Earnings Call: Q1 2019

Apr 30, 2019

Ladies and gentlemen, welcome to the DSV Interim Financial Report First Quarter for 2019. For the first part of Today, I am pleased to present CEO, Jens Anderson and CFO, Jens Lund. Speakers, please begin. Yes. Welcome, ladies and gentlemen, to the Q1 2019 conference call. We have been looking forward to releasing the numbers, which we consider historic good. We have never had a Q1 result anywhere near what we have published this morning. So we are very pleased about that. So business as usual. I'm here today with Jens Lund, and we will go through the presentation as we normally do. And then we will leave plenty of time for questions afterwards. And if I can, again, please ask you to restrain yourself. We're happy about all the questions that you have to maybe ask only 2 questions each. And if your question has been asked already, maybe you don't have to put it to us again. But if we go to Page 2, we have a very detailed disclaimer, and I would strongly advise you to go through that and read that. It has some very important information also in connection with the public offer we've made for Panalpina. On Page 3 is the agenda. You have seen it before. It's the highlights. It's the 3 business segments I will go through. Then Jens will take over, and he will elaborate more on the financial review and also give a short update on the time line of the merger with Panalpina. Then as I said, point number 5 will be Q and A. So on Page number 4, we have tried to summarize some of the highlights of what we do consider a very, very strong and very, very solid result. We are we've had a very, very strong start to 2019, and that is in spite of relatively soft transport markets you see later on in the presentation. When you adjust for the IFRS 16 impact, we have managed to organically grow our GP with 8.5%. But maybe more importantly, we have managed to grow the EBIT approximately 15%. So that's something we are relatively satisfied with. We also have some good news for you this morning, and that is that we are saying that we now expect the closing of the Panalpina transaction by the end of Q3. Previously, we expected that only to happen sometime during Q4. But we are a little bit more optimistic now that we have been working on the preparations for the last 4 weeks. It is also so that to facilitate the listing of the new shares, we, this morning, we withdraw the outlook for 2019. But we also say that the financial performance we have seen in Q1 fully meets the published expectations. And an update will be given on a new guidance once the combination with Panalpina is completed. So we're also satisfied with the fact that the cash flow tracks the results. The cash flow is up 20% year on year, and that also leads us to the next point that I wanted to let you know, and that is that we have announced a new share buyback program this morning of up to DKK 3,500,000,000. And we are very clear, very firm that no change whatsoever in the capital allocation structure of GSV is happening. The share buyback program will run as of the 30th April, so today, until the 8th of November 2019. And in line with the capital allocation policy and the target, we will for the financial gearing, we will stay below 2x EBITDA. So on Page 5, we have the results of Air and Sea. Rock, rock solid. I mean, I'm really, really impressed with the performance we have seen from the division, its management and all the great employees of the Air and Sea division. I think they can truly, even though I know they are humble guys and girls, they can be proud of themselves. They've done an extraordinary job in the 1st 3 months of this year. We've managed to grow 5% in airfreight, and we've actually also managed, and you will see that on the next slide, to have positive yield development. The same goes for sea freight, where we've also shown significant growth. So we are very happy about that. You can see the numbers yourself. The GP is up. The growth also adjusted for IFRS is up 11%. And then we managed to have an incremental conversion ratio of approximately 77%, leading to a very healthy EBIT growth of above 20% year on year. You can see it on the numbers. The conversion ratio is now at 41% compared to 37 percent a year ago. And the EBIT margin is above 10%, and that was 9.4 percent a year ago. And remember that the Air and Sea division is only, to a very limited degree, impacted by the new accounting standards, IFRS 16. But it's really fantastic to see that the continues to perform. And I think, as I said, everybody can be proud of themselves. So on Page 6, you can see the yield developments and the volume growth. It has been particularly in airfreight, it has been a slightly challenging market we have been in, in Q1. The market actually had a negative growth of approximately 1%. We managed to grow the number of tonnes by 5%. And on top of that, we saw a year on year yield growth of slightly more than 10%. No surprise. A lot of you guys have called in this morning and asked if that is the new standard. And we say we wish we could say that. But just a small word of caution, it has been a very, very strong quarter. And as we have said before, you should probably look a little bit at the average on the last four quarters. But of course, we will do what we can to retain the high GP per tonne that we have. But it's been a very good quarter, also helped by a weak rate environment. We've talked about that in the past also that in a declining rate environment, the famous delaying effect goes in our favor, whereas when we see rates going up, the delaying effect before we pass on the effect to the customer goes a little bit against us. When it comes to seafreight, we have seen market growth, but only approximately 1%. And we have managed to grow 4%, which is pretty consistent with what we have seen the last four quarters also. Also in sea freight, we managed to grow the yields slightly less than in airfreight, but still a significant 6.5% growth, and we are very happy about that. In DSV, we like to grow, but we even like to grow profitable more. So for us, it has always been not growth for the sake of growth, but only profitable growth. So when we go to Page 7, it's the Road division. They made almost DKK 300,000,000 in Q1. That is also very, very strong. We have seen the top line growing by 5.7 percent, reflecting a higher activity level and a slight increase also in the rates. As you have to take that into account, a positive impact from higher number of working days in Q1. It's the famous Easter effect. But as we grow more and more outside of the Nordics, it does play a lesser and lesser effect compared to what it did some years ago. So we managed to grow the GP underlying 4.4% and the EBIT 13.6%. So I think the division can be very pleased with the performance also, very strong results. You can see on the margins at the bottom of the slide that, of course, we do see an effect of IFRS 16. So the gross margin now is 19.3%, but we have tried to illustrate what it would have been if we exclude the IFRS 16. So we are happy with the development of the margins. In old terms, it's still close to 17%, but we have to get used to the new margins now because we will only talk about the way that we establish the numbers now after the new accounting regulations. So we are happy, strong result, no major issues in Road. We still continue to see improvements in some of the previous weaker performing countries. So that is very, very good to see. The last slide before I hand over to Jens, it's the Solutions division. We are we have seen a growth in top line of 6%, GP up 9% and EBIT only 4%. It could have been slightly more had we not taken some cost into the quarter, where we have seen the cost base impacted by IT migration and implementation of some new very fancy and promising technology in some of the warehouses that we run. It is an investment, and we expect to see, of course, a return on that investment also. But please remember, it's 193,000,000 dollars in EBIT, and I think we can be very happy about that. We have talked about that the growth rates of the division in previous quarters had been, I wouldn't say excessive, but they have been very, very strong and that one should expect slightly lower growth rates. Of course, going forward, we would like to see that they continue to show a good development also. The conversion ratio and gross margin and the EBIT margin, you can also see a clear impact of the IFRS 16 regulations, which do have a big impact in the Solutions division. It's been positively the GP has been positively affected by DKK362 1,000,000 and the EBIT positively affected by DKK 61 1,000,000. But overall, they're doing great in the division, developing new products, growing a lot in new attractive business areas like e commerce. And we are very happy with the activity levels, which and the and what we offer to the market, it is one of the most sophisticated solutions that we do deliver to customers that comes from this division. So also to the Solutions team, well done. And with these words, I will hand over now to you, Jens, and you can take it from here on. Well, thank you very much. And I'll quickly run through the P and L. First, on Slide 9. And as you briefly touched upon, you've earned the revenue has grown 8%, GP a little bit more. So we've grown our GP 8.5%. The numbers that we look at currently is the Q1, excluding IFRS 16 because once we will have the comparisons in place, there won't be this sort of transitional overview that we have right now. So we sort of compare on the old metrics. If you then look at our EBIT, which is sort of the next KPI we have, we can see that we're actually up percent 15% if we round it up. And I think it's good to see that the customers like our service. We produce more volumes, and we also get good price for it. So the GP comes out. But I think it's also important that our company once again proves that it can scale. So it means that the marginal conversion ratio is fairly high, and this is the reason why the EBIT is growing faster than the GP. So our business model is still scalable, and that's, of course, something that we invest a lot in with all the digital initiatives that we take. We have a lot of sort of attraction to the new booking platform we've put in place. Of course, there's a lot of things going on also with software robots and machine learning and stuff like that. So all these things helping us. And of course, then our normal operational staff, they're certainly also putting a lot of effort in taking care that we handle the extra volumes. So if we then move a little bit further down, I would also say that tax and financial items are in line, so there's not much to talk about when we look at them. But one figure that I always like to look on in this slide is actually the EPS, the earnings per share because that's what the investors they pay for. And here, you see a growth of 27%. So that's certainly something that is a driver for our share performance. So very happy about that number. Also, a last number I would like to mention today is also job creation. As you can see, we have actually managed to create another 500 jobs in DSV compared to the same quarter last year. So that's something that we are very proud of as well. If we move on to the next slide, the cash flow slide. It's become a little bit harder to read the cash flow statement now with IFRS 16. But what we've tried to do is we've tried to produce a statement that sort of moves it back to something that you can compare to last year. And we have grown the cash flow. Q1 is always a hard one on the cash flow side. So we are happy about the result that we've made on cash flow. If we look at our leverage, we can see that we have 1.7x EBITDA, and we have a target of having to stay below the 2x mark. In this calculation, we do use some figures that are estimated figures from last year. And quarter by quarter, we should get the right numbers in. That will probably delever the company a little bit from a sort of calculation point of view. But with the share buyback that we have announced, we expect that at the end of Q3, we will be below 2x. There's one thing we have mentioned about share buyback also early on, and that is that we would like to have enough capacity in place when we exchange shares with Panalpina. We don't expect that there's going to be a significant sort of overflow of shares, but we have furnished the bank that does the share buyback with enough capacity to be able to absorb such an overflow in case it's needed. The net working capital, 2.7%. As you know, we have the best situation on net working capital at year end, and Q1 is traditionally higher. This is also what you can see here. It's still a topic that we work hard on all the time, I guess, like everybody else. So I think that was a little bit about the cash flow slide. If we move to Slide 11. The time line, I think what we have seen is that we've now established good process for filing with the authorities. So this means that we need an offer that needs to be filed in Switzerland. We also need listing prospectus in order to list the shares in Denmark. And we also need then on the competition filing and the CFIUS filing to get the regulatory approvals in place. We have seen that there's good progress and there's good work being done, both on the DSV side, but certainly also on the Panalpina side, making taking care that we have all the relevant information at hand in order to fulfill the requirements of the authorities. So everybody has done a great job. And if we continue like this, we would expect, as Jens said, to complete this work before the end of Q3. So we are very happy about that. If we move to Slide 12, you can see what you need to do if you would like to ask us some questions. And with that, I think we'll go to the Q and A session. Thank you, James. Thank The first question comes from the line of Casper Blom from ABG Sundal Collier. Please go ahead. Your line is now open. Thank you very much. First of all, congrats on the very impressive set of numbers, certainly better than I expected. I note your commentary about market growth in Air and Sea of minus 1% and plus 1%, respectively. I think this is a bit better than the data points that we've seen for January February that are publicly available. Can you give any kind of commentary to whether you've seen an improvement in the markets in March and maybe also in April? That is my first question. The second question goes to the conversion ratio in Air and Sea. And I note your comments that we should be careful about extrapolating too much on the yield improvements that you see here in Q1. But looking at the conversion ratio, it's up roughly 400 basis points quarter sorry, year over year in Q1. What would you sort of say is a more fair expectation to have for the coming quarters? Those are my two questions. Thanks. Yes. Good. It's a fair observation about the market growth, and maybe I should have mentioned that when I went through the results. It's correct that we have actually seen a fairly strong momentum during the quarter. So the quarter ended much stronger than it started, which is not normal. But March was a good month, and this is why we came to the conclusion that the markets were, respectively, 1% down and 1% up. You're right, we don't have the final numbers yet. They have unfortunately not been published. I don't know how it takes so long to calculate these volumes, but that's the way it is. So there's a small estimate from March going into the way that we established the numbers. But we have also seen in certain trade lanes that rates have gone up somewhat in airfreight sequentially, and that is also, of course, a sign that there's not as much excess capacity as we have seen early on. So actually, we are optimistic also. And it is still related with a lot of uncertainty. But I guess without saying too much, if you look at different port statistics and other public available information, It looks like also that this semi, at least, positive trend has continued into April. When it comes to conversion ratio, I think it is high now, 41% in Q1. That is relatively high, I mean, going forward. And I think you should pencil in something like 40%, 40% or something like that going forward. And then we would be happy with that. That would be like a more normalized. It has been a very as I said, it has been when you see a strong result like this, of course, you hope very much that it can continue. But we need to see kind of a more stable development for some more quarters before we can really believe that this is the new trend. But don't misunderstand me. The team, I know, they will do whatever they can to maintain the high level. They are super proud of the performance they have done, and they can do that rightly so also. Thank you. Our next question comes from the line of Dan Tovall from Carnegie. Please go ahead. Your line is now open. Yes, thank you. A couple of questions regarding Panalpina and the process because one of the biggest risk right now, as I see it at least, is what's going on in Panalpina until you can get your hands on it. What can you do and what do you do in order to, so to say, secure clients and key employees in Panalpina at the moment? That's the first question. The other question is, is there any sort of say things or issues in the approval process that could sort of say disturb or delay the process going forward as you see it? Any objections for antitrust authorities, etcetera? Are there any particularly we should be aware of in that process? I think on the staff and customer side, it's customary that you put a retention scheme in place for the staff so that they are motivated to work in this transitional phase until we've found out how should a new organization look. And this is also the case here. We see that there's been a lot of interest on the Panalpina staff side. We, Spern and I have been to Basel a couple of times and had some interactions with them. Of course, we cannot speak about customers and stuff like that, but we can tell a little bit about sort of the transitional phase and exchange information about how we are organized and stuff like that. So that's something that we do, and then we actually have a good and constructive dialogue with the Panalpina team. And they're very professional when it comes to that. They're also very proud, and that's very good because they stand up for the company that they've been running, and they serve the customers to the best of their capabilities, and that's what is needed in the transitional phase. You must remember that going forward, of course, it's important that everybody shows the best they can because we will need the best team to run the company going forward. And that's also something that's very important to the Panalpina staff, and that's what we've experienced so far. So on that side, I think you will find that Panalpina is in a better shape than many companies that we've bought before. So they'll be able to manage their customers. Of course, they discuss with them and talk with them what's going to happen is, well, how do we handle the transition, stuff like that. But I think so far, we have seen that this has been done in a very professional way. So we are at least very confident about this, that this is going to run-in a good way. I also think if you look at the Panalpina numbers, they are not that far from the other Swiss competitor, so in the Q1. So I think that's sort of it's okay what we have seen so far. If we look at the sort of the process, I think when we came out with the initial guidance, we were a little bit uncertain whether we would have to file very extensive statements or a little bit shorter forms when it comes to the merger control. I think what we have seen now that we have all the information available is that we can go for the shorter versions. This means that there should be less risk. But having said that, we're also going into some new jurisdictions. It could be that some of them, they it seems very professional how they organize it and sort of with time limits and stuff like that. But it might be that we will have to answer some questions in these jurisdictions to a larger extent because we haven't been in dialogue with them before. So if you look at this, I think we're off to a good start, and we are quite confident about it. But you never know until you know these things. So I think that's also what is stated in Q3. So we have set aside some extra time. If you look back on UTI, we actually managed to announce the deal, I think, in the beginning of October and closed it sort of in the middle of January, which is somewhat faster than we have anticipated in this process. So I think we have a good plan. And if we look at sort of the risk side, as you mentioned, I don't think if you look at the numbers that we are in sort of any positions in any market where we have a dominant position in any way or form. So we should, based on this, not face significant issues. It's more knowledge transfer that we need to make to the authorities in order for them to be comfortable when they make their decision. Thank you. Our next question comes from the line of Mark McVicar from Barclays. Please go ahead. Your line is now open. Good morning, Jens, Bjorn. Good morning, Jens. I have two questions. First of all, and both relate broadly to the Panalpina transaction. If you're going to have to close the transaction earlier than you anticipated, does that mean you can move to the new dividend policy, so the higher payout ratio earlier than you would have expected is the first question. And the second one is, obviously, once the deal closes because of the all share nature and the cash on the Panalpina balance sheet, you're going to look over capitalized against your normal measures. Is there anything technical that stops you rightsizing the balance sheet very quickly, say, in Q4? Or are there limits relating to maybe stock turnover or quantum of stock that you can buy in any particular period? I think if we look at the sooner, of course, we can close the transaction, the sooner we can get into a situation where we can both take their numbers into account. I actually if we speak to, for example, Standard and Poor's, they will be able to take the Panalpina figures into account. But of course, they can only do it when we have closed the transaction. So the sooner, the better, I think, when it comes to that. I think on the capital allocation, I think we stick to what we have, and we would like to adjust this thing as soon as we possibly can because, fortunately, our share price has a tendency to increase. So that means that the sooner we re calibrate this, the more edge growth we get out of it. And I think we have a joint interest here with our shareholders that, of course, we will want the right capital structure, and we want to adjust as soon as we can. The reason why we made the model like we did this time is because of insider regulation, stuff like that. We might get information during the next half year. That means we can't launch anything. This is the reason why we did a 6 month program. Right now, we're not insiders, so we can launch it. But there could be information that we would receive during the process where we planned integration, stuff like that, that makes us have another opinion about the business case, stuff like this. Might only be smaller adjustments, but still so that's the reason why we've done it like this. Once we've then closed the transaction, we can issue new guidance. We can give the market transparency. And at that stage, I would also expect that we would then find a way. And as I mentioned on a previous call, it could be another structure than the traditional share buyback program, depends on how much capital we would have to send back to the shareholders. But there are other models here, for example, reverse start to auction, etcetera. As long as we're not insiders and we execute them shortly after we've released quarterly results, they are also tools that can be used. So we will have a good look at that. And meanwhile, we have sent a clear statement because there's been some uncertainty about our capital allocation. But I think with the share buyback that we have launched now, I think it's a good signal that we stick to the way we run our capital allocation. And I think it's also something that is needed for us to produce the progress we're making. Capital is a tight resource, and we have to remember that. Thank you. Our next question comes from the line of Lars Heindorff from SEB. Please go ahead. Your line is now open. Yes, good morning. A question regarding one of the notes in the reports that you have. This is the geographical revenue split. I know that revenue is not the best proxy for growth as you have the price element in there, but this is what we have to work with. So my question is basically if you could comment a little bit on the back of that notes because it shows that Americas is growing very, very significantly. EMEA, sort of more in line with the market whereas APAC is hardly growing. Are there still any synergies, I don't know if you can call it that, lift from the UTI, which is the reason for the strong growth in the Americas? And does the growth actually reflect also margin development, regional margin development? Yes. It's a good question. You're right. It's no secret that for the last many years, we have been extremely successful in Americas. It's difficult to talk about the results in Americas without mentioning the U. S. They are in a league by themselves. They've continued to have a very strong customer focus. They are one of the most commercial of the organizations that we have in DSV. They've just delivered a fantastic result. They've grown a lot, and they've converted a lot of that to EBIT also. But also, credit should be given to other countries than the U. S. Canada has done well. Mexico is doing fine. And some of the Latin American countries are also doing fairly well. You have to remember also, Lars, that it is still a networks business that the U. S. And Americas could not have delivered the results that they have delivered without the rest of the network in DSV. So they have also played a very significant role. And if you look, it's a little bit too tight, so to say, to only look at 1 quarter. If you are to establish how things are moving, then you need to look at a whole year when it comes to the geographical kind of components of the results that we're having. But we are pleased with the performance that we see in those areas. We are still small, so to say, and we still have a lot of room to improve and to grow. And this is what we have seen. We have grown both, of course, with brand new customers, but I'll say predominantly with extending the service that we have with existing customers. And I think that can continue also going forward. Are there any particular verticals that is growing more? Or maybe now you talk about existing and new customers. I don't know if you can give us an indication about whether it's SME or larger scale customers maybe? I would say it's actually with some of the larger clients. I think it's a common misunderstanding that DSV only deals with small and midsized customers. We have a very large proportion of large blue chip companies also. We are proud to service some of these household names. We've grown both in automotive, in some beauty areas. Fashion, aerospace is also a very interesting vertical for us. So it's actually spread across a lot of verticals. And that is also nice that we have gained expertise to service these customers who often demand a very specific knowledge about their industry. So we are happy. Our next question comes from the line of Damian Brewer from RBC. Please go ahead. Your line is now open. Good morning. It's Damian Brewer from RBC. So my two questions. First of all, given some of the big strategic stuff being done, when we look at Q1, you did about 4% to 6% volume growth. Your SG and A costs were up 2%, 2.5%. And indeed, in the Air and Sea business, the sort of efficiency effect was even stronger. As a standalone quarter, is the sort of 3% to 4% annualized efficiency the right way still to think about your business as a sort of underlying rate of efficiency development? Or is there anything else you can add to that? And then the second question, slightly stepping away from the quarter, but given the scale of the business, the profits you generate and the returns for shareholders, it does look, particularly compared to your peer group, like there are large layers of DSV management that are relatively, dare I say, underpaid. After the Panalpina transaction, is there going to be any remuneration review or look at a way of sort of incentivizing management across the company in an enhanced way? Maybe I can take the last question. I think, Damian, when you look into the remuneration, you need to take everything into account. We have always used what we consider very strong currency, which is our own stock. We do have, if I'm not mistaken, Jens, close to 2,000 individuals who will now take part in the stock option schemes in DSV. You need to earn the right to be included in that. So if you take that into account, I don't think we underpay our staff. I think we recognize also the strong performance that they are doing, and there are certain incentives. So we have no really plans of changing that. Touch all the wood I can. We are very proud and humble about the fact that a lot of management, they've shown an extraordinary degree of loyalty to our company. I cannot thank these individuals enough for staying in DSV. We have a strong urge also to repay that loyalty back to these individuals. You should never underestimate the fact that a very stable management, and now I'm not talking about Jens Lund and myself, but further down in the organization, that plays a very, very big role, and that should not be underestimated. So I think that's what I can say on that point. And Jens, I know that these guys are listening now on the call, so he has not raised their expectations too much either. But maybe, Jens, you can take the next point now or the first question. But in relation to Jens and myself, you're welcome to phone the Chairman. On the efficiency, I think, Damian, what you see is, of course, as you say, we've invested a lot in IT. We've invested a lot in processes. We've invested a lot in infrastructure. Sometimes it's when you then get the extra volume in, of course, it's clearly visible what comes out of it, of course, I think that's more sort of the natural level I think that's more sort of the natural level and in certain phases, perhaps even down to 2%. But we've done a lot also since UTI and consolidated a lot on our platforms. And it is key that we continue to focus on this, and it's a big drive that is done by the whole organization to continue down this path. The next thing that will come and the next sort of big thing that will run for the next years will be the way we interact with our customers. We already do it in a very electronic way. But I think going forward, we are going to see even further development in relation to this. We are making preparations for that. We are already investing in that, but there's going to be significant investment in this going forward as well because it is the key that we have the right systems in place in order for our staff to give the customers the good and efficient service. Yes. So I think that's it. Thank you. Our next question comes from the line of Andy Chu from Deutsche Bank. Please go ahead. Your line is now open. Thanks very much. Just one question from my side. In terms of the GP per units, obviously, you're outperforming in terms of market volume growth, which is due to size and scale and a great sales force. But in terms of the sort of pretty material uplift in sort of GP per unit sea and air up 6.5% and 10.4%. How are you actually achieving that in a sort of weak volume environment, given what sort of Kuehne and Panalpina have reported? And also your sort of comments that the growth is coming from large customers, which who would probably likely want to sort of more aggressive sort of price points. So could you just help us on that front, please, and expectations as to why that if those reasons are sort of why that might not be sustainable into the sort of coming quarters in terms of doing a good job on pricing, why would that sort of fall away? It's a very good question. And sometimes, we ask ourselves that question. We are proud. We see that as a very strong asset in DSV that we have market leading yields. And we've had that for many, many, many years, and we've discussed it for many, many, many years also. And there's been questions about it also. And I understand that. Now when you look at the growth rate you have, just to bear in mind that you will 2% to 3% of the growth comes from currency and about 1 percentage points or 1% also point comes from IFRS 16. So the organic improvement in the yields are slightly lower than that. We can only comment on the developments in DSV and not so much on what happens by our competitors. You basically have to ask them. But what we have seen is and that is not uncommon that in a slightly declining market, you can or rates environment, you can capture a slightly higher GP per unit. And as I said, that goes against you when the rates, they start to go up because there is this delaying effect. We have a culture in our company where we incentivize our staff on gross profit growth and the management also on EBIT growth. And it's a very strong performance culture that we have. So I'm sure that, that also plays into the, what you say, equation. So but it's difficult because we only have access to what happens in our own company. But it is for sure that it has been a good development. And as I said in my presentation, you should probably assume that maybe the average for the last four quarters is a more accurate number to use. But we will, of course, do what we can to remain or to retain the high yields that we have. And maybe just one follow-up. In terms of sort of staff churn, which probably helps in terms of, I guess, a pretty low staff churn and very loyal employees at DSC. Can you just remind me in terms of sort of staff churn where you are just in terms of figures, which probably helps sort of pricing discussions with customers? It's a little bit a tricky question. It's Jens here that answers it. If we take our normal operational staff, that's sort of if we could use them as one category because we have different categories of staff, We would have a very low staff churn, also depending on which levels in the organization. It is, of course, the more junior, the higher the churn because people, they are more sort of willing to change the job position there. I would say the staff churn on a group level, for the most junior positions, is probably less than 10%. If you go higher up in the organization, it's even lower. If you then, for example, go to some of the places where we have shared service centers, where it's quite normal that you would have somewhat higher staff churn there. You would probably find that it's in excess of 20%. But that's normal in these areas, and you simply put a governance model in place for that. But that's not something that is customer facing when we look at it. And I think, really, I just want to add one comment to what Jens said on the GP. We have a lot of focus on that the GP. It has to be value creating. I know that there has been in certain organizations, are more focused on also volume in absolute figures, but that doesn't really count in DSV, the way we measure and when we give people incentive, stuff like that. Our Our next question comes from the line of Neil Linn from Credit Suisse. Please go ahead. Your line is now open. Good afternoon, everybody. Good morning, actually. If I could ask three questions, please. The first one, just to understand, perhaps there is no change whatsoever, but just thought I'd ask a question. You're hiring plans on investment in operations from a DSV organic perspective. Has the impending transaction had any impact whatsoever in terms of how you plan the next 12 months? Because I can certainly understand some reticent or some slowing of decision making before you expand the business? And second question, just for housekeeping purposes. I know you're not guiding forward anymore, but the tax rate was 25% in the Q1. You had guided 23% for the full year back with full year 2018. Just interested as to whether anything has changed at all there. And then the final question on the Solutions business. The new technology you're investing in warehouses, how much of that is upgrading for existing customers versus planning a higher quality offering for new customers going forward? I'm just interested in your overall strategy there because I think solutions is a bigger part of your thinking these days than it was at least a couple of years ago. Yes. Maybe I can take the first question and then Jens, you can elaborate on the tax and maybe on the technology side, which is extremely exciting. What we see is sometimes when you see both with your own eyes and see videos of what we are doing in solutions, it's just absolutely amazing what technology offers you. But when it comes to hiring, you should not take the view that the cost base of Q1 is artificially low in anticipation of the merger with Panalpina. You have to bear in mind that we only announced the transaction on the 1st April. So it was actually when Q1 was over. And up to that date, it was very uncertain. So it's not like we have been holding back on hiring new employees or anything like that. The increase in productivity simply comes from digitalization and investments in new technology that we have taken into use. So it's not an artificially low cost base. And then maybe Jens? Yes. I think on the tax rate, of course, it's a little bit volatile. We've not guided anything new on the long term sort of ratios for the tax rate, and I think they will stay unchanged. It can fluctuate a little bit in some quarters, in particular with the new IFRIC 23 that has come into place. I don't know if you've studied that closely, but it gets harder and harder sort of to have a stable reporting of tax because it has to be more and more specific, the provisions that we're making. So I think that's probably the reason why it's fluctuating a little bit. Then if we look at the investment side, both in IT, warehouses, stuff like that, we continue to invest in this, both for existing clients that are growing, but certainly also for new clients. We are trying to put in automation in our we have a so called service catalog, and we try to use standard ways of automating flows for our customers so that we can use them cross customers. This means that we can ask for less commitment from these customers because we can then if they leave us again, we hope they stay, but if they do, then we can use the equipment elsewhere. So that's sort of a plan that we have so that we give them kind of a bit of the benefit of having a more automated way of producing our things. And then we see that actually they reward us with growth. And it's a win win situation for both parties. I think there's a nice YouTube video out on some automation we have put in place for some e commerce customers in Canada right now. And you can look that up on YouTube and see what kind of equipment it is that we have in place here. This is perhaps a somewhat large investment. You can see that, and it's done together with an existing customer that simply has tremendous growth in e commerce. So we need to support that specific customer. So it can be a different use case from time to time, but we try also to bring new things to the table for our existing customers as well. Yes, I hope this answers your questions. That's great. If I could just follow-up on the first question to Jens Apologies if it sounded like a suspicious question. It actually wasn't. I was more interested in your plans going forward as to whether anything at all changes with respect to pace of hiring going forward rather than the Q1. I'm sure you would take it into account. I mean, the closer you get to a potential closing date, if you get somebody who will resign and you expect closing to be weeks or a few months ahead, you might just incentivize the existing staff just to work a little bit over time and just manage that. That's a very fair assumption. I fully agree with that. We I would expect that to happen on both sides. But I can only speak on behalf of DSV, of course. But that would be a logical outcome. You're absolutely right. Thank you. Our next question comes from the line of David Kerstens from Jefferies. Please go ahead. Your line is now open. Thank you. Good morning, gentlemen. Two questions, please. First, can you please elaborate a little bit on the momentum in the European Road business? I think you highlighted growth slowed quite considerably to only 1% to 2% in the Q1, in line with GDP growth, whereas your revenue momentum picked up, is that largely driven by price? And if you would exclude that price effect, would you still have gained market share? And maybe in relation to this, what do you see currently in the UK now that Brexit is further postponed until the end of October? Do you see activity already picking up? Then your second question is regarding the momentum in the different sea freight lanes. I understand Asia Europe remained weak. Did you gain market share on Asia Europe? Or were your market share gains driven by mainly by the export from the Americas? Some further color on that would be very helpful. Thank you very much. Yes, you're right. Maybe we didn't comment on that in the presentation. But as some of you have pointed out to us this morning, you missed the volume numbers in the Road division. We've decided to take them out of the presentation going forward because it doesn't really make sense. We saw that it became less and less valid. There's no statistics that we can use to talk about the markets in road. So you need to when you look at the growth volume wise we have, you should look at a combination between revenue and GP, I would say. It's much easier in Air and Sea where there's some official statistics that you can use. We don't have that in road. But the momentum has been good. You have to take into account when you compare the 2 quarters that Easter plays a role. But overall, it's been our feeling is that volumes have grown and slightly more maybe than what we've seen in Air and Sea. U. K, we've not seen a big sigh of relief or anything like that. We actually saw that more up to the last couple of or three even deadlines that we saw. Now it's more business as usual, and volumes have faded slightly, I would say. But U. K. Is still performing fairly well. And then the question about the trade lanes was, I think we have had in DSV a fairly stable market level development. It's not like 1 trade lanes one trade lane has stood out as something as particularly good. But of course, when we've seen the growth rates, as we EBIT wise and GB wise, as was pointed out at an earlier call, in Americas, both Asia to so Trans Pacific has done well for DSV And also Europe to the U. S. And vice versa, transatlantic has also been good for us. Us. Our next question comes from the line of Frans Hoyer from Handelsbanken. Thank you very much. I was impressed with the continued strong volume growth in both Air and Sea despite the sort of falling off in growth in markets generally speaking. And I was wondering if you could add some color to that. What's happening? It seems that the big operators are gaining strength at the moment, gaining competitive edge or something I mean, it's not you're not the only company that is doing rather well of the big guys. And I just think it would be interesting to hear your thoughts on the competitive landscape. Is there some change going on at the moment? Thank you, Frans. I was impressed myself also to say to tell you the truth when I saw the numbers. So we're at least 2. So it actually is a continuation of what we've talked about for the last 3, 4, 5 years, I would say. We have seen a very clear tendency, and I'm not only talking about DSV, but as you I think you called us the big guys, that we are taking market share from predominantly, I would say, the smaller mom and pops or smaller player in the markets. Maybe Jens Lund can elaborate on that. But we invest significant sums of money in digitalization and new technology. You need to have some financial firepower, if you know what I mean, some muscles on your bone to make those investments. You need to have a network also. And it's not like we will never, in DSV, become complacent or take anything for granted, and we still have to fight for every container and tonne air freight that we move. But it is a continuation of this trend where the bigger guys, they take market share from mainly the small players because of IT. If your only value proposition is you go down on the pop and drink a few beers with your customer and you try to offer some low rates, that is a vicious circle, and you will ultimately get into trouble. So you need to have a stronger value proposition. And I think some of the bigger players, we have built that over the years. Thank you. Our next question comes from the line of Markus Belanda from Nordea. Please go ahead. Your line is now open. Thank you. Just two housekeeping questions. First of all, if you could perhaps quantify the Easter effect and maybe talk a little bit about which divisions were most affected? I'm guessing it's Road, but still. And second question, you recognize no special items in the quarter. I'm just wondering if there were no extraordinary costs related to the Panalpina acquisition. Thank you. I think the Easter effect is probably sort of in the region of SEK 15,000,000. If I should book it, it's always an estimate. I'll probably book $10,000,000 in Road and $5,000,000 in Solutions. And really none in Air and Sea. It's a more global business. It's not so affected by the date. If we look at the special items, basically, we've not really received any bills from the advisers yet, but they're probably going to come in soon. They bill late, but they bill high, if you understand what I'm saying. So we will have the shock. We still have that. I haven't even got the shock yet. I know what some of them will be, but it's significant sums we are talking about. So that will soon come in, but I think we will give more guidance on that. We also saw some large bills on UTI, and that's normal when you make these kind of transactions and hire experts in. So that's the way it is. Okay. Yes, I hear lawyers are expensive, bankers not so much. Which bankers are you talking about? All right. Thank you, guys. Thank you. Thank you. Our next question comes from the line of Bruce Chan from Stifel. Please go ahead. Your line is open. Yes. Good morning, gentlemen. Most of my questions have been answered here. So maybe I'll use the time to ask a more conceptual one. I know that traditionally DSV has provided a pretty high degree of value added services relative to some of your peers. And I'm wondering if you can offer some insight into what's driven that higher take rate. I mean, it's clearly not just a matter of more SMID customers, as you mentioned, Jens Bjorn. And I'm wondering if there's a particular set of services as well. For example, maybe customs house brokerage that's growing a little bit faster than the others in the portfolio and whether you expect any changes to that mix following the Panalpina deal? Yes. It's a great question because we don't want to be a commodity. We want to be much more than that. Now customs house brokerage, you might call it value added services. It's just we call it more like a core competence, a core service offering that we do. But it's a very valid question because over the years, the amount of different services that we have on the plate, so to say, has increased. 10 years ago, we did not really have our own captive insurance company. Now we make a nice profit on that. That's something we didn't do. We had outsourced customs house brokerage or customs clearance in the U. S. We then realized that, that was actually a competence that we could take in house, and that has been very profitable. We do more supply chain innovation, consultancy type of services for some customers now, which is also something we didn't do in the past. So it's all about not falling asleep and constantly let yourself be challenged also by the operations because it's not all wisdom and should not come from this office. And I think we have a lot of ambitious and good staff in the operation that invents kind of new services that we embrace also and that we if we get an idea, good idea in one country, of course, we don't want that to be a secret in that in the whole organization. So we need to share that information. So but I don't know if we are very different to some of our bigger peers when it comes to this. But that we have developed new value added services, that is a very fair point. And that is the last question in the queue. So I'll hand the call back to you, speakers, for your closing comments. Okay. Thank you very much for listening in. It was a pleasure again having dialogue with you. You know our phone numbers. If you need to elaborate on some of the questions, you're welcome to contact us. We will now go on roadshows speaking to investors. We look forward to that. So we will stop the conference call now and by thanking you for your participation. Thank you very much. Bye bye.