DSV’s latest financials suggest UTi integration is progressing smoothly

For Q2 2016, the first full quarter that UTi had been recognised in full in an earnings report, DSV reported net revenues of DKK17,606m, growth of 34.1% year-on-year. EBIT before special items was up by 11.2% to DKK900m. Currency fluctuations negatively affected results, but their impact was not severe, while net revenue was also negatively affected by a decline in average freight rates and fuel prices.

DSV did not provide full figures separating out the impact that the UTi acquisition (analysed in Global Freight Forwarding 2016) had on its financials compared to its own organic growth.

By business segment, UTi’s Freight Forwarding division has been included in Air & Sea, Contract Logistics has been included in Solutions, while Distribution has been included in Road.

Air & Sea reported second quarter net revenues of DKK8,416m, up by 47.6%. Sea freight revenues increased by 28.7% to DKK4,309m, while air freight revenues were up by 74.4% to DKK4,107m. Sea freight volume increased by 57.2% to 345,808 TEUs, while air freight volume was up by 96.5% to 151,562 tonnes. Gross margins improved in both air and sea year-on-year. DSV estimated that market volume growth in air and sea was 2% in both. Management assessed that for the first half of the year, “the original DSV operations achieved organic growth above the market rate.”

In Road, net revenues were up by 17.0% to DKK7,368m, while its operating margin was up by 0.1 percentage points to 4.2%. Revenues were boosted primarily by UTi activities, which mainly take place in USA and South Africa. DSV also stated that its European road freight volumes (unaffected by UTi acquisition) had increased by a strong 6% in the second quarter, beating market growth which it estimated at 2-3%. Management estimates that the Road division gained market share in most European markets.

In DSV Solutions, second quarter net revenues were DKK2,406m on the back of growth of 60.4%. The EBIT margin before special items was however down from 4.5% to 3.7%. UTi has added operations in North America, South Africa, Asia and Europe and doubled capacity to around 4.7m sq m. DSV normally provides some measure of volume change in this division by disclosing figures on ‘order lines’ growth. However, the company was not able to do so in Q2 2016 due to differences in IT systems and data used by DSV and UTi, though it intends to publish the volume statement in future.

On the integration effort overall, DSV said that it has so far managed to successfully protect volumes following the merger and rebranding to DSV is progressing as planned. For example, former UTi strongholds in South Africa and Israel had now been fully rebranded to DSV. In addition, more than 60% of offices have merged while more than 60% of users and volume had migrated to CargoWise One, DSV’s logistics operations and management software. DSV now expects that 40% of the total synergies of DKK1.5bn will materialise in 2016 (previous estimate was 30%).

Jens Bjørn Andersen, DSV’s CEO, commented: “With earnings growth of more than 10%, we are very satisfied with our performance in the second quarter. DSV continues the positive development, and UTi’s operating deficit has been neutralised only five months after the acquisition. The integration of UTi is progressing faster than we had originally anticipated, and the merger of offices and IT systems is already more than halfway complete.”

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Source: Transport Intelligence, August 09, 2016

Author: David Buckby