Earnings Call: Q1 2021

Apr 27, 2021

Ladies and gentlemen, welcome to the DSV Interim Financial Report First Quarter 2021. 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 am pleased present CEO, Jens Andersen and CFO, Jens Lund. Speakers, please begin. Good morning, ladies and gentlemen. Welcome to this conference call. As you just heard, I'm joined by Jens Lund today, and we're very excited about What we're going to present this morning, namely the acquisition of Agility's Global Integrated Logistics Business. And also, we look forward to sharing our Q1 2021 numbers with you. The format would be, as you know, we've prepared a small presentation. I'm sure you can see it online. A little bit more Disclaimer on Page number 2, I'd carefully encourage you to read through that. And when you have done that, you will see the agenda for this morning on Page number 3. And I'll not go through all The topics on the agenda, I'm sure you can read it yourself. So we'll go to Page number 4. And the reason that we are excited this morning is the fact that we have announced the acquisition of Agility's Freight Forwarding Business, JIL, a company that we have been admiring for a long period of time. We have been following The developments of JIL for a long period of time, we've always found an excellent match between the two companies. And after some extensive Discussions and negotiations. This year, we've managed to strike a deal, Which we are going to which we have announced this morning, this is another Part in the jigsaw puzzle of DSV, where we have over the years, as you probably know, made numerous acquisitions, and it's Part of the strategy of our company to continue consolidating this very fragmented industry. So on Page number 4, you will see some of the reasons for the acquisition. We do believe that there is an excellent strategic match. The addition of Jill will give us a significant volume into Air and Sea. You will see it later on. We will also grow in our Solutions business and the JIL operations. We'll also add Significant volumes to our road business in Europe. GIL is a company like GSV. We found during the due diligence a lot of cultural similarities, a very good corporate fit, And it is a company that has a similar asset light model as we have in TSV. So the case is like we've seen with previous acquisitions and integration into DSV. And we look forward to starting that work once the closing has been happening. We will consolidate our infrastructure. We can scale up our own operations, but we will, of course, carefully study what is inside the Till, so to say. We do have what we deem a very, very Track the financial business case also, and we expect the transaction to be as accretive When you look at it on a diluted and adjusted basis in year 2 after closing. And we are not going to I'm just going to warn you guys, we are not going to come in and elaborate more on the synergies today. But what we are saying is we have an aspiration to lift the operating margins of the combined entity towards DSV's existing levels within the respective business call, the right hand side of the graph, you can see the development we are what was the Exposure to Air and Sea, which is the biggest in JIL, about 80% 10%, respectively, for Road and Air and Sea. From a footprint, geographical footprint point of view, Jill will give us a Significant increase in presence in the Middle East, where they are bigger and more profitable than DSV, But also in APAC and Americas and then the rest of Europe. So the fit is very good. So we'll go to Page 5, A little bit about the transaction overview. We have agreed 100% share deal, meaning that we will issue a little over 16,000,000 new shares in exchange of a deal, and that represents approximately 8% of outstanding shares post the transaction. You can see the valuation yourself on bullet point number 4. It equates to an equity value of a little over $4,000,000,000 $4,100,000,000 and enterprise value of about DKK4.2 billion, which equates to about DKK26 1,000,000,000. We need the regulatory approvals and the approval by Agility shareholders, and we do expect that At least the approval of the Agility shareholders to happen soon. And we also see no reasons Since that the regulatory bodies should not approve the deal, and we do expect Completion of the transaction in the Q3 of 2021. We have also agreed, we are very excited about that, that Agility will nominate To the DSV Board of Directors diversifying the board even further. So we go to Page 6. I'm not going to dwell too much about it. You can read it yourself, a few characteristics of Jill, our utility, as we call them also, dollars 4,000,000,000 revenue in about 70 countries, 17,000 dedicated employees, good global network like we have in DSV, strong customer base both with multinationals and smaller customers. We will Get access to about 300,000 tons of airfreight and 600,000 TEUs. We also see good similarities on corporate responsibility And also some niche businesses, dedicated specialty teams for chemicals, projects, Logistics and Fairs and Events is something that will add value also to DSV. In contract logistics, we'll get access to Close to 1,500,000 square meters of contract logistics facilities in the Middle East, APAC and Europe. And the road freight activities lies mainly in Europe and also in the Middle East, which will be something new Page 7, this is the competitive landscape. I know some of you have seen this many, many times. So we are such not obsessed by our positioning in the lead table, but we do believe that scale is important. We have Seeing that we have managed to generate value to all stakeholders every time we have combined ourselves With one of our competitors or colleagues, we will now have a position as the 3rd largest The asset light transportation company in the world with all the benefit that, that will generate also. You can see still a fragmented industry, and our market share will still be below 5%. And it's still our estimate that the 20 largest players which are on this list have market share of between 30% 40%. So This is what the acquisition gives us from a size perspective. A couple of slides. I would advise you maybe to look at them Afterwards, you can see a little bit when we do a head to head comparison on Page 8, First of employees, the revenue and also, as I said, the tonnes and TEUs And also the road freight and logistics volumes. So a very good addition. Somebody said it's more of what you already do, That is absolutely correct. This is also the clear strategy. We are much more in favor Of doing something we understand, then endeavoring into unproven land, so to say. So 9 is Page 9. You can see the combination, first on the divisional level, DSV to the left and then JIL to the right and see the combination. We will be slightly stronger mainly on sea freight and keep the position we have on airfreight. And this is something that we are happy about. So as such, the acquisition is not changing The divisional split tremendously. We will be slightly bigger on Air and Sea, which is It's the main reason also as it accounted for 80% of the turnover in JIL. From a geographical point of view, We will be slightly smaller in EMEA. There's nothing wrong with Europe. We are super happy about the operations we have. They are solid. They are Growing, they're profitable. But the fact that we now take another step into a new region, the Middle East is great. We have been subscaled in the region. And also, we do see significant upside to our operations In APAC, where Gilles will give us some more meat on the bone, so to say. On Page 10, another slide just trying to describe what the combined company would look like. On a pro form a basis, we will reach a little over DKK142 1,000,000,000 in turnover. So we will Become an even larger company than what we are. EBITDA of DKK10.3 billion. This is lower than the guidance we have for this Yes. So we would expect something more than that going forward. And you can also see The employees, how it would benefit or it would impact us with 17,000 new colleagues coming in will generate a large employee base. So to sum it all up, we are exceptionally happy to announce the acquisition This morning, we've had some very fruitful discussions with the management of Agility. We quickly agreed on the industry logic in combining the two companies. We are super happy to invite Agility into a main anchor shareholder In DSV also, we think we can learn something from them. They can definitely bring something to the table also. I think we have also once again proven that even though there were some skeptics amongst analysts and shareholders questioning Our ability to find candidates to acquire, we have shown that there are still candidates out there, Which we have always also said. So it's a great day. It marks the beginning of a new era. We have to get to the other side of closing before the hard work starts, and we cannot wait. That does not mean we will not work. In the meantime, there's a lot of work We'll be done now. And the team, when they have had will get a couple of hours sleep, which is definitely needed, They will start the preparation so we can get the closing done as quickly as possible. But you can see on Page 11, a A few headlines of what we are expecting, which are summarizing what I've already said. But If any of if any management leaders, employees of Jill are listening in, I want to welcome you to a fantastic, a very Strong company, the world's fastest growing logistics company, somebody said. And hopefully, we will also be, In all modesty and humbleness, the most successful logistics company in the world. So we look forward to interacting with you when we can. So that was it. I'm sure you have questions, so we will get to them after we go through the highlights because on Page number on Q1, Page number 13, We should not forget that we have delivered what we call one of the strongest results. In absolute terms, it is the strongest result ever. But also when you measure the results of against our own expectation when the year started, it is a rock solid result that the team in DSV can be exceptionally proud about. We've had strong growth in all three divisions. We have outperformed our own expectations. Cash flow is still very, very strong, leading us also to announce a new €4,000,000,000 share buyback program today. Jens will come back to that. We also found it appropriate to upgrade our guidance for the full year, saving off DKK50 1,000,000 in the range. So the guidance now DKK11.250 1,000,000,000 to up to DKK12 1,000,000,000. And we are sorry to announce that we will postpone the announced Capital Markets Day due to the acquisition You can see the headlines below, Strong growth, which always super satisfactory to see that EBIT growth comes not only from cost savings, but also solid growth in GP, Which we have seen and the fact that we have more than doubled our earnings, we are very, very happy about that. And I guess the EPS also the number on the earnings per share speak for itself. So very quickly on the divisions, Page 14, Air and Sea. I can only, Yes. Repeat what I said before. Very, very strong results. Growth in EBIT of 126 percent strong development in gross profit. This is a combination of both favorable market Conditions, but also the fact that we have acquired Panalpina. We see clear Footprints of Panalpina and the results, and we are exceptionally happy about that. Margins also very, very strong. I wish we could see these numbers, conversion ratio, for instance, continuing. It is An exceptionally strong quarter. We can come back to that. It is not unlikely that we will see a dip in the margins when the conditions on the Air and Sea markets change going forward. And if we go on Page number 15, a few slides on both products, Air, respectively, see, You can see that we are catching up. If you go to the very bottom of the slide first, which is also according to plan, We are still underperforming the market. But as we have said also in the last 2 or 3 quarters, We can very clearly account 10% of the volume drop is due to 2 Known factors, the disposal of company airflow, a Periscibles business And the discontinuation of a freight management activity we had. So if we exclude those two topics, we would have seen A growth of in volumes of about 3%, which is still slightly below the market, but we are catching up. And if you might remember, we've said that during Q2, We estimate that we will be seeing organic growth rates. And I think also we have been out this morning Saying that we have seen a very strong, what you say, a start to Q2 in terms of volume development, which is also what we had expected. You can see the yields. They are still high, DKK8.3 or DKK 8200 per tonne, which is high. We do expect that To come down somewhat, maybe not in the coming quarters, but it is higher than what we have seen in the past. So some reduction or some is not unlikely to expect. On seafreight, a little bit of the same developments. Also here, you will see that we are catching up in terms of volume. We actually see Organic growth in the quarter of 1%, the markets being slightly better than that. But again, also here, we do see that we are closing in on the market Development, we have also on Seafreight a clear ambition of taking market share and growing faster than the market, yields Being the highest it has been for a period of time, we have seen a lot of disruption. When we look at the GP, it is correct that it is high, but one also has to remember that we are Spending much more resources, moving each to you for our customers. It is associated with Much harder work to support our customers and their supply chain in these very difficult markets. So also here, we do expect that the yields will come down somewhat in the coming quarters. But also still in sea freight, Strong, strong performance, and we are proud that we have supported our customers in very, very difficult circumstances moving the stuff home. Two last slides before I hand over to Jens. Not forget, Road, probably one of the also strongest quarters we've seen for a long, long period of time, they have continued the good development they saw at the end of 2020 With a 9% growth in GP, translating that into A very strong performance on EBIT also in a normally relatively weak Q1 producing DKK400 1,000,000 is Strong is up 56% year on year. Important to note that The gross margin is up more than 1 percentage point year on year and also up sequentially as we would have expected. So very strong result. And also, We've seen a very good acceleration of growth as also, of course, the comparison into Actually, in the U. K. Due to or in many other countries, actually due to Brexit, which has been absorbed and those Temporary problems or negative results caused by that has been eliminated during the quarter. So we don't expect that Continue, but that is including in the numbers. So also, yes, A lot of credit should go to the road organization for very solid results. And I can only echo that also on Solutions, which you will see on Page 18, is carbon copy more or less of what we saw on road. Nice development both in revenue And GP converted to a very large degree to EBIT. We are also happy about And the margins, some have said, but they are coming down. This is a normal seasonality. And we have, year on year, We've seen a very strong development on the margins also. So We are still super enthusiastic about the services which have been produced in our Solutions division. I've said it many times, it's probably the most complex of all activities that we do in the company. We see good impact from newly acquired Prime Cargo. And also, we see that the e commerce activities to grow and they are delivering the highest growth rates that we have seen. So we're very, very happy about also seeing the capabilities From Agility, Jill, and we look so much forward to the day when we can engage With the team also sitting down and aligning the practices on solutions, I'm sure we can learn a lot from each other. So With that, I'll just conclude this part of my time on a very, very eventful night and days To the heads or behind us and also morning. And with that, Jens, you can conclude the presentation. Yes. Thank you, Jens, and I'll quickly go through the remaining parts so that we can get on with the questions. Revenue, obviously, up. Rates are up right now. But what is more important is that our GP or our value creation is up with 21%. And EBIT, obviously, up a little bit more than 100% FX adjusted. And the net profit also this time actually Yes. Now we're not impacted by negative FX and no special items. So SEK 2,300,000,000 and that's exactly what we've been expecting To see that the net profit would be very much more close to the EBIT just adjusted for tax. Then if you look at the cost base, I think it's important here to state that we actually have a cost base that is lower than if we compare to last year. So it's Good to see that the full year impact kicks in of the synergies. And Of course, the cost base will, to a certain extent, be Impacted from the temporary cost savings due to travel restrictions, etcetera. It's not a big deal, but it's just something that we would like to mention as well. Operating margin of the group now 9.1% in Q1, Which is unprecedented, I think, at least in the time I've been here and the conversion rates of almost 40% on a group level With almost 58,000 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es. So in particular, on solutions, we have added A few. We, of course, see that the activity that we produce, it requires a higher number of head So I think that was it. Let's move to Slide 20, the cash flow. Really not much to say about For Q1, I think everything checks up. One might say that the investment in working capital is higher than last year. But If you look at it relatively speaking, we still have our capital on approximately 3% of the revenue where we had 3.5% last year. Our gearing is 1.5x, and you will also see that we have announced another share buyback. What we are very pleased about this quarter has been also that we got an A rating from Standard Poor, so we got an upgrade. And Moody's initiated on an A3, which is if you compare the same as an A- rating. So quite a strong rating setup we have and that we used to issue a new bond, €500,000,000 So call We definitely have the funds we need in order to run the business, and it was a 10 year duration on the bond. So I That was also appreciated in the market that it's a strong credit, and that's Reason why we could go for 10 years. If we move to Slide 21, just on the distributions, The normal accountability that we provide, you can see that we've almost paid 6 €1,000,000,000 back to the shareholders in Q1, and we also have some ambitions for the coming quarters. And as usual, we will keep you updated on it. We've This morning announced a new €4,000,000,000 share buyback program. But for those of you that know us, it's in reality business As usual, and then we have canceled 6,000,000 shares on the 15th April, which was agreed on the last If we move to Slide 22, the guidance here, and Fjerd already talked about it, an upgrade So that we raised the bar in the top end with CHF 500,000,000 and cut the bottom with or I increased that with €750,000,000 So of course, there are some assumptions. You can read them below. But I'm confident that we'll be able to deliver what we've promised. And of course, there are certain assumptions both when it comes to the GDP growth, but certainly also To the market development, etcetera, but you can read them below. On the time line On Page 23, we will start the filing efforts. We've actually already reached out to the relevant parties today, So we are already on it. And then as we go along, we should get approvals, Hopefully, sooner rather than later after the summer holidays. So we will do what we can do In order to make that happen, and then we will start the integration process in Q3. I think that was it from my end, and I think we are ready now for the Q and A session. So please go ahead. Thank you. And our first question comes from the line of Daniel Roskow from Bernstein Research. Please go ahead. Your line is open. Gentlemen, good morning and congratulations on locking in the next deal. And 3 then, if I may. If you look at the Agility business, In your business case, what are your expectations concerning the volume churn on here? Is that more towards kind of the higher end of what you've experienced like Panalpina Or rather a lower range and which parts of the business will you want to review closely within the Agility portfolio? And secondly, could you talk a little bit more about whether there's anything to do still on the Agility side of the business to separate out GIL? Is there any commitment you need to give to the warehousing side of the business? Kind of what's the linkage between The combined DSV GIL business and the remaining Agility entity. And then maybe one last comment just on current trading. Compared to the wider markets, the improvement on Unit GP and Ocean wasn't quite as great. And the like for like volumes on air also weren't quite as great. So any of those trends you would see changing in the upcoming quarters, specifically on Ocean GP and airfreight volumes? Thanks. I'll take number 13 and then Jens, maybe you can talk about the carve out considerations. We are exceptionally happy with the performance we've seen in Air and Sea. We are coming from, we think, relatively high point also, and the improvement we have seen It lives up to our own expectations. How long this can continue, we simply don't know. It's we need to see how the market develops. We will work stone hard to retain The high levels we have on GP per unit for as long as we can. And then, of course, convert as much as The GP that we generate to EBIT also. And then as I said, we do expect maybe to benefit more on the growth side going forward, We should kind of secure a relatively good development on the GP line. On the Agility customers, I think we found more similarities, as I said, on the activity levels between Agility and DSV than what we saw with Panalpina. So we don't expect to see at least more kind of Laws of turnover and GP on that front. We have though in the internal business case been conservative. If You go into a business case and you need to retain 100% of everything before the business case stacks up, you take too much risk. So we have Try to put something in, and we will, of course, work very hard for that not to happen, if you know what I mean. So I think actually we will we'll see less customer losses than what we saw with Panalpina. And if I may just add to that a little bit, there's not this exposure to Periscope that we saw on Panalpina. Tina, I think that's important as well to mention. And then also the freight management is less in Jill. The carve out, I think if you look at Jill, most of the business is structured in a separate division. So that should be fairly straightforward. There's a few items between signing and closing that needs to be done. But we don't expect that it will be something that will Prevent us from closing the transaction, hopefully, at a certain point in time after the summer holidays. So that should work. If you look at the relation That there is to the property arm of Agility. It's correct that they have certain leases Primarily in the Middle East, in Dubai and in the United Arab Emirates and And also a little bit in Saudi and perhaps a little bit in Kuwait. But if you look at the total business, it's related To solutions and then solutions in this area. They also actually hold a lot of infrastructure in JIL as well, Plus external leases. And we have arrangements so that it's continued on market terms and so that these Things will run basically with normal TINA, so that if something it will be something similar to the other leases that we have. So it's not something that we expect significant problems out of. I actually see it the other way around. They have competencies where they can develop infrastructure in areas where we are not Necessarily strong at it. And I think to have access to capacity in these markets, Inbound fashion retail distribution, you need solid infrastructure for that and these capabilities. So I would At least it's our plan to make it an asset and not a liability that we Cooperate with what is left in Agility on that. All right. Thanks. Thank you. Our next question comes from the line of Mikhail Vitzel from Danske Markets. Please go ahead. Your line is open. If you are on mute, can you please unmute? We'll move on to the next question coming from the line of Satish Sivakumar from Citigroup. Please go ahead. Your line is open. Yes, thanks. Congratulations then for the good quarter as well as on the next deal. A couple of questions on the JL and then the one question on the current trading. So firstly on the JL, if you could comment on the vertical exposure at And where does it actually differ from DSP and where do you see greater synergies? And then on the IT platform, Looking at the GIL footprint, looks like they do have a good technology capability. But in the past, you are one of the key that you bring on to the table has been our mid transport infrastructure or your IT capabilities. So if you could Comment on the current TMS setup at JL and how does that would fit with the ESV platforms? And finally on the current trading, so does this deal imply that the organic and market share gains that you were Planning post the Panalpina integration would take a back seat or is it like 2 separate Organic, it is 2 different channels. We are not How to interact at all with the company, and we are not allowed to do that until after closing. Then we will communicate more closely what we expect. We hope very much that we will be able to demonstrate some strong numbers in Q2 before we start the integration process. It will be a great Kind of thing to be able to do. For us, we always like to challenge ourselves. And when we Almost in brackets, promise something to the market. We like to develop on those promises also. So we hope that we will be able Demonstrate that what's going to happen when we get into the integration, we'll come back to that at closing. In terms of The verticals of deal, they complement us really good. We see that they are actually maybe they are strong in certain verticals like electronics, in Fashion and retail in areas which are growing a lot in some energy business, This which also corresponds well to what we do. So we've analyzed it, and we've seen that it fits well. But It is a company like DSV with a very broad customer base, and it's not like they are Specialist, I was alluding to one thing, and it's the chemicals where they do one of the market leaders, Jill, on offering chemicals With a dedicated team, which we are also extremely excited about, and we look forward, as I've said that many times during this call, to interact with these people once it is permitted. And Jens, maybe on the TMS and IT. Yes. I was just thinking about the verticals. There was one thing that it's a little bit like with us. Actually, the biggest vertical they have, It's called industrial. So it's just general cargo, and that's actually also our biggest vertical. So it is actually quite a Good fit when it comes to that. If we look at the IT platform, I think that it's fair to say that Jil runs or the TMS platform, they have certain other platforms, but now if you ask They have certain other platforms, but now if you ask specifically about the TMS platform, it's an 400 platform, there's nothing wrong with AS400. It's probably some of the best you can have for stable operations, but there's no forced validation in This technology, as far as I'm aware, supported until 2027. So I think the answer gives itself a little bit that It's good. We can operate on it. But it's probably not the system of Future. If we look at the integration platform, I would just mention that Ron Sterling Integrated, we do that as well. It's very solid on the EDIs. But what I find more interesting is actually that they have significant experience in API mapping, which is also an area that we have a lot of focus on. So they still interact with their customers in a very seamless and efficient way, and I think the combination of our resources in this area will be Great. And then I would also like to mention actually the VMS platform where they actually upgraded their platform and Have consolidated a lot, which is rather unusual when we have acquired companies. They are typically all over the place When it comes to VMS platforms, but here, they have done a lot of work. And they've actually also worked on master data, etcetera. So a lot of competences that will be very good in combination with ours. And I'm quite sure that they will Help to create, what can I say, more benefits in this area going forward together with our team? So just to follow-up on that, actually it looks like the platforms, everything are quite well established and you did Point out on the mass data. So does it mean that the integration timeline we are looking towards a much more shorter timeline here? It's still it's not so much, I guess, a system thing. It's also a number Country thing, when it comes to integration, you can run so many countries when you do a rollout at a time. So I think it will be the same timeline as Panalpina, perhaps a little bit faster if we Very hard on the organization, but whether it's 10 or 12 months doesn't really matter. It's extremely quick anyway what is going to happen there. Thank you. That's helpful. Thank you. The next question comes from the line of Mikael Witzel from Danske Markets. Please go ahead. Your line is open. You can go ahead. Your line is open. We'll move on to the next question that comes from the line of Dan Tobo from Carnegie. Please go ahead. Your line is open. Yes. Hello, and congrats from my side as well. Maybe a question on How we should think of the absolute volumes of Agility because you Announce some some modules relating to 2020 here, how was these volumes impacted last year by COVID? That must cause some issues comps, I guess, For Q2 and also maybe a bit more flavor on how much you expect to lose at market share. I understand it will not be to Same June, hopefully, that we've seen in Panalpina. I would say, as we were from, usually in the past, we at least talked about 5% Loss of market share, is this what we should begin? I think if we look at the volumes then, I think there are some approximately 10% down on sea freight and compared to last year. And Due to COVID, they've been that down, if you want to look at that numbers. And I actually think on the airfreight, it's probably 15% lower, the Number that they had reported in 2020. So when we write the 300,000 tonnes and the 600,000 TEUs, It's something that actually, we've done a lot of diligence on this, this time, also so that it's counted in the same way. We have not audited it, but we see that they count in the same way that we do. That was certainly not the case for Panalpina. They had counted a lot of stuff that we didn't have in our numbers. And I guess that's also if it's a market trend that It's counted like this. Some of our peers, they might have some volume that is counted in a different way than ours. Doesn't matter. We count it the way we do it. 1 TEU is 1 TEU. And it's not rocket science. It has to move over water before it gets into our figures. So if you look at it, obviously, yes, some volume might go In the integration, but I think in the grand scheme of things, volumes coming back and perhaps a little bit disappearing, It will probably be around these figures we're talking about. But typically, we would factor 5% decline In volumes into the business case, and this is also what we've done this time because we have to be prudent. So I don't know if that So that is a lot. Thanks a lot, Jens. Just one question on the transaction, if I may. The 8% stocks that you now used to buy closely here, Are there any lockup in this that we should be aware of? No. There's no lockup in there. But I guess, there's kind of control in it, not that we've announced the whole transaction. But I guess, It's you could assume that if you want a board seat in DSV, you have to have a certain shareholding because otherwise, I guess, The other shareholders, they would not understand why this would be the case. And we've had a similar arrangement with The Ernst Gonerstift, which has worked well. They are still at plus 10% shareholder. And obviously, Agility won't be a plus 10% shareholder, but they will get the 8% from day 1. And they still need to have Kent holding. But if they want to sell the shares at a certain point in time and monetize, I think that's fine. It will not Reg anything for the DSVs, yes. Thanks a lot. Thank you, Dan. Thank you. Our next question comes from the line of Lars Eindorff from SEB. Please go ahead. Your line is open. Thank you, guys. Yes, also a question regarding Geo. Now as far as I can see from the 2020 annual reports, They have a margin a little bit how you count it, anything from 3% to 5% on EBIT, which is somewhat higher compared to some of the previous targets that you have acquired. So The question goes a little bit along that you have historically been super good at acquiring company which had been in Distress or disclose to financial distress and maybe not the super strong operational management and then turning them around. Is this a different case? The same case, Lars, if you deep analyze the results like we have, You will see big changes. You are right in saying that JIL is not like, for instance, UTI, which was they were Definitely hurting. There's no doubt about that. Panalpina, not so much so high quality company. Of course, profitability lower than ours. It's a mixed bag, more in Jill, some very, very profitable, very, very good business, Excellent in areas where we are not very strong. So we hope that we can retain that. And then there are some turnaround cases in some the well known areas where we are very strong. So from that perspective, when you take Dig deeper into the equation, then you will actually see that it is fairly similar I have 2 other acquisitions. Even though you know each acquisition has its own characteristics, but this is something we have looked very much So I think we will use the same template as we have used, go and work on the combination. And then hopefully, when all the work has been done. The combined company will have restored its margins to the levels we have now, and then we will together work towards Achieving the long term financial targets. Okay. Then the second one is on Not on a deal, but on the business, besides your own business, that is on the cost side. On Slide 22, one of the assumptions that you put in here is integration synergies is still €1,200,000,000 in 2021. I just need to maybe a little bit of household question here, but Does that mean that you expect that on a group level that your total cost will be $1,200,000,000 below the level of 20? Yes. You could look at it like this because, of course, we have all the plans in 'twenty one. But as you know, we executed them in a phased approach so that when you will see most impact in Q1, a little bit less impact in Q2, a little bit less in Q3. And in Q4, it will Almost be a similar cost base. I don't really have the exact numbers, Lars, on the top of my head because I have so many numbers in my head these days. But I would probably assume that it's approximately 600, 650 in Q1 and then 300 And in Q2 and then you can remember also from last year that actually we had done most of it in the first half of the year and We did only, what can I say, some, what can I say, minor volumes, if we can put it like this, still significant, But minor volumes in the second part of last year? So if you faded out the last 300, then you should be good in your model. I hope so. Well, the reason why I ask is because both I can see some of the costs, particularly in Solutions and also the headcount is going up, which I think is Probably normal given the speed of the growth that you reported here this morning. And the total costs on a group level, Both oil and external staff, they were down by around about €300,000,000 in the Q1 compared to the Q1 last year. So if you assume it will be slightly less in the coming quarters, that's Quite a bit of way up to the 1.2. Lars, also please remember prime cargo we bought and consolidated. That might Disturb the numbers a little bit for you as well so that you just don't, what can I say, overestimate the, what can I say, lack of cost control, if that's what you're alluding to? But I think we're also, as you say, growing the business, and that's important as well. I think if you look at the conversion ratios both for road and solution driving it forward and creating the results, I I think you sometimes need extra headcount to do this, but solid number still. So We're okay. Okay. All right. That was it. Thank you, guys, and congratulations. Thank you. Our next question comes from the line of Casper Blom from ABG. Please go ahead. Your line is open. Thanks, Lars. Super exciting. And once again, with this new one. First question actually on goes through to Slide 10 that you showed in the presentation, where you outlined the revenue and number of employees in both DSV and NGL, it's pretty obvious that there is Higher revenue per employee in DSV. And if you make the quick math that you want to get to the same level In Geel, current employee, as you have in DSV, that would point to just around 4,000 employees in Geel being Not necessary. Is that where you aim to correlate the majority of the cost savings? Kasper, we for reasons I'm sure you understand, we'll not comment on this today. We've said we will use the same templates As we have used in previous acquisitions, when you look at the number of employees, This is a little bit one of the play actually, by analyzing Jill and speaking to them and evaluating everything under the due diligence, we found A lot of alignment on the different accounting principles, so we don't hope that we will confuse you guys too much. But one Thing which is slightly different is that it seems like or the fact is that you do not account For temporary staffs in the FTE numbers, which we do in DSV. So that's maybe actually the real number Compared to the way we account for it, it's probably slightly higher. It could be probably closer to 19,000 or 20,000 than the 17,000. We felt it more appropriate to use the numbers they have reported. So we will get back to all about that, the plans when we get to the closing. Okay. Fair enough. Then second question. You get more exposure towards the Middle East, And you get more exposure to some countries that are sometimes mentioned in a less favorable way in CSR, ESG Matters. In what respect have you taken such figures into consideration in this transaction? It's obvious that compliance has been a big part of the due diligence work we have done. What we have seen fully lives up to what we can Except, so to say, what we stand for in DSV as a big multinational company with roots and being listed here in Denmark. So we are confident that this is not a problem for us. It is areas which are also developing And are maturing, and we are happy with what we have seen. I don't know, Jens, if you want to elaborate on this. No, I actually The standards that they apply, I mean, you cannot run a network business globally if you deal in compliance or denied restricted parties So facilitation payments or anything, that's not acceptable. So that's not part of the way they do it Either in Chile. So I think they have the same standards. But of course, it's also the political environment that you perhaps should Allude a little bit on where it's different environment than we used to, and I It's actually great that we get a representative from GIL into Agility into the Board because then we also get some Experience have been running the company with great success for years. And please remember, it's contract logistics that is the majority of the business In the Middle East, so it's business where you have, what can I say, infrastructure In place, that is hard, what can I say, to replace? One of the things that I have learned during the transaction is It's hard to get capacity down there, facilities, leases, stuff like that. So us having, what can I say, a structure, a set of a portfolio, it gives us The opportunity to offer services to our clients? So I think we are not too worried about whether it Sticky, the business, it is. And then, of course, we have, as we've mentioned, always factored some churn, and we don't know where it's going to come from. But we will we also have a very seasoned management team in Chile in the region. So I'm sure that they will also help us to steer through this. That sounds good. Thanks a lot. Thank you. Our next question comes from the line of Andy Chu from Deutsche the Bank, please go ahead. Your line is open. Hi, Valera. Just two questions from me, please. The first one is, can you say and confirm whether your Air and The Air and Sea margin at Gilles is sort of far away, materially far away from the 4% margin That you disclosed on a sort of last 12 month rolling basis. And then on the headcount Whether it's sort of 17,000 or 19,000, what's the percentage, please, of white collar versus blue collar? Thank you. I'll take the last one really quick. Of the 17,000 we have disclosed, it's 10,000, which are white call And approximately 7,000, which is the blue collar workers. And I know, Jens, You kind of indicated that once Yes, but the LTM, the last 12 months margin is, as To say probably 4% in the Onocean side, that's correct. But if you go back to the 2020, it was a little bit lower. So they have actually come off to a good start In 2021, in the Q1, we think. Right. Thanks so much. I hope you get some sleep. Thank you. Our next question comes from the line of Neil Glynn from Credit Suisse. Please go ahead. Your line is open. Good morning, everybody, and congratulations on this deal. If I can also ask three questions. The first one with respect To the APAC part of the GeL business. Could you confirm what proportion of that is intra APAC versus pointed east or west To give us a fuller flavor of that. Then the second question with respect to the road integration. I understand that The Georobe business is slightly loss making and DSE is obviously on its way to migrating to Road way forward. So how does that impact the timing of what you ultimately do with the Gill Road business and the timing of, I guess, profitability of that business in the future? And then finally, within the statements, I don't think it was referred to on this conference call, but I could be wrong. But you mentioned opportunities to explore Partnerships and cooperation with the remaining parts of Agility. How significant are those opportunities? And what should we expect over the next 12 or 24 months of substance. On the APAC intra Asia, I think it's fair to say that the largest proportion of the business that touches APAC that leaves the region. So this is also in Croatia carries a lower margin, so we would have been concerned if that had the lion's share. We cannot disclose exactly. You have to look at the old disclosure of Agility. We cannot disclose something here today that they have not Disclosed themselves, so I'm a little bit concerned if that is in the public domain. But I can say for sure that the Intercontinental movements out of APAC is bigger than the Inter Asia operations, Which we are happy about. And maybe Jens, as you are deeply involved in the Roadway Forward project, you can I think if you look at it, it's approximately 10% of the revenue? So let's say it's approximately $400,000,000 Then 25% of that resides in the Middle East. So that will not go on to the road production platform we have in Europe. The remaining €300,000,000 are AKA, it's the same as DKK2 1,000,000,000 can be produced on the DSV platform as it stands today. And it's scattered in several countries in Europe. So it's not in one Specific area, it is actually a network business. It's just subscale. And I think that's been one of the problems for Jill that they have lacked Significant scale to run a European operation here. So I think that will fit nicely into our structure. And We don't see any reason why we should not be able to lift the margins up to all level when we consolidate the volumes. If we look at the combination of the company and what is left in Jill, I think that We hopefully we plan to make some developments on the infrastructure side together with them. It will not happen call In 12 or 24 months, it probably takes a little bit longer. But where we continue the journey that we're on, I think you all know that we consolidate heavily On the infrastructure, and they are strong at that in the Middle East where we are not doing it. And then also in India, They actually have some competencies as well. So we certainly hope that we can do something together with them on that. And then They have certain other ventures into new technology. I think they will probably get acquainted with our innovation hub, and Let's see what comes out of it. But I'm sure that Having seen what they already have done, that some of this could be something that could be of advantage for both parties. So I think that's what we're alluding to when we write this in the message, and we look forward to that. Great. Thank you. Thank you. Our next question comes from the line of David Kerstens from Jefferies. Please go ahead. Your line is open. Hi, good morning, gentlemen. Also congratulations from my side. First of all, a question on the exposure to The Middle East, your EMEA exposure doesn't change much because from 60% to 58%. But I was wondering how important will the Middle East be in that going forward? And what is the attraction of the Middle East market to DSV? Can you elaborate on that a little bit, please? Then the second question on the profitability. I noticed that in the slide you're referring to EBIT margins and are targeting an EBIT margin uplift from 3% to 8% for Agility. But in the last call, I think you moved away from EBIT margin towards conversion ratio of at least 40%. Is that target of at least 40% still valid in this situation and particularly also in the light that since you already realized 50% in Air and Sea in the Q1? And then finally, a quick housekeeping question on the market estimates for sea freight of 5% to 7%. That number seems quite low, I think, given the enormous surge in imports we've seen recently in the U. S. And in Europe of 60%, 70%. What's offsetting that growth in Europe and Americas to get to 5% to 7%, please? Thank you very much. Maybe I'll start with the first question. If we do look on Page 4, if Flip back to Page 4, you will see that the geographical footprint of JIL EMEA, approximately 50% of what they do is in EMEA. Out of that, approximately onethree is the Middle East. We have analyzed the business that Jill is doing in the region. We can see that they, in many, many cases, These are a very clear market leader with exceptionally good products. It's in an area where we already are present at DSV, but I guess it's fair to Say that Jill has a very strong position. So this is, of course, something which is good when you acquire a company. Also that Has activities that on a stand alone basis is doing fine. That can be a great addition to DSV. So It's a little bit some new geographies we're coming into, new customers also. And hopefully, we can be able to grow Faster also with these companies when these customers when we put the 2 companies together and where we will hopefully be able to offer A stronger product. So it's in the overall swing of things. It's not like the Middle East will be overrepresented It's anywhere, but it is an addition which we are happy about. So we look forward to that. And maybe Jens on the other. I think if you look at it, we will still go after the conversion. Please remember, it's on a group level, a conversion, 40% we have said on DSV level. And I don't think that there will be any changes to that due to Agility. Actually, the mix Jill, there's more air and oceans in there. So it will probably help us to arrive at the 40%. And now we know we've had A strong Q1, and that's great. But let's the jury is still out on the year end and so on. So let's see how it works. We thought when we announced the targets and we were also actually asked how are you going to get there. What Great. If we have the problem that we already arrived at the destination, then we have to figure out what the new target should be. So we will have to wait and see. And you're absolutely right. EBIT margin doesn't necessarily make a lot of sense. But in this transition, I We use it to explain ourselves a little bit. If we then look at the growth, I think there are certain lanes that It has grown dramatically. But if we look at I don't know if it's representative, but we know Maersk's numbers, It's 5.7% that they have grown in Q1. So I don't think that our estimation is too much off. We normally use the statistics that we can get access to. So and they turn out to be fairly accurate. So I think that was a little bit on the growth. But as you say, there are certain areas where there's a lot of import right now. And you might find certain lanes where it's significant. But then you can also find other lanes that are not Significant could be export out of the more mature markets where you perhaps have something that works in the other direction. Yes, that's clear. Thank you very much, gentlemen. Thank you. Our next question comes from the line of Matthew Elander from Nordea. Please go ahead. Your line is open. Thank you very much and congratulations on the deal that looks like a great fit. Just one question remaining on my list. You had a very strong balance sheet, and I imagine you could have Paid at least partly in cash or using debt or you could have issued new shares to your existing shareholders. So the question is why didn't you? Why are you paying in shares to the seller? Anything you can share about the discussions with the seller would be appreciated. Thank you. Yes. I guess it's all part of what happens in the negotiation room. There was a very clear ambition From the Agility side to become a shareholder in DSV, we are humble and about that. We are excited about that, That somebody wants to join our company, exchanging their own shares for shares in GSV. We Of course, in an ideal world, you could argue that a cash deal would be preferential. But you sit in a situation where at the end of the day you will have 2 options, either in this case you do a share deal Or you do not do a deal at all. So the alternative to a share deal is not a cash deal. It's no deal. So in this case, for us, it was a no brainer. We felt it was the right thing. And then we, of course, also appreciate the fact that The outside world has seen what value has been generated, for instance, the shareholders of Panalpina by joining our team. So This is something that we cannot hide as a listed company and also something we are aware of. So I guess that's what we can say on that. Make a little joke on it. They couldn't afford not to become a shareholder. As everyone else. That's great. Makes sense. Thank you very much. Thank you. Our next question comes from the line of Alexia Bebiani from Barclays. Please go ahead. Your line is open. Thank you, gentlemen, and congratulations. Just two questions from me. Just firstly, on the composition of performance of JIL for contract logistics, I mean, would you say that is the top performer within The group and is it far away from the levels of profitability at DSC Solutions? And then just secondly on the current capacity constraints we're seeing in the market, how are you able to secure capacity both in air and sea. And how does that influence your ability to return to a market share gain positions from kind of the second quarter onwards? That last Question we could spend the whole conference call talking about that is a really, really good question. It's a very tough environment out there. We are happy and for the fact that we are one of the largest procurers of both Seafreight, meaning that we do get access to the capacity that we need, but I can tell you and assure you it's not easy. We actually see it as our obligation to help our customers in this very difficult environment where their supply chains are under severe pressure. Finding solutions together with our customers, finding alternatives, you're right in saying that The cocktail of record by far, record low reliability and very, very high rates, It's a difficult cocktail for customers to swallow, so to say. And we see it as our obligation To actually help our customers, as I said, finding capacity. We can do it. We depending on also what we agree with customers, we can take longer Commitments by certain asset owners, some customers do not want to speculate, so they more write the Spot rates, so it varies very much from the customers. But I'm happy to be able to say that we can source The capacity that we need, we do not say no to our customers. We find solutions, that being alternative Asset owners on alternative product, we have good traction on our rail product From China to Europe, we also have a truck service now from Asia to Europe. And then we can make all kinds of agreements also with the classic sea freight and air freight operators. Jens, I don't know if you want to say anything on the contract logistics. Oh, I think you're correct. That is actually an area where They have been performing fairly well in their home markets also based on what can I say the volumes that they have? They have the economies of scale. So they're probably running that business at a margin level of 10%, including the local distribution. So that's a good business area that we are keen to take over and to continue. And in So maybe also smaller countries, they are maybe not as profitable. But in the home markets where they are very strong, they have a good position. That's correct. All right. Thank you very much, both. Thank you. Our next question comes from the line of Muneeb Kiana from Bank of America. Please go ahead. Your line is open. Hi, this is Manita Kiani. Just two follow-up and on your own sales in the Q1, how much of that improvement was driven by just increasing service. Or was there a mix impact as well, like was there lower contribution from cheaper or lower value add volumes there like commodity products? That's my first question. And then secondly, on the €4,000,000,000 share buyback, that runs until July. And how should we be thinking about additional buybacks in the remainder of the year? I'll start with the buyback. Yes. The share buyback, I can start with that. I mean, we launched them every quarter, and you see that we will Probably increased the leverage a little bit during the course of the year. I think many have made calculations. If we do this and everything else is equally, That we have to buy back more than DKK1 1,000,000,000 per month. DKK1 1,000,000,000. So it is significant what we have to We have to reallocate. And I think we want to continue, what can I say, at this speed for the remaining part of the year? And on the sea freight yields, there were some mix effect, not so much in Within the existing customers, we more or less produced the same services, but we did see the effect Of some of the disposed business that we have do not have in the numbers anymore, some of the perishables Not sequentially from 1 quarter to the other, but when you look year on year, we see the effect of that. But I would say it's more or less the same Services that we produce for our customers, the top end of the commodities That can afford it have maybe disappeared and moved into airfreight because of the fact that You cannot afford to have disruption as you have had on the supply chains, but that Does not make a big impact on the overall volumes in sea. Thank you. Our next question comes from the line of Frans Hoyer from Anders Banken. Please go ahead. Your line is open. Thank you very much. Could you comment on the implications, the balance sheet implications Of the GIL deal, I mean, there's not going to be any goodwill involved, I assume. Also, On that deal, how would you comment on the risk that integration might involve in terms of influencing the development in existing operations. I'm thinking about the Panalpina and the progress in commercial Synergies developing from that integration. Also, does GIL apply the same Methodology to calculating how much cost is above the gross profit line and what goes below the Gross profit line as DSV or is there a difference there? And finally, you mentioned that In the sea freight contracts, there are longer and longer contracts Being signed and I was wondering do you sign up for long term contracts for the sake of getting Attractive rates and where does that what sort of exposure does that leave you with? Good. Thank you, Frans. A lot of questions. Seafreight First, we don't speculate in the rate environment. If we can get access to a blocks based agreement, which we deem very, very attractive, We will take it, but not for a very long period of time. We will only log in rates With seafreight carriers, if we have back to back agreements with customers, I know there are different ways of doing this, but this is the way which It would be terrible selling with a large volume commitment on rates It's much above market rates, then we would rather not get the potential upside and then being more conservative. This has always It's been our way of looking at it. In the long run, we always think that has been beneficial for us, Well, knowing that you could make a quick profit 1, 2 quarters if you were more taking more risks. On the commercial side, it is, of course, something which the integration will take some That's from our organization. We'll communicate more about that at closing. I don't necessarily see it as a big risk To the commercial growth plans that we have, the cross selling initiatives that we have between Air and Sea and Road and Solutions To the Panalpina customers, all that can still happen. Again, it could be that we will Underperform a little bit, but hopefully to a lesser degree this time than before on organic growth once we get To the next year, but that remains to be seen, and we will come back to that. Then Jens, there was something on the balance sheet. Frans had a question About the 1st of the year accounting methodology, I think, till they actually also have the blue collar cost above the line. So it should be fairly Similar to us, the way they account for that. But so hopefully, no big disruptions On this one, if you then look at the when we acquire, Jill, There is an overprice for the equity, which is normally then accounted for as goodwill. They also have a little bit of goodwill on the balance sheet that you will reset when you do the purchase Price allocation. So there will be some additional goodwill connected to the purchase On this one, that will all come out when we announce the specifics because right now, It's a carve out, and there will be a specific consolidation that we can do it based upon this transaction. And on the Panalpina integration, as Bjorn said, on the commercial side, I think we've done all the steps When we could arrive at the summer holiday also on the dismantling of the infrastructure that we needed to take out. So We are ready. Okay. Thank you very much. Thank you. Our next question comes from the line of Sam Bland from JPMorgan. Please go ahead. Your line is open. Hi, there. I really only have One question. It's on the air volume. I think it was down 7% in Q1. You kind of talked about how it will be up 3% if you exclude a few items. Can we talk about exactly what those items are? I think I've got airflow. There's this discontinued freight management and there was also I think at one point a large single customer. Are there 3 separate items or are there 2 there? And could we go through sort of when each of those items come out of the comparative period? And then I guess on In terms of from here growing volumes maybe in line or ahead of market. Could you talk about what you've seen on recent customer wins within airfreight That might start getting the volume growing ahead of where the market level is. Thanks. Great question. It's super annoying that when you say goodbye to a Customer that it takes 12 months before it's out of the comparison figures. I guess that's the way it is. Nothing can be changed About that, so we have to sit and talk about the same things over and over again. And I know it sounds like some exceptionally bad excuses, but it is the case. And we can account for it in our internal calculations when we see the overviews of the volumes. It's actually two things, And it's split almost equally between the volumes from airflow. It was the Pericel business that we sold. And then it is the Freight Management. It was one large retail customer, Which we had a special relationship with in terms of the way that we dealt it was not normally airfreight. It was more managing their Freight that they booked sometimes directly with airlines with very, very low margins. It does account for approximately 10 percentage This is why we arrived at 3%. It's still underperforming. And we can see now You know the problem is the comparisons are so terrible in beginning of Q2. Of course, last year was when COVID really hit us, but we've seen very, very strong volume growth at the beginning of Q2, which is also what we would So we need to be careful not to get too enthusiastic about it, but it is our clear View that we are on the way to organic growth, and it will be let's see. It will be so good to be able to show it for the full quarter for the last 2 or 3 quarters we've said during Q2, so that means if we underperform at the beginning, we might not manage to catch up for full year Impact on the quarter, but let's see how it goes. We have closed some nice contracts recently, and we've had no major churn of existing business, George Wood. So we should be in fairly good shape. So am I right in thinking airflow was sold, I think, from memory in Q3 and this large single customer was lost or walked away from In Q2, so if the reported if DSV's reported volume is growing in line with the market, Sort of on an underlying basis, you're growing ahead of it because you'll still have a drag from airflow. Is that right? It's a good assumption. It's absolutely right. And the retail customer was Q1Q2. It was not something which happened just from one day to the other. But Airflow was Q3. It's correct. Okay, understood. Thank you. Thank you. And the last question comes from the line of Marc Zieg from CFO. Please go ahead. Your line is open. Yes. Good morning. Congratulations for results and thank you for having me. I just have actually just one question left on Jill. If you can comment on that, Agility has quite an extensive like contract With U. S. Military and then some legal issues with U. S. Military, is this division that you bought, Jill, The division that had issues with U. S. Military and is the U. S. Military still a sizable part of JIL? And if so, if this is Drew, does it relate to contract logistics in the Middle East? And then as a follow-up on U. S. Withdrawal From Afghanistan, would that have an effect on JIL if you have still contracts with U. S. Military in that reason? Thank you. If you look at the contract with the U. S. Military, that was significant 10 years ago, it's been stopped. That business has also been Some discussions about there's been some claim in relation to that, but that's been All settled and that's over with. But it's also led to a situation where they have, What can I say reduced or actually more or less eliminated this type of business? And if it's done, it's done as a subcontractor to a third party So that they are not a contracting part anymore. And I think that's also explaining a little bit to what goes on in Afghanistan. So it's not really a big thing for them anymore. They have ventured into other businesses, as we just talked about, the strong verticals, fashion, retail, obviously, import market in the Middle East these days. And then, of course, also high-tech, where there's a lot of volume for them. So used to be, but not anymore. Just to make it crystal clear, JIL operates in the U. S. Today, And there are no pending 0 pending cases with any authorities in the U. S. It was settled in 2017. Yes. So it was Settled a long time ago, it was public knowledge that this was a topic. And of course, we have carefully investigated this in the due diligence call, it's a little bit the same like with Panalpina. They also got acquainted to the DOJ, Department of Justice, at Certain point in time, and that's really not you don't want to end up in a situation like that. And if you do, We have a saying in DSV. If you think compliance is expensive, try noncompliance. Then so we just Have to be compliant and to encourage and train our staff all the time to stay compliant. And I think that's the way it is. Okay. Thank you for making that clear. Thank you. As we have no further questions, Erhan is back for closing remarks. Thank you very much. Thanks for the extensive interest that you have shown for all participants, both shareholders, analysts, employees, We are exceptionally enthusiastic about the time that lies ahead of us now. We will try to communicate as clearly as transparent to the market in the coming months. We'll meet a lot of you in the coming days. We look forward to meeting all of you from Jill listening in. So happy to hopefully get you on board very, very soon, we will go back and prepare the closing as thoroughly as we can. And then we look forward To announcing, hopefully, another set of strong results, Q2 at the back end of the So thank you very much for listening in. As always, you know where to get us. If you have additional questions, you're always more than welcome to reach out. So On behalf of DZV and the whole team here from Hille Husen in Denmark, thank you, and goodbye.