Earnings Call: DSV Outlines Growth and Unveils Details of Schenker Acquisition

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Earnings Call: DSV Outlines Growth and Unveils Details of Schenker Acquisition

During the Q3 2024 earnings call, DSV (DSV.CO) highlighted a period of growth and strategic expansion, characterized by the acquisition of Schenker and robust financial results. Group CEO Jens H. Lund and CFO Michael Ebbe underscored a notable year-over-year EBIT growth for the first time recently; with gross profit increasing by 4.8% and EBIT by 1.5% at constant exchange rates.

The company refined its financial guidance and discussed its financing strategy for the Schenker acquisition, which includes a capital increase and potential bond issuance. Despite challenging European markets impacting the road transport segment, DSV reported volume growth in air and sea freight and strong cash flow for the quarter.

Key Highlights:

  • DSV reported year-over-year EBIT growth with a 4.8% increase in gross profit and a 1.5% increase in EBIT at constant exchange rates.
  • The company narrowed its financial guidance to a range of DKK 16 billion to DKK 17 billion.
  • The acquisition of Schenker is expected to complete in Q2 2025 with regulatory approvals already obtained.
  • Air freight volumes increased by 7% and sea freight by 8% in Q3.
  • The road transport segment faced challenges, leading to price hikes to support shippers.
  • The NEOM infrastructure project is expected to gradually accelerate, with limited activity anticipated until early 2025.
  • A strong cash flow of DKK 2.5 billion was reported, with a leverage ratio of 1.7x.
  • The company continues to focus on operational efficiency and expects sustained growth in the Air & Sea segments.

Company Outlook:

  • DSV anticipates growth in Air & Sea products and modest growth in Road transport.
  • Operational efficiency improvements are expected in Q4 and Q1.
  • The company aims to increase its wallet share with customers, bolstered by the Schenker acquisition.

Negative Highlights:

  • The Road segment experienced lower margins, necessitating price adjustments.
  • The NEOM project is expected to progress slowly with minimal capital expenditure in the short term.
  • IT license costs from vendors increased by about 15% year-over-year, prompting a cost program to mitigate impact on efficiency.

Positive Highlights:

  • DSV's market share is expected to rise to about 7% post-Schenker acquisition.
  • Customer satisfaction is rising, with a Net Promoter Score (NPS) around 30.
  • Regulatory changes in the EU may increase truck supply, positively affecting market dynamics.
  • The company is outperforming market growth forecasts, with maritime and air markets expected to grow by 5%-6% and 6%-7%, respectively, in Q3.

Shortcomings:

  • There was significant volume growth in the Road business, but prices declined.
  • Specific business plan figures were not disclosed during the call.

Q&A Highlights:

  • Jens H. Lund indicated a slight increase in gross profit per unit in upcoming quarters.
  • Schenker integration focuses on aligning systems and minimizing customer and supplier disruptions.
  • Post-Schenker integration, DSV’s M&A strategy might include smaller complementary acquisitions.
  • Financial plans include a €5 billion equity raise and bond issuance to optimize capital costs, targeting a 30% conversion rate by 2026.

DSV's recent earnings call presented a company in a strategic growth process, setting the stage for future expansion while managing market challenges. The acquisition of Schenker is a significant move to enhance DSV's service offerings and market relevance. With strong financial results and a clear focus on operational efficiency, DSV is positioning itself to maintain its growth trajectory despite a sluggish global economic outlook.