DSV targets further forwarding growth and acquisitions

2/15/2018

DSV’s “turbo-driven” Air & Sea division will continue to focus on outperforming the market and taking a greater share of business, while keeping yields stable, according to CEO Jens Bjørn Andersen.

He told analysts last week that the Danish group’s freight forwarding division had met these objectives in impressive fashion last year and produced “a very, very strong result” that ranked as “one of the best performances in the industry, with extremely strong margins which stand comparison with any of our competitors”.

But the European freight forwarding and logistics group is also back on the lookout for merger and acquisition (M&A) targets, with an eye open for freight forwarding firms with a similar scale and global reach as UTi Worldwide, which it has now successfully integrated after acquiring the US firm in January 2016 for around US$1.35 billion.

As reported in Lloyd’s Loading List, exceptionally strong results from air and ocean freight forwarding helped European transport and logistics giant DSV achieve another record year in 2017, outperforming its own and analysts’ expectations. Reporting last week on the group’s 2017 financial results, Andersen, said the Air & Sea division “went into turbo drive, achieving its 2020 financial targets already in 2017”.

Highlighting the final quarter of last year, he said a key takeaway was that DSV “had managed to keep underlying yields stable in an extremely volatile market and where freight rates, especially for air freight, grew tremendously at the end of the year”. Gross profit per TEU (sea freight) and per tonne (air freight) were up 2% and 1% respectively in the quarter, at constant currencies, he added.

“We have always been extremely protective of our yields. We have a superior income per shipment than most (of our peers) and sometimes this means we are not growing (in volume terms) as much as others. But for us it has to be profitable growth − we need to make a profit when we grow.

“We are happy about the fact that we haven't diluted our yields year-on-year, at least in both Air & Sea, and we expect them to continue to be fairly stable going forward. There is nothing that leads us to believe that yields will go down from where they are currently.”

Andersen was tight-lipped on how Q1 2018 was playing out in air and sea freight markets, saying it was not DSV’s policy to comment on quarterly periods in progress.

However, he did make it clear that it would be difficult to maintain the same levels “of very high, almost double-digit growth in air freight” that had been achieved last year.

DSV expected the market grow in line with world GDP, although the group had “a very clear ambition of growing faster than that”, Andersen added. “As one of the bigger players, we need to take market share and do that without diluting the margins.”

Asked by Lloyds Loading List about contract negotiations with shippers and whether there was now a greater readiness among shippers to accept rate increases in what was now a prolonged air capacity squeeze, Andersen replied: “What I can say is that when capacity is tight, the normal mechanisms mean rates will go up and of course we have to recover that from the customer. This is not a pain we can take as a freight forwarder and that will continue to be our position, be it in Q1 or the rest of the year for that matter.”

DSV revealed it has revised its financial targets to 2020 upwards for the Air & Sea division. CFO Jens Lund said operating margin target was now fixed at 10% compared to 7-8% previously, while the conversion ratio target had been increased to 42.5% from 35%.

In its latest analysis of the European Transport & Logistics sector investment, analyst Jefferies noted that DSV had indicated that it would resume its acquisition strategy “with an appetite for relatively larger transactions, with a valuation of more than $1.0 billion”.

But Andersen gave little away on progress towards potential targets, but said future M&A will most likely focus on freight forwarding firms with global reach.

“Air & Sea is still, probably, our preferred area to grow,” he said. “This is where we have the highest margins and where it seems the integration is less troublesome, as it (integration) is not an easy process. We have the infrastructure from an IT point of view to add more scale and also see that the (freight forwarding) market is growing faster than the other two in which we are present (road haulage and contract logistics).”

Asked about size of companies DSV would target, CEO Andersen replied: “We have come to realise that very small local companies are probably not the right thing for DSV. In an ideal world, we would like to buy larger companies that could be the size of UTi. But it could also be smaller or it could be bigger.”

He said it would be wrong to assume that any further acquisition “is necessarily bigger than the last one”.

Andersen concluded: “It’s all very speculative. It (an acquisition target) could have a bit of everything like we saw with UTi. You can seldom buy a crystal-clear air and sea freight forwarding company. This is as much as I can say right now.”