top, but it is now part of every country's ownership, and that's exactly what we need. Thank you. Our next question comes from the line of Frans Hoyer of Handelsbanken. Please go ahead. Your line is open. Thank you very much. Question about the evolution of your OpEx synergy estimate. You started out with the EUR 2,200,000,000 and you have now anchored it across the organization and the number is €2,300,000,000 and staff is very optimistic of being able to deliver on that promise. And I was wondering, as you unfold these efforts, is there a natural point in time when you reach a milestone and you might be able to update us again on that OpEx synergy estimate, please? Yes. I think as we also did UTI, we had updates to the timing of this as well depending on how we're faring. Hopefully, we can live up to what we have said now. And if we do better, we will, as we realize this, of course, give you an update. I'm not sure that you can take into account that we have stated that our staff are very optimistic about it, but I think we can say that it's now anchored as a bottom up budget. I think we can commit to that. So just want to clarify that so that but in general, of course, we are confident when we say things to the stock market that we can deliver on them. So yes. So the timing of your next update would be when? Yes. It will typically be that now we come with the annual report. We will come to the guidance for next year. And then hopefully, it should stack up to the things that you can derive from the information that you have here so that we have guided the market in the right direction. And that's a good understanding of what we're capable of delivering. I would though say that if there's already an already an upgrade after the thing in February, then we probably didn't do our homework well now that we report here in November on that. So I wouldn't keep my hopes too high for another upgrade opportunities in February. I would say that would probably be a little bit premature. No. I'm just trying to understand the rollout and the whether there are any natural points in time when you also when you think about the risks involved in transferring Panalpina to the CargoWise system and so on, you have visibility of when the hurdles when you cross those and when you might be in a position to be more specific or make a new assessment? That's all. Yes. And we can say one thing and that is it actually ties up very well because it's still too early and the plans can still change. But we have prioritized some rather large countries to go on to Cargo YC at the end of this year and at the very, very beginning of next year. So if we succeed in those plans, we will have a much better visibility and more experience to share with you guys when we announce the full year numbers 2019. Excellent. Thank you very much. Thank you. Our next question comes from the line of Sam Bland at JPMorgan. Please go ahead. Your line is open. Good morning. Two questions please. First one is just where the synergy benefits are coming from particularly in the near term. I guess we've got about EUR 1,500,000,000 of synergies due by the end of 2020. It sounds like it's going to take you a bit over 12 months to migrate the IT system. So I guess the bulk of the synergies between now and the end of 2020 are coming from somewhere else. Can you just sort of elaborate on actually what's delivering those? And the second question is on the Panalpina volumes that you've brought across. I guess you said so far you haven't had any material losses. But from what you've seen so far, is any of that Panalpina volume the type of volume that you might not want to keep? And so if we do see some volume leaving the group, that might not necessarily be regretted. We saw that with UTI also that there would be some it's not like we don't necessarily want. We want all volumes, which can be moved, but it needs to be done on commercial terms. We understand this. If that is not the case, we try to have a discussion with the customer. So but I have to say, it's too early still because we haven't applied all the GSV accounting principles on the whole setup, and we need to understand how the customers are actually filling in. But so far, we are pleased also with the levels that I have seen with the experience I have when I look at the contracts and I look at the rates that the customers are paying, that's nothing that really comes to mind where urgent kind of activity or change is needed. So I think we are on pretty solid ground on that. And on the synergies, I think I can just say that it's typically, let's say, you have 2 offices and there's 100 people in both. Then at the end of the day, you might need 150 to produce the same volume on our sort of the platform that we will use going forward because it has a higher productivity. 6 months, you 6 months, you can take out staff because after 6 months, all people that work on the new platform would typically have the same productivity. So that's basically how it's done, and this then ties nicely into the way we have projected the synergies as well. So you can see that we pay 1 off 30% in 2019, but only managed to get 5% into the books. They will, of course, have a big impact from the beginning of next year already. And then there will be other countries migrating on in the beginning of 2020, as Hans Piaan just said. And this is basically how it works, and then the synergies, they slowly filter in. And that's then what we get in the bottom up plans, a detailed planning of this made by the countries. And that's basically what we have accrued on the basis of. So I think that should explain how we've done it. That's great. Thanks. As there are no further questions on the line at this time, I'll hand back to the speakers for the closing comments. Thank you, gentlemen, because there was no women at least asking any questions. Thanks for your big interest in DSV. Very pleased about all the questions that you had. As always, we really appreciate the fact that you follow us. You're always welcome to contact us for further details. You know that we will hit the road now with roadshows both here in Europe and in the U. S. So if there's any investors you would want us to see, let us know. We will go back into the engine room, work very hard. It's a very interesting quarter that lies ahead of us now in Q4, where we will have the 1st full quarter with the combined company. Great salute also to all our staff, both ex DSE and ex Panalpina people. You've done extraordinarily well. We cannot say enough how much we appreciate your efforts. So thank you for that. Please keep up the good work. With that said, we will conclude this conference call and say goodbye here from Hillhurst in Denmark.