DSV’s 2015 financial results offer an insightful view of what has transpired in the logistics sectors it serves. This is because it transparently breaks out all the elements of its growth – the impact of organic growth, currency fluctuations and the net impact of acquisitions and divestments.
The company’s total revenues reached DKK50.9bn, an increase of 4.7% year-on-year. Of this, 2.4% was due to organic growth, with the remaining 2.3% due to currency fluctuations. The net impact of acquisitions and divestments was virtually nothing (DKK3m). DSV completed its acquisition of UTi in January 2016, leaving no impact on its 2015 figures.
At first glance, the revenue figures seem fairly unremarkable, but the devil is in the detail. Firstly, the currency figures. The Danish Krone is pegged to the euro; its exchange rate is tied to within 2.25% of the euro. Thus DSV’s Road and Solutions (contract logistics) divisions, whose operations almost entirely take place in Europe, were barely affected by currency movements. That leaves virtually all the currency action taking place in the Air & Sea division.
In fact, Air & Sea’s revenue growth was boosted by DKK1,154m or 5.2% year-on-year thanks to currency effects. According to Bank for International Settlements data, the value of the Danish Krone on a trade-weighted basis was 4.8% lower on average in 2015 than in 2014, so it is unsurprising that Air & Sea has reported considerable revenue growth thanks to currency movements. As more logistics providers report their finances, it will be interesting to see how significant the impact of currency movements has been in 2015, with the value of a number of currencies shifting up or down far more dramatically compared to previous years (see trade weighted exchange rate graph on the Ti Dashboard ). For instance, companies with significant international operations reporting in the Chinese Yuan, US Dollar or British Pound could see negative currency impacts given the increasing value of these currencies in 2015 (although the value of the pound has dropped sharply of late, its value was still higher every month on a trade-weighted exchange rate basis in 2015 than in 2014). Conversely, companies reporting in depreciated currencies such as the Euro, Japanese Yen or emerging market currencies could see meaningful gains.
Despite Air & Sea’s currency windfall, the division’s revenues actually fell by 1.4% year-on-year. Organic growth was -6.7%, despite the fact that handling volumes of air freight tonnage and sea freight TEUs were up by 8.2% and 2.4% respectively. The huge offset was largely driven by tumbling oil prices, which caused freight rates and thus the prices DSV charges to its customers to fall, although weak sea freight demand and overcapacity in container shipping must also have played a part. In contrast, Air & Sea’s organic growth of EBIT was 13.0%, thanks to better gross profit growth and improved productivity, according to DSV. Overall, EBIT grew by 24.7% to DKK2.0bn and the division’s EBIT margin improved from 7.0% in 2014 to 8.9% in 2015. Such an impressive profit performance invariably begs the question of to what extent did DSV pass on the savings it received from carriers in the form of lower rates on to its customers?
The same question, to a lesser degree, could also be asked of the company’s Road division, which is asset light and almost exclusively uses subcontracted hauliers. Road’s revenues grew by 2.3%, with organic growth at 2.7%. The number of shipments made was up 5%, so falling rates due to lower fuel prices once again pushed revenue growth down. The division’s EBIT was DKK918m, up by 9.7%, significantly outpacing revenue growth. DSV again cited productivity improvements as part of an ongoing restructuring programme as the main driver of better profitability.
Finally, Solutions’ revenues were up by 4.0% year-on-year. Organic growth was 4.6%, driven by 6% growth in “order lines” (compared to 2-3% growth for the market in Europe according to DSV’s estimate), although the average price per transaction declined. DSV noted an increase in demand in Southern Europe in particular. EBIT was DKK242m, down from DKK272m in 2014. DSV attributed the decline to higher operating costs, driven by higher wages and salaries, increasing activity levels, and partly due to costs incurred in connection with new logistics facilities and a migration to a common IT platform.
Overall, DSV has once again shown its capacity to grow its operating activities in all its divisions faster than the market. The EBIT growth of its Air & Sea and Road divisions is particularly impressive. As the annual finances of forwarders (air, sea or even road) trickle through, it will be interesting to see how many have bettered their operating margins in a year characterised by lower rates.
Source: Transport Intelligence, 24th February 2016
Author: David Buckby
