DSV delivers impressive sales increase but some dilution after UTi purchase

DSV

DSV saw rising revenue and profits over the past year as its integration of UTi appeared to succeed. However, digging deeper in the numbers it seems that the underlying performance of some of the business was more muted than the headlines suggest.

‘Gross profit’, which is a measure of revenue for the whole of DSV, was up 41% year-on-year to DKK15,838m whilst Earnings Before Interest and Tax (EBIT) was 14% higher at DKK3,475m.

The air and sea freight forwarding business benefitted substantially from the purchase of UTi, with a 48% increase in revenue at DKK32,100m and a 11.4% in profit as measured by EBIT at DKK2,143m. Air freight in particular saw a leap of 78.6% in sales and 84.7% in terms of tonnage carried. Sea freight was similar with 42.2% higher sales. The bad news came in terms of weaker profitability, with operating margins falling from 8.9% in 2015 to 6.7% in 2016.

DSV’s road freight business was more complicated. UTi had all sorts of trucking businesses from South Africa to North America so integrating them with DSV’s original European operations must have been an interesting management project. Despite revenue was climbing by 14.6% and EBIT 14.3%, margins were stable at 3.7%. The number of consignments grew by 5% in markets that averaged a growth of 2-3%, although there must be a considerable variation in that range.

The ‘Solutions’ contract logistics business was also propelled along by UTi business with an increase in revenue of 62.5% and EBIT by 58.7%. Operating margin only fell marginally, from 4.1% in 2015 to 4% in 2016.

To have pulled together a company as fragmented as UTi as quickly as it did was an impressive achievement for DSV. It also appears that in certain areas it is squeezing more profit than UTi was able to do. What it has to ensure is that it applies this across the business, including to areas such as freight forwarding.

(1Danish Kroner DKK= 0.14 US$)

Source: Transport Intelligence, February 14, 2017

Author: Thomas Cullen