Street Calls of the Week
DSV Panalpina A/S reported its third-quarter earnings for 2025, leading to a 5.11% increase in its stock price. The company’s financial performance was influenced by strong cash flow and successful integration of Schenker, despite facing some market challenges. According to InvestingPro data, DSV has demonstrated remarkable momentum with a striking 652% year-to-date return, significantly outperforming market expectations.
Key Takeaways
- Successful Schenker integration improved operational efficiency.
- Strong cash flow with a 96% cash conversion ratio.
- Stock price increased by 5.11% post-earnings call.
- Special items impacted net results by 1.1 billion DKK.
- Market conditions remain challenging in certain sectors.
Company Performance
DSV Panalpina has shown resilience in its third quarter of 2025, with the integration of Schenker progressing faster than expected. The company has managed to reduce its debt by 4 billion DKK and improve its net working capital to below 2%. With an impressive Financial Health Score of 3.17 (rated as "GREAT" by InvestingPro), and a strong current ratio of 2.35, the company maintains robust financial stability despite the macroeconomic and geopolitical uncertainty impacting growth in some areas.
Financial Highlights
- Strong cash flow: Over 4 billion DKK with a 96% cash conversion ratio.
- Debt reduction: 4 billion DKK.
- Special items: 1.1 billion DKK impact due to Schenker integration.
- Guidance narrowed to 19.5 to 20.5 billion DKK for the full year.
Market Reaction
Following the earnings call, DSV Panalpina’s stock price rose by 68 DKK, a 5.11% increase, reaching a new level of investor confidence. Trading at elevated earnings and EBITDA multiples according to InvestingPro analysis, this movement places the stock within its 52-week range, reflecting a positive market sentiment despite the challenging conditions in ocean freight and industrial verticals. For detailed valuation analysis and expert insights, consider exploring DSV’s comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
Outlook & Guidance
DSV Panalpina has adjusted its guidance, narrowing it to 19.5 to 20.5 billion DKK for the full year. The company expects to achieve 4 billion USD in synergies by 2026, with increased expected synergies for the current year to 800 million DKK. The company is also planning to optimize its Road network and explore potential real estate divestments of around 1.5 billion euros.
Executive Commentary
Jens Lund, Group CEO, remarked, "We are off to a good start when it comes to the combination of the company and the financial performance." CFO Michael added, "We can promise you that we will deliver at least the $4 billion, and we will work whatever we can to make that faster and higher."
Risks and Challenges
- Special items related to Schenker integration impacting net results.
- Continued FX headwinds expected to affect financial performance.
- Challenging market conditions in ocean freight and some industrial verticals.
- Macro-economic and geopolitical uncertainties affecting growth forecasts.
Q&A
During the earnings call, analysts inquired about the pace of synergy harvesting and potential, variations in yield across different freight segments, and strategies for cost management and integration. With 4 analysts recently revising their earnings expectations downward for the upcoming period, the company addressed these concerns, emphasizing its focus on customer retention and service offerings. For real-time analyst coverage and detailed financial metrics, access the full suite of professional tools available on InvestingPro.
Full transcript - DSV Panalpina A/S (DSV) Q3 2025:
Haley, Conference Call Operator: Ladies and gentlemen, welcome to the DSV A/S Q3 2025 interim financial report conference call. I am Haley, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. 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.
Jens Lund, Group CEO, DSV A/S: Good morning, everybody, and welcome to our Q3 results call. We look forward to a good session where we go through the presentation. The format will be the same as usual. Michael and I will say something in the beginning, and then we will do the Q&A session. We will quickly go to the forward-looking statements. Please take your time to read it. It gets longer and longer. We will soon need two slides for that one we’ve been discussing. I’ll skip that one and move on to the agenda, which is the same agenda as we normally use. Also, therefore, I will quickly move on to the next slide and talk a little bit about the highlights of the quarter. I think it’s very clear that we are basically seeing good momentum on the Schenker integration. It’s, of course, the most important topic that we have right now.
It is to ensure that the integration continues to gain momentum, and I think that’s also what we see. I’m particularly fond of the fact that we’ve sort of done really well in relation to the customers. I think the feedback that we’ve received on the integration is very positive, and we’ve seen that there’s been very little attrition. That’s definitely an outcome that we’re very pleased with. On the financial performance, I think the numbers speak for themselves. Of course, it’s now with the full quarter of Schenker numbers in there as well. There’s still a lot of ground to cover, but I think we are off to a really good start when it comes to the combination of the company and the financial performance.
On the de-leveraging, yes, I think we’ve now started to reduce our debt, and it just shows that we generate cash flow, and that means that there’s substance in what we are doing. Of course, our guidance, we now have narrowed our guidance. Michael will talk a little bit more about it. I think it’s basically good to see that we stay within the range that we guided at the beginning of the year. Lastly, I would just say on the execution of the synergies. I’ll come onto that on the next slide. Of course, at the end of Q1, we saw that we had a plan, and we presented also a timeline. We had a lot of uncertainties in this plan. We’ve managed to reduce the number of uncertainties and also basically then been able to update the plan so that you can see there are new timelines.
I think I would just like to mention that we’d said we would be done with 15% at the last call. Now we say we will have 30% done before the end of the year. Also, the next column is increased from 50% to 70%. Not all plans are finalized yet. As a consequence, this is what we know, this is what we have confidence in. We, of course, are working on doing it faster, and that might be the case. This is what we know for now, so we’re very comfortable showing you this as well. I think if we look at the integration itself, I talked about that we’d said the organization is very, very stable. The organization, we are pleased with that. I think, as I said, the customer dialogue, it’s something that is really rewarding because it’s something that we’d put extra effort into this integration.
If we measure the previous integrations, we saw that we needed extra focus on this. I think the country go-lives, they’re progressing really well. We are live now in 13 countries. This is where we physically move the people in together, both in the offices but also on the operational side. It’s a lot of work that needs to get done. It’s actually steered by Michael, who is doing a wonderful job on this together with the team. Of course, I think the back office functions here, we also consolidate the functions. It’s going really well. We can see that on the white-collar side, we’ve reduced more than 3,000 headcounts as a result of the combination as well. I’d just also like to mention that we expect to go live in Germany on the 1st of January, as we’d stated also the last time.
I’m really proud about the work that is being done by the team there, both on the DSV side but also the Schenker side and the constructive approach from the employee representatives, where we basically have an ongoing, of course, open dialogue, but still in a constructive way so that we find results. I think the finance figures you could probably read yourself and the transaction costs and the expected synergies, they remain unchanged. If we look at the financial highlights here, we see the GP is up. At the end of the day, this is really what it’s all about, that we produce some more GP. We see that the EBITDA is down, and it is because the productivity needs to increase as well. That’s one thing that I would like to say, and I’ll also point that out when I come to some of the divisions.
The transaction size that we’re handling gets smaller when the economy has a difficult time. The volumes that are shrinking a little bit when we are down trading, it doesn’t necessarily mean that there’s fewer shipments. We need more shipments to flow through the system, and we have a certain number of transactions per person per day. On the productivity side, we’re actually doing fairly okay, I would say. It’s just a little bit complex to see through some of those numbers here. When we look at it from the management side, it’s under control. We’re doing a great job, and I’m very confident that we will see when the synergies start to kick in, that we will also see progress on the EBIT side. If we move to the next slide, we come to the Air & Sea division. Here, I think we’ve always said it’s GP that matters.
We need to produce some gross profit here, and that’s also what our focus has been in this quarter. If we look at it, we can see that the GP is up, the EBIT is down. If I look at both air freight and ocean freight, we produce more shipments than we did last year, even if the volumes have evolved as they have. Of course, it puts a little bit of pressure on the conversion ratio as well as the lower productivity we see out of the Schenker organization. Not that we’re not going to get the Schenker productivity up, it’s just when you combine, it takes a little bit of time before we get there. That, of course, has a consequence for the operating margin as well. Once the conversion gets up, the productivity gets up, the margin will adjust itself.
If we look at the air freight, I think we are actually pretty pleased with the developments in the GP. It’s really been solid for us. It’s the last quarter where we can separate the DSV and the Schenker volumes because, as I said, we are now live in 13 countries, and it means that we cannot separate the hot and the cold water anymore when we do the reporting. We give you these numbers, and you can see we’ve had the yield discussion many times, and it’s actually holding up pretty well. One of the reasons why it’s also holding up is, of course, as I mentioned, let’s say you do more shipments in order to achieve, what can I say, the tonnage that we are talking about here.
We all have to remember that let’s say you do an air freight shipment of 400 kilos or one of 800 kilos, it’s the same work that the full water needs to do. On the productivity side, I think actually, if we measure on the KPIs internally, we can then have aspirations that we need to drive the productivity even higher, which we also have. I’m very satisfied with the productivity measures that we have, and we’re monitoring these all the time. If the market develops differently, of course, we will need to react on it. On the ocean freight, of course, that’s the toughest market that we’re in right now. It’s crunch time. We see that our basically GP is down. Of course, there’s some FX impact in that as well, which goes for all our numbers.
Michael will come back to that, but there’s quite a bit of headwind on that. Also here, we’ve had the yield discussion many times. We’ve been discussing the value-added services that we produce on a shipment, and I think it speaks for itself that now we do more transactions per TEU. We’ve also had a lot of focus on the LCL market now for years as well in order to protect, what can I say, our GP and have a value proposition where we are in control of the infrastructure. I think this is very clear in the numbers as well when you look at it, that this is now what is playing out as well. We come to Road, and of course, it’s nice to see that in absolute figures, we are making progress. Schenker’s Road organization is a really good Road organization.
Strong footprint in the Asia-Pacific and also a solid footprint, a very strong footprint in Europe. Here we are the market leader. If we sit and look at this, then of course, there’s a lot more to come, but we are on the right way. If you look at these numbers, they include both July and August, which if you have a large scoopage network means that you will have a lot of fixed costs and not as much income generated in these months. Delivering a result of, are there to round it up to $800 million, it’s actually quite an achievement from the Road organization that I’m very happy about as well. On the shipment side, also here, we are flat. It’s flat neutral what we are seeing here as well. It’s really also well done, I would say.
We come to CL, and here we’ve produced almost $1.1 billion. Definitely quite a bit up compared to what we’d seen before. Here we see that the Schenker contribution is impressive as well. Actually, we’ve been doing fairly well on the EBIT side on the DSV anyway previously, as you can also see from the comparable figure, which only includes DSV. Schenker is definitely also contributing with both footprint, with skills, with competence, and in combination, we have a really solid value proposition. We have the problem that, which is something that we have a ton of focus on, we need to increase the return on the capital that we deploy because, of course, it benefits the other divisions that will hold cargo that is being moved in our air freight network, our ocean freight network, or our road network.
We need to generate, what can I say, a higher return. It’s unacceptable where we are right now. The division is really taking this into consideration when doing the integration, and I feel very confident that they are doing something about it that soon also will be visible in the numbers. With that said, I would really like to hand over to you, Michael, so you can give a little bit of details to some of the numbers as well.
Michael, CFO, DSV A/S: Thank you very much, Jens. If we look at page number 12, which are some highlights of our P&L, like Jens mentioned, we have a stable performance in the quarter, and of course, Schenker contributes positively. If you look at our net result, it is, of course, impacted by our special items of DKK 1.1 billion. This is, as we’ve announced, also related to the Schenker integration. I know that we have been talking with some of you guys at earlier occasions. We have, you can say, moved our Road activities, legacy Schenker that we have acquired, that was moved to discontinued operations for the ones that are really into details in the spreadsheets. Another thing that Jens mentioned, and I will also touch upon that in the next couple of pages, maybe, is the FX headwind, which is, of course, impacting predominantly in our Air & Sea business.
Next, it’s also worth mentioning our tax rate is very high these days, which is due to the integrations of Schenker. It’s a little bit higher than what we have anticipated previously. It’s because, as we can see with the synergies and so forth, we move a little bit faster than what we did last time. We are really picking up in pace, and that’s reflected in the tax rate. Our diluted EPS is stable as compared to last year. If you look at compared to last quarter, it’s actually kind of picking up. If you then even dare to see if you can adjust for the tax rate, then we would actually already be in a positive mode on that one. It’s clear that the ratios are, like Jens also mentioned, impacted by the dilution impact of the acquisition of Schenker. We’re working on getting that improved.
On the next page, on the cash flow, we have actually a strong cash flow, more than DKK 4 billion, cash conversion ratio of 96%. We’re very pleased to see that. Our net working capital has improved quite a bit as well. It’s below 2%. I cannot promise you guys. Of course, I will do whatever I can to maintain that low level. As we said earlier, it might be, you can say, to calculate around 2% in the same. We’ve also been able to reduce the debt by the strong cash flow that we have. We have reduced our debt with DKK 4 billion. That also seems to be nice. It is nice that we are on the right track, as you can see. That is great as well. The next page, 14, is on the guidance.
We are very happy that we are able to keep guidance and, of course, lowering the upper range of our guidance. Now we will expect that we will land in 19.5 to 20.5 for the full year. Jens started out by saying that in this number, of course, you have to bear in mind that we have headwind for the FX of around DKK 500 million, DKK 500 million as headwind on that one. We also increase our expected synergies for the full year to around DKK 800 million from previous DKK 500 to 600 million. That’s a change in there as well. Also, giving the pace that we have also means that we increase our expectations of special item cost in our P&L. Again, reflecting the pace on integration, the tax rate will be a little bit higher.
It’s because there are tax consequences when we do these kind of integrations. Long term for the tax rate, we expect that we will be back in the 24% area next year, hopefully. For the market outlook, it’s still impacted by the macro-economic and geopolitical landscape. We still expect that uncertainty to persist for the next quarter. We expect to see growth below GDP for the next quarter. That’s what we have embedded into this guidance that we have. Overall, again, we are very pleased that we are able to keep our guidance in the way that we have. On the Road and on the contract logistics, as Jens already said, it’s a stable performance that we expect to continue for the remaining part of the year and hopefully also the next couple of years, even better. Then back to you, Jens.
Jens Lund, Group CEO, DSV A/S: Yep. As Michael said on the key takeaways, I think one of the things is when we take the Schenker integration, it’s really all the experience that we have, all the support that we get from the various parts of the organization. They know what they need to do. It’s really well done, you know what is in there. I think it’s also a playbook that we’ve now done many times that everybody feels comfortable with and also to you investors that have supported us. Thank you for that. That’s really, you know what comes out of it. At the end of the day, this momentum that we now see on the integration, it’s really good to see. Of course, as an investor, at the end of the day, what you get is earnings per share. That’s our focus. Right now, we are driving the earnings per share up.
Of course, at a certain point in time, when we’ve also delivered the company, we’ll probably also use the normal tools under capital allocation to support that thing. This is our core focus that we drive the EPS up. I think we are looking into a very interesting period when it comes to EPS development. The guidance, I think Michael talked enough about that. We should perhaps quickly go to the Q&A session because I hope that you have many good questions for it. Please go ahead with that.
We have ended the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to a couple of questions. Anyone who has a question may press star and one at this time. The first question comes from the line of Dante Ryensen. Please go ahead.
Yes. Hello and congrats with this report here. Maybe if you can elaborate a bit on your expectations here for Q4, especially the low end of the guidance range of $19.5 billion. I mean, you need to make $5.5 billion in the fourth quarter on my math, and you made $3.9 billion last year. That’s a bridge of $1.6 billion. Schenker contributed $1.3 billion in Q3. Probably this will be more in Q4 due to seasonality, and you have synergies on top, which you have just lifted. In my mind, this alludes to a somewhat negative contribution from the organic business in Q4 for DSV. Bearing that in mind, I seem to remember you have quite easy comps, at least in the contract logistics and in the Road business.
There must be something weighing significantly down in Q4 for you to maintain the $19.5 billion, just to understand your thinking of the low end. Thanks.
Yep. Especially volume, isn’t it, on what can I say in particular within Air & Sea that we are talking about? That is, you know, I think the yield will be okay. You’ve seen that we are a little bit down on volume. I don’t see that trend really change. Compared to the original guidance, we probably had anticipated that we would have a growth in volume. Now we have a decline. I think that’s the major contributor, I would say. The other things that you’re talking about, you know that we’re doing well on, yeah, of course, the FX side is big as well. I think that’s important to mention. On the contract logistics and Road, we’re doing okay. I think basically, if you’d say volume and FX, that’s sort of the main explanation when we look at it. Yeah.
Michael, CFO, DSV A/S: Lastly, we need to take the seasonality of the legacy Schenker into consideration.
Yeah, shouldn’t that pick up a bit in Q4 given the Road business? I mean, where Q3 usually is running.
Jens Lund, Group CEO, DSV A/S: That’s one thing you have to remember on that. They have a big group as network. There are many days where there’s no production in December. I can tell you, we are also learning something new about fixed cost when it comes to that. We’re really trying to figure out how we can organize this in the best possible way and how many days we produce, etc., and what’s the optimal outcome on that. We’re putting significant effort into that. It’s going to be less than what we’ve seen before, but it’ll probably take a couple of quarters before we really get that structured in the right way. It is on the Road side. It’s a hard one, I will say. It’s going to be good in Road here in October and November, really good. We’re going to get a tough December.
You know whether the range is the range then, it’s from 19.5 to 20.5. If you are a little bit more optimistic than the people that are, there’s a middle of the range as well, if you know what I mean. I think I won’t say more than that.
Understood. If I’m allowed, just maybe another question here, digging into the verticals. Could you maybe elaborate a bit? Which are the strong verticals for you here? Is it firm, the growth you see, for instance, in technology, in pharma, or maybe aerospace defense? Are yields holding up in these verticals?
I would say that yields are definitely holding up in the verticals you’re talking about. It’s probably also some of these verticals that do the best. You would perhaps have more, what can I say? We are a big player in Europe. Of course, automotive is a tough one for us also, you know, knowing that Schenker was a German company as well. Very involved with those companies as well. That’s, of course, something that is a little bit tough these days. Also, some of the industrial areas, the capital goods are also a little bit under pressure, I would say. The verticals, of course, are tech vertical, very strong vertical out of Schenker. We had focus on it as well, but in the combination, we have the broadest service offering of all the players in the market.
Of course, we are making good progress there, and it’s really good to see. It’s helping us a lot when we then see troubles in other verticals.
That’s good. Thank you.
The next question comes from the line of Frederick Crosett from Goldman Sachs. Please go ahead.
Hi Jens, Michael. Congrats on the strong print, also from me. Just a couple of questions. The first, just some synergies. I mean, it seems like you are harvesting the 9 billion ahead of schedule. Perhaps can you talk a little bit about some other sources of opportunity, let’s say, that you see within the DSV business? I mean, updated thoughts on procurement synergies, for example, and also the latest thinking on STAR, Tango IT system rollouts. Michael, you mentioned the strong cash flow, leverage reducing. I think you’ve previously talked about bringing the buyback back perhaps in H1 2027 and appreciate it’s early to talk about it. Any thoughts there, updated thoughts on timeline, on when you might be in a position to return capital, again, depending on how you continue to progress?
Good. I think I’ll take the first couple of questions. Michael, he will talk a little bit about the buyback as well. If we look at the synergies right now, I think what you are alluding to, Patrick, is basically when we do an integration, then we make an initial plan like we’re doing now. We combine the companies. Once you have it combined, and I think this is what you’re thinking about, then you’re thinking there’s actually a little bit of things we should adjust on top of that. These are not sort of in the plan, but they will come once we’ve done the other work. I think it’s a little bit too early days to say something about that.
Let’s say two quarters down the road, we should have a much better view on how the combined DSV will look because then we’ll have done, as you can also see from the plan, quite a bit of the work combining the countries as well. I think that’s what we can say on that. Of course, we’re really working hard just to obtain the synergies we get right now. There’s going to be a next step. If we take the STAR or the Tango CargoWise One debate, I think the plan is that we now, to harvest the synergies, roll a lot of countries onto the CargoWise One, but also keep some volume on Tango. Basically, we can backfill both systems with data from each other. We’re not necessarily losing a lot of productivity on that. We have to have a debate, which direction are we going in?
I think we will have to come to a conclusion on that as we go along. So far, we’re producing the volume and we are shifting. We have a data platform where we can exchange data between the platforms seamlessly. It’s not a lot of productivity that we’re losing. It also helps us a lot on the customer integrations, actually, that we can do them, what can I say, in a more plannable way, I would call it. Yep. Michael, it’s your turn.
Michael, CFO, DSV A/S: Thank you, Jens. Patrick, also thank you for the question from my side. Of course, the cash flow and how we can return into share buyback area is something that we follow up very, very closely. Believe me, I also want to go there as soon as I can. We have to look at the next couple of quarters. If we continue the strong cash flow as well, then we will, like we always do, take a look at it quarter on quarter and then see how is our keying ratio, how the rating agencies consider it. We will have to take a relook, hopefully, within a couple of quarters.
Jens Lund, Group CEO, DSV A/S: Thanks very much.
We have now a question from the line of James Holland from BNP Paribas. Please go ahead.
Yeah, thanks very much. Michael, if I could start with you, if I could just get some, if possible, clarity on synergies within 2026. I know a lot of investors are crying out for it. If we do some basic maths on 30% integration end of this year, 70% end of next year, if we took the midpoint, that would be something like $4.5 billion of the $9 billion. I was wondering if you could just give us your thoughts on synergies within 2026 that will impact for the year 2026 EBIT. Secondly, Jens, you talked about very little attrition in your customer, or basically your customer retention is strong. Is it sort of better than expected? Is it as thought? I know you talked previously about you’ve done the top 275 customers.
Maybe if you run us through how it’s going with the, I guess, smaller sort of customers in terms of attrition. If I may, are you planning a capital markets day anytime soon? Thanks a lot.
Michael, CFO, DSV A/S: Yeah, I will take the first one, and then Jens will take the second one. In terms of the synergies, what I think that you can expect is that, like we also have written for the phasing, if you do some math and try to predict it, you would see that 2026 should be around $4 billion, you can say, in synergies that will have an impact on that one.
Jens Lund, Group CEO, DSV A/S: I can talk a little bit about, what can I say, the customers. I would say that, yeah, it’s correct that, let’s say, on the last call after Q2, we sort of initially focused on the larger customers. Of course, that’s cascaded down now into the organization so that there’s basically a focus, what can I say, on what we call the A, B, C, and D customers, where we go and basically have a conversation with all those customers depending on their size and service requirements, etc. I explain to them what is the customers. They want to know what does this mean for us. Do we get new rates? Do we need a new contract? Do we need a new integration? Who’s my new contact person? What does the team look like? Where is their office? All these questions we have to answer for the customer.
If you are proactive and do this, very soon we can start to explain to them what is it that the combined company can do for them. This is, of course, where we are much stronger than we were before, being now the global market leader. Of course, we have a strong offering to present to them. Actually, we’ve seen that they’ve responded very well on that, that we have a very structured approach on this. I think it’s also visible in our numbers that you see that in reality, we’ve managed to keep the customers. Yes, we are down trading because the shipment size, what can I say, on volume in TEUs or tonnes, because the shipment size has decreased. Apart from that, I think we’ve really stood our ground on this integration.
I think it’s thanks to the efforts, what can I say, of a whole organization that wanted to prove to the market that we could up our game a little bit on this one. I think that’s all been very good. If we look at the capital markets day, yes, there’s going to be a capital markets day. We need to come out and explain better what it is that we’re doing, what’s our strategy, what’s our plan, what’s our thinking, both on generative AI, for example, which is a big topic, what’s our thinking on the integration, on the strategies for the divisions. We’re really looking forward to that. I know that our IR team, they are already working hard on planning it so that we will have a very good agenda for you.
Thanks a lot.
The next question comes from the line of Alex Irving from Bernstein. Please go ahead.
Good morning. Two from me, please, both on Road. First of all, you pointed out the implementation of the uniform digital platform. What is it specifically that STAR can do for you that Roadway Forward did not? Second, you suggested at one point, it might have been last quarter, that if you really excel in Road, a double-digit EBIT margin might be achievable. Is that still achievable? If so, what would be the path to that? Are we talking just structural cost reduction? Does it require a change in the business mix, let’s say, more groupage? Thanks.
If we take Road and STAR, I think when you have to create a system like this, it’s very much, it’s not a technical problem. It’s a governance problem. How do you want to operate your business? I think Schenker has been on that journey on the groupage side and also managed to divide their business perhaps sooner than we did, whether it’s at system freight, groupage, as we also call it here in Europe. Let’s say shipments between 30 kilos and 2.5 tons or 2 tons or something like this, so larger than a parcel, but not, let’s say, a real LTL shipment where you go direct to the customer. You then also have the FTL business, which is like the full truckload. We call that direct. Schenker had separated that harder than we had in DSV.
We tried to solve both products in the same structure, whereas Schenker really focused on the groupage. That’s really how STAR came about. They have done a lot of change management in the countries where they’re rolling it out because there’s a lot of local habits that we have to weed out so that we basically work on one platform. You will have what we call, it’s like for Air & Sea, you will have a single file system where you don’t have, what can I say, different systems with different types of data at both ends, different conventions for data, and then you need human intervention. All of a sudden, what can I say, you produce fewer shipments per person per day. It also gets harder to plan. There are many things that are very difficult, the more complex system landscape you have. This drives lower productivity.
We replicate the same process over and over again. We have also to say that Schenker, they have done better at separating these two things. Actually, we can also do the other stuff on the STAR platform as well, the direct business. It’s perhaps supported a little bit less than on DSV, but it’s still workable compared to what we have. Of course, if you have these things, then you can actually go to the next stage as well, where you start to consolidate some of the efforts so that you go to a more domain-driven approach, where you will say, listen, there’s a quoting domain, there’s a booking area where we handle this kind of, could be called customer service.
You could also then go to the Westmark cargo or events, whatever you want to call it, also customer service at the end of the day, because now you’ll have all this data in one system. Of course, on top of this, with a new technology, which was not what I was sort of factoring in at that stage, that will drive a ton of productivity to go into domains. On top of that, you can probably put more agents in than we’re using today, which can drive the productivity even further up. The technology is there. It’s how much change can we impose on the company. This is the limitation. It’s a governance issue, like it always is. There’s nobody within our industry that has access basically to technology that the other people don’t have. It’s how you run your company that decides what the financial outcome will be.
We now have a question from the line of Alex Yadogani from J.P. Morgan. Please go ahead.
Yeah, good morning. Thank you for taking my questions. If we start just on the synergies, you talked about $300 million of impact in the third quarter. Can you just confirm it’s all cost and there’s not the synergies based on your customer attrition point? At what point will you have more certainty that these synergies that are within the $9 billion are no longer valid and we could be looking kind of at a better outcome? If Michael could just clarify, you know when we talk about $4 billion, you mentioned $4 billion of synergies in 2026. Is that right? Because before we’ve talked about the midpoint of the exit rate, 30% in 2025, 70% in 2026, midpoint is 50% of $9 billion, is $4.5 billion. I don’t know if you were thinking year over year or absolute. I think that’s worth clarifying. My second question is on Road.
Can you discuss a little bit more fundamentally the operating leverage in this business? Clearly, you’re taking a lot of cost out at the moment, as we have seen through the DNA reduction you’ve reported. How will that kind of improve operating leverage when volumes start to recover and pricing starts to go through? Giving us a little bit of color of the actions you’ve actually taken to really reshape the cost base of that business, or I guess you’re starting to make. That’s it for me. Thank you.
Michael, CFO, DSV A/S: I can start with the synergies. Maybe just to be clear, you said it’s right that we say 30% for end of year. That means for the full year next year, we’ll have $3 billion. That’s, you can say, that one. Then we have the synergies that we already have right now, which is $800 million-ish. You could say $3.8 billion. You’re right about the mid-range. I would say that the synergies that we harvest first might be the easiest. I don’t think necessarily you can take a linear approach on that one. I can promise you that we will deliver at least the $4 billion, and we will work whatever we can to make that faster and higher, of course.
Jens Lund, Group CEO, DSV A/S: Yep. We talked about the synergies. I think we will really know through the tender season how that is all playing out. Normally, we’d seen actually quite some attrition right now in a normal integration, which we are not seeing. Of course, it’s the tender season. It’s the second test, if we want to call it like that. I think if we look at it right now, we are off to a good start. I actually think we have to have the aspiration that we also make it through the tender season, and then we can really start to focus on the growth. Of course, all the competition is focusing on us right now. We are the market leader. We also did that when we were chasing. I think, you know, but I’m comfortable, as you can hear. I think the operating leverage on Road.
If you look at, let’s say, the Road network, it’s both a physical network, but also a back office thing that we’re saying. As an example, Schenker, they can produce basically all DSV volume in most countries in their network. Of course, there was too much capacity available. There might even be areas where we still have too much capacity, even if we’ve combined entities. We’re right-sizing that right now. Of course, we’re looking at whether we need to produce all 100% of the volume in our own network, or whether there might be some areas, you know, very remote destinations where we could ask somebody else to do that. That would then limit the physical infrastructure quite a bit. In the offices, we also need to operate at plus index 90 on the capacity side, even if we are where we are right now.
When we get price increases, I think there’s only so much volume we will be able to produce. We might then, excuse me, I need just to take some water. We might need to, what can I say? We might need to say that we can grow a little bit less because we need to take some of those fluctuations out of it and then just increase the prices a bit more. Because today we’ve actually had way too much capacity, so we could handle the peaks, but it’s way too expensive in the troughs. That’s in reality what we’re focusing on right now on the Road side.
The next question comes from the line of Ulrich Bach from Danske Bank. Please go ahead.
Yes, hello, Jens, Michael. Thank you for taking my questions. In terms of the synergies and the integration process, what is it specifically that has progressed faster than planned? Perhaps you identified other areas where we could potentially see a further acceleration of this synergy harvesting. Also, the $300 million in synergies in Q3, $800 million for the full year, as well as $26 million. If you can provide some guidance on how this is split among divisions, that would be great. Thanks.
Michael, CFO, DSV A/S: Yeah. I think if you look at the speed of the integrations, I think if you see what we have moved last time, we said 15% end of this year, and you can say 50% end of next year. Now we’ve increased to 30% this year and 70% next year. I think it’s not that unusual. Remember the size of Schenker that we have acquired. I don’t think it’s that unusual that you need to kind of get a little bit of a grip on what it is that you have acquired and how you can plan for it. It’s a complex thing to migrate 85,000 people in more than 80 countries into our infrastructure, legally as well as organizational and IT as well. It takes a little bit of time.
That’s also maybe why you said last time that it was progressing slower than at least what some of you guys have anticipated. I think what we have found out now, we know what we are dealing with. We have identified all the different scenarios from a system perspective, organizational perspective. Now we have put that into a plan that we are executing on. This is where we are doing fairly well in execution in DSV. That is why we are moving faster than what we initially thought through, actually. In terms of finding, I think Jens already touched upon that in whether there are more synergies elsewhere to come. Right now, we stick to the plan that we have promised to deliver the 9 billion in yearly savings. We are very committed to deliver that and, of course, to be there as fast as we can.
We now have a question from the line of Christian Goddickson from SEB. Please go ahead.
Thank you. A couple of questions from myself as well. First of all, maybe could you comment on the stabilization you’ve seen in Road that you comment on in terms of what to expect going forward, both in terms of margin progression and maybe also in terms of which kind of price increases you expect to view in the market to implement in this quarter? Secondly, just a household question, wondering if you could comment a bit on why the legacy Schenker yields are down more, both in terms of C and F rate than the legacy DSV yields. Thank you.
Jens Lund, Group CEO, DSV A/S: If we take the yield question, I think Schenker had, what can I say, a tradition where they were a little bit longer on the procurement side. In certain markets, it had benefited them. As you can remember last year, perhaps that was a situation like this. Now, if you are longer in this market, of course, when the rates are going the other direction, then it’s perhaps a different scenario. I think that would be the explanation to that. On the operational side, it’s fairly similar volume that we are producing. If we look at the Road side, I think we need to think we don’t want too much capacity. We want to have the capacity that is required in the market. This is a journey where you have a ton of infrastructure that you have to right-size so that you get there. It’s part of also a synergy.
It’s also part of me having said that on groupage, we need to make much more money. The price increases that we go out with today, perhaps DSV standalone, Schenker standalone had an aspiration that we need more and more volume. Actually, we got sufficient volume now to have a European network. We can sit and then look at what’s the service, what’s the quality of our product. Of course, we can then go out to the customers and say, listen, this is a quality product, and you know this is the SLA that we can deliver to you, and it comes at this price. We’ve been out now to our customers basically because also there’s pressure from the subcontractors. They want more money. With the service catalog, this is the service you get. This is what the price is.
It’s, of course, always market-driven by the subcontractors at the end of the day. This in combination then is what we present to the customer. On the smaller account, if we sit and look at it, of course, we can present that because we don’t necessarily have a long-term agreement. On the customers that we have a longer-term agreement with, it’s going to come when we have, what can I say, the freight negotiations basically for the renewal of the contracts. That’s typically happening into the new year. There’s still some ground to cover. We are off to a good start, and I can see Michael has something he would like.
Michael, CFO, DSV A/S: I think also one thing that I don’t think that you should underestimate when we talk about stabilization. Remember that legacy Schenker has a huge Road organization. Like we also touched upon last time, we have now set the management team, both globally, regionally, clusters, and the countries. The team has also worked dedicated to find some of the recovery plans, as we call them. I think that’s where we can see that now we are getting hold and grip of these kind of things that also pays into the frame of why we can say that it is stabilized.
Okay, that makes good sense. Just very quick follow-up on the impact from the longer procurement of volumes from the legacy Schenker. When will we see that impact fade away?
Jens Lund, Group CEO, DSV A/S: I don’t know. It’s hard to quantify. I think basically that it’s an ongoing exercise that we’re talking about. I don’t necessarily think we’re going to move backwards on the profitability on the Road side. We’re going to make progress, consolidate, and take idle capacity out that is not needed. I think that’s on the procurement side. We’re going to drive, of course, that very efficiently, as we’ve always done, and make sure, what can I say, we have whole year procurement. The terminology that was used in Schenker was whole year management. These two words, they are quite different, aren’t they? Because it is a procurement exercise for us. We have to deliver the right cost to the customer as well.
Michael, CFO, DSV A/S: It will follow the normal, you can say, renewal of the contracts.
Thanks, Jens. Thanks a lot. I’ll jump back.
The next question comes from the line of Muniba Kayani from Bank of America. Please go ahead.
Good morning. Thanks for taking my questions. Firstly, I just wanted to ask around yield mix at Schenker. Jens, in the past, you’ve kind of given us a breakdown of the value-add mix for your DSV standalone ocean and air yields. How does that look like in Schenker? Along the lines of the previous question on Schenker yields, how do we think about that mix and movements with freight rates going forward? That’s the first one on yield. Secondly, around cost cutting. Your competitor today announced a cost cutting program. I think what you’ve said is you need to, you’re looking at it, but haven’t really pushed that on top of what you’re already doing with the Schenker integration. What do you need to see to do more of that and how are you thinking about that? Just a quick one on real estate sales.
You’ve talked about that in the past. Where are you in that process? Can you give us a sense of the timeline and potential amount from Schenker real estate sales? Thank you.
Jens Lund, Group CEO, DSV A/S: I think if we look at the Schenker yield, it was lower. I don’t necessarily think that Schenker had the same focus on selling, what can I say, upselling the services than we had. They had perhaps more an approach where they were also a little bit long short in the market depending on their expectations. We have a clear way forward where we basically don’t take positions as a company. You’ve seen this play out in the industry as well. That also then leads to some companies then having, what can I say, to make certain decisions on capacity as well when you perhaps have some focus on the yield side that drives, what can I say, financial outcomes that are not desired. If we look at our company, we right-size the company all the time. There’s natural attrition. Right now, we can stick to that.
We have our performance KPIs, as I talked about, when we run the company. How many shipments, how many transactions per person per day? This is something that our organization, they look at all the time. We can see what we do on the Schenker integration and with our expectations for the number of shipments we have to produce and the productivity expectations that we have, that we don’t need to do anything else on top of this right now, which is great. Our staff, they know exactly what we’re doing. We’re focusing on the Schenker integration and then the normal course of business. If there’s an area here or there where we need more or less capacity, this is adjusted as a normal part of operation. Michael will talk a little bit perhaps also about this, but also about the real estate as well.
Michael, CFO, DSV A/S: Yeah, I think just a last comment on, you can say, the cost cutting. Now you referred also to one of our competitors. I think you also maybe need to look at the starting point from a conversion ratio perspective and then see where that brings. Like you say, Jens, we are actually looking into, of course, the measures that we normally would take on that one. For the Schenker real estate, it’s correct that they have been a little bit more asset-heavy than what we have. We are, of course, looking into getting that to fit into our asset-light model. Hence, there will be some divestments of real estate. Remember, this is not something that we have, you can say, taken into our business case. We’re looking into that.
I think we have also mentioned that on the earlier case, it could be around €1.5 billion that we’re looking into. For timing and stuff like that, we need to go in and find a plan for that one before we can say more about it.
We now have a question from the line of Lars Heindorf from Nordea. Please go ahead.
Yes, thank you for taking my question. The first one is on the logistics part of the business. Very strong revenue growth here in the third quarter. Apparently, a sale of a terminal or property, I don’t know exactly where and the timing of that. Maybe you can just give a bit of detail on how much impact that has on the top line and also on the gross profit in the organic business. That’s the first one. Secondly, I’m sorry, it’s coming back on the yields questions here. I clearly understand your answer for some of the previous questions on the sequential decline in yields when rates go down in sea freights and how, depending on how Schenker has been sourcing their capacity. However, in air freight, where we’ve seen a very, very significant decline in Schenker on a standalone basis, we haven’t seen a similar decline in rates.
It’s maybe just an explanation why we see that both in sea and in air. Also, I don’t know if you can go that far and maybe give us an indication where you think that yields will continue to decline combined into the fourth quarter compared to the third quarter. The last one is just a housekeeping question on USA trucking, the Q2 EBIT impact. Now that I’m looking for that, now that you’ve taken it out and as a discontinued business, thank you.
Jens Lund, Group CEO, DSV A/S: Good. I think Michael will start by answering some of the questions.
Michael, CFO, DSV A/S: Yes. If we go to the contract logistics side, it is as always, Lars, and you are aware that we have had some property projects, which we also have talked about in connection with our networking capital and so forth. We have realized one here, and as always, it doesn’t really have an impact on our EBIT and our GP, to be honest with you guys. That’s on that one. For the USA truck, it’s also household, like you said, it’s correct that we have now, you can say, classified it as a divestment non-continued business. We said DKK 90 million on a quarterly. That’s the net result, as you most likely know and can see. I think for EBIT impact, it moved around DKK 60 million in the quarter.
Jens Lund, Group CEO, DSV A/S: You talked about the yields in ocean freight and air freight as well. If you look at the market rates, it’s also very different for the two products, isn’t it? It’s been declining quite a bit on ocean freight, and it’s quite stable, at least the way we see it on the air freight. It is, of course, declining, but not necessarily at the same pace. I think this is what drives the difference in outcome, Lars. Yep. Good. That was basically it. We are at the end of the session. I would like to thank you all for your interest and look forward to having some conversations bilaterally after this call. Most of all, I would actually like to thank our employees that are listening in on the call for all their hard work, all their efforts, and their dedication.
We would never ever have been able to pull this off at this pace and with these results if it hadn’t been for all your hard work and all your efforts. You have overachieved and just continue at that. It’s really great fun to be at the company right now. Thank you very much. Bye-bye.
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