A.P. Møller - Mærsk A/S (MAERSKB) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to this analyst and investor call on the occasion of our acquisition of LF Logistics as we announced earlier this morning. My name is Soren Skou, and I'm the Chief Executive Officer of A.P. Møller - Maersk. And I'm being joined today by Patrick Jany, our Chief Financial Officer; and Vincent Clerc, CEO of our Ocean and Logistics business. I would like to start by saying that the acquisition of LF Logistics is an important and, for us, truly strategic milestone on our journey to become the global integrator of container logistics, to become a company -- a logistics company that provide digitally enabled end-to-end logistics solutions that help our clients and customers to simplify and connect their global supply chains. When we talk about end-to-end logistics solutions, we mean solutions that get the goods all the way from the farm or factory to the door of our customers' distribution center, all through the front door of the end consumer, solutions that are based on control of the critical assets. Today, we mainly help our customers import from Asia by providing consolidation in Asia, transport to Europe and North America, deconsolidation and fulfillment services in North America and Europe. Services and solutions that often are tied together by our lead logistics or supply chain management products. With the acquisition of LF Logistics, we make a big bet on Asia and long-term growth in Asia and a big bet on offering our lifestyle, our FMCG technology and retail customers better access to the Asian consumer. The acquisition in some way mirrors the very successful acquisitions we have done in North America of Performance Team and Visible Supply Chain Management and in Europe of B2C Europe, all of which help our customers reach the American and European consumer. We have delivered almost 60% top line growth in our Fulfilled by Maersk segment in the first 3 quarters of 2021, and that is a testament to the strategy. LF Logistics is, in our view, a world-class company, and we plan not only to use LF to grow in Asia, but also to use the capabilities and technology of LF to scale our contract logistics business in Europe, in Latin America, Africa and the Middle East. We will pay for the company by supercharging the growth of LF Logistics, selling LF Logistics solutions to Maersk customers, but also by selling Maersk transportation, fulfillment and management solutions to LF customers. Now with this introduction, I will hand over to Vincent, who will explain the transaction and strategic rationale in more details. So Vincent, over to you.

Thank you, Soren, and thank you for the introduction. Also from my side, I want to say that I am very excited about the announcement today of the intended acquisition of LF Logistics. As Soren mentioned, this is a really transformative transaction for our business in Asia Pacific and our global footprint in general. With this acquisition, we become a global logistics player with strong position within contract logistics. With this transaction, we will become a leading player in contract logistics space in Asia Pacific, which is currently the fastest-growing market globally. To give you some background information regarding LF Logistics, the company was founded back in 1998 and is focused on omnichannel fulfillment logistics, meaning both fulfillment for physical stores and e-commerce, and has a strong reputation as a recognized brand with a solid portfolio of multinational customers. Due to the strong and industry-leading operational platform, the focus on operational excellence, account management and a scalable IT platform, the company has a strong growth track record with today a geographical footprint with facilities in 14 countries and more than 10,000 employees. For full year 2021, the revenue for the contract logistics business, ICL, is expected to be around $1 billion with an EBITDA of around $250 million. Turning now to Page 4. The intended acquisition of LF Logistics is, as I mentioned, a meaningful step forward for our Logistics & Services business, as we see it as the transformational deal that we needed to enable us to serve Asian customers directly, the fastest-growing region I mentioned, and customers are today looking -- and our customers are today looking to grow there even more. Today, A.P. Møller - Maersk is predominantly positioned in Asia Pacific as a global ocean carrier for export of goods out of the region. With the warehouse portfolio that LF Logistics operates, which is of 223 sites, the total portfolio of warehouses in Logistics & Services will be close to 550 facilities, which creates a strong global fulfillment network. Besides that, LF Logistics has a strong and long-proven track record of high growth in revenue and earnings. And that, we will have -- and together we will have a large joint customer footprint after closing this deal. It will reduce the integration risks and accelerate the growth with our top 200 customers, which are also some of the key customers that LF Logistics is having today. We will also be able, due to the scalability of the operational platform, to expand the business globally and outside the current 14 countries in which LF Logistics operates. On Page 5, you can see a global map showing our global logistics footprint after closing -- after the closing of the deal, with warehouse facilities from both Maersk and LF Logistics. We will have this truly global footprint that I mentioned, where we today ahead of the deal only have a minor position in Asia Pacific and as mentioned, mainly towards -- mainly geared towards the fulfillment of export orders out of the region. With this acquisition of LF Logistics, our global footprint of warehouses will expand to more than 550 facilities with more than 9 million square meters. Turning to Slide 6, where we have shown an illustration of the integrated end-to-end supply chain and marked the acquisition we have announced in 2020 and 2021, including LF Logistics and Senator International that are not yet closed. As you can see, during the last 2 years we have, as part of our M&A strategy, added several capabilities to particular -- in particular, in the services within the fulfilled My Maersk or the warehousing and distribution business, which has significantly strengthened our position in the U.S. and in Europe. In addition, as already guided, we are planning for large organic investments, for example, in warehouses as part of the CapEx guidance of the USD 1 billion cumulative for 2021 and 2022, that we gave you at the Capital Markets Day in May. With the acquisition of LF Logistics, we have taken a large step in creating a truly integrated end-to-end supply chain solution for our customers. And with that, I will hand over the word to Patrick. Patrick?

Thank you, Vincent, and welcome from my side as well. On the coming slide, I will go through the details of the transaction and the financials, including our synergy expectations. So firstly, the intended deal has a value of $3.6 billion. On a debt entry basis, it will be an all-cash deal, where we will acquire 100% stake in LF Logistics Holdings Limited. In addition to the cash amount there, it will be an earn-out of up to $160 million related to the future financial performance of LF Logistics. Based on the pre-synergy EBITDA estimates for the full year 2021, it implies an EV to EBITDA multiple of 14.4x, reflecting the strong growth potential, the higher profitability and the significant commercial cross-selling synergies. Based on the organic growth and initial synergies, the transaction is expected to be accretive to results in year 2. The transaction is subject to regulatory approvals, as usual, and is expected to close during 2022. And until closing, Maersk and LF Logistics will remain 2 separate companies. In addition to the acquisition of LF Logistics, A.P. Møller - Maersk will enter as well a strategic partnership with Li & Fung to develop logistics solutions. As part of this partnership, it is expected that the parent of Li & Fung will retain the ownership and manage the global freight management business post-closing, as the business will be carved out of LF Logistics around closing of the transaction. It means that A.P. Møller - Maersk after closing will only own and operate the ICL business, which is the contract logistics business, with focus on omnichannel fulfillment. Turning to Slide 8, where we have highlighted the financials and synergy, as Vincent highlighted earlier, LF Logistics and ICL Contract Logistics businesses have a strong track record of high growth, both in revenue and earnings. For instance, for 2018 to 2020, the revenue has grown by 6.6% on a CAGR basis. But if we look at only the ICL business, the one we are acquiring, the revenue growth has been around 10% for a decade. For the full year 2021, the revenue in ICL is expected to be around $1 billion, and with an adjusted post-IFRS 16 EBITDA of $250 million, implying EBITDA margin of 25%. Compared to the full year 2020, that is a revenue growth of 17% and close to 10% growth in EBITDA. Based on the strong commercial synergies that we expect initially from cross-selling LF Logistics capabilities in Asia Pacific to our top customers in Ocean, but also combined with the underlying growth of the organic outlook in Asia, we expect the revenue and EBITDA to more than double by the end of the full year 2026, so 4 years after closing from the levels which we have now in 2021. It is also our intention to leverage the technology and operational platform throughout the warehousing and distribution activities globally. The transaction integration costs are estimated to total around $80 million. This will be recognized in the first 2 years post closing. On Slide 9, we have illustrated the combined company after closing of the deal based on data and figures for 2021, both for our own Logistics & Services business and for LF Logistics. As you can see, combining the 2 activities will create a significant logistics player, with a real size of around 550 warehouses, a capacity of 9.5 million square meters and more than 30,000 employees. In financial terms, the revenue will be around $10 billion and the EBITDA will be more than $1.1 billion. Here, we have rounded the consensus numbers for 2021 from analysts for the Logistics & Services business. Even though it is important to remember that as part of our integrated strategy, we operate our Logistics & Services business as an integrated part of our end-to-end service offering to our customers, including Ocean and not as a stand-alone logistics company. It is still worthwhile to mention that joining forces with LF Logistics will create the 7th largest contract logistics business globally, with further growth potential if one considers the organic growth seen in 2021 and the revenue impact from the acquisitions of Visible and Senator International. And by that, I hand back the word to Soren.

Thank you, Patrick. And maybe I'll just round off by saying that our logistics business is really starting to matter. Revenue is up 80% since the first quarter of 2020, and our earnings have grown even faster, almost quadrupling in the same period, as margins have expanded very nicely. Q3 '21 was the 9th quarter in a row with year-on-year growth in operating earnings in logistics. And as I said, in our earnings call for Q3 in November, with revenues of $2.6 billion in Q3, the annual run rate in Logistics is now more than USD 10 billion. This growth is obviously well above the market growth and it's important to underline that the growth is mainly related to volume growth, not freight rates as the main part of our business that is impacted by freight rates is reported under the Ocean segment. So what it is all about? It is new customer wins that drive our top line growth in logistics. And we see the growth as a very strong validation of our strategy of providing integrated logistics solutions. Our customers increasingly want what we call, one-throat-to-choke solutions and strategic partnership that -- with a provider that can actually control outcomes, rather than a transactional and procurement-driven relationship with multiple providers. As I said at our Capital Markets Day, we have built a profitable growth engine in logistics, and we expect to continue to grow in logistics. At our Capital Markets Day, we announced an ambition of delivering more than 10% organic growth in the coming years, and that is an ambition that we plan to deliver on. In addition to the organic growth -- strong organic growth well above market, we now expect to add around $2 billion in annual revenue from the acquisitions of Senator and LF Logistics during 2022 as the transactions close. Now with that introduction, it's time for Q&A, so please.

[Operator Instructions] Our first question comes from the line of Lars Heindorff from Nordea.

Congratulations with the deal. The first one is regarding, if you can give us a little bit more disclosure on ICL earnings. I assume that the part that you will retain, ICL, is far more asset-ready compared to the freight management part of the business. So I'm interested if you can disclose an EBIT number, so we have a bit more visibility into earnings, including the depreciation of the assets which is included there. And then the second part is regarding the margin target in Logistics. Obviously, ICL operate with an EBITDA margin which is somewhat above what you had already. So that -- would that sort of have any impact on your margin targets? And do you expect that you will still be able to reach the 7%, if I recall it correctly, here in '22, given the integration cost and -- not only here, but also from Senator?

Patrick, will you take that one?

Yes, sure. So talking about your question on ICL's profitability or the business overall, indeed, actually if you look at Li & Fung really, the global freight management business has actually quite a low profitability. So it's not really too interesting. It's not really as you know part of our strategy. So Li & Fung will actually retain that business and it will not be part of the deal. We focus on the ICL business, which is the omnichannel fulfillment which has, as you mentioned, a very high margin, high growth, and is really the extension of our logistics activities into Asia. The profitability itself is very high, it's above average, even the fact of the high growth and also a good proportion of e-commerce in it. To your question about the difference of EBITDA and EBIT, look, if you look at our own business, we have a difference between EBITDA and EBIT of around 3%, actually cumulative Q3. And I would expect the ICL business to have more or less the same magnitude of difference between EBITDA and EBIT. What you have to consider afterwards is that we obviously have quite a lot of activation of IFRS 16 and then the depreciation of the -- or the amortization of intangibles. So from our point of view, it will be probably better to look at the EBITDA point of view, not to get distorted by the amortization. And then you will see that the EBIT is actually quite high in that business as well. Now looking at the overall combined EBIT, we will maintain our guidance. We will have a high growth in Logistics, that is the continuing priority to grow our Logistics business by integrating it further into our end-to-end offering with a minimal EBIT margin of 6%. So we don't guide on a '22 margin or anything. We will maintain the 6%. And depending on the year and transaction costs and so on, it will be closer to 6% or higher, but that's a good guidance as well for the future still.

Okay. A follow-up, which is just because I don't know the background, and I don't understood -- at this point, I don't know too much about ICL other than what I can read in the statement and also that I've been digging up on the Internet so far. But I can see one thing, which is the Temasek, they acquired 22% stake in 2019. Back then, the enterprise value for the total entity was around about USD 1.4 billion, now you're paying $3.8 billion. I'm curious to find out just about the growth and the numbers back then. Is the earnings today of '21 that you described, the $250 million in EBITDA, is that significantly different from what it made in 2020 or 2019?

Patrick, will you continue?

Yes. Okay. So indeed, I think I'm not totally aware of the historical context. But I think back in 2019, Temasek entered at the moment where there were changes within the group as well in the parent company. It's a private company, so we cannot really go too much into detail. And it was a kind of depressed valuation that Temasek entered to. The business itself, the ICL business now, not the GFM and the rest were actually performing decently at this point in time as well. So as we said, the ICL business had a 10% growth over the last decade. So you see more or less you can deduct what was the size of the business back in 2018. But it has to be seen in the context of the whole group, more than the ICL business itself.

Maybe I can just add, we're obviously also paying a control premium, which Temasek did not.

And the next question comes from the line of Sathish Sivakumar from Citigroup.

I've got 3 questions, actually. Firstly, in terms of your deal portfolio, is it fair to say that with this deal, you put together in place all the necessary capabilities to grow wallet share with the top 200 customers? And secondly, in terms of the deal accretion from -- starting from year 2, what would make it actually to say that it will be accretive from year 1 onwards? Where do you see that it'll be most likely to be in the year 2? And the third one, obviously, with this deal you are expanding into Asia Pacific, which is mainly a backhaul trade. So what is the potential here to say that to expand your contracted volumes within the Ocean business from the current 67%? Where do you see that number once this deal is fully integrated, where that number will go up to?

Perhaps, Vincent, you will talk through the portfolio of capabilities and the backhaul question, and then we'll hand over to Patrick on the accretive question.

Yes. Yes. Okay. So from a capability perspective, I think that what is really exciting with respect to LF Logistics is the fact that they have, for a long time, been a bridge between the West and the East where they have developed a strong portfolio of capabilities across omnichannel distribution to basically bring the Far East consumer markets to mainly Western companies that are operating there. And those capabilities today in those 14 countries, they have proven that they can travel from the original core markets of LF Logistics and that they have continued to expand in a very diverse set of countries. And our expectation is that these capabilities, we can make them travel further. We can leverage them more in the 14 markets where they already are, and we can leverage them further in markets where they haven't been yet and, therefore, turbocharge the growth of LF Logistics and that's what is going to pay for the deal. So yes, that gives us the capabilities that we need on an omnichannel perspective to actually leverage this globally, which is also what we said just before. They are based on a very long decade of strong growth, but also a very strong operational excellence and very strong IT backbone that will help us do that in a very standardized way. A lot of what they are selling there are products from Western companies in verticals like FMCG, lifestyle, retail in the East. A lot of these products, some of them are coming from North America and Europe. And there, there will be some synergies with what we're doing on Ocean. A lot of them are coming from different places in Asia. And that will give us the possibility to grow inside our intra-Asia footprint together where we have Sealand active. It will allow us to penetrate this a bit more than what we have today. A lot of it also is produced locally. So there is a lot of Chinese production that gets sold and distributed to what Chinese consumer, for instance, in there and where it basically goes from the factory to the omnichannel distribution and then to the consumer in China, and that will allow us to enter that line of the business. So from a growth perspective or an impact or trickle back to Ocean, I would not expect it to be in terms of growth, but more in terms of where we continue to revamp our customer portfolio to serve more and to penetrate more into the share of wallet of these top 200 customers that we have, and be less reliant on the short-term and transactional segments of Ocean across both intra-Asia and the backhaul. I think with that, Patrick, I'll let you take the part about the value accretion in year 2.

Yes. Thanks, Vincent. So really, what we have modeled in year 1 is that you will have the vast majority of the transaction costs and still very, very small synergies, as we set up really the working together, we have rolled out then the IT platform to our own locations and so on. So it's a year of integration, of intense integration, and this is why the year 1 is not accretive, not by much but it is not, while afterwards it is obviously then, thanks to the growth and synergies kicking in really good when is accretive.

Can I ask a quick follow-up for Vincent, especially, when you say expand into the other markets outside of those 14 countries, are we still talking about more like into Asia Pacific? Or expand those offerings into, say, Europe or North America, just to clarify there?

Yes. So we will continue to -- the easy answer to that is both. We have a model here that can travel outside the Far East, that can travel in South Asia and that we expect also a lot of the capabilities, the relationship with the customers and so on can expand into Europe. Actually, a lot of their core customers have asked LF Logistics to expand into Europe for years. But LF was reluctant to move so far from where they had any type of organizational setup and so on, which is a very different setup for us. We have obviously a very strong organization in Europe, in South Asia, in Latin America. And there we can follow the customers and actually get those capabilities that we acquired with LF Logistics to travel and support these customers in these markets where they have not been before.

And the next question comes from the line of Cristian Nedelcu from UBS.

Two, if I may. First of all, looking at the sort of return on capital employed post-tax, could you give us a rough indication of range or now on a midterm in 3, 4 years, what returns you think the business would generate? And secondly, just going a bit in more detail into the 25% EBITDA margin that the company generates there, could you provide a bit more granularity what is driving that superior margin in comparison with other peers or your Logistics business per se? And in particular, can you elaborate how much of the revenues are e-commerce? Can you talk a bit about closed contracts versus open contracts within that logistics business? Just to get a better feeling on risks and margins overall.

Yes. Patrick, I think maybe you can start. And if you want to add something, Vincent, on the margins or contracts, you can do that afterwards.

Yes. Yes. No, I'll start with the return on capital. So indeed, I think that we see the return on capital as being linked to the synergies. So I think we'll have to see an increase of the ROIC over the years. So by 2026, where we have guided for the synergies, we'll have a good ROIC. Until then, it's a matter of growth given that, obviously, we have the purchase price, which is then accounting on the capital employed, right? But without that, the returns are extremely high. But obviously, we will have the intangibles and goodwill there. So it will be a ramp-up until 2026 when it's on a good base again. With that, I pass to Vincent.

Yes. Thank you. So the EBITDA is indeed higher than what you usually see in this market. And for us, it is driven by a combination of factors. First of all, as I mentioned before, a very, very strong culture of operational excellence in there, both into how they operate the sites but also into how they have invested in building their own IT platform to support the site. They have a very, very standardized approach to how they implement new sites and how they grow, which has allowed them -- which has certainly not been detrimental to their growth because they have grown very fast, that has allowed them to grow very profitably. And that recipe is exactly what we were looking for and what makes LF Logistics quite a unique asset for us to buy this proven track record of being able to grow without customization. But on a very, very standard rule of operation and a very standard platform that they continue to upgrade -- or they have continued to upgrade and can continue to be upgraded as we move into the future. So that, I think, is a really, really strong thing. What has also been really good and what makes this asset attractive is the fact that they have been able to take it out of its, like, you could say, original markets, export it into very, very different markets like Korea, Australia or Southeast Asia. And in every instance, they have been able to continue to replicate the recipe and turn it into a success, which is what gives us I think the confidence to say that we have all the ingredients here of a high-quality growth engine that we can apply to our global organization, our global footprint and that we can link to our customers in markets where this recipe has not been taken yet. That's what is really exciting. The customer base is largely Western companies. They are largely already in the top 200 customers that we report, as you know, in our financial disclosures every quarter. And that's why we think that actually this will accelerate the synergies. They have high customer satisfaction. We have high customer satisfaction with those same customer base, and I think that this is giving us relatively low integration risk from a commercial perspective and a strong base for us to, actually, turbocharge to grow in the years to come and reach the numbers that Patrick presented.

And maybe I can just add one final point, which is that the customer churn is super low. So basically, the growth LF is having is, they win the customers and stick with them for a long, long time. So that's also, of course, a big plus for the company.

Can I have a short technical one, Patrick, if I may. The operating leases as a percentage of revenues or roughly, can you give us a bit of color? I'm just trying to get a bit closer to the EBIT margin before any amortization of intangibles or anything like that. Could you help us by any chance with a bit more color there?

Look, we haven't disclosed it yet, but I think it's going to be quite substantial as they have a lot of leased warehouses, as we say. So it will be probably quite close to around 10% of the revenue.

And the next question comes from the line of Michael Rasmussen from Danske Bank.

Most of my questions have been asked already, but I have one. If you could just share a little bit on your thoughts for not wanting the GFM part of the business, please?

Well, the GFM business is effectively a freight forwarding business. And that's not a business that we are in or we want to be in. We closed down our own freight-forwarding business in the Ocean segment in Damco, and we're not keen to get back into that business. We think we have a very viable ocean value proposition to our customers based on our own network.

And the next question comes from the line of Andy Chu from Deutsche Bank.

Three questions from me, please. Just in terms of margins or some clarification, I think, Patrick, you mentioned that you've got sort of quite high EBITDA margins. Is that sort of a double-digit sort of EBITDA-type margin? I'm kind of struggling a bit because I guess when I benchmark sort of DHL's disposal of their Chinese contract logistics businesses to SF a couple of years ago, that business basically barely made any money. So just trying to sort of get a sense of where your margins are kind of landing, please, for EBIT, if this is a sort of double-digit margin business. Secondly, just in terms of just a question on the average contract length across the portfolio. What is the average contract length? I think Soren you mentioned that the churn is low, which is good. And my last question is just in terms of Bolloré's announcement that they were in exclusive talks with MSC around their African logistics business. Is that something that you would be -- or you were interested and are still interested in? And then around the sort of geographical strategy, is it now kind of, as your map shows, you're sort of quite underweight in Europe, so is it now sort of U.S. true Performance Team. Now with LF in Asia, does that mean that you will focus on -- or likely focus on Europe next?

Yes. Maybe if I just start with the Bolloré question, we don't have any comments to that. We will follow the situation. We have a very strong position in Africa ourselves. In fact, we are a partner with Bolloré and many of the terminals that are being sold. Despite the name of the companies being Bolloré Africa Logistics, it is actually a container ports business for 95% of the revenue or something like that. So it's a ports business. It's not a logistics business. So with that, maybe I'll turn it over to Patrick on the margins and then Vincent on the contract length and the question around whether Europe is next.

Yes, sure. So on the EBIT margin question, as we highlighted earlier, I think the actual business has a depreciation and amortization, which is pretty close to ours. So we said, if you look at Q3, we have a 3% difference between EBITDA and EBIT. Now then you have the IFRS 16 depreciation of the lease assets, right -- of the lease warehouses. Just to indicate, this is close to double digit, and that leaves you from a 25% EBITDA margin the business has today, still a double-digit EBIT margin. And with that to Vincent.

Yes. So I think maybe just to set that back, it also goes to one of the previous questions. I think what is the main driver for the margin is simply the excellent operational -- or the operational excellence and the standardized approach that they have to the tech and the way they operate their warehouses. And they have proven to have a recipe there that is very different from what other contract logistics providers are doing, and that is working extremely well for them. So I think that's what it is. The contract validity is typically 3 to 5 years. And as Soren mentioned, very low churn. So those are actually contracts that get normally renewed -- renegotiated and renewed as they expire. And it's similar also to what you see across what you would call -- across the contract logistics world in general, whether it is our own business or what you would expect to see also from other companies. So they don't have, you could say, a validity profile that is very different from what any other contract logistics company would have. But they have a significantly lower churn and have been able to stick to a significantly lower churn for quite a long time, which illustrates that this operational excellence that they have is not coming at the expense of their customers or their customer satisfaction, but is actually delivering superior outcomes, which is also one of the reasons why this was very exciting for us in terms of addition to the Maersk family. As you look at the world map with the sites, you capture exactly the 2 points that there is in that, which is it's extremely strengthened now in Asia Pacific, and it is relatively light in Europe. Our strategy for Europe now is -- primarily is going to be to take the LF Logistics recipe into Europe and use the platform that they have there and the capability that they have built to put it at the service of our customers in Europe. As always, if we were to find a company that does fit the facilitator criteria that we explained at the Capital Markets Day, then we would look at it in Europe because it could play a nice role in accelerating or facilitating the growth and the building of the network of sites that we have ambition to have for our customers in Europe. But we believe that with the acquisition of LF Logistics, it is not a must for us to do acquisitions in Europe. It could be a plus, but it is not a must because we have the ingredients and tools that we need now to expand into Europe relying mostly on an organic effort.

That's fantastic, really interesting. Can I just ask a couple of things, just on the industry? In terms of the 3- to 5-year contract length, over the years, I've understood really that in the last 20 years, the industry for contract logistics are sort of more like 3PL contracts that are more like sort of 7 years. Is it the omnichannel sort of contracts are just shorter in length? And actually, that is the difference between what I had always understood over 20 years as a sort of slightly higher average contract length? Or maybe it doesn't matter because they're just evergreen and they roll. And around the margins, I guess, when we're talking about double digit sort of margins, that's something that we've just not been used to seeing in the industry ever. Now these are sort of record margins. And when you speak to the sort of the customers and the sort of the top customer has really been part of your sort of top 200 customers, these must be large customers that know how to price supply chains and activity. So do you think that you're just offering so much value add that the margins have come from sort of low to mid-single digit to double-digit and actually have upside? Or do you think that there was a risk that actually these large multinationals, I guess, and Western companies actually then start to think about sort of the value for money and pricing their own supply chains? Or is it just not possible for them to do the activities that you're carrying out for them?

So what we have been able to establish quite clearly is that the superior margin is not coming from a price premium that they're able to extract. As you mentioned, these companies -- their core customers are companies that know very well how to drive a hard bargain for what they're willing to pay in each of the markets. And that is true also for the distribution in Asia Pacific. What drives the superior margin is the operational excellence and the standardized approach to both IT and how they run their sites, which is basically -- which basically enables them to operate omnichannel contract logistics in these 14 markets at lower costs than what their competitors are able to do. And that -- it sounds simple, but it is a very difficult recipe to get to work, and to get to work with the customer satisfaction and the low churn that they have been able to make it work. And I think we have consistently said both at Capital Markets Day and over the last couple of years that we are looking for well-run companies that can provide us with a strong platform, a scalable platform for growth. And you can see when you look at LF Logistics that you have all the ingredients that actually do tick the boxes for this. It is a super well-run company on a super well-run infrastructure with a very diverse and demanding set of customers, and where they have had a growth track record and a profitable growth track record for a long time. So that makes it the ideal platform for us, and certainly something that we're looking that we are looking forward to turbocharge and take beyond the 14 markets where they have been active today. I think with respect to the duration what there is in Asia Pacific is because the market is growing so fast, actually the needs of the customers evolve really fast, so you need to be able to follow that, and that does require some renegotiations and some changes that are more frequent than in some of the more mature markets where things are more established.

Maybe I can just add a few words to that as well. I think we are at a time where we are we are in a pandemic that has wreaked havoc in global supply chains. And that means that our customers are really rethinking what they're doing. They have seen themselves -- seen their manufacturers closed down. They have seen themselves run out of inventory. They have seen themselves not being able to get, if you will, the transportation capacity that they wanted to have when they wanted it. And all of these things means that a lot of companies are moving from a very procurement-oriented approach to logistics, to more of a partnership, more of a C-suite type of discussion. And that's really what we are playing into here with this acquisition, actually being able to offer big global companies truly end-to-end solutions that are based on control of the key -- in the key assets in the logistics chain. So we think that there's a lot of momentum for continued growth based on a long-term contract model.

[Operator Instructions] Our next question comes from the line of Dan Togo from Carnegie.

A couple of questions as well. Firstly, on the screening process to reach to LF Logistics, could you elaborate a bit here? Is it a company you tracked for a long time, so to say, in your focus to acquire? And is there a long list, so to say, of these type of companies available? And did you buy LF because they are the best at what they do or simply because they were available at the right time at the right moment? So a bit about the process here. And then maybe also to follow up on what we just discussed. Why is there no element of windfall profits in this type of business relative to your own? Because you're clearly yourself guiding for -- that everything is peaking right now, and then we will see a muted decline due to rates, et cetera. Why is there no element of windfall in this type of business?

Maybe I can start here, and then Vincent can add. I think it's -- we have been pursuing this company for quite a while. It wasn't something that just happened overnight. No, we did not buy it because it was the one company that was available to buy. And yes, we believe it is the best company out there, certainly in Asia Pacific in this space. If we are to talk about windfall, then I think we believe that, if you will, that the pandemic has really validated our strategy. And therefore, we're seeing a lot of customer wins and a lot of growth where -- with our large customers who have suddenly seen logistics, supply chain management move from deep down in the organization with the procurement teams and the logistics departments to becoming a C-suite issue. And there, we get to people that think more strategically about this. And therefore, we think that's probably pushing a lot of the volume growth that we are seeing. And with those comments, maybe, Vincent, if you have anything to add, please go ahead.

Yes. Thank you. Just a couple of points to add. So yes, we bought LF because they are the best. As I mentioned a few times, they are a very rare combination about how they approach the business and how they are able to scale the business without having to sacrifice margin but actually by gaining scale benefits from growing. And that is something that is very aligned with our way of thinking and very attractive. It's also a company that has a culture that is similar to ours, so that made it a very nice fit for us. And as Soren mentioned, it's -- that was what we looked at. Furthermore, it's also Asia, and Asia is still the fastest-growing market and is still a continent of huge opportunities for the future. With respect to the windfall, what you see today is you see windfall basically percolating through all of the transportation infrastructure that there is. You see that in air freight, you see that in container transport and you see that, to a certain extent, also in land-based distribution or trucking. So because that is really where the supply chain has been challenged. So that -- in our disclosure, that would be everything that falls on the transported by Maersk has a windfall element, everything that has to do with distribution. So the Fulfilled by Maersk and everything that has to do with freight management, which is our Managed by Maersk model, those are, first of all, much longer contracts. And second, they have not faced disruption or infrastructure problem in the way that we have seen across the transportation network. So that's why actually given the magnitude of what we have in intermodal, which is just an extension of Ocean and not just the domestic distribution contracts, so not middle mile -- given that and given the fulfilled and transport have not really been affected by price or by inflation, you see actually that most of what we report into our Logistics & Services segment is really just driven by volumes and does not have the same normalization ahead because it has not been disrupted the way that transportation networks have been.

A follow-up, maybe a bit on your ambitions here. Are we going to see many more of these type of acquisitions? I mean you have been somewhat active here in the last year. Is this still going to continue? You are now creating the 7th largest logistics player globally as you say yourself. Is your ambition, let's say, by '25 to be among top 5 or top 3? What are we to prepare for here?

So maybe I can just start there, Vincent. I mean, first of all, I think it's important, and we also said it earlier today, I mean we're not trying to create a standalone logistics or contract logistics business, which can compare itself in the league tables. We are trying to build an integrated logistics company. So we're not going to be terribly bothered about what exactly -- what -- where we are on these rankings. What is important is what we do for our customers. And obviously, as Vincent also said, we -- and I repeat it again, I mean we're only buying companies if we think they are good companies, that can fit into our portfolio with the capabilities they bring. As long as we can grow organically, obviously, that's the most value-generating thing we can do. And in the last 3 -- last 4 quarters, we have grown more than 30% organically in logistics. So all of our focus will be on growing as fast as we possibly can organically, and then adding acquisitions when we see that they can actually bring capabilities that will allow us to continue that very high level of growth. And maybe, Vincent, if you want to add to that.

Yes. No, it's exactly it. I mean our approach is organic first. And there, where we see that we have capabilities, we simply don't have to put in the hands of ourselves to sell organically, then we go and purchase those capabilities to be able to add them to them and turbocharge the growth of the companies we acquire. So we've been active because we've been fortunate to find a few gems that we felt were really important for us to get into. But certainly, the criteria that we have for doing these buys are very, very strict. And we will not necessarily continue at that pace. We don't have a goal of share. As I mentioned, what we have a goal is organic first and then buy the facilitators that give us the capabilities that we cannot put in the hands of our sales reps. And then as we get closer to having more and more of those capabilities, then we continue to focus more and more on organic.

Understood. But are there many gems left out there, so to say?

Are there many, sorry, what?

Gems, as you mentioned yourself, many companies to be acquired out there?

Gems. Well, there are certainly gems still out there. I mean, if we find some that we feel are an addition -- because it's not only that it needs to be well-run company, they also need to fit a capability profile that we're lacking because if we're very good at doing certain things, then we don't necessarily need to add an acquisition in that field, which would only increase the capital employed in the segment and give us something that we can achieve otherwise organically. So yes, there are certainly a lot of gems. It's a very fragmented industry. So there is a lot of companies, some better-run than others and some are extremely well-run. And for those where there is a willing seller and where it's a match on capabilities, then we may see deals coming in the future. But our really big focus now is -- as you mentioned, we've been active. So it means also we've signed up for a lot of top line synergies that we absolutely need to deliver and that will be our core focus now, to make these acquisitions a success.

And we have one final question from Lars Heindorff from Nordea.

Just a follow-up. I was just wondering about the customer concentration in ICL. I don't know if you can share any measure on maybe top 10 or top 5 customers, how much they account of the revenue? That's one thing. And then a follow-up also on some of the other questions. I mean now you've been adding or will be adding 10,000 employees to the 20,000 you already have. And if I recall it correctly, you have roundabout 2,000 employees coming in from Senator. From an organizational point of view -- and I hear what you say, Vincent, that you probably don't need to do much more M&A in Europe and you can maybe expand the platform from ICL into Europe -- I mean, can you do more? Or do you need sort of the organization just to absorb these things, which is I'm sure will take a bit of time.

Vincent?

Yes. So let me start a little bit backward on the question. So yes, you're correct, about 2,000 colleagues coming from Senator. I mean, what we look for when we look for these gems that I mentioned before is also a really strong cultural fit, which we have seen both with Performance Team, with Visible, with KGH before. It goes a long way to have a swift and fairly painless integration from an organizational perspective, and that's also what we feel what we have found here. We also look at not overloading the same parts of the organization so that we extend the bandwidth that we have. And that's why, in this case, having something in Asia Pacific, where we've not been active so far and where the most of the integration work is going to happen, is certainly something that we feel we can manage. So yes, I don't think that we are stretched today with what we have done from an integration perspective. It doesn't mean that we can do anything because we also have our limits, and -- but it doesn't mean that we are stretched. I think that what is really important for us is to keep the discipline that has made us successful, i.e., we only selected the companies and work or talk to companies that we feel can offer us the acceleration that we're looking for, and do not get excited about getting deals through and bulking up the business because that doesn't make any sense for us. It is exactly what Soren said. It's not about the size or bulking it up, it's really about creating something unique and differentiated for customers, and that means some patience on how we're building it. So I would say, yes, we have a big work on doing these 2 integrations ahead of us, but I don't think this is stretching the organization as of yet. We can cope still, we're generating the type of organic growth we were talking about just before. I forgot the first part of the question, Lars. Can you repeat it again?

Yes, that was the customer concentration in ICL. I mean, I don't know if you can share top 5 or top 10 customers, how much they account for to get a bit of sense for the -- yes.

Yes. So I would say the -- first of all, the customer base is very diverse. It's all within FMCG, retail, lifestyle. They're one of the biggest conduits of Western brands doing business in the Far East and reaching out to the Asian consumer. So they have a very diversified customer portfolio. We do not disclose the top 5 or top 10 customers, but it is a fairly low percentage. That was also another thing that we thought was really good. They are not overly dependent on a small handful of relationships for this business.

All right. Thank you very much all for listening to this call. The acquisition of LF Logistics is very strategic for us. We believe that it's going to -- we're getting a company with excellent capabilities. Obviously, this is a bet on Asia and omnichannel fulfillment in Asia, but it's equally a bet on using the capabilities of LF in other parts of the world, where we're still missing those capabilities. The operational and IT platform of the company is really, really strong, and it will be a foundation for growth outside Asia. And finally, as we already said, we think that there are significant commercial cross-selling synergies, which will pay for the company, if you will. And combined with strong organic growth in the company, we will create high revenue growth and accretive earnings compared to our current EBIT margin target of minimum 6%. And we will be, as we said, accretive from year 2. So with that, I'll wish everybody a Merry Christmas and a happy New Year, and we look forward to talking to you next year again. Thank you.