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

Ladies and gentlemen, welcome to the DSV A/S call for the H1 2026 interim financial report. I'm Matilda, the Chorus Call operator. [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, sir.

Thank you very much, and welcome, everybody, to our Q2 earnings call. We will quickly get into it. And if we move to the next slide. I think we have it -- okay, now it's moving. We can see the agenda here for the call. It's the same agenda as usual. And I just want to make sure that you also read the forward-looking statements and so that we have the compliance angle covered as well. If we look at the quarter, I think the integration has progressed as planned, which still basically on course to complete the integration in 2026 and harvesting the synergies that we'd set out to do. The quarter led to some changes in the management on the road side in order of what can I say to bring some experience in that can handle some of these topics that are related to the integration, but we will talk a little bit more about that when we come into the Road division as well. And then when we come to the EBIT, we delivered DKK 6.3 billion. I can remember on the Capital Markets Day that many of you had said that we had to past the DKK 6 billion mark and therefore, it's also good to see that we managed to do so, and it's the strongest quarterly result that we've had actually since COVID. So definitely seeing that impact of the Schenker acquisition is starting to filter through. And then, of course, we also see here that now we've upgraded our guidance or narrowed it so that we took a little bit of the bottom away. Still, of course, we have a range of DKK 2 billion, not least due to the uncertainty that we see globally. If we look at the integration itself, we did that we've now done 60 countries. Many of the countries we've done are the largest, and we only have a few larger countries outstanding. So we've reduced more than 8,000 white collar employees. And of course, there's still going to be that impact of additional headcount reductions during the remaining part of the year as planned in the business case. The impact is basically that we more or less expect the same as we announced on the Capital Markets Day, so not much new to mention there. And then there's a graph on the right side, trying to also just visually explain how the impact of the synergies is going to pan out. The financial highlights, the GP up in this market, but also, of course, because of the integration impact. The EBIT also up and we see that, of course, we still continue also to invest in integration through the special items cost but EBIT definitely up. The EPS also up, and I think we've seen now an improvement in EPS for the first time since we acquired Schenker. So that's also very positive. The cash flow, Michael, will talk a little bit more about it, but I think there's been a little bit of comments on the cash flow already that it seems unusually high. I think we -- if we do adjust for some of the one-off transactions and they will -- they have gone into the bank account and also the higher freight rates, I think the cash flow is as it should be and what could be expected. So at least when we look at it from the company side, we are comfortable. On the full year guidance, I mentioned that, and you can see the graphs below. Switching on to Air & Sea. I think here, we also had some debate on the Capital Markets Day, and also with investors during the quarter because we had, as announced, seen the trough in Q1. And now we see a conversion ratio on 42%, which was also what was planned for in the business case and definitely also the expectation, I guess, in the market as well. So really glad to see that we managed to deliver on that. The freight rates have increased a bit. That's, of course, very good for the yields, because also the volatility in the market means that we can sell additional services. But of course, it has an adverse impact on the volumes where certain markets are down trending because of the crisis. So we also mentioned here in the call that we -- seen that the volumes, they are a little bit lower than what we had anticipated, but I guess that's also something that is usual in an integration that you focus more on the integration and perhaps a little bit less on the customer side. So all in all, our EBIT increased and I think the conversion rates are up. So very positive about the development on the Air & Sea side. If we take the GP here, you can also see for air freight that we are almost at DKK 5 billion, so 13% up. And if we look at the yields, 8,700 per tonne is also in the high end. But I guess that's also due to many of these issues that you have with the supply chain is being disrupted. Our most important area is, of course, these days on air freight, the technology vertical that continues to drive volumes. We have sanitized our portfolio on Air & Sea and we have definitely seen that some perishable volumes but also some of the volumes that we had in relation to Chinese exports, they have declined or we've reduced those volumes. So that, of course, also has an impact on the yield because yield on those volumes was very low. So moving on to the sea freight. Here, we see GP 4% down compared to last year. We have a situation where we are hovering around DKK 4,000 per TEU in GP and volumes a little bit up compared to last year. But this is, in particular, where we have seen a weaker volume development that we planned for. And we are taking initiatives to make sure that we drive volumes still in the right direction going forward on the ocean freight. But all in all, on the Air & Sea, I think we are on the right track. And the division is kind of going to deliver continued progress also in the coming quarters because we are very advanced on integration also on the Air & Sea side. Coming then to Road, delivered an EBIT of DKK 999 million, but we'd also disclosed to the market that DKK 250 million of these, they are of a one-off nature. So you can say, in reality, DKK 750 million. That's been more than last year, but not satisfactory. And what is the explanation for this? Well, when we've been doing the integration, we integrate both large physical networks but also large IT networks. And it's been more cumbersome when there's big networks to integrate, for example, in some of the countries mentioned here could be Germany, France and the Netherlands. So in the beginning of the year in Germany, we had performance issues on the network and had to compensate quite a bit in the first quarter but also into the second quarter. Actually, our delivery quality in Germany is now up to what it was before DSV and Schenker were integrated. So we have delivery in full on time at the 95% range, which is basically the performance that we've normally seen in a market like this. So we've also had some of these issues in some of the other markets. Of course, we take learning from these integrations that we're doing so that we eliminate some of that risk. So there's no really structural change to the aspirations that we have enrolled because it's something that we have to overcome. And then when we are on the other side of it, we actually have the same performance as we have had before. But we've then eliminated one network, both on the IT side, but also on the operational side. And this puts us in a much stronger position for driving the company forward. So we've then added Brian Ejsing's experience to the road teams, he's been with the company for many years and has significant experiences in these type of integrations and that's really what has helped us to make sure that the delivery goes back to normal. Historically, if we, for example, look at the KPI called delivery and full -- delivered in full on time. For example, in the Schenker network, it has hovered between 93% and 95%, very seldom at 95%. And currently, we are at 89%. So there's still a little bit of work to be done, but we expect to be within that range in September month. And that means that then the extra cost that we have on the GP level when you don't deliver in full on time, you have additional cost because you have to get express trucks or do express deliveries or do some things basically then compensate so that the customer, they get a good experience, and you don't need to do that. It actually drives quite a bit of cost also on the terminals. So that's what you can see in the numbers. And this is then a little bit about the road. So there's nothing structurally wrong with our plans. This is very important for me to emphasize, but there are some transactional issues in relation to the integration that we are dealing with. Then, of course, I think the highlight of the quarter is definitely CL. If we sit here and produce 1.5 billion in the quarter, a return on invested capital is moving very fast in the right direction. Last year, it was somewhat low. And now we can really see that we are moving basically according to the planning that we have on CL, also growing quite a bit not least with the tech vertical here because we have this global footprint that not many of our competitors they have where you can serve a customer on CL either in Australia or in Japan or in basically in Mexico or in the U.S. or Europe or wherever it's relevant the Middle East. So that definitely benefits us quite a lot. And with the run rate that we are having, we're going to produce an outcome on the EBIT level in the DKK 6 billion range for the year. And if you would ask me a year ago about whether we would be able to do that, I would probably not have being able to confirm that, but really glad to see how it's developed the CL side and as I said, we expect actually continued progress also in the coming quarters when it comes to CL. So very positive indeed. And on that note, I will actually hand over to Michael, who will then take you through the -- basically more detailed numbers, cash flow, et cetera. So please go ahead, Michael.

Thank you, Jens. Yes. And jump to Page #11, some highlights from the P&L here in the first 6 months of 2026. Firstly, of course, Jens already explained that our EBIT has increased quite a bit to DKK 6.3 billion, which, of course, we're very happy with. Revenue increased 23%. So it's a quite a dramatic increase in revenue, which I'll come back to the impact on our net working capital in a second in this quarter. The conversion ratio for the group increased to close to 31%. That's actually improving in all divisions, and Jens also highlighted, especially Air & Sea has seen quite an improvement from last quarter as well. So we are definitely on the right track here as well. Net interest cost is a little bit higher. Obviously, if you compare to last year, now we have the Schenker business in all 3 months in this quarter. And then we have increased also some of our leases, which is impacting the net interest cost in that line. Finally, I think you also elaborate a little bit on the, our earnings per share, we can see that it has increased yet again from last quarter as well. So this is some of the highlights here on the P&L side. Then we have, over the years, spoken a lot about the cash flow. And as you also started up by saying this, we will come back to this year, it's clear that our cash flow is impacted by higher activity in the second quarter here compared to last quarter, but especially the increase in rates has impacted our net working capital. So it's relatively high these days. On top of that, we have some property divestment also coming back to the DKK 250 million, Jens just mentioned before, where we have not received the money yet. The transaction was before month end of June, and now we still need to get the money here within the last -- the next month or 2 when we received the last approvals and stuff of that. So we will get those money back. So it's a high net working capital, but it's very explainable to the rates and properties as well as activity. So all this is temporarily, and we should see, you can say, the cash flow coming in here in this quarter in Q3. So that's actually -- we're not -- we look forward to that, obviously. And so it is under control, so to speak. Then we talk about our gearing ratio. It's a little bit down compared to last quarter. We are ending at 2.7, which was 2.8 the last time. So we have actually paid back debt and reduced net working -- net interest with DKK 7 billion compared to when we started. So I think it's -- that's a lot about the cash flow. So that's great. And we actually have -- still have the target to come back to a normalized between 2% and 3% on an annualized basis. But of course, the rate is impacting us right now. Then on Page #13. This is the financial targets for 2030. I know we spent a lot of time going through those at the Capital Markets Day a couple of months ago. So it's just some housekeeping to have them in here. They, of course, remain unchanged also on the road side. So from a strategic point of view, the way that we are heading, there's no changes during the quarter. So we still continue on the road map that was, you can say, presented at the Capital Markets Day. And of course, we are still confident that we will achieve the financial targets, and we have plans to do so. So that's just to conclude on that one. Then we have like -- we have actually narrowed our range of outlook. We have increased the bottom from DKK 23 billion to DKK 23.5 billion. So of course, it's due to the fact that we have already in our past 6 months. Some would -- could argue that the range is still a little bit higher, but I would also say that the uncertainty which we look into is also quite high. So for the remaining part of the year, we expect the Middle East situation as is and that do not -- that's how this is information that we have right now. So we need to work with that as an assumption. Then for the Air & Sea market, we expect for the remaining part of the year also to grow low to single mid-single digits and also that the yield will slightly decrease on that one. For the road, it's also a little bit low single-digit growth in the road market. And then, of course, like Jens talked about, that Brian works on the recovery plant in the areas I just mentioned before. So overall, we increased the bottom of our guidance, and we continue to be confident that we are on track to deliver on the guidance as promised to you guys. And then back to you, Jens for some of the key takeaways.

Yes. So I'll just reiterate that the earnings momentum is definitely positive in the company. And we look forward to continue that journey also in the coming quarters. And then I think the Schenker integration, very soon, we will not be talking much about that anymore because it will be something that is history. And then at the end of the day, of course, always pleased to be able to narrow the guidance in the higher end of the range. So with that said, I think we are basically ready for the for the Q&A session. [Operator Instructions] But I'm quite sure the operator will do that as well. So let's move on. .

[Operator Instructions] And today's first question comes from Alex Irving from Bernstein.

My question is on road. You explained the issue that you're having is -- you're having to add cost to get to the right on time and in-full delivery quality. How much of that cost is you adding Q2? And how do you expect that to trend to Q3, Q4 and early next year? In other words, renting growth will be back on track? And is there anything else to highlight that's going on the division beyond delivery quality costs?

I would say that if you look at the first half year, we've done some calculations about it. It's definitely more than DKK 0.25 billion that has cost us and it's probably even closer to DKK 500 million that we are talking about. But it's estimates that we are talking about. And every percentage that you are below it cost you a significant amount of money, not only on the GP, but actually also on the administrative burden that you carry. And this is the reason why that once we then get back to the normal range, right now, we improve what can I say, the -- we call it default delivery in full on time with approximately 1 percentage point per week. So getting back on track and eliminating that cost here during the third quarter, that is the primary focus that we're having. And then basically, we should be able to take that, what can I say, burden away from a financial point of view, definitely also from an operational point of view and a customer service point of view. So I think that's basically what we are looking into.

And the next question comes from Cristian Nedelcu from UBS.

Could I ask you on the Q3 EBIT, could you talk a bit about the building blocks seasonality holding quarter-on-quarter incremental synergies. Any other moving parts, I think consensus is DKK 6.7 billion. Do you feel confident that the building blocks can help you reach that? And if I just follow very briefly on the prior question, EBIT margin wise in roads, how should we think about Q3, Q4? It sounds like that there's already an improvement in the underlying EBIT margin in Q3. Did I understand that well? And any more color there.

We take growth, I think there's a big summer period in Q3, it's always what can I say, has a significant impact, as you said, on a lot of infrastructure. And this goes for June -- July and August, obviously, where you will have that headwind. September will be a good months normally when it comes to that. And right now, we are improving, but and we expect that it will help throughout the quarter as we are talking about it. But we don't really guide on a quarterly basis. But when you look at the company in general, we need to see improvements in -- and of course, Air & Sea where we get the impact from the synergies that you also saw now remaining more than DKK 1 billion more in Q2 than we made in Q1. We need to turn the table around and road. I don't think that we're going to see the full impact of that in Q3, but definitely into Q4. And then on CL, I think we will continue, what can I say, the slow grinding way forward. I think that's what I can say because very soon, you will ask for monthly budgets as well, and we guide on a yearly basis. So I hope this answers your question. .

And the next question comes from James Hollins from BNB Paribas.

Mike, I want to come back on the free cash flow. Is there anything sort of underlying that you're concerned about and free cash flow performance. Obviously, you've made a very clear statement that this effectively normalizes from Q3 onwards. Is that fair to say you will see a normalization? And very obviously, does this impact your view on the potential speed with which share buybacks can come back in?

Yes. I, of course, expect that the cash flow will come because it is temporary and there's no underlying challenges in there. So we, of course, expect that that will come back. And then in terms of potential share buybacks, like I have said also in previous quarter, we do estimate, you can say every quarter, how is the cash flow looking for this quarter that just passed. How will it look next quarter and then how is the gearing ratio looking? And then based on that, we assess whether we will be able to start share buyback. And that methodology will, of course, continue. But as you can see for this quarter, where we have an interim, you can say, tie up capital in our net working capital, we actually want to get that in the bank here in the next quarter, and then we will assess whether we are in a position to consider it again.

Reiterate that the change in our policy. .

Would that therefore indicate likely share buybacks announced at Q3?

No. I would not say that, that is likely to Q3. We assess it every quarter. And as Jens rightfully mentioned, we also have our capital allocation policy, which we stick true to. We also have our rating agencies. So it's a mix, you can say, development that we need to see before we start the share buyback. .

And the next question comes from Patrick Creuset from Goldman Sachs.

Good to see clear improvements you're making in Air & Sea and CL, but I think you have 2, as you say, temporary issues in terms of working capital and in the road EBIT in Q2. And it would be helpful if similar to Q1 where you are spoke about Air & Sea Q2 performance above 40% conversion, you've delivered 42%. If you could be perhaps a little bit clearer on the Q3 and Q4 path on those 2 items to confirm temporary. So road underlying EBIT performance of DKK 750 million in Q2. It sounds like Q3 would be sort of in a similar range. And then you're adjusting DKK 250 million, DKK 500 million of one-off costs flowing back up in Q4. Is that kind of the right way to look at road? And then working capital, DKK 2 billion negative flow in H1 overall and we understand the building blocks, but do you expect to recoup most in H2, how much in Q3? Any sort of rough directional guys would be helpful.

Capital, you can take it.

It is -- thank you for the question. The net working capital, we do expect that, that will -- you can say the cash flow will come in here as it is temporary. And -- remember also, like we also have written DKK 1.8 billion is -- DKK 1 billion, DKK 1.8 billion is due to some of the property divestment of the legacy Schenker properties. And of course, the transactions are closed, and we will have the money here within this month or next month. So I'm quite certain that this is a temporary issue. In terms of the projection of the net working capital, of course, it depends on the rate development and also if we kind of start getting more volume and activity in. But overall, of course, we do expect that if it continues as is, of course, we should have brought down to in the range of between 2% and 3% over the next couple of quarters.

I think the seasonality on working capital is, unfortunately, so that is always the best position at the end. So there will always be a headwind when it comes to the year. But as Michael says, I think the property money, they have more or less gone into the bank account. They might be one outstanding. So we are 100% certain on that. .

We actually did receive some money last year on that.

Yes. So that -- and then the other one, as we said, nothing structural. When it comes to road, I think it's probably a fair way that you look at that the next quarter is going to be also because of the seasonality weaker. And then the fourth quarter, we're going to get back on track. As I said, when we've done the integrations in the markets, then we come back to the normal quality levels that we have seen. We can also see that we then can -- what can I say, achieve the productivity that we require in order to deliver the outcomes that we have planned for. So sometimes when you do an integration, things require that we take some extra steps. This is not unusual. But as long as it's of a transactional nature and not of a structural nature, then I think we're going to solve it.

And the next question comes from Jacob Lacks from Wolfe Research.

So your guidance incorporates lower Air & Sea yields in the back half relative to the second quarter. Why is that just given everything going on in the ocean market right now? And do you think that's true for both 3Q and 4Q? And then do you think you can get to positive Air & Sea volume growth in the second half as you lap the Schenker acquisition?

Yes. No rolling forecast, this is what we're planning for that we get growth back in the latter part of the year. And then, of course, if you look at the yields, there's normal seasonality where they do taper off at the end of the year, then depending on the geopolitical environment, this can, of course, fluctuate a little bit. And I think we have as little insight into this. As you may have or not, I'm not sure you know but at least expected that there would be a resolution in the Middle East, and now it seems as if it's going a little bit in the wrong direction, if you're looking for a resolution. So let's see what happens. I think that's the best thing we can say right now. But of course, we react to it, depending on what happens in the market.

And the next question comes from Muneeba Kayani from Bank of America.

I just wanted to go back and erode a little bit better. So did you have any one-offs enrolled in the first quarter. I just want to understand why kind of this operational issues came up in the second quarter, and there was nothing in the first quarter. So that's one thing. And then secondly, just related on road, should we expect any more one-offs related to property transactions in the second half? Because my understanding is that you still have those ongoing in terms of the property divestments.

I think if you look at Q1, we started many of the integrations in Q1. So they didn't really necessarily have that much of an impact. It really filter through into Q2. So -- and then, of course, when you produce your work in progress, sometimes you do it a little bit based on estimates as well. And then when you see the real outcome, then -- so there might have been some accruals. Were they 100% accurate at the quarter and probably not, but this is not unusual that can say be DKK 50 million or DKK 100 million from 1 quarter to another. If we then sit and look at it, as I said, it's probably driven across between DKK 250 million and DKK 500 million during the first half year. So it is something. It's meaningful. When it comes to the divestment of facilities, we continue to follow our asset-light policy that we've had for many years. And when we then divest facilities, we will then also if there has a financial impact disclose it, but we don't -- what can I say, plan for this in our guidance because this is a very transaction -- of a very transactional nature. And therefore, we don't know -- we have no certainty on the outcomes before what can I say that you've had the kind of like an auction on the different facilities and what are people willing to pay. Yes.

And the next question comes from Alexia Dogani from JPMorgan.

Just a very quick follow-up on the DKK 250 million to DKK 500 million impact to H1 performance in road based on these issues. Is this all cost or is there some lost revenue in there? If you can just clarify that? And then my real question is, obviously, we saw you not that long ago. I would imagine these issues must have been brewing in the background that you were trying to take. Clearly, it's not possible to fix them very quickly. It's a big integration. It's quite complicated. I guess what else is on your radar at the moment when you look at performance week on week on this integration? Are there any other areas that you are actively problem-solving that we should be aware of? Because ultimately, I think everyone understands, it is a complex integration, the largest you've done, there's a lot of systems, there's a lot of network. But being a little bit more, let's say, understanding of the issues that you're facing on the ground, I think, would help us all when we look at kind of our models and our expectations to be able to basically measure you with realistic kind of progress.

If we look at what can I say, the costs less revenue, we could potentially probably have had more growth. Normally, we do see a bit of revenue attrition when you do M&A. So that's really hard to judge. But the cost side, of course, we can see that the GP when we produce is slower. So I think that's probably where the main part of the number stems from. When we then take issues in certain areas, I think we are quite transparent about what can I say what goes on in the company. I would like to think so. I would say that the integration when it comes to the Air & Sea side, is progressing as it should. I don't really see any big areas there. Of course, we need to deliver volume. This is the main task when it comes to Air & Sea. I think this is clear for everybody. I think on the CL side, I think the numbers stay at least when we look at and they speak for themselves, so also it's basically to be able to scale and drive the company forward. And then we have these integrations on the -- it is in relation to the DSV volumes that are moved into the Schenker systems in Europe. This is what we're talking about, the roadside. And that was really kicked off in the beginning of the year, and I believe that we saw each other in the beginning of May where we had the first indications of that. Now 2 months more have lapsed or actually 2 months and a little bit more. So yes, there's been some new information. I don't think it changes the case structurally. This is very important for me to emphasize. We've also seen that some of the areas where we did have issues, they are back on track. So all in all, we don't really necessarily sometimes you will have a reaction, what can I say, to negative information like this, but it seems rather, what can I say, significant the reaction. But I mean the market does what the market does. And we will then, of course, make sure that we solve these problems and deliver the results that we have set out to do.

I think it's also fair to say in the -- now we see things, then we address them. And as we also write the announcement, it's a couple of large countries. So I think we have been more or less through all the different scenarios. It can, of course, can be that there are some few remaining parts left. But overall, I think the combination of systems and countries and stuff like that. We have been through a lot of the scenarios and taking some lessons learned there.

Then the next question comes from Cedar Ekblom from Morgan Stanley.

I've got a question on your staff costs numbers in terms of number of employees. So I can't really square what's going on at the divisional level with what's going on at a group level. So we've got staff costs down across the board, which is good since Schenker integration. But the reduction at the group level is far more modest than if we look at the divisions. And so the question is, why are the heads at the head office level not actually moving in the same way as the divisions? And actually, on a sequential basis, I think you actually might have added a few heads at the head office. So a little bit of color, please, on sort of the difference between the operators at the local business levels relative to maybe your more central functions, that would be helpful.

It's a good question. And you're absolutely right. In line with the integration, we are also consolidating more and more tasks and works -- work flow in some of the group entities. So it's a very real spotted that is why it develops as it does for the group part. And I do believe that...

Color on how that normalizes or because it would be quite disappointing to see all these hits come out at the regional and business levels and then just see like the total number shifting around to head office functions. So a bit of color on on the catch-up or the aligned fares, that would be helpful.

It will be done in line with the country rollout. So you can say it's about around 2,000 FTEs that we have added, so.