DSV A/S

CSE:DSV

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to the presentation of the DSV Interim Financial Report First quarter 2022. [Operator Instructions] This call is being recorded.

Today, I am pleased to present Group CEO, Jens Bjorn Andersen; Group COO, Jens Lund; and Group CFO, Michael Ebbe. Speakers, please begin.

[Jens Andersen, executive]

Thank you very much. It's Jens Bjorn Andersen here. Welcome to the Q1 2022 conference call here from Hedehusene. Super good day for us and for our company, and we look forward to sharing the performance of the last 3 months with you this morning.

After you've taken a look on our new -- brand new facility on the front page in Dallas in the U.S., I would kind of advise you to read the forward-looking statements on Page 2. And after you have done that, you will see on Page 3, the agenda for this morning. I think it is pretty similar to what we have been going through in the past.

So with no further ado, I'll skip to the highlights of the quarter on Page #4. We have seen a performance of DSV in Q1 2022 like we have never seen before. We've seen a performance that we had not even dreamed about seeing only a few months ago and also much better performance than what we expected when the year started. We have seen a very, very strong -- very good momentum from Q4 carrying on into 2022, even accelerating across all of the 3 divisions.

And of course, now when we have achieved an EBIT result in the quarter which is pretty much equivalent to the annual result of DSV in 2019 of DKK 6.5 billion, we felt oblige also to address the guidance for the full year, and we have increased that this morning to now saying that we will aim for an EBIT result of between DKK 21 billion and DKK 23 billion. As always, it goes without saying that we would rather end in the upper range rather than in the lower part of that range.

Michael will come back to it later, but it's really privileged to be able to see also that the cash flow has continued to be very strong in the quarter, which has given room for a new buyback, very, very consistent like you normally would see, but a buyback in the coming period of DKK 6 billion which we have also announced this morning.

On a less positive note, we are, of course, like all of you, following the Ukraine-Russia crisis very, very closely, and that has generated even further disruption in global supply chains. We are actually in the process of terminating our business in Russia, seeing if we can find a solution with our local management so we can exit the Russia operations once and for all. It is not easy to do, it's on a very sad background, but we feel that is the right thing. So whether -- in a not-too-distant future, we will probably be without Russia in the DSV network.

The exit from Russia has no material direct financial impact on our earnings, it's still less than 1% of turnover on earnings. And what needs to be provided for in terms of closing down the activities have already been taken care of, so to say, in Q1 in the numbers that we have reported this morning.

Yes, let's jump to Page 5, just might be the last update you get on the Agility GIL integration, it's one of the best acquisitions we have ever done, a very positive impact on our earnings. You might see on bullet point #1 that we have put in a new kind of warning, where we say that the financial contributing -- contribution will now be where we say at least DKK 3 billion to the total profits of DSV.

Integration is going well. The company and the countries have done a fantastic job once again. Unbelievable to integrate such a large company with thousands and thousands of people across the organization and the network. That's why it's a true pleasure now.

So early into the integration to be able to say that all major countries have been onboarded to our DSV platform. I think this is even faster than we have anticipated and faster than what we have seen in the past. And with a few minor exceptions, we do expect that the total integration program will have been finalized during Q3 this year.

A little few household numbers. The -- as you've probably seen, the transaction and integration cost was about DKK 400 million in Q1, meaning that we still have about DKK 600 million to book for the rest of the year. But once again, we are super pleased with all the new colleagues, all the new capabilities and the skills that we have now from the acquisition of Agility.

Let's move to Page #6, and let's just, I was about to say, observe the numbers for a few seconds. They basically speak for themselves. Absolutely superstar stellar performance from the division. I can only repeat what we've said before, an extraordinarily strong performance. And everybody working in Air & Sea in DSV can be really truly proud of the performance that you guys and girls have put in, in the recent period. Of course, we see a big tick-up in the revenue driven by, of course, the addition of GIL, but of course also driven by a continuation of the increase in the rate levels.

But what is maybe more important is that we also see a tremendous growth in the GP both for air and sea. And we have still continued -- which will never go out of fashion in DSV, worked on the productivity of the division, meaning that we have achieved a growth in EBIT, surpassing 100% and that is absolutely fantastic, taking us now to a new record in terms of conversion ratio of 60%. We are very proud of that. We're very happy about that. It's a fantastic performance.

The markets are still characterized by disruptions in the supply chains, most recently by the lockdown we have seen in Shanghai, and we do not believe that we will see a very big change in the disruption even if we get to the later part of this year. It's not unlikely that the whole of 2022 will be characterized by these challenges that we have been facing at the beginning of the year.

So Page 7, air freight, we've taken market share. We've grown faster than the market, not a lot, but we have grown 2% organically in the quarter and we do estimate that the market is flat. Including GIL, we've seen growth of 22%. And you can see, of course, the yield, the GP per unit, has grown from DKK 9,200 to DKK 11,400 which is -- yes, it was unexpected that we saw this big increase in yields. But we are, of course, pleased to see that. We've seen some negative impacts due to the closure of the air space over Russia. And we've also seen that a certain proportion of the capacity has been taken out as we cannot use Russian-owned aircraft at this moment in time.

So very strong performance. We're very happy. It seems like it's kind of a stable situation right now. We see great benefits of our own enhanced capabilities in terms of the charter network, and we expect that the performance will continue to be very strong.

Sea freight, let's also here start with the market and with volumes. We see that relatively weak market in Q1 in terms of volume, market is down in terms of TEU, somewhere between 5% and 10%. We are down volume-wise 7%. So I guess, we can say that we are having a development in line with the market. We are not growing faster, but we are not losing market share either. And remember, we are still in the middle of the integration phase. Normally, we would actually expect us to have a somewhat weaker development than what we are seeing on the market.

It's not likely that this weak development will change right now as we are still seeing negative impact from the lockdown in China. But of course, there will be a lot of build-up demand once we will see reopening in the Shanghai area.

Also here, a very good development, going from, in round numbers, DKK 5,000 per TEU to DKK 6,000, DKK 4,900 to DKK 5,900, to be accurate. And this is somewhat also higher than what we had both expected ourselves and also indicated to the market.

So -- and when I can -- I might as well just talk a little bit about it right now, for Air & Sea, I'm sure that a lot of you will ask us about the yields, what are they going to be this month and what are they going to be for this quarter and for this year and for the next coming years. I hope you will appreciate that it is associated with a great deal of uncertainty for us to guide you in respect of a single number that you have to put into your spreadsheets. It's not unlikely that we are -- we have probably come to the conclusion that we probably have been slightly too conservative in the guidance we gave you in terms of trying to direct you in terms of an absolute yield number. But if it's going to be X, Y or Z going forward, it's just very, very difficult for us to say. But it's not unlikely that we can capture and retain a little bit more of the new and higher yield even as the markets normalize going forward. But we can probably come back to that.

Road rate, very nice. I met a lot of the country heads of the Road division here in the building today. Fantastic to see them back after COVID lockdowns, celebrating also fantastic result. They can stand the challenge also to anybody in the market, all competitors. Rock solid, very fantastic, very good result, growing earnings by 23%. Very, very good, also stemming from a nice development in the gross profit. Some of you have asked about the margin, the gross margin. It is inflated by the high revenue. Costs are going up for road haulage. So don't be too concerned that the gross margin is down as long as the gross profit in absolute terms and also consequently the EBIT is up. Nothing to be concerned about.

We, as you know, have very few KPIs to measure the market and our developments up against the market. But it is our very, very firm, very clear ambition that we have taken market share. We are gaining a lot of new customers. And we have taken market share in the Road division. This is also what is driving the good development. It seems like the capabilities we have or the fine-tuning and the professionalism that we have now in terms of the product that we're offering also as a part of the Road Way Forward project is something which are also attracting customers. We have also -- we have access to capacity right now, which is good to be able to establish, and we do hear certain anecdotes that, that is not always the case in the market. So the fact that we can actually supply shippers with capacity, it goes actually also for Air & Sea, but also here for Road, is something which we will -- which will probably be beneficial for us also going forward.

The last slide before I hand over to Michael is Page #10. Also here, just take a moment to observe the earnings growth. I think this breaks most of what we have seen in the past. Earnings growth of close to 200%. Maybe Q1 was not the best quarter a year ago, but nevertheless a very strong performance in the quarter.

The whole consolidation of our infrastructure, the building of the logistics campuses that we are doing around the world is now also being reflected in the numbers. We have also here, you can say, access to capacity. We have our own facilities. This is the result of a very long-term strategy that we have had in the company. And it's a true privilege to be able to see the very strong development of the division.

Here is -- we've tried to illustrate that in the conversion ratio and EBIT margin graphs. Also the addition of Agility, it's very clear that you can see that also reflected in the overall numbers of the company.

It has been an extraordinarily strong quarter. So just a word of -- piece of advice, be careful not to kind of multiply this EBIT result by 4. We cannot promise that, that would be the result going forward for the division. But we are adamant that we will continue to see a satisfactory and a good development also in the coming quarters, but we just have to get a couple of more quarters under our belt. But very, very good performance also.

A lot of people also during COVID lockdowns have performed fantastic operations coming to our warehouses around the world and performing high service to the clients that we have in the division. So well done also to everybody in the Solutions division.

You can read all the bullet points. I'm not going to go through them, each and every one of them, but you can read them yourself to the right-hand side of the slide.

So with a little over 15 minutes already passed of the presentation, I will pass on the word to you, Michael. Please, take it away.

[Michael Ebbe, executive]

Thank you very much. And I will go through Slide 11 with the P&L for Q1 2022. One thing, of course, is that you need to be aware of is that GIL is not included in the comparative figures. So that's an impact. And then also the matters that Jens Bjorn elaborated on the previous pages is impacted here in the P&L.

The revenue growth, almost 78% compared to last year's quarter, is due to the GIL, obviously, and then also to the freight rates. We see a strong performance for our gross profit in absolute terms and numbers. So that is very satisfying for us to see that. And we are also able with the productivity, I think as Jens Bjorn also mentioned, to convert that into EBIT, giving us an EBIT result of more than doubling what it was compared to same period last year. The conversion ratio then sits at record-breaking number here, 50% for the group as a whole, also a nice increase in there.

And if I look at the number of employees, it has also increased when we acquired the GIL, there were 17,000 employees. So you can see that, that has been included. And then we have also added some growth. So that's the number of -- explain the number of employees.

So all in all, if you then add it all together and convert that into our earnings per share at 12 months diluted, we have seen also here a significant increase in nearly 80%, giving an earnings per share of DKK 60.5 per share. So that's a nice number for us. And as you are aware, we track that very thoroughly.

Then if I skip to the next page, that is the cash flow. We have also seen a significant increase here in cash flow. It's always nice to see that we are able to convert our P&L into some cash. That's also what it's all about.

I know I also said this before that the net working capital is increasing. It is due to the fact with the high freight rates and also the growth obviously. And I've said it before as well that we do not see any signs on overdue in our receivables. We track that also very narrowly to make sure that we get the cash collected so we can continue the strong cash conversion that we see.

We have -- our cash flow from investing activities has been impacted a little bit by the property disposals. I think in the last couple of quarters, we mentioned that we have tied up a little bit in our net working capital, and that should be -- we're done now, and that's an impact, it's not a significant number, but it's obviously impacting the number.

Our gearing ratio now sits at 1.2. That's also, you could say, a little bit below what we have expected maybe. And they're also giving us the opportunities to increase the share buyback that I will come back to in a minute.

We have, this quarter, issued a new EUR 600 million corporate bond of -- with duration of 8 years. So that's also add nice to our portfolio of bonds. And our debt maturity table, it looks fine.

We have -- given our GIL acquisition, we have, of course, had more EBITDA and hence also more debt. So we are close to DKK 30 billion in net interest-bearing debt. But again, it's clearly within our range for that.

If I skip to the next page. As mentioned, we have seen nice results for Q1 and also converted into cash, giving us the opportunity to start a new share buyback program today with the amount of DKK 6 billion, running into -- close to when we announced Q2 in the 25th of July 2022.

We have in Q1 -- had a share buyback program, which was concluded 3 weeks ago. You can see that here in the table as well. I think one thing that you should bear in mind here, that we have decreased or reduced our share capital. We did that in connection with the AGM. And now it's also registered in the Danish Chamber of Commerce. So our new share capital is 234 million. So when we calculate the earnings per share, we have, of course, included this as well.

The share buyback now, it's -- if you look at Q1 2022, for the 3-month period there, it's roughly DKK 1.6 billion that we have acquired per month. It has -- if you look at the numbers now for the next quarter, it will be close to DKK 2 billion on a monthly basis that we buy back shares. So it's a significant portion that we buy back, yes.

The next slide is a little bit about our outlook. I think Jens Bjorn has also mentioned some of it. Based on the performance that we have seen and the expectations for the remainder of the year, we have increased the guidance now to in the range of DKK 21 billion to DKK 23 billion. It's -- we do -- it's based on the strong Q1, and we have also the expectations for the last couple of quarters. We do expect some normalization in the second half of the years, and that is tailored into this updated outlook. And I think it's -- you can also see here that I think a lot of others expect that the global economic growth will be a little bit less than what we have anticipated early on due to the things that Jens Bjorn mentioned, with the crisis that we see.

It's also clear that the uncertainty or the visibility for the remaining part of the years is -- for the part of the course is -- the uncertainty has increased and the visibility has decreased.

So I think that's -- and we expect the tax rate to be in the range of 23%. This year, it's obviously impacted by the integration, like always, but we expect that we will come back to around 23%.

And for the special items, integration costs, I think as Jens Bjorn also mentioned, that we still missed to expense DKK 600 million. Obviously, we will not expense them if we do not use them, but that's what we expect as right now.

So I think that's it from my side. So should we go to the Q&A session?

[Operator]

[Operator Instructions] The first question is from the line of Michael Rasmussen from Danske Bank.

[Michael Vitfell-Rasmussen, analyst]

Yes. Three questions from my side. First of all, guys, could you make some comments in terms of how the relationship with the carriers is at the current market state. You see them out there on some tenders, the ones that also focus on logistics? And do you find the negotiations in general more challenging with the carriers?

My second question is on the cost side also. You mentioned lower demand. Can you give a little bit more in particular exactly what you see in terms of the lower demand? Is it within some specific areas? I know that Kuehne yesterday said that service-related goods were actually doing quite well.

My final question is on the conversion rate. Well done on getting that above the 50%. And obviously, you are well placed for the long-term targets. Can you just explain to me, are there any dynamics here, assuming that rate starts to go down, that put your conversion rate under pressure?

[Jens Andersen, executive]

Well, I'll start on some of these. And before Flemming here in the room gets too sad, please also have a look at Page 15 in our presentation, talking about, it's not every day it happens, so that's the reason we wanted to focus on it. A Capital Markets Day at DSV on the 31st of May. You're more than welcome to participate, if you wish to.

In terms of the carriers, we have good relationship with most carriers. We are finding solutions. We are growing with them. We get space allocation. We find deals when we need to find it. We show flexibility there. They show flexibility. It's business as usual. We use most carriers in the world still in our program. And then there are some, of course, that are more vocal about kind of going into our area. And it's -- I think it sometimes gets blown a little bit, out of proportion. It's not like we are in fierce competition with anybody, with any of the carriers.

There have always been kind of certain areas. There's always, as we know, 50% of all volumes have always been carried by the ocean carriers. We have taken market share. Maybe they've taken a little bit of share recently. But as it looks right now, we actually feel that it's not changing the dynamics for freight forwarders like DSV.

Then it's a little bit about the ocean markets. It's difficult to say that, of course, we all know that estimates for global GDP growth have been reduced a little bit, still believing that we will see maybe in the region 3% growth this year, which is not necessarily bad. The market, we said, was down 6% to 8% in the quarter. Most significantly, it was the Trans-Pacific, which was also very strong a year ago. We have to be very careful when we measure month-by-month and quarter-by-quarter now, comparing also. Remembering -- trying to remember all the time what happened a year ago, some quarters and months were very strong last year and also the opposite.

Kuehne is a company we respect. So we can concur with what they said yesterday also. It is a mixed picture, some industries suffer from a lack of microchips, from lack of components and others are maybe also suffering a little bit from lack of demand, for instance, maybe some retail and fashion customers.

On the conversion side, it would be so nice to go out and say that this level will not change even if rates go down. We will try to offset some of the pain if we see slower growth by continuing to work on our productivity in the company. That can offset some of it. But I guess it is likely that if rates and yields go down, consequently also conversion ratio or the conversion ratio will go down.

And for the time being, we stick with the long-term financial targets that we have. But it's, of course, also fair to say that should things change, we would, of course, also feel the need to readdress the targets. But at this moment in time, they are what they are.

[Operator]

The next question is from the line of Lars Heindorff from Nordea.

The next question will be from Sam Bland from JPMorgan.

[Samuel Bland, analyst]

I have two, please. The first one is on the air unit margins. I just want to understand the strength we've seen in Q1. Was that quite specifically driven by the Russia-Ukraine situation and on the major Europe lane? Or was the strength more broad and through the quarter?

And the second question is, where there's been mix changes in your volume towards higher-margin areas. You mentioned LCL, for example. Do those mix changes have to necessarily reverse as freight rates eventually come back down? Or can some of those mix improvements be more permanent?

[Jens Andersen, executive]

Last question first. This is more prominent. You might have a point, but not necessarily on air freight. I don't know if that question also related to air freight. But on ocean, it is actually a relevant point that you raise, that the LCL product is doing really well. So the -- we have seen some mix change which could have a permanent -- positive impact on the yields. We cannot quantify exactly what that would be. But that could help us retain some of the high yields that we are having right now. It's not what is happening on air freight.

But on air freight, it's more a matter of us, what you say. It's not really related to the Russia-Ukraine situation what we have seen on air freight. I think it's a continuation. It's the product of the continuation of the development of the air charter network, for instance, where we are still fine-tuning that system that we were so pleased to inherit from Panalpina, those capabilities. We have expanded our service offerings through our own network with fixed departures own capacity. And we have gotten more and more used to also maneuvering in this environment, and we have been able to strike some good deals where we offer a strong service product to customers. So it's more that, that has driven the yields in air freight and not so much the Ukrainian-Russian situation.

[Operator]

The next question will be from the line of [indiscernible] from Bernstein.

[Unknown Analyst]

Just to touch base back on Ukraine and Chinese drop-down. Can you please -- what's your assessment on the loss of capacity? And how is it different for trade lane?

Second question could -- on M&A, if you were to acquire another company the size of Agility, let's say, same forward earning fee before GIL completely integrated, would it threaten the GIL integration? And even in general, what's the risk that you see integrating 2 midsized forwarders at the same time?

I think I will stick with two questions.

[Jens Andersen, executive]

Talk about the M&A part. Maybe the first [indiscernible].

[Unknown Executive]

Yes. If we take the loss on capacity, I think that we see that there are different areas where we've lost capacity. It's in the air freight market. Obviously, it takes longer time to fly from China to Europe. And here, there's been rumors in the market that it's up to 15% that has been taken out. That's predominantly in the freighter market because many of the passenger carriers would go for the Middle East, so that would have the same routing.

If we take on Road, I think it's something that is also a little bit underestimated. They actually furnished a lot of drivers to the haulage capacity. And here, there's been speculation that it could be 5%, some even say a little bit higher than 5% of the capacity that has come out. So there's certainly some impact on the situation in Ukraine that is much larger than the impact of, what can I say, the lack of volume in the country itself. It has a spillover effect on other markets as well. So I think that's a little bit on the capacity side.

If we take the M&A side, I think it's -- it's clear that we have to complete the GIL integration. We are almost there, Jens Bjorn already touched upon it in his introduction and I think that we are doing fairly well. So if we were to look at a similar size of transaction, I think there would be nothing that would prevent us from having a look at that. It does take some time from the initial discussions would start anyway until we will be able to close the transaction and start an integration.

The organization might sometimes need a little breather. The GIL integration will be done faster than anything we've ever seen before and we're very happy about that. But we also know that it puts the organization under pressure. So we will have to strike a balance on that. But you can rest assure that if something moves in the market, we will be part of it. I think that's the feedback on the second question.

[Operator]

The next question is from the line of Dan Togo from Carnegie.

[Dan Jensen, analyst]

Congrats to get with strong results here. I have a couple of questions, will take them one at a time.

I'm still trying to get my head around the Solutions part and the very strong development we see here. Jens Bjorn, you said we cannot multiply Q1 by 4. Why not? I mean Q1 is typically as I see it, the seasonal weak quarter. Has something changed fundamentally here? So that's one part of it.

And the other part is, can you give some wording on why this higher level? Is it a few contracts that you've gotten rid of or you have improved, that has entered more to get a feeling of how we should see the coming quarters. So that is question number one.

[Jens Andersen, executive]

You take great care about many things in the company about a particular solution, so maybe you can answer that question.

[Michael Ebbe, executive]

I'll try to give it a chart. I think, Dan, if you look at solutions in general, we probably run at a capacity utilization just shy of 95%. Typically, we've been running at 87%, 88%. So that, of course, means that we get, what can I say, more rental income and we would have the same cost base.

And we then have the warehouses is, but they're not, what can I say, flooded, if we get that balance right, then the productivity, it also comes up, so we will have a little bit higher productivity.

Then we have a little bit of a situation like we are a semi carrier on this because we have some lease agreements on these premises and the market rates have come up. So that probably also has an impact on what we are doing.

Then I would say the seasonality might change a little bit with the addition of GIL as well, where we've seen that, at least we don't know the business that well yet because we haven't been running it for a whole year. But we see that it's been quite busy in the, what can we call it, cold period in that part of the world. We will probably consider it summer, but that's sort of been doing really, really well and impacting our numbers. That's also why we highlighted it.

Then I think the whole campus situation that we have been working on, it really pays off that we consolidate the volumes and we can do the resource planning in a good way.

And then the last thing that's sort of we've really also done is we've added a lot of automation into our warehouses so that we get higher productivity.

So if you add all these things up -- and I would actually mention one thing more. I don't know if you can recall it, but years back, we talked about a bleeder list where we implement new customers and have some, what can I say, financial negative impact of that in the beginning. That's been reduced dramatically.

So if you have an engine and it's firing on all cylinders, I think that's what we can say that Solutions are doing right now. And of course, we would do our best to try to keep it at that level. But it could also be that it would plateau a little bit lower than that.

Having said all this, I think that at a certain point in time, given the results that we produce in the Solutions division, we will have to have a discussion about the targets for that division as well. But I think right now, we will just focus on the operation. And then a little bit later, once this has stabilized, we will figure out what we should think about it in the longer run.

[Dan Jensen, analyst]

Okay. Sounds good. And then back to Air & Sea. It's easy to see -- to be bullish here and to see the progression. But if you should turn this around, where do you see, sort of, say, the challenges and what will take this down? Is it just a matter of we are entering some sort of recession, volumes start to decline? Or is it freeing up capacity coming back into the market and reduced rates? And how should we think of the timing of this? So that's #2.

[Jens Andersen, executive]

Also negative scenarios about this, that and the other happening. And as I said, we have been too conservative in the past. It's good that we have been conservative and not the other way around, having to come out and explain a weaker performance, but more positive performance.

Of course, we do rely on growth in volumes. Volumes traditionally, you know this as good as me or even better, have grown traditionally in line with world GDP. It seems like world GDP will grow faster now this year than what it did in 2019. So it's not like it's going in reverse or anything. We don't know what will happen next year, of course. There are different speculations among macro specialists about that. But of course, if volumes were to deteriorate, there was a lot of overcapacity coming in that would not be very beneficial for the sea freight market.

And then the big question is yields, where will they go? As I said, they will -- we are not estimating the yields will go back to anywhere near where they were before. They will find a place between where they are now and what they used to be. And where that exactly is, it's just impossible to say.

Actually, I do believe that air freight yields will be not sustainable on current levels, but that they will be -- because more structural things in our company has happened on air freight maybe than sea freight, so we could probably see a more positive development going forward in terms of yields not dropping as much on air maybe than what they do on sea.

[Dan Jensen, analyst]

And then just finally, you touched upon it here a bit. Because I was always curious about, everybody knows and reckons that the GDP will still grow, but maybe at a lower pace. And so how is that linked to global trade? And then how will forwarders grow? You usually say that containers market lease and probably also [indiscernible] grow with a premium to GDP. And in that market, how will forwarders grow? Will you continue to be able to take share so we can add 1% 2% points to your growth with the GDP growth of 2% to 3%? Is that realistic?

[Jens Andersen, executive]

We've always said that you should expect us -- we know we lean out when we say this. We are fragmented industry. We know that we have strong competitors, some of them we respect, others not so much. But nevertheless, we feel that as one of the largest in the world, we should outgrow the market.

Outside of M&A and integration periods, if we cannot take market share, I mean, it's a little bit of a problem. It's -- you will know this by analyzing the development of DSV over the last many, many, many years. We have never been the company who have outgrown in terms of volume the market the most.

Where we have outgrown is on the GP, absolute GP growth. And we are committed to continue to do that. And we should have this multiple effect on the GDP growth of the world also. And we will continue to work on the conversion also. We have so many plants that can improve the productivity of our company with -- through investments, in IT and process optimization and digitalization. So there are a lot of room for us to be able to grow our earnings, yes, everything else also..

[Operator]

The next question is from the line of Muneeba Kayani from Bank of America.

[Muneeba Kayani, analyst]

Can you hear me?

[Jens Andersen, executive]

Yes, loud and clear.

[Muneeba Kayani, analyst]

Okay. Perfect. My first question is around the current situation in China and what you're seeing there in terms of trucking goods to the ports, both on air and ocean. And have you seen any improvement in trucking given the government was talking about easing some of the restrictions? And how do you see kind of volumes from China as the restrictions are eased, do you expect a surge in volumes? And could that be further disruptive to the market and tighten the market? Or a gradual improvement? So that's the first question.

Secondly, we've seen trucking rates in the U.S. have declined and capacity availability has increased. So just wanted to know how you're seeing that market and if you have seen any indication of slowing demand in the U.S?

And then thirdly, on Agility contribution now expected to be at least DKK 3 billion, kind of what's driving this? Is it the market conditions or the fact that the GIL operations have turned out to be better than you expected?

[Jens Andersen, executive]

The GIL, I'll explain a little bit why we have changed the word into at least DKK 3 billion, and then I'll try to come back on some of the other questions.

[Michael Ebbe, executive]

Yes. Thank you. Yes, it's -- obviously, we have been clever along the way with implementing the GIL activity, and it looks really, really good for us. We have added significant volume on our Solutions business in the Middle East section. And that has turned out to be a little bit more profitable from what we anticipated. That's -- so that's one of both the areas.

And then there is the normal growth in the acquired business as well. So that's why we say at least DKK 3 billion in long-term impact from the GIL acquisition.

[Jens Andersen, executive]

Yes. And when you look at the trucking and the -- or the trucking market in China has been deeply negatively affected by the lockdown. We have seen certain -- I guess, the most important production areas are on a test, so to say, being reopened recently. So we are slowly seeing, yes, an improvement in the situation, but it's still far too early to say exactly what will happen.

I've spoken to our people in the region, and they are actually expecting, as you mentioned, put it a surge in volumes. There will be a lot of -- there's a lot of buildup demand which will come. This is also what we have seen in previous lockdowns in China and we can take some lessons from previous experiences. So there were even somebody who raised the point that warehousing capacity would come under pressure in the destination areas once all this volume came back into the system, I don't share that concern as such. I think the flow will be constant to the warehouses and to end consumers also.

In the U.S., it's -- I don't have information about any particular slowing of the activities that we are seeing. It's correct that we are not in this kind of the same situation maybe as we were a year ago where it was really difficult. So sometimes something -- without us knowing it, things are actually improving, we are not noticing it because it's happening very gradually. But if you were to compare now with maybe 9 or 12 months ago, you're probably right in saying that there's been a little slowdown, but nothing material for us. I mean, the fact of the matter is that the EBIT contribution of DSV Road U.S. is significantly above what it was a year ago in Q1 2022.

[Operator]

The next question is from the line of Sathish Sivakumar from Citigroup.

[Sathish Sivakumar, analyst]

I've got actually three questions here. So firstly, on the Road Way Forward, can you give -- because you mentioned that it's progressing as per the time line, as per the plan. Can you give any color on how much of the volumes are actually onboarded onto this platform within the Road network and how much of the countries have also been onboarded? So that's one.

Second one, on the charter network, can you give any color on the load factor within your own charter capacity, i.e., 12% of your capacity on the East trade line. Just trying to get a sense like how much room is left there in terms of further optimization of charter network.

And the third one is on the yield impact because you did flag that unwind of low-margin volumes also contributed to the yield performance. What is actually the exposure of those volumes in your mix? And what will be the impact as we go into the, say, Q2?

[Jens Lund, executive]

If we take the Road Way Forward, I think there's a couple of things in relation to that when we look at it. If you look at it from an operational point of view, we actually have, what can I say, redefined our [indiscernible] product, which is the cornerstone or the LCL product in Road. And we've sort of reinforced the way we produce it. We can do this on our existing production platform and then government based on that. It's a little bit harder to govern if the system doesn't help you as much.

Then the Road Way Forward is actually a system that will coexist with this [ group ] network and also produce it in a more efficient way, where you need much less human interaction to do it. Here, we run our POC setup, and I think we also said that on the last call, that the next country coming up this summer is Poland. And then we will have the last country in the POC is Germany. Once these countries, they are on the platform, it will be, what can I say, completion of the POC and then we will basically go into a full-blown rollout. So it's still early days on the digital part of the flow. But right now, we are making good progress in relation to sort of completing the POCs with success.

Then I think the charter network and capacity. Given the lack of capacity you see in the market, we actually run the charter network with basically full capacity utilization. But that means that on all the major lanes where there are volumes, we would fly more or less with index [indiscernible].

But sometimes, if there's not, let's say, if China is an export area and you go to Europe, you have planned in, in the schedule that you don't have full utilization the other direction, if that makes sense to you. It's a little bit counterintuitive. But that means that if we do a certain number of round trips per week, the business case is based on that we are full in one direction all week, and then it might be that we only fill it up 50%, 60%, 70% in the other direction. But it's very important that we get back to the origin where you pay, what can I say, for the predominant part of the journey on that lane. So I would say that we cannot really produce more unless we get more capacity in at this moment in time.

Then you also talked a little bit about the yield impact and low-margin business. And I think if we should say something about it, it's very hard to come up with something specific because it's dynamic. It happens all over. You have a contract, it's priced perhaps a little bit below market. You confront the customer. The customer would like to seek another solution. And it's probably impacted us with 2%, 3% or something like this, our volumes, where this volume has then gone elsewhere. I think that's what I can say to that.

[Sathish Sivakumar, analyst]

Can I actually ask a quick follow-up on the Road Way Forward? How critical is the platform to go live, so if you are to acquire an asset which has a significant exposure to overland?

[Jens Lund, executive]

Yes. You can say in order to be able to do what you've been doing on Air & Sea and really get the marginal conversion ratio up. So getting it higher than it is now, then it's crucial. If it's to combine 2 operations, you can also do this.

We have solutions in our stack that allows us to integrate with multiple platforms. So it is possible, but you will have a lower productivity and more human interaction. So it doesn't prevent us from growing, but the value you can get out of it is lower than if you have the real platform.

As I've said before, there's no enterprise solution, at least to my knowledge, on a European road business today. So nobody has a platform. So the first one that will get it obviously will have a very unique situation with higher productivity than most peers and also with what can I say, the capability to do roll-ups on the M&A side and basically take advantage of the scalability.

So that's card we are trying to get. And as it looks right now, we will get it and then we will be able to develop Road quite nicely.

[Operator]

The next question is from the line of Parash Jain from HSBC.

[Parash Jain, analyst]

I'm new looking at this company, but familiar with the sector. If I may have three questions. Just a bit of clarification on your target with respect to Agility of DKK 3 billion going into 2023, which seems like 15%, 20% higher than 2022. Is it on a pro forma basis or your -- this DKK 3 billion number into consideration some rollover of freight rate going into 2023? That's number one.

And secondly, to the question that has also been asked in different forms, with respect to expectation of pent-up demand this summer because of the volume loss out of China in probably April and to an extent in May. Can you share some color on the inventory level at the retailers and particularly in Europe. And following Russia-Ukraine conflict, are you seeing cautiousness among the retailers, leading up to the summer, they would rather prefer to draw down inventory which I would imagine not already been probably pretty lean?

And finally, in this terms of acquisitions and what drives in terms of your air and sea, are you comfortable with the scale? At what point you would think that incrementally synergies would diminish? And in terms of own cycle, shall we expect the intensity will slow down at the peak of the cycle because the valuation multiple property would have gone at a level where your implied IRR would be difficult to achieve?

[Jens Andersen, executive]

For the dual impact, you have to bear in mind that this is a full year 2023 estimate the DKK 3 billion -- at least DKK 3 billion impact. And I think I touched upon it before, what's -- why we say at least. So I think that hopefully should answer the question.

[Jens Lund, executive]

Yes. You have not had the full year impact in 2022. So we will complete it in '22. And then you will get the full year impact in '23. I think that's sort of -- we don't get more synergies in '23. It's just what we say is that we've got the DKK 3 billion probably in a little bit more. But we can't say and quantify it, so we would like to close off, what can I say, this communication now.

If you look at the inventory level in EU with the retailers, I think the situation is that many of the retailers, they still need to stock up. They're running on very low inventory levels. It's a little bit -- here that the inventory levels are a little bit higher in the U.S. So it's a little bit different. So right now, there is a backlog of what needs to be shipped. And of course, we expect to produce that at a certain point in time.

Then you are right about the consumer confidence given the war in Ukraine, it's probably declined a little bit, so we will see what the consumer will do. It's not only the one in Ukraine, it's actually also the energy prices, stuff like that, that drives some different behavior.

Right now, we haven't seen our volumes decline because of that. But you never know what happens. We also see at least certain governments pumping out money to make sure that they get reelected. So I think they're going to try to look after the people that really need it when it comes to that.

Then you asked about Air & Sea scale and when have we gotten too big to get an advantage out of doing M&A. If we look at it, the market is highly fragmented. And I think we are with a situation where we probably -- what do I know, of the global market have 3%, 4%, 5%, depending on which area we're talking about and how you measure it. And I think that's quite unusual that you're in a mature industry. In a certain way, you have such, what can I say, a low market share of big players. There's nothing that tells us on our infrastructure that as long as we can't scale, there's no economies of scale. So if we continue to scale, we're going to get benefits out of it. And I think that's at least going to continue as long as I'm in the company. And I don't know how long that will be, but that's -- it might even be a decade.

So -- and I can only remember one thing that somebody that is not in the room said, our old CEO, Kurt Larsen said way back. It's always been consolidating, this industry, and it will continue consolidating as long as I live. That's the only thing I sort of can say to that. And I think we will be a part of it as we've been for many years. So hopefully, that answers your question.

[Parash Jain, analyst]

Sure. And just in terms of timing, is it down cycle offers you -- offers a better return on the acquisition versus now?

[Jens Andersen, executive]

Business case. So let's assume that there is value for 100. If the seller wants all 100, he will keep the company. We will get some value to our shareholders if we have to buy it. Then you can have all kinds of argument. Is it better in this part of the cycle or the other? We will make a business case and have an individual opinion about the, what can I say, value of the asset that we are talking about.

And if we can't meet, then there will not be a transaction with us. If you buy too expensive, you don't get the return. And for us, capital allocation, Michael has just talked about share buybacks, also [indiscernible]. We just buy our own share, and that's a better return.

[Operator]

As there are no more questions, I will now hand it back to the speakers for any closing remarks.

[Jens Andersen, executive]

Thank you. Thanks for listening in. Thanks for all your questions, very insightful questions also. We -- we hope we have answered all of them. If not, please feel free to reach out. We look forward to seeing a lot of you on the 31st of May at the Capital Markets Day here in Copenhagen. We look very forward to that. I know the Investor Relations team are in the process of putting a very special and very interesting program together that you can all look forward to. And it will not only be the 3 of us that you have heard speaking here today which will present.

And I also have to once again extend a big thank you to all the brilliant, hard-working employees of DSV who has actually produced the numbers that you see. We talked a lot about IT and processes and digitalization, but we are still a people's business. It's the people of DSV who has made that -- this result happen. So thank you very, very much for that. We could not have done it without you.

And with that said, we will conclude, and we will say goodbye and have a good day here from Hedehusene, Denmark.