DSV A/S
CSE:DSV
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
982.2
1 563.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches DKK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
DSV A/S
You don't have any saved screeners yet
Welcome to the DSV Interim Financial Report for the First Quarter of 2023. [Operator Instructions]. Today, I'm pleased to present Group CEO, Jens Bjorn Andersen; Group COO, Jens Lund; and Group CFO, Michael Ebbe. Speakers, please begin.
Thank you very much. Welcome to this conference call where we will go through the Q1 numbers which we published this morning. We have prepared a small agenda for you which you can see on Page number 2.We will -- I'll go through the highlights and the business segments where after Michael will take over and talk a bit about the financial reviews. Jens Lund will of course be available also when we get to the Q&A. And please also take a moment to read the forward-looking statements that we have also put on Page number 2.But if we go to Page number 3, we are very pleased about the performance of the company at the beginning of the year.
It goes without saying that when we entered 2023, it was associated with more uncertainty and not a lot of visibility and transparency. So the fact that we can come up with a result like we have done this morning, pleases the management team very much. I have to say that.So we have had a good start to the year in a somewhat slightly more competitive market that we are used to and caused by the declining freight volumes and the demand in certain sectors. What did please us tremendously, which actually outperformed our expectations. Earnings also outperformed expectations a little bit. But the cash, cash is king.
And we had very strong cash flow in the year, which is actually on the same level as a year ago despite a somewhat lower result. So very good to see, and it was mainly due to a significant reduction of the net working capital, which also has a little bit to do with the declining freight rates. But nevertheless, we're very happy about it. The result this morning gives no reason to change the guidance for the full year. So we are reiterating the 2023 EBIT guidance of an EBIT result of between DKK 16 billion and DKK 18 billion. As we have always done, according to the capital allocation policy, absent of M&A and when we are in the range where we want to be leverage-wise, we do share buybacks, and we have announced a new 3-month program of DKK 4.5 billion this morning and Michael will elaborate a little bit on that.
And may I also just point your attention to the earnings per share development. I know it's not for the last quarter, but for the last 12 months. But we can show a development of over 27%, which, yes, is okay to our understanding. Page 4, Air & Sea, strong results. We did see a market which was declining. The lower activity in the market was, as we had expected, compensated by strong gross profit yields. This is something that we had anticipated also.
And even though we will probably see declining yields going forward, we will expect it to be offset by a more positive development in -- when it comes to the volumes.
We have remained very disciplined in the pricing, which has been a clear focus for our company, and we have focused on higher yield in cargo. But of course, we are still kind of reinforcing our commercial efforts. We have lost a little bit market share. It's very difficult to establish exactly what the market has done. But we have put in the announcement that we have underperformed the market a little bit. It was a deliberate action.
And we -- the overall aim is still to take market share. But the market has been more volatile than normal in Q1, and we have decided that we will protect the yields, and we have seen that the gross profit and EBIT has developed as we had expected. So we are very pleased about that. It's also important to say when we're talking about volume that we do communicate a lot about TEUs and tonnes. We will see that in a minute. The most important metric for us is still number of shipments, meaning number of invoices we are sending to customers.
It has a somewhat different development. The number of shipments overall for the quarter was down in the region of 10%, meaning a more positive development than the overall volumes. So I know it complicates things just a little bit, but that is actually the -- a very important KPI that the division are using. Page number 5 speaks to the air freight product. You can see that we have declining volume development of 20% in the quarter, but we actually see a small increase in the yield. It's reflecting also here our pricing discipline and also the efficient management of the capacity.
We are pleased about the situation that we have when it comes to our charter network and the spot market that we are in. So it's still volumes out of APAC that shows the weakest development.
But overall, we are happy, also here that we have seen the weak volume development being offset by higher yields. Page 6, sea freight, a little bit the same story. Also here good yield development also reflected or caused by pricing discipline. We have tried to remain also here rational in our pricing. And that has led us to achieving yields which are actually up sequentially. So also here, we have seen the negative development in volumes. We are down 12%.
And as -- I didn't say that, but as with air freight, we have seen a positive momentum going into the quarter. So there's also hope that this continue -- will continue in the coming quarters. In sea freight, it's worth noticing also that also here is the number of shipments that count. We have a very positive development in our LCL product, which is, as you would probably know, a product where we combine cargo from different customers into one container.
So when you count it, you will count it as 1 TEU, but for us, it can be up to many shipments in one container, meaning that you can make many times more, yes, the yields or the profit on an LCL container than on average. So that also complicates things. But it's also partly the reason that we have seen the good development on the yields. Then I'll flip to Page 7.
Road, I must say, really, really fantastic results in also declining market. There are no basic statistics that we can use for the market, but it is our very, very clear understanding that we have taken market share gains.
We do see that the new Road Way Forward product is being embraced to a very high degree in the market. We have won some new significant contracts with customers that like the product that we offer in a more structured way now than what we did in the past. So we've seen increase in gross profit, and we've also seen that the Road division have managed to keep our very high EBIT of close to DKK 0.5 billion in the quarter. This is something that we are very, very pleased about. And the margins on the bottom half of the slide, I guess, they speak for themselves. Solutions.
At first glance, it looks maybe not so good compared to a year ago. We are comparing to probably one of the best quarters the division have ever had. We've talked about it many times. The results of the division is always more volatile than what we have seen in others in the 2 other divisions. But still, I think also here the margins and EBIT margin of close to 10% speaks for itself. It is industry-leading or at least amongst the highest in the industry.
And we're very, very pleased about that. As we grow also with our campus and consolidation strategy, you also need to be aware that it does change the mix a little bit in the reporting. It will mean that we will get over time, higher depreciations, but also higher GP. And you can see that also reflected here in the quarter where the gross margin increased to 40%, and still we have, if I may, just remind you, a conversion ratio of 24% and EBIT margin of close to 10%. So we are sure that the whole division will continue and deliver very strong results for the full year 2023.
With this said, before I just hand over to Michael, I just wanted to -- because I forgot to say that at the beginning, when we get into Q&A, if you also this time will restrict yourself -- I know it can be difficult. But if you can restrict yourself to post only 2 questions and if your questions have already been asked, not to ask it once again. But with this brief overview of the results, I'll hand over to you, Michael.
Thank you. So on Page 9, I will just have some few additional comments to the run-through what is run -- has already done. If we look at our P&L, the first line is obviously the revenue, and it was impacted by the lower freight rates and also the declining volume, so more than 30% decline in that one. However, we managed to have continued strong yields, so it did not flow through to the gross profit level as well. And also came to an EBIT with the DKK 4.7 billion for the quarter as well.
If we look a little bit about some of the elements in there, obviously, the cost base, it's something that we need to carefully monitor as we do. As you see, there's a slightly increase compared to last year, driven mainly by inflation. If you, at the same time, combine that with the number of FTEs, you can see compared to last year, we have reduced the number of FTEs with more than 2,700, roughly 2,000 of those is white collar. And if you look compared to the previous quarter, it's around 1,700 or so that has been reduced. So we have already reduced some of the cost base. It's clearly that we monitor that closely, but it is impacted by the cost inflation that in some parts of the world are close to 2 digits as well. That is a focus area for us, obviously.
The tax rate is 24%, in line with what we have expected. And then EPS growth, I think as Bjorn already mentioned that, we had a growth in the earnings per share, mainly driven by the earnings as well as a decline in the average number of issued shares where we reduced a significant number of shares last year.
So that's on the P&L. If we slip -- skip to Slide number 10 with the cash flow. It's a very strong cash flow. As Bjorn mentioned it also in the beginning, it's nearly as high as it was last year. So that is something that we are proud of, driven mainly by, of course, the result, but also the significant improvement in our net working capital. I think as Bjorn alluded to a little bit, that it has an impact when the rates are declining, and we keep having money paid in from -- it was a little bit higher. We have paid additional money in tax.
So that's the increase in the cash flow is offset by that as well. It's clear that for the net working capital, we continue to monitor and make sure that we have focus on this area. The gearing ratio, it's remained at 1x at the end of Q1 here. We expect our gearing ratio to increase a little bit in line with the EBITDA that declined. So every quarter, when we switch an old quarter for a new quarter, the earnings are a little bit lower. So that will have an impact on the gearing ratio as well.
Of course, we still have an aim to be well below 2x on that one. We have a strong balance sheet. We have our duration of corporate bonds and loans and credit facilities is 8 years at the end of Q1. So still a strong balance sheet and a ROIC in line with last year as well. So all in all, a strong cash flow for the quarter. That has on Page 11 has also led us to initiate a new share buyback under the safe harbor regulation. We have announced this morning that we have started a new share buyback of DKK 4.5 billion.
So we can actually more or less continue the journey that we have last year, where we have 1:1 nearly the EBIT converted into share buybacks. So that has been started and will run until yes, no later than 24th of July, where we will announce our Q2 as well. We concluded yesterday the share buyback that we started. You can say last time, we announced the share buyback. So that means that based on the things that we have committed right now, that would mean that -- or we have announced that we approximately will have -- when we come to the end of Q2 here, we will have acquired DKK 9.6 billion of shares back. So I think that was it from my side. And then I think we'd jump to the Q&A session.
[Operator Instructions] And the first question is from the line of Robert Joynson from BNP.
First question from me on Air & Sea gross profit. You previously spoke about the expectation of both gross profit per tonne and the gross profit per contain would be down by around 20% to 25% for '23 versus '22. If I just back out what that would imply now for the remaining 3 quarters of the year, if I use the midpoint, we basically would be looking at a year-on-year reduction of closer to 30% of the remaining 3 quarters. So effectively, the drop that you saw about would be more back-end loaded. I mean just in that context, is 20% to 25% still the expected range?
Or is that maybe looking a bit pessimistic now for the year? And then the second question on Air & Sea SG&A. It was down by around 2% versus Q4, which is similar to the headcount reduction that you mentioned during the presentation. So just on that theme, should we [Technical Difficulty] the headcount reductions will continue into Q2, i.e., headcount will go down further in Q2? And also, should we expect that SG&A in the on Air & Sea division specifically will continue to decline during Q2 as well?
Well, I think I'll answer them. It's Jens here. Jens Lund speaking. I think on the GP, we've actually seen that the mix has changed a little bit on what we are doing. We see that the shipments have become smaller.
So we haven't seen the same decline as earlier mentioned in the number of shipments. So I think we will probably not expect what can I say, the GP for the year to decline 20% to 25%, but more in the region of 20%, so it could even be a little bit lower. So you should expect that the yields they come down, but perhaps not as much as originally anticipated. When it comes to the SG&A, it's on the decline, we have, of course, had a situation where we've adapted the number of FTEs, sort of it fits the volume that we produce. We've not been out with large programs. We've sort of done it more as per natural reduction. We still have staff turnover and people that retire.
And this takes a little bit of time and is phased in, and that's the reason why we also expect in the coming quarters to see a little reduction on the SG&A side, so that we -- as we always do, with an asset-light business, adjust our cost base to the volume that we produce
Our next question will be the line from Michael Rasmussen from Danske Bank.
Two questions from me. First of all, if we could talk a little bit about the groupage in road. I noticed that you added a bit of the comments in the slide pack here back from the Capital Markets Day on your ambition share. But just how are you going to drive this further. Obviously, I understand that it's a very appealing category. But are you able to drive this further organically?
Or would you be seeing in the targets out there that has some systems, some terminals that would add interest to -- or boost growth basically to that part of the business? So that's my first question.
I think I can answer that as well. It's basically a structure where we today have approximately 200 terminals in Europe. And they are connected in what can I say, a fixed schedule almost as if you go on a train or on the bus, then you know when you're depart. And when you arrive, and that's, of course, what is interesting in the smaller shipments segment, as you know, what does it cost and what is the lead time. That is very important, and then from post code to post code.
So we can serve the whole market. When you then run a system like this, it is very important that you have many passengers on the bus or many pellets that you move, because then you can take advantage and leverage on the infrastructure that you have. But right now, the focus is on establishing this. I think all the lanes are up and running in the whole network here from the 1st of May. So then we cover all of Europe. And then once that's up and running, we need further system support, in the Road Way Forward that we've talked about sometimes where we can automate large pieces of this production of that network.
So we continue on that journey. And once these items are in place or perhaps sometimes even before if it's relevant, you could add more volume to it. Then you can take the infrastructure that you have and produce the volume that you procure in the same infrastructure. And that's where you get the economies of scale and the benefits that lies in that. So it's a long journey, but we have embarked on it and I'm very confident based on what we've done that we will continue to make significant progress in this area.
So the second part of the question was M&A, Michael. It does not -- it's not a prerequisite for the continued growth. It could be also a very organic journey, where we actually do have a lot of traction. It is in a way, it's the same we offer, but it's done in a much more systematic and structured way, the way that we can commercialize this activity. So that's why I say we have a lot of traction.
That does not mean that we will not be open for acquisitions also, should something come along, which would fit into the network. We would, of course, have a look at it, but it's not something we need to kind of achieve continued earnings growth in the division.
That was just the 200 terminals, I was wondering a little bit about. I think Schenker has more than 400 terminals, I think, in Germany alone. Okay. But my next question is actually linked slightly to this one here. That's the comment that you made earlier in program that you had gained contract wins due to Road Way Forward. And that surprised me a little bit because I thought that you were just on the very early phases of the rollouts in Eastern Europe and hadn't even gone into Germany there yet.
So is this more of a local win? And do you expect to gain market share once you're up and running in large countries like Poland and Germany?
Maybe I didn't explain this well enough because you can say Road Way Forward consists of many things. One track, which is also very, very, very important, don't misunderstand me. That's the TMS or the transport management, so the technical, the IT, the digitalization of the processes. You are right in saying that this is very, very, very early stage. But the other track, which we have already implemented, which we also call Road Way Forward, it's what Jens just elaborated on and explained to you for. It's the more centralistic approach that we have where we have -- it's not up to each and every country to decide when they have departures.
So we have a more central pricing structure now, more central procurement of haulage also.
And this is something which we have gone to market with before we have actually implemented the digital part of Road Way Forward, and this is what the market seems to like at this moment in time. So sorry for that confusion.
No, that's fine. It's going to be very interesting to follow that in the years to come.
The next question will be the line of Cristian Nedelcu from UBS.
The first one coming back to yields in Air & Sea. Could you make any comments on how the quarter started? How Q2 started here and maybe in particular in the context of the spike in the ocean rates that we saw over the last few weeks? And I appreciate your answer earlier that the yields will drop may be less than initially thought earlier this year. But has your view changed on the yields exit rate, either in air or ocean? And the second one, if I may, you talked about the restructuring cost that you will book above your EBIT line this year. Could you give us a bit of color around the size of the restructuring cost, I guess, just to help us a bit in building the EBIT bridge for FY '24.
I think if we take the yields during the first quarter, we've not necessarily seen what I can say, we've seen a volatile situation. But we've not seen a very significant drop. Of course, they are expected to taper off some of the good yields we have. But we've not really seen it yet. And for the exit yields for the year, as we also mentioned, we can actually see that.
One thing is to measure TEU and tonnes. But if we look at the number of shipments, we are not that dramatically down. We have, what can I say, lower reduction. So we see that the mix seems to have changed a little bit and that, of course, has an impact on the exit rate. So it's probably going to be a little bit to the high end of what we initially expected. Time will tell, of course, how the market evolves.
But given the information we have now, we are, of course, very positive about the fact that we come out stronger on GP than we had sort of initially guided. And I think it's because of this strategy where you try to protect also your income and still, of course, looking after that we don't lose too much volume. And I think this balance has been struck very well by the organization. We've seen that in previous crisis as well. So it's -- in a way, it's nothing new, but it's always nice to get it confirmed.
Maybe Michael, the restructuring part.
Yes. The way we account for-- yes, yes, I can tell you a little bit about the restructuring. I think it's important --
It is all about why we don't put it on --
Yes. I can say that I think it's important to understand that we haven't launched a huge global cost-saving initiatives. Of course, we monitor the situation locally, regionally in terms of the volume development. So we always have the right capacity to handle the needed volume. That's something that we do every month, every week. For the Q1, the number you can say, of redundancy cost that we have expensed this roughly DKK 30 million to DKK 40 million.
So it is not material. The majority of the reductions in terms of head count is done by natural churn. And then you would say, what will you -- how much will it be for the remaining part of the year? Maybe you can say we'll have additional DKK 30 million to DKK 40 million in the next quarter. And then we will need to monitor the situation and see if we are doing okay on that level in terms of the productivity and service level towards the customers.
Maybe give a few numbers on the number of headcount. We maybe talked about it. Okay.
Our next question will be from Sathish Sivakumar from Citigroup.
I've got 2 questions here. So firstly, on the warehouse utilization, you did make a comment that it has actually slightly started to soften or decline. Any color on where are you seeing that softness or decrease in warehouse utilization by markets would be appreciated. And then the second one on your LCL product that you mentioned that one of the reasons why you're seeing yields being slightly more stronger in sea freight. What is the typical premium that you get on LCL product versus, say, the other non-LCL product? And is this all LCL because of your SME exposure? Is that what's driving this product, let's say, increase in LCL contribution?
I think the utilization is -- when we were at our peak, we were sort of at 92%, 93% full. I think we are now has more in the 90% area. But that doesn't necessarily say anything, because we have multi-client setups. So I actually think that many of the customers have contracted more, but we've basically managed to attract more volume to our sites. So, some of our customers have seen larger decreases.
But for us, our utilization, it's still due to the multi-client setup, we have very high. So I think we are still around the 90% mark. But if you look at it for the individual customer segment, then of course, you find some of them have definitely decreased their footprint with us. So I think that's basically it. And I would say that it's across the board, but it's definitely from a geographical point of view, but it's customers that are within retail, for example, they have a focus on what can I say, reducing their stock levels, no doubt about that. When it then comes to the LCL cargo, I think what is it that drives the product or the profitability. Let's say, you have 1 tonne of air freight. Then normally, the handling, the custom clearance fees, et cetera, that you receive, they amount to certain fee levels that you get.
So it's more like per transaction. Let's say, you have the same shipment, it is 500 kilos. You actually still do the same paperwork, you more or less have to do the same handling. But of course, if you're the airline, you only have to move 500 kilos, not 1 tonne. So of course, on the freight, it means a lot. But on all the other services, there's not that much of a difference. So let's say, you consolidate a lot of shipments, and they are a little bit smaller.
Then actually, your income per TEU or per tonne, it's very often higher than if you produce it with larger shipments. So that's sort of -- and -- that's the reason why we say, listen, we are down, let's say, roughly 20% on air freight, but we have has down less than 10% on the shipment volume. So that's sort of then what keeps the yields up because we then managed to consolidate this in our gateways, just as an example. And I think it's this dynamic you see.
And of course, serving the SME segment is an advantage because you would typically have many of these smaller shipments that you can consolidate. But I would also say that this division has done some work on the strategy, where they actually put extra focus on gateways and sea freight, the container freight stations. So it's actually also a product of the efforts that they have put in.
Our next question will be the line of Dan Togo from Carnegie.
Maybe some color also on the market share gains that you hope to have at some point, how will that be achieved? Will this further boost the LTL and LCL, so to say, mix and then, of course, be beneficial to yields going forward? Or will it be attacking more larger clients in order to gain volume fast, so to say, what will the strategy be here? And how should we think of that mix going forward? And then maybe some flavor on how Q2 have started. I understand that March -- so the exit of Q1 was pretty healthy.
But can you give some color on how we've started Q2 volume-wise? And do we see sort of say, a normalized saving and then a beginning build up towards some sort of summer peak in volumes?
We don't disclose too much about the current period of time than or the current period that we operate in right now. But I think we can say that we've seen more or less a continuation of what we've seen in April or in March going into April. So no big change, no massive pickup in volume or anything like that, but not the contrary either. So no big signs, I have to say of any peak up to summer yet in the volumes, and you can see -- read the port statistics and stuff as well as we can.
When it comes to market share gains, it's just simply saying that over a long period of time, you should expect us to take gains. This is what we ask ourselves a company with our position and capabilities should be able to grow faster than the market.
But of course, we've never been the company with the highest growth. We have open company with the highest margins and highest earnings in some ways, at least. And this is, of course, what is the most important for us. In sea freight, it will come from both. It's not that we are not attacking the FCL market. We have actually also had some nice gains in the quarter on that, which has probably not been reflected in the numbers.
It's the same with the staff reductions, of course, if it happens in a quarter, you don't -- it does not have a full effect in that current quarter, it will only have an effect in the coming quarter. So -- but of course, we are happy about the LCL network. We've taken more ownership. We do produce more on our own system. We use the so-called consolidators to a lower degree, and that has also helped the -- it's a little bit more difficult. You need to put more time into the operations.
When you produce it yourself instead of just booking it to a consolidator, but of course, the reward is a higher profit on the shipments. So I think growth, I know that growth will come from both a focus on all products as such in the sea freight space.
A change in mix going forward. So more or less the same mix with between full loads and part loads? Or will it be skewed towards the part loads?
LCL will probably a number of shipments, but a number of TEUs, not because it's not massive amounts. I don't know if we have the numbers at hand, but how many -- what percentage of LCL of number of TEUs, it's only about 5% or something like that. So you would probably not see it in the TEU numbers. More or less the same.
The next question will be from the line of Muneeba Kayani from Bank of America.
On your guidance, you've maintained the sentence there, which says that you assume markets will gradually recover in the second half of the year. Just wanted to understand what's your visibility on that at this point? Or do you have more conviction in that second half recovery now than when we spoke at the 4Q earnings call? So that's my first question. And then secondly, just going back to Air & Sea yields, which were sequentially up in the first quarter. Just trying to unpack, how much of this was this mix towards the smaller shipments versus just the benefit from a declining spot rate.
Can you help us break that down?
I can start by answering the questions about the guidance. Yes, you can say, obviously, a couple of months has passed since the last time we spoke. So in that manner, we should have a little bit more visibility, but we don't have such a clear visibility about when you can say the expected turn or win the inventory levels will then will have been lowered so much. So, you can say, it start to generate building of inventories as well. So, we continue to expect with the knowledge that we have and what we can see now. But in Q3, we don't know when then we expect to see a growth in volumes again.
And I think on the yield side, I don't think we can disclose more than we have done. We can just see that we don't necessarily have, what can I say, reporting where we get the full visibility on what is actually the impact of declining rates and what is the impact of us doing more LCL. We don't have a very precise view on that. We can say that the LCL, it accounts for, let's say, 5% to 6%, 7% of our volume. And of course, we know what we then make on income per file, and we can then see that on the small shipments, we have the same more or less average income, and that's sort of how we measure that. But we don't have a consolidated view on it.
Our next question will be from the line of Sam Bland from JPMorgan.
I've got 2 that sort of roughly on that last question actually and about the benefit from falling spot rates. I suppose like unit margins went up quarter-on-quarter. And you talked about it being to sort of focus on yield. Did customer mix change particularly quarter-on-quarter, and that's why the unit margin went up? Or was it something else that improved quarter-on-quarter? And the second question is, if we take that guidance for the full year, the 20% decline in yields full year versus full year, that implies quite a sharp decline as the year goes on.
What's the thing that should get worse on the yields as the year progresses if it's -- I guess I'm thinking it might be that this benefit from lower spot rates dissipates, but maybe it's something else.
You're spot on when it comes to that, because of course you're right in saying that we've always talked, as far as long as I can remember, about this also so-called delay effect that benefits a company like DSV when rates are dropping. Of course, there will always be a delay before that is settled in customer rates. And the opposite, of course, applies when rates are sharply going up. That penalizes a company like DSV. It's probably to a lower degree than what it normally was because everybody is super aware about what is happening in the market right now. There's been no change, quarter-over quarter.
You can simply not change your customer mix from one quarter to another. It will take many, many years if a company needed to change its customer mix. It's not like you can go from, unless you kind of eliminate a very large degree of existing contracts, which you would never do, then you can never go from being a company only dealing with small customers to a company dealing with large customers or the other way around is simply not possible in our industry. And we are I know people perceive us as SME company. We love all our customers, the small ones, the middle-sized ones, but we also are very, very happy with the superpowers of the blue chip multinational customers that we deal with, they are very important to our strategy as well. I don't know, Michael, do you want to say something
I can say a little bit, maybe a little more about the guidance. I think you asked what has gone worse. I think the truth, I don't know whether anything has gone worse, but if you notice we've changed our wording a little bit in terms of the basis or the conditions for the expectations for the remaining part of the year, where we previously expected a decline in the volume of 2% to 5%, where we said now we expect around 5%. So that means that, of course, in the second half of this year, we expect a more increase in number of shipments. And I think in terms of the yields, it has been said a lot about the yields. It's a little bit higher than what we have anticipated.
I think both Jens and Jens has talked about that, but that will, of course, also influence the remaining part of the year in terms of expectations since we have already first quarter have had a little bit higher year than anticipated.
Is there some element of it, which is as volume recovers the sort of volume that comes back tends to have a lower yield than what you have at the moment?
Yes, that's the expectations or the scenario that we have worked with a longer time. But as we also got more and more information, you can say, from whatever month it passes by and maybe the value-adding part of the shipments is like is also explained earlier on the call, can maybe mean that the yields will not decline to the same level as we -- at one point in time pack has expected.
Our next question will be from the line of Alexia Dogani from Barclays.
Alexia from Barclays. Just as 2 as well. So just firstly, the number of shipments, you said 10% down for freight rate for volumes down 20%. Can you just clarify for freight rate just for completeness? So we have that number in hand, please? And then secondly, on the share buyback, Michael, you mentioned you will have done EUR 9 billion by the first half.
Should we expect the same amount for the second half?
I can just make it, I know on the desk of Michael. But on behalf of the whole company, the Board of Directors and everybody the strategy of DSV of continuing to do share buybacks and use the free cash flow to do buybacks, absent of M&A is very, very clear. It's almost carved in Scandinavian granite. So we will not change that. And so if we don't do M&A, you can expect a continuation of the buyback program. And Michael, please feel free to add.
I think that's exactly -- if you earn the cash, we will -- and we don't have anything like as both mentioned, then we will buy back here as we have done so far.
And the minus 10, Jens, a little bit on the shipments on Air & Sea.
The example I gave was actually on air freight. We're approximately down, I think, 20% on air freight. We're probably down 10% on the shipment count. And I think on the Ocean Freight, we also see that the shipment count is roughly down half of what can I say, the decline or the gap is sort of approximately have. And this means that we have more LCL more smaller shipments relatively to, what can I say, TEUs or tonnes that we produce.
And can I just follow up then for the full year, if we're thinking volume down up to 5%, should we expect a 50% decline of shipments, which kind of help us think about [SP] for the full year? Is that sort of roughly what we're talking about in the current environment?
It's hard to say. I actually think that the strategic focus we have on these products will, at a certain point in time, mean that we will have a more disproportionate what can I say, shift towards some of these smaller consignments because we really have a big focus on the consolidation work we can do in our gateways. So that's basically where we're at. But this is the numbers we have right now and there's a focus on continuing that journey. Because this means we add more value to the shipment and after all what really matters is how much GP do you make. And this, what can I say, the number of TEUs or tons is not necessarily the only, what can I say, yardstick you can measure on.
For us it's actually the shipment count that is the most important. But the other models are more objective because they can all be compared across companies. The shipment count might be different. Some companies count in a different way we have seen when we have done M&A and we count in our way. So in reality we can only compare to our own numbers.
Our next question will be from the line of Parash Jain from HSBC.
This is Parash here from HSBC, Hong Kong. My question is, when we look at the Air & Sea lead, from your perspective in terms of securing the freight both on the Air & Sea. Is it fair to say that with respect to sea freight, probably those rates have closed to bottom out, whereas with respect to air, probably there could be further downside you would expect going into the second half with more of the Chinese belly capacity returning back and probably the air cargo demand likely to train sea cargo. Do you see that with the development in terms of the price at which you can secure the Air & Sea space? And that's my first question.
I guess, it's a fair assumption when you say at least we have more firm on the sea freight side than maybe on the air freight side. It is relevant to assume that the sea freight rates, even though it's not so relevant for DSV, that they have somewhat bottomed out. We have also seen, as I'm sure you're aware of, that rates have picked up just a little bit recently. So then, of course, you could argue what happens when the new capacity comes in later on this year. And at the beginning of next year, it's relatively speculative.
So, we have to look at that. If you compare air freight rates to pre-pandemic levels, the cost of jet fuel is much higher. And that keeps the rates a little bit also higher than what it was. And it's also correct what you point out, that when we see more belly space coming in, if demand is not picking up, of course, rates could drop even further. But again it's not so relevant for DSV as we are more in the spot market and we are not big risk takers in the company and also something that pleases us very much that we have -- we have gone into this year with no commitments made in 2022 in terms of fixed capacity that was priced at much higher levels.
In the few cases where we have that, that's a 100% bulletproof back-to-back agreement with customers. So, it's sometimes tempting to sit and see if you should secure some capacity. And you think you know all about what happens in the market, but often you are mistaken.
And this is why we have always been short.
Fair enough. That makes perfect sense. And my second question, just moving on the demand expectation, particularly going into the summer of this year. There has been expectation and commentary from a lot of retailers at this part of the year that a lot of the inventory restocking cycle may come to an end in May, June. And we see some sort of pickup.
When you continue to guide declines up to 5%, and that mathematically just implies somewhat positive growth for the remainder of the year, is that date some sort of pickup in volume going into the peak season, or is just the low waves of last year will do the trick?
A combination of both, of course comps will be easier as we did start to see the decline in 2022. But you're also right in saying that one day inventories will be not maybe empty, but lower than what they used to be. And that should of course be positive for future demand. If that's going to happen in exactly May or June, we just don't know. But it's not a bad assumption anyway.
Our next question will be from the line of Ulrik Bak from SEB.
Also, two questions from my side. I'll take them one by one. Another one on the yield increases in Air & Sea. And I understand that it's partly driven by these more shipments than volumes. But what has changed compared to Q4, where we saw a sequential drop of 15% to 20% in the yield, to now when we now see a 5% to 10% increase sequentially? And then also the trajectory for the rest of the year, do you expect it to be more gradual or at some point a steep drop? That would be the first question.
I think the volatility is down in the market. There was still volatility at the end of last year, and of course if you sit in a market with a lot of volatility and you are a broker, that sit in between it offers some opportunity. I think now that is very transparent and very clear. Of course the possibility, what can I say, to make extra margin on your shipments is slower. For the remaining part of the year, of course we expect, as we have already said, that it will come down. It has been very volatile, so it will probably come in some steps depending on what is happening.
And I don't think that you can just draw a line and then say this is how it's going to pan out.And I think we can't add more color to the yields today. I think we've sort of been around that topic. So let's have the second question.
Yes, okay, that goes to the LCL share of your volumes. You mentioned I believe 5% to 7% of the Q1 volumes were LCL. How much can this share potentially grow to? Do you have any target to that? And also has these LCL share volumes, have they benefited from the declining volumes, meaning that customers don't have to move full containers or full tonnes of cargo?
Is an element of that?
To clarify, when we say a 5% it's in 5% the number of TEU's. So of course, as a proportion of shipments, it's higher as you have more shipments in one container. But I don't know, Jens, if you want to?
No, it accounts for, according to our estimations, probably in the 15% to 20% region of our GP. That's at least what we have extrapolated out of the systems. And we don't have the exact, what can I say, at least not here, the exact number for the other thing. But this, what can I say, proportion of our business we intend to grow and we intend to continue to develop. It is not, what can I say, as impacted by the container freight rate or the air freight rate per kilo.
It's not as impacted when the market fluctuates because there's a lot of, what can I say, standard charges that comes on a shipment, as I explained before, that are virtually flat fees. So, of course, if you can increase that part and now with the footprint we have for the global reach and with the number of terminals that we have also on the Air & Sea side, it is something that we can leverage on and take advantage of. And if --
If I can just say also, it's not that LCL is something new in DSV. We have always done it, but it has been done in a somewhat decentralized way. It's one of these journeys that we're on in our company as we have grown. We've not always been fast enough at using and leveraging on our new scale. But we have seen with the size we have now, we are if not the then amongst the top players globally on the LCL.
So that gives some benefits if we look at this at a more structured and centralized perspective. We are still extremely dependent on the local knowledge that we have in the network. But if we can make a more centralized setup where we agree a way to organize the LCL, all of a sudden we do become more competitive. And that is partly also just by focusing on this product in a different way, the reason that we have been more successful. And I'm sure we will find a lot of other areas in our company that can see kind of the same effect going forward.
Our next question will be from the line of Lars Heindorff from Nordea.
No questions regarding yields. Maybe then I can sneak in 2.5 half then. It's regarding Solutions, minus 9% revenue growth in the first quarter. I don't know if you can help us a little bit about the trajectory going forward here. Is this minus 9% if it's caused by volume, prices, a combination of those 2, and how should we view that as we head into the coming quarters? And then the half question here would be around the gross margin, as you mentioned earlier, is 40% sort of a new level where we should expect gross margins to be? And then the last one will be on net working capital.
A very impressive improvement there in the first quarter, obviously, helped by the low cargo rates. Should we expect it to be around this level? Or will things start to normalize and rates doesn't decline any further. Do you expect that to go up again the net working capital as a percentage of revenue?
Michael you take net working capital. I'm sure Jens will go into so..
Yes. I can take net working capital. I think we haven't -- in the old days, we would like to keep it at 2%. I think we said that it will be in the range of 2% to maximum 3%. And I think that, that is -- we will strive whatever we can to keep it at 2%, but it might be that it will be in the range of 2% to 3%.
And then I think on the other stuff, the GDP is going to be, I think, the way we account for the way it looks is going to be in this area. It's probably even going to be trending perhaps a little bit higher, the more automation we put in -- so it is kind of a direction we are going in us when it comes with that because you take out headcount, they are accounted above and then you put in depreciation instead and that's sort of below the line.
And of course, the volumes less prices, I think it is a little bit of a reduction in volume. As I also said, our utilization is a little bit lower, not dramatically lower, but a little bit lower. And of course, that all adds up when we look at it. So there's been somewhat less activity, and we've had a little bit of a lower utilization of our warehouses. And given the size of the business we have, it's all of a sudden, it means quite a bit if you look at the numbers and the results.
And I'm confident that sort of we are bottoming out and then we can expect that we will have some good quarters ahead. I think the comps, in particular in some of the quarters last year in certain areas, we were producing, what can I say, extraordinary results. I think now we're just producing very good results. I don't think we should be ashamed of a margin of 10%.
Our next question is a follow-up from Muneeba Kayani from Bank of America.
It's Muneeba Kayani from Bank of America again. I just wanted to ask on M&A, how could we finish the call without a question on that. So what are you seeing in [Technical Difficulty] and any color you could provide on that, please?
It's a little bit the same as with the share buyback program. It's carved in stone also the strategy of G3. We've said it a million times, our industry is super fragmented. We believe in consolidation. We think we have generated a lot of value not least to our shareholders by doing M&A in the past.
Actually, also to a lot of other stakeholders surrounding the company, but that's for another day. So there are no changes to that philosophy. We are strong believers in M&A. We will -- it's a combination of some name targets that we have always, throughout all the years been working on. Some of them we have managed to buy others not maybe because they might not have been put up for sale. And then, of course, also remaining opportunistic being ready if an opportunity, all of a sudden arises.
So the company is ready. We are beyond the GIL acquisition. So I guess, one thing that prevented maybe a little bit M&A in the 2022 was elevated price expectations from the sellers due to, of course, the very strong performance of many of our colleagues around the world also. It's our belief and understanding that this will be kind of recalibrated into '23 when we get a couple of quarters under our belt with a more normalized earnings, then we have the expectation that sellers and buyers can meet on a more level playing field. So yes, we are optimistic about M&A and nothing as such has changed in our strategy when it comes to doing acquisitions going forward. So thank you for the question.
As there are no further questions, I will hand the word back to the speakers for any closing remarks.
Yes. Thank you very much for all your detailed questions. As always, it's been a pleasure communicating and interacting with you. You know where to find us. If we have not answered your questions to a satisfactory degree, you're always welcome to reach out to Flemming Ole Nielsen and the rest of the Investor Relations team that will be ready to engage with you. We'll go on roadshows, speaking to investors now in the coming weeks, and we look very much forward to that. So with these final remarks, I wish you all a nice day.
Thank you and goodbye here from Hedehusene.