Growing air and ocean business leads DSV to solid third quarter

Growing air and ocean business leads DSV to solid third quarter

A resurgent air freight market has been good news for DSV this year. Credit: DSV

DSV continues to reap the benefits of its UTi acquisition by reporting a 50 percent increase in third-quarter net profit and earnings before interest and taxes (EBIT) up 31 percent, driven mainly by strong air and ocean business but also cost synergies gained from absorbing UTi into its operations.

The Danish forwarding, trucking, and logistics group’s third-quarter net revenue increased by 9 percent to 18.7 billion krone ($ 2.97 billion), pushing up operating margins by 7 percent compared with the same quarter last year.

Net profit for the first nine months of the year was double that of the same period in 2016, and the EBIT for the three quarters of 2017 was 46 percent higher year over year at 3.7 billion krone.

"A strong commercial and operational performance in the third quarter has driven earnings growth of more than 30% and a volume performance in line with or above the market,” said CEO Jens Bjørn Andersen. “We are pleased to see our business continuously improving, and based on this we upgraded our expectations for 2017 and launched a five-month share buyback programme of 1.25 million krone."

Andersen said the revised expectation was partly driven by higher than expected activity levels, mainly in the air and sea division. Volumes were up especially in the air freight segment that recorded an almost 12 percent more volume year over year.

European airlines have been reporting air cargo growth in excess of 10 percent and DSV managed to capture a greater business in this segment as a result, although even with greater volume the yields fell as a result of foreign exchange movements.

The Danish forwarder handled 355,291 TEU in the third quarter, an increase of around 4 percent. Its January through September volume is just more than 1 million TEU, also a 4 percent increase compared with the first nine months of last year.

In the road segment, DSV said tight capacity has driven up haulier rates with revenue, but the forwarder carried 4 percent more shipments and reported an EBIT increase of almost 8 percent on top of stable gross margins.

Andersen said cost synergies from the UTi integration were achieved faster than expected in 2017, and the remaining full-year impact from cost synergies in 2018 was now anticipated to be 200 million krone. The savings were previously expected to be around 300 million krone.

DSV acquired loss-making UTi Worldwide for $1.35 billion in a surprise announcement that represented a 50 percent premium on UTi’s closing price at the time. Since UTi was running at a significant loss, the takeover initially diluted DSV’s conversion ratio and operating margin. The company said based on its integration plan, it expected operating margins of the combined entity to be lifted back to pre-acquisition level by 2018.

DSV has aggressively expanded by acquisition in the past few years, taking over Ontime Logistics, SBS Worldwide, Airmar Cargo, and Seatainers Group.

The freight-forwarding market has space for more merger and acquisition activity, with the Top 10 companies accounting for 43.5 percent of the $141 billion global revenue in 2016, according to Ti, a UK-based consultancy. Germany’s DHL Global Forwarding topped the rankings with a 7.9 percent share, just ahead of Kuehne + Nagel at 7 percent, while CEVA was 10th with a 2.3 percent take.

CEVA Logistics has most recently been the subject of rumors that France’s Geodis had lined it up as a takeover target, with XPO Logistics and Kuehne + Nagel also tipped as potential suitors.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.