DSV A/S (DSV) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the DSV investor conference call related to Q1 2025 and completion of the acquisition of Schenker. I'm Carmen, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jens Lund, Group CEO. Please go ahead.

Thank you very much. And welcome, everybody, to this Q1 and closing call on Schenker. I would particularly like to welcome all the employees of DSV and certainly also our new colleagues from DB Schenker. Welcome onboard as well. We look very much forward to a combined journey together with you. And we have to remember, going forward, everybody is a DSV employee. So with that said, I will quickly move on to the next slide. We will do the presentation as usual, where I'll take some of the slides. Michael will take some of them. And then we will come back to the Q&A part. When it comes to forward-looking statements, please refer to this page. It's very important information, so please take a minute and review it. And I'll then move on to the next slide, where you can see our agenda is quite packed today. So we will try to keep the pace up so that we have the time for the Q&A part. So of course, moving into the highlights. I know it's the 30th of April. And it's actually not Q1, but I still believe that the highlight of the day is the closing of the Schenker transaction. And we are all very excited, proud and pleased and all these emotions that we have in relation to a landmark transaction that means the world to DSV, but it also means quite a lot for our country, Denmark, as well. We will now have a leading player within our industry. And I think this is something that we can all be proud of, but it's also a mammoth task we have ahead of us, so we're also, of course, humbled by getting the chance to acquire the company. And we will do our best to ensure that the transaction and the business plan is followed as we normally do on transactions like this. I would also like to extend a big thank you for all of the investors that have supported us with capital. It's something that we have been very, very proud of but also humbled by the support that we've got, so it makes all of us extra eager to deliver on the promise. You've furnished the capital and now we have to deliver on the business plan, so you can rest assured that it means quite a lot for us. Our Q1 results. This is actually what the foundation for our businesses is. It's operational results. Without them, we don't really have the capacity to do anything. We've had a solid Q1. We are very pleased with the outcome of the quarter. There's been a lot of turbulence, as you know, and we've still managed to produce a solid report and, not least, to produce also a very strong cash flow. And I'm quite sure Michael will say something about that because, in case you haven't noticed, it's something that he's very happy with as well. So right now we see GP up 6.2% or -- and the EBIT up 4.8% on the quarter. So we now come into a situation -- if you can remember, last year, we had some situations where the GP was declining. Now it's actually growing again, which is really what we like to achieve, so on these parameters, we are very pleased as well. I'd already mentioned the cash flow, so I'll just -- I'll say that we've updated our guidance. We now have a revised guidance between DKK 19.5 billion and DKK 21.5 billion for the year. And of course, the triggering factor for the change is the Schenker transaction. Michael will, as I said, speak a little bit more about it in a short moment in time, but first, I will say something about the Air & Sea division. Here we see that the GP is up both on air freight and ocean freight. We will look a little bit about the reasons for that a little bit on the next slides, but as you can see, our conversion ratio, it's basically a little bit better than it was last year. And the margin is also more or less at the same level. I think one of the things that we have seen is that, in these turbulent times actually, the value add that we deliver in relation to the services, it's actually increased. So we would normally look at our GP. What is freight related, and what's value-added services? And we can see that basically we produce more value-added services than we did before, and therefore, a larger proportion of our GP relates to value-added services. I think our volume growth also will be explained on the next couple of slides, but we are basically trending in line with market, depending on one transaction that we will also explain on the air freight side. So I think we see a solid conversion ratio. It's still not where we want to be, but in this market where the volumes are not growing as fast and also while we're preparing for the integration, I think we're very happy with the outcome of the quarter. Then if we look at the air freight, you can see that, the yield, it's been increasing. And here it's important to note that we have basically 3 customers with -- that are quite low yielding that basically either we don't work with anymore or that has shifted from air to ocean. These customers represent on an annual basis approximately 100,000 tonnes of air freight, so if you adjust for basically a very low yield on these customers, then you would have to push the baseline a little bit up. And that will probably equate to something like DKK 300, if you take the comparable figures, so therefore, the development into Q1 is also more natural if you then look at if you adjust the baseline for these figures. So I think that is what we can say on air freight. It's a flat volume, but adjusted for these, we would have grown 4%. And you just have to take that into consideration when you look at the baseline. If the explanation is a little bit complicated, you can always, of course, get an update from our excellent IR team. They will be able to give you, what can I say, the numbers in detail as well. So with that said, we will quickly move to ocean freight as well. And here we can see we have more or less grown our volumes, perhaps at the low end of the market, but we're actually okay. Also on the ocean side, we see that -- basically the value-added services that we produce. So we do more customs formalities. We do more gateway services in relation to LCL. We do more basically work when it comes to types of buyers, consolidation, et cetera, et cetera. This is what we call value-added services. They actually increase as a part of basically the volume or the services that we render, and that's the reason why the yield is trending upwards. So also here we feel quite comfortable with development. And it's a very solid foundation for operation. Moving on to Road. You can remember that it's been quite a tough period because of the European economy, automotive sector, large countries in Europe having a difficult time. I think you can see that basically our gross margin seems now to have stabilized. Our conversion ratio is -- has sort of plateaued and is perhaps moving a little bit in the right direction. Let's see in the next quarter as well how we are faring, but we are moving in the right direction. EBIT level also moving in the right direction again, so glad that we can see this development, but we are not out of the woods yet. There's still a lot of hard work ahead of us. And I think also here we will come back to that, but with -- the combination of the networks together with Schenker will, of course, help us to push basically the financial performance also in the right direction. So all in all, it's -- I know the numbers are down, but if we compare to our peers, I think it certainly can stand the test of comparison with them, but then also, as you know, we are not satisfied with our numbers in DSV. We always want to achieve something that is a little bit higher, and that's also the aspiration here. We have to generate a return on basically the capital we deploy. That's sort of the aspiration we have. But very well done, I will say, to the Road division in difficult circumstances. If you take the Solutions, which is the last time we will call it that. We will call actually it Contract Logistics going forward -- is one of the things that Schenker have taught us, that we should call the divisions basically what they do because otherwise we have to explain it to our customers all the time, and all our other stakeholders. On Solutions, we are very pleased to see that we now start to generate more activity, more revenue. As you know, we've had a situation where we were at the fill rate a little bit too low on the warehouses. So perhaps at 82%, 83%. We've actually sold more volume now, and we are starting to utilize this capacity. Normally you would expect that you could reach a 90% mark. You will never get to 100%. Then the business, if you have the warehouses completely full, it will be inoperable. So here also a situation where we are confident, with what we have in the pipeline and what has happened, that we can -- now can drive the revenue forward. We can generate more GP. And then I'm quite sure that we will beat last year's benchmark on EBIT as well fairly soon. So all in all moving in the right direction, also very positive on the Contract Logistics side, yes. Then it's over to you, Michael, actually. And you can take us through all the details, all the numbers. And here you go.

Thank you very much. In order to save some time, I think I'll go through some highlights of the numbers. If we look at Page 10 here, the highlights from our P&L: Jens already explained that we have grown on GP, which drill down to EBIT and, of course, also to net profit. So it's a good development. EBIT is, you can say, of course, driven by the GP. And then we have had some cost inflation which goes a little bit in the other direction. If you look at the financial items, it's, you can say, slightly cost now, but you have to bear in mind that this is the last quarter. We will have now the new financing structure in place with Schenker, so that will, of course, change for the next quarters. Currently our estimate is that our finance cost will be around [ 2 to 2.5 ] on a yearly basis. That is in DKK, of course. Then if you look at a little bit about our EPS, earnings per share. If you adjust for the capital increase, it was more or less on level with last year. And we have a good base to improve from, which we, of course, expect that we will improve that going forward. And then if I go to the next one. And I'm happy, Jens, that you also have noticed the cash flow actually. It is something that we have been working on and has been -- to be honest with you guys, struggled a little bit with, so it's good to see that we have changed the direction now and actually have a quite positive cash flow of -- adjusted free cash flow of DKK 3.2 billion. And also you can have -- you can say, changed the development in our net working capital. We are not satisfied with this. We still have a high net working capital, but now at least we have improved. And we will, hopefully, work hard to continue to improve that so we can get, you can say, into a more normalized level of net working capital. Clearly now, when we report next time, the Schenker numbers will be included, so we need to work a little bit on that one as well. Another thing that is worth mentioning is, of course, our NIBD, net interest-bearing debt, which was actually negative -- or, you can say, positive cash deposits. That will, of course, also change dramatically. We did a significant wire of significant amount in euro this morning, so of course, that will change as from tomorrow -- actually, from today. And the same goes for the gearing ratio which would also change right now. I'm coming back to a little bit of how we see that. On the next slide, we have this, our new presentation -- or tagline, "Winning As One," indicating that now we are one team. We are one company, the DSV and Schenker, so it's not them and us. It's not DSV or Schenker. It's DSV all along. And we are happy to have this picture that you can see on the screen right now. It's a combination of both some DSV colors and also some Schenker colors, so that's good. And we want to win as one. I think we've heard a lot about the strategic rationale. And so that stands. Clearly, of course, it has not changed since we communicated a little bit about it last time. We will expand our global network, it -- a strong combination, strong global presence. And if you look at it to the right-hand side of this, you can see the split both on division but also on region. And I think this -- of course, apart from the fact that it's already written here, it's also worth mentioning that in APAC we see a strong presence and a strong -- for Contract Logistics from Schenker. So that is -- really contribute to our global network and also our global setup in CL, which will be the benefit for our customers, so we will be a top-performing company and -- within the industry. So we are very pleased with this, yes. Just a, you can say, summary line by line and side by side. You can see the -- and read the numbers yourself. I think a couple of things worth mentioning: We will be significant larger in air freight and in sea freight and, of course, also in logistics. And again coming back to where the regional presence is, it will then be an add-on to our existing service offerings for our customers, so we will create a strong player within the industry. I guess that there's a lot of questions, so we will go through this rather quickly. There are some transaction details on this slide. You can read through yourself. I think it's you can recognize many of the numbers from previous communications from us. In terms of our financing and capital structure, I think it's important to notice that we have, you can say, successfully raised DKK 75 billion, 5 billion through equity and 5 billion [ to ] bonds. And again like Jens mentioned, we were overwhelmed by the support from the investors and are, of course, very grateful for that and that -- both on the equity but also for the bond investors. The remaining part of the financing will be financed through the cash that we have at hand and then some expansion of our -- within our existing committed credit facilities. Our target is still to get below a gearing ratio of 2x NIBD-to-EBITDA before special items. Of course, you can say, for the first couple of reports, we will be above that range, but we are committed to get back on the target that we have where we would like to have the ratio below 2x. Then we have also communicated in press releases, but just to remind you that we have done some management changes and -- to the top layer of DSV. The current CEO of Schenker, Jochen Thewes, he will be nominated to the Board of Directors at an extraordinary general meeting here in Q2. And Helmut Schweighofer, the current CEO of Schenker's Europe region, will be the new CEO of our Road division. It's Schenker road is a really, really large organizations in Europe, so I think it's a good choice and it's a good setup that we will have here. Same goes for Vishal Sharma, current CEO of Schenker APAC, will be the group CCO of DSV, heading up our commercial approach and our commercial development, of course. Then Saskia Blochberger, current CPO in Schenker's Europe region, will be the new Chief People Officer of DSV. Well, I think it's a strong management team that is now created and complement both DSV and Schenker, so I think it's a very strong setup that we will have also on a management level. Then what many of you are very keen to hear about is the expected financial impact. I think it's very important to notice that -- bear in mind that we get, got the keys this morning. So it's really, really new things that we are. Of course, we have tried to prepare best as possible, as we always do, by the way. Schenker will be included in our consolidated financial results as from tomorrow, May 1. And currently our business case -- we always prepare a business case before we enter into these M&A transactions. Right now our estimates on the annual synergies is in the level of DKK 9 billion end of 2028, where we expect the majority of the integration to be complete. We do not expect significant impact on synergies in 2025. And we will give you further information, when we have that, in connection with our Q2 reporting. Synergies, as always, consist of the consolidations of operations, logistics facilities, back-office functions, finance and IT infrastructure, so it is more or less business as usual when we do these M&A. Of course, it's a bigger size of business this time. And the business mix is a little bit, you can say, different. We also communicated previously that we would like to lift the operating margins within the business areas to a minimum of DSV's levels in 2028, based on a normalized EBIT baseline for Schenker of around DKK 6 billion. If you add the DKK 6 billion with the DKK 9 billion, you will see roughly DKK 15 billion or EUR 2 billion. That will be the base in 2028. And we expect that the transaction will be EPS accretive already in '26. So that is also -- that is actually next year. That will be there. We have withdrawn our long-term financial targets. Now we need to get more familiar with the Schenker business in order for us to make the ambitious targets for the following 5 years. So that will be communicated when we have a little bit more knowledge about it. Then we will have transaction cost estimated of around DKK 11 billion. That will be charged to the income statement whenever we, you can say, do all the different integration work. It's, you can say, normally we have said it's roughly 1:1, slightly below or above, depending on which side you look at it. Typically we said synergies is in line with the cost. The last couple of transactions, the cost has been slightly higher. And here is also slightly higher due to the composition of the industry and the presence in the countries as such. And then for this year, we expect around DKK 2 billion to DKK 2.5 billion of restructuring, here in 2025, also of course dependent on the speed of the integration. Then a slide that you are most likely familiar with. I'm very happy now that we have another column to the far right-hand side of this, where we can now say that we have Schenker included. And this is also reflecting our guidance that I will come back to shortly. For the next steps. Now we're, of course, pleased that we managed to close the transaction today, which is also, I think, given the size, I still believe it's more or less a record, again, that we could get all the closing regulatory approvals and also conclude all the steps here in April. Remember we promised you "in Q2." And so we're still in the early days of Q2. Then we will, of course, start work with the numbers in the business and the integration. And then when we come to second quarter, we will give a little bit more information, when we have some more knowledge about the -- of course, about how the business is structured in the different divisions and also adoption of accounting policies and opening balance and all the borrowing for some finance stuff, but that is something that we need to do, of course. We've also, as Jens mentioned, updated our outlook for 2025 mainly because now we have included Schenker. You can see our previous guidance was DKK 15.5 billion to DKK 17.5 billion. We now estimate that we will have outlook of DKK 19.5 billion to DKK 21.5 billion. One thing that you need to bear in mind, we have this time also shown a number of the estimated purchase price allocations. It's we have not done that before, but is -- given the size of the transaction, it's something that you need to be aware of when you put it into your models. Special items, I already touched upon that. It's also clear that we have also noticed the uncertainty in the macro environment and also talk about tariffs impact and so forth. This is the outlook that we have, reflecting how we see the world these days. And then of course, it can change if something really dramatically changes, but this is how we see it right now. The volume is expected to be slightly lower than what we have said earlier. However, the yield, as Jens also alluded to a little bit, is a little bit higher. So that's also why we can maintain the guidance like we have done. In terms of the NEOM joint venture's. No significant financial contribution is expected in 2025 either. I remember I had one question once, whether that could be negative. It cannot. The way it's structured is that it cannot be a negative contribution, yes. And then back to some key takeaways, Jens, that you can talk us through.

Yes. Well, thank you very much, Michael, for a detailed rundown of all the things. It's really helpful. And I just want to reiterate what can I say, that we've basically now seen also a return to solid growth in our Air & Sea division. I think that's something that we are very happy with. It's our largest division. I think also that we can deliver a solid business case [ on ] synergies on the Schenker transaction, as you can see here. I think we're very proud of that as well. It will take us, what can I say, to levels on the Schenker business that we know from DSV. And then of course, that we've upgraded our guidance, I think that's also a very important message to send along. And I think we can also see the market reaction on the street today. That basically has taken out some uncertainty which, of course, has been there. Would we be able to close? Or how would the numbers look, based on the recent sort of uncertainties that we see in the market, et cetera? But right now we are proud to present the things we have on the slides today. And with that said, we are ready for a Q&A session. We have, I can see, approximately 45 minutes for that, so let's get on with it and hear your interesting questions.

[Operator Instructions] The first question comes from the line of Dan Togo Jensen, Carnegie Investment Bank.

Congrats with the closing here. First, a question on the synergies, how much you actually include here in '25 you lift with these 4 billion relating to Schenker. And you alluded to, Michael, a small number here included in '25. Is it closer to DKK 500 million than it is to DKK 1 billion? Just to get an understanding of the base margin that you see in Schenker. And then of course, where do you see you can lift this to? Is it DSV's old target? Just to get an understanding of these DKK 9 billion. What goes into that calculation, with the margin difference? Some color on that. And then if I'm allowed and second question. I would like to get, if possible, a split on the synergies. Where are the levers? Where are the strongest contributions? Maybe not in absolute numbers but maybe relatively distributed on FTEs, these IT infrastructure you mentioned and also maybe on facilities, if possible.

Yes. I will answer some of it and then we can take it from there. If I start with the split on synergies, you have to bear in mind that we have -- just have taken over the keys. So we will not do a split these days. We will, of course, look at it and then get back to it. I think it's important to notice that this acquisition is a little bit different from what we have previous done. So the synergies is split over a broader area of what we have normally seen, giving that there's a sizable business in Road and in solution. That means that in terms of consolidations of warehouses and equipment and so forth is a bigger portion than what we have normally seen, but we will not disclose any details further on that one right now. In terms of the phasing, it's, of course, also something that we need to look into. It's a matter of coming, you can say, ahead as soon as we can, obviously, but as we said, it is expected to be limited. And that, of course, need to be seen in relation to the total EBIT that we will generate. So it can be around, like you say, maybe DKK 500 million or something like that. I think that's what we will be able to give you as a guidance right now and then you have to be a little bit patient. And then when we come to Q2, we can give a little bit more flavor on these things. It is something that we need to look into now and start to, you can say, drill down the business cases to the respective business areas.

And on the margin cap and the DKK 9 billion, can you give some additional color...

I think -- yes. As a guidance, you can say, the margin uplift, it's like we have said. We would like to raise, you can say, the Schenker business to the DSV margins. And as a guidance, you can use full year 2024 per business area as such. I think that will be a good going into it and I think that will be the best way to do it right now.

The next question comes from the line of Alex Irving, Bernstein.

Congratulations on closing the deal. My first question is on your DKK 9 billion preliminary synergy estimate. Is this just cost improvement at DB Schenker? Does it also give credit for any cost improvement at legacy DSV? Does it give any credit for enhancements in service? Kind of call that revenue synergy. Kind of what's in there would be helpful. The second question is on the IT integration to come, specifically on Road. Is DB Schenker's infrastructure, in your judgments, better than what you currently have in the DSV business? And if so, how can we think about the upside from the replatforming of Road IT?

Yes. I think I can take the first one, on the DKK 9 billion. And then Jens, you can answer on the IT. The DKK 9 billion is, you can say, a business case as we have always done. And it's not -- it's on the total. We don't differ anymore on DSV and Schenker, so the DKK 9 billion is, of course, in total for the combined business as such. So you cannot say it's one or the other. This is one entity now and this is the combined synergies that we will create.

Yes. So as an example, if we take IT, basically, as you said, Schenker would have a production system on the land side. It's not a European platform, but it's a platform that is rolled out in 14 countries. I believe it is in Europe plus a couple of others -- places as well. So it's a good foundation that they have. Of course, there's a big advantage if you have all your -- in particular, your, Schenker calls it, system freight. We call it [ grouped ], all these small shipments on one platform. And basically you have a single file system, a single system for events, a single system basically for interacting with the customers on the booking side, et cetera. That has very positive implications on the productivity, yes, and therefore, we also need to drive somewhat higher margins on that business going forward than we've seen historically. It's actually also the case, for example, when we look at synergies, that on the land side, since Schenker have a much stronger system freight set up, the backbone, for example, of that setup will be the DSV. And that's the reason why Michael says that then we have, of course, calculated how much infrastructure can we eliminate. And that will then be both Schenker and DSV infrastructure because in certain countries we are stronger in DSV. And in certain countries, the Schenker setup is stronger than the DSV setup, so it's a little bit of complicated. And I don't think it makes a lot of sense because it will be the same division. So it's like one company for both the employees but also for the infrastructure. And it's our infrastructure within each division. And then we have to optimize it so that we can push the volume through the rightsized infrastructure very efficiently. So I hope this sort of answers. And the margin on land. Of course, we don't want to settle for the margins that we've made in DSV historically, when we come to that. We have to produce a higher EBIT margin going forward given our position and the economies of scale. That simply has to be the case with sort of the strength that we will have on that. And then you will -- probably pretty soon going to ask what is the potential of this. Well, the potential is -- I wouldn't put it in my plan, but I don't see a reason why, with the size that we have in Europe and the infrastructure we have in place, that we couldn't, if we really excel to go to double digit. But I will probably put it some way in between the 5% and the 10% that we used to have and then the double-digit number. And that's basically what good looks like. So it is a massive undertaking, but we think we have a good plan to execute on it.

The next question comes from Cristian Nedelcu, UBS.

Firstly, on Schenker, coming back to the phasing question earlier. Could you give us some ballpark indication how much of the DKK 9 billion of synergies can be achieved in '26, '27? And I guess, in the context of the fact that we integrated the customer overlap between Schenker and DSV, could you talk a bit more about that? And if you have some arguments that defend your previous target to lose maximum 5% of Schenker revenues. And on the stand-alone business of DSV. I appreciate you mentioned earlier volumes a bit weaker, GP per unit better. I guess, where we stand today if we look at the full year DSV stand-alone EBIT and -- will you feel comfortable to be in the higher end of the guidance of the DKK 15.5 billion, DKK 17.5 billion; or in the lower end? Or how do things look and -- as we stand today in the context of the tariff uncertainty?

Yes, I will take -- I think I noticed actually 3 questions, but I think I'll try with 2 of them. And Jens will take 1, with the customer overlap. I think, in terms of the phasing, we need to revisit and drill down for the overall target that we have done, in order for us to be more specific about the phasing. So I will lead back to my answer to Dan Togo, for 2025, of around, let's say, DKK 500 million. And then of course, you need to see -- if we want to be at, you can say, the level in DSV margins in 2028, then you can use that as a steering guidance. On the stand-alone part, I think, normally when we guide, we of course do some scenarios. And then we have a lower end and an upper end. Typically, I believe, we would be in the middle of that guidance on a stand-alone basis.

Yes. And then I think, basically on the customers, when we look at that, I think, on the customer side, our commercial approach and basically the framework that we have created should get us into a position where we quickly get in front of the customers and establish the baseline: What is the DSV volume? What's the Schenker volume? How do we want to combine that? What does good look like? What's the service catalog that we actually can present to the customer? But of course, there's also an integration that has to happen at the back end so that, the customers, they basically have one booking flow or one way of exchanging data or one account management setup, et cetera. So we have to change these things. And of course, in this process where we change that, we typically see that there is, what can I say, a slower development on the account, not necessarily that you lose volumes, but perhaps you're not allocated volumes to the same extent. So we have to get this behind us fairly quickly. Therefore, we've prepared for that. And I think we have a strong setup in place. If you look at the share of wallet discussion that you also alluded to. Do we have a significant share of wallet so large that, what can I say, it becomes a problem? I think globally we will have a market share of 6.5%. Of course, if we look at our top accounts, we would have a larger share of wallet, but this would typically be in the 10%, 20% range with these customers, so not something that should create massive problems. And having said all that, I think that we still have the same aspiration, that we hope that we can -- or the plan is -- it's not a hope. That's not a strategy. The plan is that we keep the churn below the 5%. And we feel confident that this is realistic, with the planning that we've done, yes.

We now have a question from the line of Ulrik Bak, Danske Bank.

Jens, Michael, also a couple of questions from my side. First one is also on your guidance and keeping the underlying guidance unchanged. You mentioned that, if unforeseen market changes happen, it may affect your financial results, so keeping it unchanged, does that mean that what we've seen so far this year has not been sufficient to adjust the original guidance? And if so, what needs to happen for you to revisit the existing guidance? And in addition, for Schenker, you do not provide a range. It's basically just adding 4 billion on top of the existing one, so what gives you the confidence, given the uncertain markets that we are in, that, that is not necessary?

Yes. In terms of the guidance, of course, we do some scenarios when we do it. And you're right. If you look at Q1, it has created some uncertainty, but our underlying business has, have done well. That's also why we are comfortable with the guidance. And then you say, what would -- happened? Of course, to a large extent, we will be able to cope within our flexible business model, our asset-light model. We have shown over the years that we are really ready to adapt to the market environment, so of course, we will do that if needed in these circumstances as well. Right now we have -- what we have seen, so far, in Q1 actually means that we will stick to our stand-alone guidance. I think it's also important to notice -- we've had some questions about the tariffs and so forth. I think it's important to notice that we are not a China-U.S. company. We are a global company present in more than 90 countries. The total direct China-U.S. trade lane for us is around 5% of our total trade lanes. So that's also why I said that -- what we have right now of knowledge, that we will stick to our guidance also on a standalone, but you never know what happens. Because some week, there are some indications or information. Next week, there are some other information, so it's a little bit difficult to see which scenario should be built. So we believe and we are comfortable with the guidance that we have given, so far. And then of course, if things changes dramatically, then we need to take it from there.

The next question comes from Lars Heindorff from Nordea.

The first one is on the net financials. Michael, you mentioned around [ 2, 2.5 ]. I just want to get this correct. Is this including lease impact from Schenker?

No. This is only the interest.

Okay. And can you give an indication about that as well?

For the leases...

Yes.

No. We need to look at it. We need to understand the lease portfolio that they have in greater detail, so right now, Lars, I cannot give you that number. Remember we have to revisit the entire balance sheet according to our principles. So it will be wrong for me to put out a number here.

All right, understood. And then the second one is on net working capital. Schenker has been running with a -- quite a bit higher net working capital compared to what you have, at least in the past couple of years. Is -- I mean I know this is early days still, but can you say anything about -- I mean I know that you'll be -- canceled your targets. The aim is to bring it down, I will assume, but to what levels?

I think, long term, we -- I cannot see why we should not have same level as we have, but again, we need to go in and look at the specific regions and the specific customers and so forth. But it would be our ambition, to have same level as we have had for -- as a target for DSV, of around 3%.

The next question come from Alexia Dogani from JPMorgan.

Many congratulations on closing the deal today. And just firstly, on Schenker, you are talking about a normalized DKK 6 billion of 2024 performance on the EBIT. What is the GP? And can you roughly split it by division kind of on your basis just to help us modeling? And then secondly, on the cost that you have been [ carrying ] in DSV ahead of the deal closure, when do you expect that to fall off as you integrate? And can you give us an indication of magnitude? I seem to recall it could be triple-digit DKK million.

Yes. In terms of the Schenker normalized earning, we cannot give you the split right now on -- neither on GP. We need to go in. And as we have done also in previous acquisitions, we need to take the total Schenker business. And then we will adapt it into our way of organizing ourselves in the different divisions and business areas. And also we will have to use our way of doing the cost allocations, so it would look slightly different. So we cannot do that split right now. In terms of GP, also you have to bear in mind that they have a different policy of accounting for blue collar, white collar, so -- which also need to be adapted.

But if I was you and I would have the split on the divisions, I would use the DSV norms for it.

Yes, yes.

Because they would have to apply our policy, basically, for accounting. So for example, Schenker, they would account, let's say, all the staff cost below GP, where we would actually transfer the blue collar staff to above GP because we believe it relates to the gross profit. Whether you have it insourced or outsourced, it doesn't really matter. So that's kind of a way that we do it. This is the reason why Michael says [ it is both, for example, growth on all the terminals ] in all 3 divisions. Also, the rental cost, we would typically book the rental cost that relates to the production above the GP, where, for example, Schenker would book it below. So of course, we don't know what the exact number will be, but we know that it's not that dissimilar, their activity, from ours. So if you use that, you have a good starting point for your model.

And the costs for integration and DSV standalone...

Yes. The cost ahead, as from now on, we don't see it as DSV standalone, nor Schenker. We see it combined. And I think, to get inspirations to how that will develop, yes, we need to get closer to it. And in the meantime, we might look at some of the previous acquisitions, how the phasing have been, but again here you need to bear in mind that it's another mix of business, where in the previous acquisitions, Air & Sea has been quite a large chunk. Here it's a little bit more balanced, so it cannot necessarily be the same pace...

[ So ] we can guide a little bit on that as well. If you have a large Air & Sea acquisition and back-office things, that will normally take 2 years to achieve the synergies. If you have Road, probably it takes 3 years to get the synergies because there's more infrastructure involved. And if you take the Contract Logistics, there will be a little tail, so we'll normally say it should be done within 4 years but the bulk of it, of course, being done in -- within the first 3 years. So you can get an in flight. And this is also what we have in our plan, but now we detail it because we get the business plan confirmed from the countries. This is what we do right now and then we can give you the exact numbers. So you could use this as an assumption when you work for it...

Yes. And can I just ask as a follow-up? And you reiterate your previous view that, before -- beyond year 3, you can exceed the margins of the combined entity versus DSV before. Is that right?

Yes. That's what -- we've said it. And I also believe that is achievable.

With [ roll ] at least to the current margin, so that will, of course, be our aspiration.

The next question comes from Jacob Lacks, Wolfe Research.

So at least in its report, Schenker had a higher CapEx intensity relative to legacy DSV. Do you expect this to normalize lower as well? And does the deal change the cash conversion profile of the combined business?

I think -- if we basically start to produce basically all the volumes in Schenker in the same -- sort of with the same way of looking at capital allocation, then I think it's going to be fairly similar. They would have a little bit more land business that is a little bit more asset heavy, so it might be skewed a little bit higher than DSV but nothing material. If you look at the business and how it's organized, then basically we think we can use the model that we normally apply in DSV.

That's helpful. And then I think you gave U.S.-China trade exposure. Do you have U.S. trade exposure more broadly as of the combined business? And what changes have you seen customers make to date as a result of the tariffs?

Yes, I think the trade exposure to the U.S. is, of course, probably from all the countries. I would probably think somewhere in the region 25%, 30% or something like this. So it is a significant market, if you count Europe and, of course, Latin America, all the other countries in the Asia Pacific area, so it's something -- it's not so that this trade will then come to a pause. There's still a lot of trade, of course, moving, but let's for argument's sake say that this then declines, what do I know, 10%, 15%. Of course, that will then impact our numbers with a percentage of a percentage, yes. We also have to remember that, if you have had big crisis, and there may be a big crisis coming up in the U.S. with a ton of inflation and a consumer that seems to be having a very low confidence level right now in the U.S., then I think there's going to be a scenario where the economy might contract a little bit in the U.S. When that has happened, typically -- the global volumes, when we have been in a situation like this, sometimes they have gone down 3%, 4% or something like that. It's not more that we're talking about. And then with our asset-light business model, we have to adjust. Of course, we are also going to feel it, but typically we can figure out basically to adjust our infrastructure so that it fits the situation. But that's then in the crisis scenario. Hopefully, they strike some deals and get back to injecting some confidence into the consumer, but time will tell how that all pans out.

We now have a question from the line of Muneeba Kayani of, from Bank of America.

So firstly, just on Schenker. You have included that 4 billion contribution this year. And you said it's kind of DKK 6 billion underlying in 2024, so that's basically you're saying kind of you're thinking a flattish EBIT performance for Schenker this year. Is -- am I right in that? And if you could give some color on how Schenker's performance has been, so far, in 1Q, that would be helpful. And then second question is around just on the market side. Like, what drop have you seen on those China-to-U.S. volumes? And have you seen those offset by other regions? And on the yields as well, Jens, you talked about kind of the value-added services increasing. And we clearly see that in your first quarter performance, but is that a trend that has -- kind of more visible in April, with all the disruption?

Yes. I think, if you look at Schenker, it's kind of like a flat development that we expect for them this year. They've actually had a pretty good start in certain areas and, of course, a little bit weaker start, let's say, on the European land business, where you've also seen some of our peers. They're still in the black on the land business, so it's not as deeply underwater as some of our peers apparently have been. So I think it's okay. It's solid. Of course, the volumes in a land operation in Schenker, probably down something like 5%. And if you run then a large operation that depends on infrastructure, it means something. And so they have adjusted the cost, but it's always like you're running a little bit behind. But I think they've done fairly well on that. And we are pleased with the starting point on Contract Logistics. They have actually been doing better than was. On air freight, they have been suffering quite a bit. And on the ocean side, I think they've done fairly well. Also here now we've heard that -- let's say the numbers. There's many anecdotes, but at least they are confident about the April production. So then on the China-U.S. volumes. I think, on that specific trade lane, we're probably talking about something in excess of 25% that we're down. On this one specifically, I'd heard numbers also that were higher than that from somebody, but it's probably in that area that we are talking about. And of course, there are more bookings in other areas, but sometimes you have to redirect those volumes. It might take a month or 2 before you really move this volume. What the customers do right now is that -- when they have cargo that is produced, either it stays in China, so -- and containerized in China. People, they wait to ship it because they can't afford to take it into the U.S. with the tariffs that are somewhat higher than 100%. Of course, it makes it impossible for a wholesaler or retailer or manufacturer to absorb such increases, so this is the reason why sometimes they are also in bonded areas in the U.S. stored. And then they will import them once the regime is in place. So we all hope, of course, in particular on behalf of these customers, that the situation gets settled. It's not very good environment to run a business. And if you don't know the outcome, what can I say, of your resource allocation -- so right now they have put a lot of orders in and they don't really know the financial outcome of them. And the price of the volume they have ordered, of course, is also fluctuating a lot. And I think we see now many examples of industries that already now start to take the consequences of this. And of course, we will then move the volume, whether it's out of Indonesia, Vietnam, Thailand, Malaysia; or cross-border to the U.S. We actually have significant operations in all areas, so we can certainly serve our customers on that.

That's super helpful. And the yields...

The yields. I think, of course, we've worked, as you know, quite a bit on our service catalog or offering. So some of it is due to that, but in a situation where you have fluctuations in the supply chain and all this volatility, of course, sometimes they may also request certain services from us that are more of a one-off character. But over the years, I think we have a long track record of increasing what we call VAS, value-add services, into basically our GP per unit. And I think we're also tracking this much more internally also because we've received quite a lot of feedback from you on this, that the investment community, rightfully so, was concerned that it was just freight markup and we couldn't really hold onto it. We are so happy that -- when we delve into the numbers, that actually we have a solid, what can I say, contribution from value-added services, yes.

The next question comes from Cedar Ekblom from Morgan Stanley.

Just a question on the de-gearing profile post the Schenker acquisition. Obviously a lot of that de-gearing will come from the realization of synergies and improvement of margin of the Schenker assets, but can you talk to the benefits that you could see more quickly around working capital, around sort of sale and leaseback increments on the contract logistics assets? Sort of we get from a pathway of 3 to 2x. Does it take 3 years, or does it happen quicker? And then can you just talk to what you would need to be seeing from a leverage perspective in order to think about reinstating buybacks?

Yes. In terms of de-gearing, it's, of course, dependent on how much cash we can generate from the normal operations; and then also for, you can say, the flexibility, like you just mentioned, in sale and leaseback, but that's we need to go into details and see the asset base that we have acquired and how it's constructed as well. So it's difficult to draw a straight line as to how fast it will go, but we do expect that it will be shorter than 3 years, for sure. So that is our aim, of course. And we have also suspended the share buybacks. And they will not be taken up again until we are in line with our capital allocation policy.

But I think it's...

So sorry. Just on the -- yes. Can I just ask on the share buybacks? So do we have to see you print 2x net debt-to-EBITDA for the buyback to be back in place? Or could there be a scenario where you have visibility that your gearing would get back to below your ambition within a sort of 12 months period and that you would be willing to reinstate the buyback earlier? The reason I ask is the business is clearly very cash generative. And the de-gearing profile could be quite rapid once you get those synergies in place, so I just want to get a bit of visibility on if it's like a hard stop. I have to see 2x net debt-to-EBITDA before buyback is even part of the discussion. Or you could do it earlier.

No. We've been fairly firm on that. I think we are very firm on that we take the leverage down to basically where -- we also have the bondholders as stakeholders. They're very important also, financing these things. And I think they definitely expect that we go below the 2 turns, but of course, generating more EBIT on a 12 months rolling basis, more EBITDA as a consequence of that, a lot of cash flow -- I believe, on some of the previous transactions -- you can go back and have a look at them. I think, some of them, we've started the share buyback sometime in year 2, if I remember correctly, but you can rest assured on one thing. That is that our capital allocation policy stands firm. It's done that ever since 2002, when I started in this company. And I think it's a significant part of the company's success, that -- if we don't need the capital, that we send it back to the investors. So on that foundation, of course, the company rests, and we will keep it like this.

I fully agree, of course. You also need to bear in mind that we need to pay some restructuring. So even if the synergy comes in and our EBIT increases -- then of course, we also need to pay for some of the restructuring in the beginning, but as Jens mentioned, we will do our utmost to be back in a position where we can launch share buybacks again.

And just to confirm. That cost on realizing the deal, that's all a cash cost, that DKK 11 billion. There's no expected noncash write-offs, et cetera in that number.

No. It's all cash. It will be cash eventually.

But there's a tax shield on it when you calculate.

The next question comes from Marc Zeck from Kepler Cheuvreux.

Congratulation on the closing of the deal -- I'm sorry. I just need to circle back to synergies and the EBIT -- or normalized EBIT for DB Schenker. Do you expect to reach that DKK 9 billion figure of synergies also in the case where you can't really fully bring DB Schenker's margins to DSV's levels? Is there kind of maybe a bit of a -- wiggle room or disconnect? Or is -- the DKK 9 billion will be dependent on a full -- yes, full uplift of DB Schenker's margins. And then second question, also more on the macro profile. We heard some of your peers talking about obviously China volumes down but volumes from other Asian regions, volumes out of Europe making up for quite a significant portion of the lost China volume. Do you kind of see the same, that global volumes are more or less stable for the last 3 weeks since we got all the trouble on the tariffs side? Or do you have a different picture?

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Okay, yes. The -- yes, in terms of the synergies, we are comfortable that we can make the business case and that we will be able to raise the margins. That is our going in. We also -- as we write in some of the materials, that we expect to be at least to the DSV margins. So that is by the cost synergies that we will be able to -- and optimizations, of course, that we will be able to achieve those.

And when it comes to the volumes, of course, we also see bookings from other origins, as you mentioned. I think I would like to point out as well that I have seen some, at least, projections that there was in the beginning of the year an estimated growth in the market of 3%. Now it's flat. Given that we had some growth in Q1, I guess the math doesn't really stack up, if it has to be flat at the end of the year. If there isn't a little contraction there, I think that's probably also the case, but we will see how it pans out. A flat market under these circumstances this year is probably an okay outcome. And of course, we will get our share of that.

The next question comes from Marco Limite from Barclays.

I've got 2 questions. So the first question, just a follow-up on your deleverage path. Are you able at this point in time to, let's say, give a guidance on the possible amount coming from disposal of, let's say, overlapping assets between DSV and Schenker road and contract logistic networks? Beyond the specific dollar amount, whether that is also part of the business case at all. And the second question is on the underlying Schenker EBIT. So EBIT -- sorry. Schenker has reported more than 1 billion of EBIT in '23, about 1 billion in '24. And now you are guiding for underlying 800 million. If you could just give some color on why, yes, you think the underlying EBIT of Schenker is, let's say, 20% lower compared to the reported number.

Yes. If you take the facilities, I think we sit in a situation where we will probably be able at least to reduce the asset base with EUR 1 billion, at least. It might be a little bit more than that, but there will definitely be, what can I say, some cash coming in from that. So we may find that the potential is higher, but this is what we have in our planning. And when it comes to the Schenker, I think Michael can say something to it as well, but I think it's fair to say that, when you have [ an auction ] process, you have, what can I say, a very aggressive way of reporting your numbers. Some people would perhaps refer to it as out-of-period income. And if we sit and basically do the calculation and there was a ticker fee, some numbers are adjusted in that calculation, also certified by an auditor. So I think, if we look at these numbers and also apply our accounting principles, then we arrive at this figure here, which for the record also is in line with the business case that we made 3 years ago on the acquisition of Schenker, when it was the first time that we started our planning of this transaction. So we're very comfortable with what we've guided. And then of course, it can be a little bit confusing if you don't have the details. We have, so you can rest assured that we've done our diligence and know what the baseline is.

We have our next question from the line of Michael Aspinall from Jefferies.

This is Michael. Just one for me. You've had clean teams that have been in Schenker now for a while. Can you talk to what those teams have achieved and how it sets you up from here as you do get the keys?

Yes, yes, I can do that. And then Jens, you can jump in or elaborate. It is something new that we have tried -- actually I tried to set it up back in the days with the GIL acquisition, but we never really succeeded, so we abandoned the idea. Because it simply took too long. But this transaction has been larger, so we were a little bit more better prepared. What the clean team have done is that they have digged into the details of our -- of the commercial setup and the commercial customers in Schenker. Bear in mind, when we do, you can say, these kind of things during the due diligence phase and during the [ regular ] approval phase, we are not allowed to share any commercial in any way or form. So that's why we established the clean team, so they will be able to go in and look at the customer base. They will be able to go in and do the customer segmentation and to look at how the performance is on a different business area [indiscernible]. They can go in and do the segmentation, again, and the verticals split as we have in DSV. That means that, when we have opened up the box, then we're actually able to go in and adapt that setup immediately to the DSV setup. Previous acquisitions, we've used at least a month or 2 or even 3 months to get closer to it. I know Jens can elaborate on that one. So that's on the commercial side. So we can see the structure. We can see the customer base, how it's segmented into both size but also verticals, so we have a much better grip on what it is that we take over. Secondly, for the clean team -- but that's more like, you can say, cleaning up the data so the data will be aligned into the DSV way, especially around the master data, in order to get that [ cleaned and cleaned ] so it follows the DSV structure. It is something that can pave the way for faster integrations. So that is what we have used the clean team for. So we are better prepared than what we have ever been before, on that note.

Yes.

We have our next question from the line of Arthur Truslove from Citi.

First one. So you mentioned in the release that there was some benefit, on the sea freight side, from selling based on higher freight rates than you actually had to pay to the container shipping lines. I just wondered how much this dynamic benefited you. And if you could say a little bit more about what the main additional services were that expanded and how much that also benefited you, that would also be useful. The second question I had and sort of following on a bit from some of the previous questions. I know you don't know everything about Schenker's numbers, but based on what you've said, it sounds like you think the unit gross profit within Air & Sea is comparable with what DSV does. Is that the correct understanding? And if you looked at your previous successful acquisitions, would you be able to just remind us whether the synergies have been based on unit gross profit going up or operating leverage or a combination of the two?

I think VAS -- if we look at that, it's probably increased sort of the level of value add that we sell, 10%, 15% or something like that. It's -- typically would relate to us handling more of the customs formalities. It could be that we would do a lot of the documentation work, running the CFS [ as the buyer's consolidation ]. It can be -- the CFSes means that we do a lot of LCL, so less-than-container load, cargo. Actually we have grown quite a bit on that. We've also insourced some of the operations on the LCL side, so we've used less co-loaders. When you use co-loaders, of course, a larger proportion of the value goes to them and so on. It's part of our strategy road map, that we drive some of these initiatives forward. Also, on the [ PO ] management side, we are seeing a lot of interest as well. So I would say these would be the main areas. When we buy companies, they typically have a lower yield than us. It can be down to many things. It can be that, for example, they have too heavy infrastructure costs. They don't have enough volume through the gateways. Perhaps they have too low utilization on the LCL they're producing, et cetera, et cetera. So typically we see that, when we combine ourselves with other companies, actually we get into a situation where we are better off as a combined entity. I think, the deals that Schenker would have on the procurement side, they are probably fairly similar to ours. And I don't think that's really where you see a significant difference, but we typically manage to -- basically, over time, to find a new normal. It might be in this situation it's a little bit lower the combined one that we have, but it's not so that we dilute ourselves. We typically get a little benefit from that. There's not a lot of that in the business case, I would also say. Because we would like to see that this is done by hardcore cost savings. So either on the infrastructure, physical infrastructure; or IT infrastructure; or on the FTE side. This is normally how we calculate the synergies, yes. And I think the time is up now, so I would like to what -- to thank all you investors and analysts for listening in. I would also like to thank our employees, those of them that have listened in: It's based on your hard work that we are able to do a transaction like this. And we especially welcome the Schenker employees that are now here. You are now DSV employees actually, so we have to stop referring to you as Schenker employees, but also welcome to you. And I promise you that we won't refer to you as Schenker employees on the next call. And we look very much forward to executing on the business plan. The whole organization is eager to get going. And I'm quite sure, with the service catalog, that we will be able to present to our customers that they will be delighted with the very strong offering we have. Thank you very much from [ Hedehusene ]. We look forward to catching up again. Take care.