Logistics group insists there is still much value to be gained from industry consolidation, but says little about its current bid for Panalpina
Global freight forwarding and logistics group DSV has published another strong set of quarterly and annual results, although the Denmark-headquartered group declined to say much on its takeover bid for Panalpina, which was rejected by the Swiss group’s major shareholder earlier this week.
CEO Jens Bj?rn Andersen said the bid was “a substantial step for us and in the event of it succeeding, would be by far our biggest acquisition. We take it extremely seriously and have spent a lot of time on it. But at this time, we have no further comments on the offer.”
Asked about the rationale of an acquisition when DSV was producing such impressive numbers from organic growth and at a time when the economy appeared to be slowing, Andersen replied: “In this extremely fragmented industry, where the biggest players have only a fraction of the market, consolidation makes a lot of sense. We have created value for our stakeholders whenever we’ve built a bigger company (through acquisitions). When we’ve bought one of our competitors, we’ve created value for shareholders, for the employees long-term, and also for customers. We bring a better product to the market as a result.
“Today we are much stronger than we would have been without the acquisitions, and that’s some of the rationale that lies behind M&A. The major (logistics) players have a market share of 2-3% and the 20 largest players have a market share (collectively) of 30-35% and in other industries you will have one market player having this share.
“Of course one can debate about the timing; but in my view the present moment is as good as any and previously we have done acquisitions in times of uncertainty and also at times of high economic growth and both contributed to a successful development at DSV.”
Looking at DSV’s fourth quarter (Q4) performance, operating profit (EBIT) before special items was up by 11.9% (in constant currencies) to DKK 1.338 billion, with growth mainly driven by the Air & Sea and Solutions division. Revenue increased by 10.6%, adjusted for exchange rate fluctuations, and amounted to DKK 20.945 billion.
In Q4, Andersen noted “another rock-solid result” by Air & Sea, whose EBIT before special items increased 14.1% to DKK 897 million, driven by growth of 10.4% in gross profit and a 1.3% points higher conversion ratio at 39.0%. That resulted in a 0.2 percentage point higher EBIT margin at 9.1%.
Volume growth of 5% in air freight, accompanied by strong yield development was mainly driven by growth in export from the EMEA and the Americas regions. Sea freight volumes were up 4%, with stable yields and improved market growth on Asia to Europe trade lane Asia to Europe. The division had only seen a limited impact from the US-China trade tariffs.
Road achieved underlying full-year growth for the quarter of 4.5% in gross profit and 8.2% in EBIT (adjusted for one-off gain of DKK 125 million in Q1 2017) to DKK 239 million. Volume growth of 2% was in line with estimated market growth, the division having focused on absolute GP rather than volume.
The quarter saw a “high focus” on Brexit preparations, the UK representing 6% of the Road division’s revenue and 5% of DSV’s global turnover.
Meanwhile in the group’s contract logistics business, Solutions, EBIT was up 19.8% to DKK 223 million. Strong top-line growth was mainly driven by retail (including e-commerce) and the automotive industry.
As for the annual 2018 results, DSV recorded revenue of DKK 79 billion (+8.1%) in constant currencies, gross profit of DKK 17.5 billion (+7.9%) and EBIT before special items of DKK 5.45 billion (+14.5%).
The Air & Sea division achieved a full-year EBIT of DKK 3.693 billion, an increase of 18.2% on the previous year. The conversion ratio was up 2.8 points at 40.2%.
Volume growth was 8% for air freight compared to 4% for the market, while sea freight volumes increased 4% against 3% for the market.
Commenting on the outlook for 2019, Andersen said guidance pointed to underlying EBIT growth for the group as a whole of approximately 2-9%.
“We expect growth rates in the transport markets to be in line with GDP growth (~3%) with the highest growth in APAC and lower growth in Americas and EMEA. We aim to gain market share in all markets in which we operate.
“We are on track to meet our 2020 financial targets and 2018 demonstrates our dedication to delivering quality services to our customers and growing organically.”
Transport Intelligence (Ti) analyst Thomas Cullen described DSV’s annual results as “predictably good, with increases in revenue and better increases in profits”. He noted that growth was high across the two main divisions of the company with the forwarding and contract logistics business “delivering sustained high margin expansion”.