News / Strong air freight market and UTi synergies bring DSV a first-quarter boost

A strong air freight market “across the board” contributed to “very, very” good first-quarter results from DSV, announced this morning.

“We are ahead of where we expected to be,” said CEO Jens Bjørn Andersen.

“The strong momentum of 2017 continued into 2018,” he said in an earnings call.

While revenues just edged up, year on year, to Dkr18.4bn ($2.97bn) profit for the period rose nearly 15% to Dkr769m ($124m). In constant currencies, gross profit rose 3%. Exchange rate losses amounted to Dkr86m, triggering financial net expenses of Dkr155m, up from Dkr94m a year earlier.

In constant currencies, ebit growth came to 9% in Q1 2018.

The results included the full-year impact of synergies from the UTi merger, adding approximately Dkr100m each, in the first and second quarters. Mr Andersen noted that the integration of UTi had encouraged DSV to look at more M&A.

“We are still very committed to M&A, this is a fragmented industry. It makes sense to take part. Unfortunately, the attractive companies are not ready to enter negotiations with DSV.”

The company said the air freight market was the strongest with an estimated 5-6% volume growth, “whereas other markets grew in line with the underlying economy, estimated at 2-4%”.

In contrast, DSV saw air freight volumes rise 10%, while sea freight grew 4%, which the company said was in line with the market, and had been driven by EMEA region exports.

Air freight benefited from strong exports from EMEA and the Americas, in what was “pure organic growth”, said Mr Andersen, noting that despite the growth there was no dilution of gross profit per tonne.

“It should be profitable growth, and that is what we have seen,” he said. He said the company had a “pipeline of new customers with significant air freight volumes”.

The larger size of DSV had helped it secure air freight capacity, he added.

“You have to fight more in certain weeks of the year for air capacity – and it’s a benefit for us to be one of the larger companies now.” He added that he did not expect air freight rates to “sky rocket”.

“There is some strength in [us being] a big player, but acting like a local player. Air freight is a good market to be in right now.”

The Air & Sea division achieved a growth in net revenue of 6.2%, Road 3.3% and Solutions 10.3% (in constant currencies).

“Relative to the same period of 2017, net revenue was negatively impacted by a lower number of working days, due to the timing of Easter,” DSV said.

Mr Andersen cautioned that the “ocean market could continue to be soft – the growth is OK, but it’s lower than air. It’s a super volatile market.”

Road gained market share, said DSV, and saw volumes rise 3%.

“We achieved higher increases from customers in road – we got some pricing power back,” said Mr Andersen.

Although EBIT before special items fell 36% to Dkr241m, the company said: “Q1 2017 was impacted by a gain on property transactions of DKK125m.”

Contract logistics, meanwhile, grew some 3-4% in a market characterised by high warehouse utilisation.

“As seen in previous years, growth was strongest in the ecommerce sector, but the market trends were also strong in other, more conventional industries. Measured by net divisional revenue, the division achieved growth of 10.3%, with APAC and Americas as the strongest regions and retail and automotive industries as the main growth drivers.”

The operating margin grew 9.4%, against 8.1% last year, the company said. “The positive margin development was driven by continued improvement in productivity across the organisation.”

DSV doesn’t foresee an economic slowdown, and seems unconcerned about the likelihood of a trade war: “We are still optimistic; if you look at volumes, they are still pretty decent and we haven’t forecast that to change.”

You can see the full results here.