DSV A/S

CSE:DSV

Earnings Call Analysis

Strong Market Performance and Positive Outlook for 2024

In Q1 2024, we delivered solid results in a normalizing market with progress across all business areas. Despite lower revenue and GP compared to last year, we maintained strong cost management and productivity improvements. Our EBIT guidance remains between DKK 15 billion and DKK 17 billion. Key initiatives include a new DKK 1 billion share buyback and continued focus on growing faster than the market while maintaining high yields. Leadership has successfully transitioned internally, ensuring stability. We expect to reduce net working capital by DKK 2 billion before year-end, supporting our growth strategy.

Introduction and Leadership Transition

The earnings call began with an introduction from Jens Lund and the completion of a leadership transition at DSV. The new management team, consisting of internally promoted leaders, reinforces DSV’s established values and operational strategies .

Financial Performance Highlights

DSV reported solid results for Q1 2024, despite a normalizing market. Though there was a decline in revenue and gross profit compared to the same quarter last year, the company managed to grow and maintain its EBIT guidance at DKK 15-17 billion. The strong cost management helped mitigate inflationary pressures . Expected cost reductions in property projects could free up DKK 2 billion by year-end .

Air & Sea Division

The Air & Sea division showed notable growth. In airfreight, DSV gained market share even in a competitive and volatile market, particularly in Asia and on Trans-Pacific routes. The focus on network business and productivity improvements contributed to a strong sequential performance compared to the previous quarter . Similarly, the Ocean Freight division saw market share gains with substantial growth on the Trans-Pacific and Asia to Europe lanes, attributed partly to a recovery from previous destocking issues .

Road and Solutions Divisions

The Road division faced price pressures in Europe, impacting results. Despite this, the company improved productivity to match last year's gross profit. A specific customer contract issue caused a DKK 30 million impact. In the Solutions division, higher depreciation from new facilities affected Q1 EBIT, but the division has a strong growth pipeline and increased its footprint significantly to over 9 million square meters .

Cash Flow and Share Buyback

Lower cash flow typical for the first quarter due to seasonal factors and activity surge was noted. DSV announced a new share buyback program of DKK 1 billion, contributing to a total shareholder return of DKK 4.2 billion for the quarter. The capital allocation policy remains unchanged, focusing on maintaining a dynamic approach consistent with previous practices .

Market and Strategic Initiatives

Despite market normalization, DSV continues to prioritize growth in market share and productivity. Emphasis was placed on both large accounts and SME segments. In airfreight, robust growth is expected to persist, while ocean freight benefits from improvements in shipment counts and service quality focused on the LCL network .

NEOM Project

DSV confirmed its preparations and readiness to mobilize for the NEOM project. The business plan is intact despite frequent changes typical for large infrastructure projects. The project's current phase involves capital injections and minimal immediate financial impact, reflecting cautious anticipation of long-term benefits .

Future Outlook

Looking ahead, the company aims to continue outperforming market growth with strategic volume increases and operational efficiencies. Potential M&A opportunities remain a key aspect of DSV’s growth strategy. The management expressed optimism regarding future quarters, anticipating continued growth in EBIT and gross profit .

Earnings Call Transcript 2024-Q1

[Operator]

Hi, everyone, and welcome to the DSV trading update for Q1 2024. Today's call is being recorded. [Operator Instructions] I would like to introduce Group CEO, Jens Lund; and Group CFO, Michael Ebbe. Speakers, please begin.

[Jens Lund, executive]

Thank you very much, and welcome to our investor call for Q1. We would like to welcome all our investors, analysts and DSV employees that are probably also listening into the call. The call will be an hour, and I would also like to ask the analysts who have 2 questions per person. If we move to Slide #2, we can see the agenda. And to the right, you can also see the statement on forward-looking statements. Please have a look at that, taking care that you have taken this message on board. If we move to Slide #3, we will now go through some of the highlights for Q1. And I think it's very important for us to state that in a normalizing market, we have actually delivered very solid results, and we have delivered progress in all the business areas that we operate in, and we are following our internal budgets. Of course, we have grown now in Q1, and this has consumed some cash flow, which is also visible in the numbers. But we see this as a positive sign, of course, driving the business forward. This has an impact on our share buyback, which is DKK 1 billion for the next quarter. It's important for us to state that we reiterate our EBIT guidance between DKK 15 billion and DKK 17 billion. In the quarter, we have also completed the leadership transition. We have an experienced DSV team in place. It's basically internal succession. So it's a solid foundation, and it's basically still the good old DSV DNA that you know that run in the company taking care that we deliver on our operational and commercial strategy.

On the next slide, we have the overview of the Air & Sea division. I think it's a very strong result also comparing to our peers. Actually, we delivered very solid GP progression in '23, and we've continued that journey into '24 as well, taking care of course, that the market is normalizing now. The Red Sea has had limited impact on our results, and we don't expect any significant impacts going forward as well. I think we've achieved significant shipment growth. And I think most notably, also relating to our DSV DNA. We've also seen that we have managed to increase productivity quite bit compared to last year. If we move to the next slide, we can have a look at the airfreight market, we've gained share in our addressable market. The market is competitive, in particular, out of Asia these days. And it's a bit volatile when it comes to the Trans-Pac and the trade to Europe out of Asia.

I think one thing that is very important to note here is a very strong sequential performance that we had vis-a-vis Q4. And I also think that the focus that we have on our network business and the productivity improvements, they are visible in the numbers below. There's another thing that I would like to draw your attention to is that what we focus on is the generation of gross profit. So of course, we want to grow faster than the market. And then, of course, also at the best yields that we can obtain. And I think that you can see what we've delivered on the yields here is something that is very solid.

If we move to the next slide, we then have the Ocean Freight as well. I think also here, we've definitely taken market share and I think the lanes where we've had the most progression is the Trans-Pac lane, but also the Asia to Europe trade lane. Probably a little bit also related to that the destocking has stopped and the market is sort of normalizing a little bit. As I just talked about the Rea Sea situation. It's not had a significant impact on us, but I know it's had a very significant impact on some of our customers. So we've had to spend a lot of resource together with our customers, taking care of this disruption so that we keep the supply chains flowing and their businesses running. I think also here, I would like to point out that the sequential growth is also very, very solid. And on the strategic side, I think that the focus we have on our LCL network and basically the service and the quality that it brings to our customers is also paying off. We see that we have increased shipment counts, and it's something that is very well received with our customers. If we move to our next slide, we have the Road division. In Road, in particular in Europe, prices are under pressure. This means that in order to grow the company, we need to produce more shipments. This is also the case here. And we've managed basically to produce a GP on level with last year and EBITDA is slightly below. So it also means that even if we have inflationary pressure on our cost, then basically, we've managed to increase the productivity. There's a little extra information on the Road side, and it is that we've had implementation of a customer contract, where we had some difficulties is impacted the quarter with DKK 30 million.

So if it hadn't been the case, we would actually have delivered growth in this quarter in Road and we're very proud about sort of the performance despite that we had this little issue. If we move to Solutions, it's in reality the same. In Solutions, we have also seen a situation where the rates are a little bit under pressure, but we produce more volume because we have increased our footprint, our network. So we're really driving the company forward. Then as you know, when you make expansions in Solutions you give it sort of what we call big boxes and takes a little while to fill them up.

So this is actually the reason why our depreciation, say, are a little bit higher on the right-of-use assets here. So we are a little bit below on EBIT, but we have a strong pipeline. So we are confident that we will be able to basically utilize the capacity that we have. We are now more than 9 million square meters on Solutions. And I don't know if some of you can remember, but it's only a couple of years ago that we were 7.5 million. So we have definitely continued to develop this division as well.

Then the next slide, Slide 9 is the leadership update. We've made the transition, and I don't necessarily want to go into all the bullets to say that we've made changes to the executive management, the divisions and our commercial team as well. What is important to get across is that it's an experienced management team, and we are safeguarding our DSV DNA. The team, they are accountable. It's a culture that we have in the company of accountability. And also in relation to potential M&A that might come up, the team is really solid.

So that was a little bit on the leadership change. It will be the only time that we will talk about it because it's, of course, a concern that we had to address. But it's business as usual and everybody is basically executing on the strategy. Then the next thing is basically on Slide 10. It's a little bit about our commercial approach, the way we approach the market. If we take our customers, we basically have our largest customers in this segment, it sort of accounts to up to 50% of the GP that we produce. We've reinforced this approach that we have on these customers so that we become more customer centric and can handle the strategic debates that are relevant on such customers.

And then on the remaining part, sort of a little bit more than 55% of our volume, it's the SME segment. This is our classic stronghold, and we continue to develop this as well. Here, we are, of course, focusing on what is relevant for the different segments of this customer portfolio and also digitizing our services so that we can address these customers in the most efficient and professional way that works best for them.

And as you can see from the numbers, both the organization, but also this commercial approach. It's already starting to show results, and it's very satisfying to see this.

The next slide, we have the next update is actually on NEOM. So on NEOM, I have a few key messages for you. One is that we are mobilized so we have done all the things we need to do in order to be able to produce our services in NEOM and the team that has been used to that is basically free to do other tasks now.

Then currently, there's no change to the business plan. It's the same it's been all the time. I know that some of you have seen information in the media about changes, but you have to get used to in a big infrastructure project like this that there are constantly changes, and we will update you when we have to update our business plan. This is very important and we have to get used to that, either this track in NEOM has been changed or another track. There are multiple tracks there in this project. And so far, we mobilize. So that's derisked, and our business plan is intact. This is basically the key takeaways on this slide.

And I think that was it from my side, so I will pass over to our CFO, Michael Ebbe, who will be happy to take you through the numbers.

[Michael Ebbe, executive]

Thank you, Jens. Yes, on Page 12. I think Jens has already been through the operational performance. So I'll only address a few highlights on this slide here. As Jens mentioned, we have had growth. Despite of that, our revenue and impact -- impacted by the normalization, which means that we have a lower revenue and GP compared to last year same quarter. It is more normalized, as Jens said, also seasonality-wise. We have been able to reduce our cost base due to our strong cost management as we have always been part of the DSV DNA, and that's despite the inflationary pressure that is on all of us actually. Our interest rate cost has increased, and that's due to our increased financial leases and then also increase in the interest rates. That's the key messages on that slide. So I will jump to the next slide on Slide 13. I think it's -- Jens, you already addressed it that our Q1 cash flow is traditionally low in our normal world and with a normal seasonality, and that's also what we have seen this quarter. And we've had the exact opposite impact than we had last year same quarter, and that's impacting the net working capital, where we've seen the increase in activity, especially in the second half of Q1. So that is the reason for this development. Then a few comments to our net working capital. We have, as we've also read in the announcement, we have tied up some capital in our property projects, which is part of our growth strategy and has always been that, it's an integrated part of our business.

We expect that we will be able to reduce with DKK 2 billion before year-end. So I think that's the key messages on that side. And then, of course, the ratios are impacted by the lower earnings. Going to Page 14, the allocation to shareholders. Based on our positive cash flow in Q1, we have decided to launch a new share buyback of DKK 1 billion starting today and running until we announced the next quarterly results in July. That means that we will have allocated DKK 4.2 billion when this is announced. When you look at this table, it's important that is what is announced. DKK 4.2 billion, of which DKK 3.1 billion is actually already returned to the shareholders in Q1.

It's also important for me to stress that there is no change in our capital allocation policy. It stays true to what has always been. So that is just a dynamic approach that we've talked about before when we assess that quarter-on-quarter. Going to the last slide from my side is the outlook, and Jens has already mentioned that we have maintained our guide look based on the strong Q1. So I think that's basically the key message on this slide. I think that was very quickly through the numbers, Jens and you take the word?

[Jens Lund, executive]

Yes. So what we would like you to take away from the presentation is that we've gained share across the board, and we're very pleased with the results that we've produced in the first quarter of '24 and the leadership transition, it's over and done. So -- and the organization is settled and in full operation. And then, of course, that we are executing on our strategy, as always. This is the operational part, which you're very used to that, but also the commercial part where we have even more customer focus than we had before.

And then we are, of course, ready to deliver on potential M&A, which has been an important part of our journey as well. So It's a continuous journey while we built on our classic DSV DNA. So that said, we are ready for the Q&A session we have -- and the whole session will be an hour. So we have more than 40 minutes now, and I think we'll be ready to take your answers, please post 2 per analyst.

[Michael Ebbe, executive]

I believe it's okay if you will have 1 question also...

[Jens Lund, executive]

That's also the case. Then they are welcome as well.

[Operator]

[Operator Instructions] The first question will be from the line of Cristian Nedelcu from UBS.

[Cristian Nedelcu, analyst]

The first one is on the air freight rates. Over the last month, we've seen air freight rate is much stronger than the usual seasonality on the back of the Red Sea and the e-commerce demand. How are you thinking about securing air capacity for the Q4 peak season? Do you see any risk that there will be air capacity shortages in the peak season as Shannon and [ Thermo ] continue to take out capacity in the market, and we may see a bit of a pickup in demand in traditional air vertical? So that's the first one. The second one, you've been thinking about increasing the share of wallet with your clients. Could you talk a bit more about the time line of seeing benefits on your revenue side from this initiative? And also if you expect further cost associated with this over the next few quarters?

[Jens Lund, executive]

Good. It's correct that the freight rates, in particular on the volume side of Asia has been on an upward trend, and they also consume quite a bit of capacity. The way we structure our procurement is that we have a significant part of our volume that is spot driven. And then we have our network business, where basically charter capacity in for periods, could be 1 year, it could be sometimes a little bit a longer charter, perhaps 2 years. And then with certain options to change the volume that we have committed to. And I think this is all part of our strategy where we can then keep the network volume running. And then for the spot-driven business, of course, we have to procure in the spot market. So I hope this explains a little bit to your concerns. Of course, it's the situation will then be, that if the rates are really driven up -- then some people that have decided to procure short term, of course, they will see increased rates. Then I think for the commercial approach or commercial strategy, I think if you look at the numbers right now, they are basically mostly impacted by short-term impacts. We are progressing on the account planning and then basically working with our customers on the more strategic initiatives for the larger accounts and that will slowly kick in quarter after quarter, and I would expect that we would see positive benefits of this for the next couple of years before we reach a normalized level where the organization is fully mature. If we sit and look at it the way we've organized ourselves is that we've not added additional cost to the structure. We've basically reorganized ourselves and refocused the organization and also made the plan what we need to do on the specific accounts clear so that we don't consume resources that perhaps could be used better in this more structured approach.

[Operator]

The next question will be from the line of Lars Heindorff from Nordea.

[Lars Heindorff, analyst]

The first is also on Sea & Air. I don't know if you can give us an indication about the growth that you have achieved, which is clearly better than you have seen in the past many quarters in terms of volumes. Is that achieved mostly with your large customers? Or is it an SME segment? And as a follow-up to that, how are you working with this customer portfolio do you have? I mean from a portfolio perspective, how fast can you change the balance between volumes and yields, which, by the end, generate the gross profit that you focus on? And what is sort of -- what kind of balance should we look at into the future as well?

[Jens Lund, executive]

If we look at the volume growth and if we look at, for example, airfreight, if we look at that, that is typically centered around the larger accounts, Lars. If we look at ocean freight, I would say it's more balanced into the SME segment as well. So that, of course, we've seen some progress on the larger accounts, but we have definitely also seen progress in the SME segment. So I would say that's more balanced when you look at that. So I hope this clarifies this topic. And the other thing is the -- basically how we work with our customer portfolio. If you have an account plan for the larger accounts, I think this is what you're alluding to, then there will always be, what can I say, the tender-based approach, the volume that is constantly under tender. That would typically be, let's say, you work for some capital goods company that produces capital goods typically be inbound volumes that are very sort of stable so that they can keep the production running. Then if you look at an account like this, and you want to expand your pipeline, for example, they might also have a service business is very common. Then in operation like this you will go in and try to explain this customer instead of working with multiple operators perhaps we should introduce a control tower. And perhaps we should then shift this volume of the service business into either our airfreight network or groupage network, for example, on road. And this then helps this customer basically to have a more simple structure that they cooperate with and then basically one point of contact for this, then you introduce this to our customers. Some customers still then say, let's do it. At year-end, if they are interested, some might be eager to get going faster, but that could be a typical conversation that you would have where you would have a transactional relation and in the beginning, at least, for this change also a strategic debate with the customer. So that could be an example. And there are multiple examples like this, both on warehousing and on all the services that we produce, where we then see the customer has what we call a pain point. It's actually operating today, but it's a service that can be improved. And that's really then where you have the strategic debate with the customer. And then it takes the time it takes to make these changes together with the customer. So this is, in reality, then a more outside-in approach, what can we do for the customer instead of -- and make the customer's business better than just an inside out where we have -- if you want our groupage network, here are some rates. So that's strategy, Lars.

[Operator]

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

[Unknown Analyst]

I've got 2. So the first one is on yields. In the presentation, I think you mentioned more than once the word stabilizing. So just wondering what's your, let's say, outlook for the remaining part of the year? And do you expect yields to fairly growing over time? And as well from the volume side, you're outgrowing the market clearly? So we should expect still market outperformance in the second half of the year. Also when, let's say, the macro backdrop possibly improves? And the second question is on NEOM. So just wondering whether you can, let's say, quantify the impact we should expect for this year in terms of profitability for the joint venture. And -- yes, if -- what's the -- when and what's the expected equity injection into the joint venture?

[Jens Lund, executive]

Michael will answer the NEOM question, then I'll answer the yields and volume. Actually, we focus on, what can I say, the GP. It's very important that we get away from this yield discussion. You can see the yields that we produce, they are -- they stand comparison to everybody. Then we have a good old DSV strategy where it says we have to take market share. And I think it's very important that we continue to outgrow the market and perhaps that we can increase the pace a little bit as the strategy sort of unfolds as well. And then we will continue to look at basically how much value can we create, how much income can we generate on the yield side? And I think we are off to a good start, and we expect this journey to continue for the rest of the year. I think that's the closest we can come to that debate. And then I think Michael will answer NEOM.

[Michael Ebbe, executive]

Then I think Jens also touched upon earlier, there's no significant change to the business case that we presented. And as we also said right now that we are ready to go live here in Q2. So you should expect limited impact in the remaining half of this year, as we always also previously have communicated a little bit about.

[Unknown Analyst]

And sorry, just a quick follow-up. In terms of capital allocation, I mean, the DKK 1 billion you have announced for the second quarter or until July, it's, let's say, it's slightly less than historical leverage, I guess, DKK 2.5 billion to DKK 3 billion of buyback. So is that -- I guess it is related to NEOM? And whether we should expect in the second half your capital allocation, let's say, going back to historical run rate?

[Michael Ebbe, executive]

I think what we -- how we will conduct this is that when the JV starts, we have to inject the capital, which is USD 100 million that will come here in Q2. And then since also there's a ramp-up phase, obviously, before we start to see the impact. And year 1, it is, you could say, very, very limited impact on the EBIT.

[Operator]

The next question will be from the line of Michael Rasmussen from Danske Bank.

[Michael Vitfell-Rasmussen, analyst]

Two questions from me. First of all, on net working capital. So if you could just add a few more words on maybe the quarters to come here. So I fully understand the property part of things, and it's difficult for you to say exactly when those deals will close. But just the other impact, the activity based. So as I understand it, this Q1 had a positive momentum during the quarter. But I guess the same would be the case in Q2. So you would potentially also see some working capital being built up in Q2. So if you could just confirm that assumption is right or not? And then my second question is on the Schenker process. So according to German media, it seems now the process is running towards its lower or it's the latter part of that process, lower of fewer number of bidders and so on. Could you maybe just add a few words, assuming you do not end up with being the highest bidder. What would you potentially then focus on in terms of capital allocation?

[Jens Lund, executive]

I think Michael will answer the first question, then I can take the last one.

[Michael Ebbe, executive]

In terms of the net working capital, it's clear, Michael, that if we have significant growth, obviously, we will have to tie in a little bit more capital. But we also expect to get money in from the capital that we have already employed. I think in total, we are coming back to a level that we have talked about, you could say earlier, but of course, that needs to be phasing in, but we've talked about in the level of 3% in total, that's including the property. That's what we aim for again.

[Jens Lund, executive]

Yes. And then on M&A, I mean, we shouldn't look at our strategy in general. I think what is important for us is that we are able to outgrow the market. Does that mean that our basically value proposition, it sort of can stand on its own feet. So this is the most important thing for the company. Then secondly, if we have a business that can scale, which we have, and we have the ability to scale it. It's always fantastic if we could buy volume and add it to our platform because then we will get the benefit of the economies of scale. So basically, our capital allocation will always, at least on this -- it's somebody else running the company, but as long as we're running the company, we will always -- if we have too much leverage, we pay debt so that we are in a safe position then we will invest in our business. And investing in our business can be both organically, but it can also be M&A. And then if this is not relevant, then we will return the funds to our shareholders that we have generated so that we keep the company accountable. It's basically the foundation for our success that we don't keep more capital in the company than is needed to run it. So that's the strategy we have.

[Operator]

The next question will be from the line of Patrick Creuset from Goldman Sachs.

[Patrick Creuset, analyst]

Just with the market share initiatives now clearly starting to gain some traction already in Q1, do you expect you can maintain this pace of volume growth in Ocean as you go into the next quarter and quarters? I mean -- correct me if I misinterpreted, but I talked from your earlier comments, Jens, that your ambition is probably to keep pushing maybe even higher growth rates. And then in Air, I guess, you still wouldn't be happy with the sort of low single-digit growth we're seeing in Q1. So if you could also share an order of magnitude of what we can expect in the coming quarters? And then related to the first question, based on your full year guidance, your medium-term targets and what your now seeing in the short term going to Q2, would you say that Q1 '24 marks the low point in terms of EBIT for the business in this cycle?

[Jens Lund, executive]

Yes. If you look at the market share, Patrick, I think it's a very solid status we had to the year. I think actually for the year, if we can continue what we've done on Ocean, we should be very proud of this. I still think that we have -- if I look at the pipeline and what we have in there, we also see that we will get or make more progress on the airfreight side as well. So we're definitely going to push more volume for the system throughout the year. And of course, with the yield sort of stabilizing, plateauing where they are, we should be able to produce a little bit more GP in the coming quarters. And keeping that focus on the productivity and our cost base, I think it's also fair to say that the EBIT in the coming quarters should be higher. You have to remember one thing, though, December quarter, the last quarter, is, of course, not the highest. It is the second and the third quarter that are our highest quarters. And then the December quarter a little bit lower. And then, of course, normally, the first quarter of the year is the lowest quarter we have. So that's the seasonality basically. And I think we are quite confident that we can continue to drive the company forward as we've also seen here in Q1.

[Operator]

The next question will be from the line of Ulrik Bak from SEB.

[Ulrik Bak, analyst]

The first one is around the Red Sea situation. And I know you mentioned that the impact on your yields and your earnings has been limited during Q1. But still, can you just try to quantify how the impact has been through the quarter? And if you can give any color about the exit rate out of Q1 for the CEO. That would be appreciated. And then the second question, just a more macro level question. Just a status on the inventories and your bookings visibility. How are they looking as we get closer to the peak season?

[Jens Lund, executive]

I will take the Red Sea first. I think it's not -- in the beginning, there was quite a bit of uncertainty, quite a bit of volatility. And I guess, as a broker, perhaps you can on the individual transaction make bulk here and there. But in general, the market has stabilized, normalized in this. And I think most people, they contract short term when it comes to the Red Sea situation. So it's not like we can basically make significant margins on it. As you know, we are also quite short term in the way that we contract as well. So it's like normal fees that we get on the transactions also on this volume. I think going forward, there's a lot of capacity coming in to the market. So it probably means that the rates which have already been pushed down will continue to decline if we look at this. Then you had also a question about inventories. And I think the statistics that are out on that shows that the inventory levels are reduced. So we're seeing a more normal market in the supply chain area now. And I think that will ensure that the GDP will grow in line with -- or the volumes will grow in line with GDP. So I think that's sort of the market outlook. I don't think there are any markets that are overpositive, but they are growing slowly.

[Operator]

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

[Muneeba Kayani, analyst]

Just on your strategy, the focus on market share, absolute gross profit and large customers, why do you feel the need to kind of change your strategy at this point? Any specific reason? So that's my first question. And then secondly, just on conversion ratio. So it's currently below the midterm guidance. How do you plan to get Air & Sea conversion ratio to over 50%? Is that kind of a cost-focused thing or gross profit focused thing?

[Jens Lund, executive]

Yes. If we look at our largest accounts, on average, we have 10% share of wallet. And I think if you are in this industry, of course, we have some where we have more. We might have 20% share of wallet and somewhere even 25%. So we've not really reached the limit to where the customer will say it's too risky just to do business with us. Then if we are already working for the customers and they are happy with our services, then we actually have the opinion that if you want to grow your business and you continue the tender-based approach and tender on the same volume, then you don't increase your pipeline and then basically you can't really outgrow the market. So we have to increase our pipeline by introducing basically other services to the customers we already know. And that's really what we're trying to do. I think this is also what you can see a little bit in the numbers. This is also what is happening. And if I look at the pipeline, it seems to be a very good plan that we have put in place. So we're very positive about that. Of course, you would also want new logos in that as well. So that's another focal point as well, but it takes time to grow a new logo from no volume to something of significance. Then I think when you look at the conversion rate, you're absolutely right, there's a GP element to that. And there's a cost element to it as well. I think we look now at freight markets that are normalizing or normalized. So I don't think we're going to get a ton of help on the GP level that we sort of can increase our GP. We have to add more value to the service we produce all the time. I don't think it's going to mean that we will get a significant increase in our GP percentage because the customers also expect that we're more efficient and we deliver more value. The market is competitive. So I don't think that's going to change. But what we can change is we can continue to drive digitalization. We can continue to be more efficient. You just saw how much we've increased the productivity. And of course, one of the buzzwords, which we have actually left a little bit up, but I'll say it anyway. We will, of course, use AI and other tools that we use, but AI is not the only answer to this question. There are many places where we can improve our workflow and organize ourselves in a more efficient way. And that's in reality, what is going to drive the conversion rate up. As part of our strategic road map, we are executing on it. I also think now that we've increased productivity more than 15%. I think we also have put a little bit of credibility into the bank when you look at that number.

[Operator]

The next question will be from the line of [ Peter ] from Morgan Stanley.

[Unknown Analyst]

Just a question on -- so sea volumes looks like a nice [ peak ] in Q1 and yields were largely in line with estimates at the full year and also today, you spoke about looking to drive organic growth. Can we take Q1 as first evidence that you can grow volume without sacrificing yield? And if so, can you talk about some of the types of business wins you'd be targeting?

[Jens Lund, executive]

Yes. I think we would like to focus on the GP topic and didn't take market share. I think the types of business that we're winning is both in the SME segment, but we've also seen that we managed to acquire volume for larger accounts. As I said, we expect to continue this growth for the rest of the year. And it's not like we call it profit profile in DSV. This is basically your yield has gone out of fashion. This is still a very important focus point for us and we will continue to drive our business forward so that we grow with profitable volumes. We are not here to move cargo where we can't add any value because then it's just a resource consumption, and it's not really an efficient allocation of our resources. So I think that's what I can say to this.

[Operator]

The next question will be from the line of Alex Irving from Bernstein.

[Alexander Irving, analyst]

Two for me, please, both on Air and while I understand the focus is on absolute gross profit, I'm hoping to unpack the 2 components of that. So the first one is on the GP yield in Air. How is the mix in different product verticals impacting the current development? And how is the range of different product vertical demand outcomes impact your Air GP yields through the rest of the year? Second, on the volume component, as far as you can see, still appears to be lagging market volumes taken by global data from, say -- WorldACD is still below the Q1 2020 number before the acquisition of GIL -- you help to understand what explains the differences, please.

[Jens Lund, executive]

sure. The last part -- you asked about what's the difference between...

[Alexander Irving, analyst]

Between the air volumes that you're reporting to the aggregate market data, say, from WorldACD, which suggests that more growth is...

[Jens Lund, executive]

You alluding to -- yes, I understand, you are alluding to a very big debate internally in our company as well. We use the [indiscernible] data, as our source. There's also other sources, but they are incomplete. So we can't really use them as the foundation. So that's where we get our data from. So I think that's one of sort of the questions answered. The other one basically on the mix of our GP on airfreight. I think if you sit with airfreight, I think what is very important when you produce airfreight is that you would typically have some base cargo, in particular, when you have a network business. and you would have a lower yield on that. But then you would have the combination with what can I say, the other type of cargo versus the small shipment in combination, then you can actually both from the dense and traffic cargo to the volumetric part, but also the way we can combine and use the capacity on small and large customers, you can basically drive your yield up. Here your gateways and the way you consolidate the cargo is crucial. This is also the reason why we talk about it that this is a very, very important driver. So when we drive this forward, I think we will see continued expansion when we acquire larger volumes into our network, and then we will go out and hunt for the SME volume as well, which can be sizable as well. So that's how we are producing that. Then, of course, the yields in the market, it depends a little bit on the competitive situation and the more volatility there is, as a broker, then you have a better opportunity to maximize your profits. So I think this is basically what we will look into what will happen in the market. There's nothing that tells us that the current market conditions will continue in the coming quarters, so significant exports out of China and some of the other lanes more stable.

[Michael Ebbe, executive]

Just a small follow-up comment if I'm allowed. I think it's like also Jens also touched upon during the presentation on the airfreight. I think it's important to start to get used to the addressable market. We could see our peers as well also starting to talk about this because there are some factors that influence the different sources that you take upon, e-commerce and perishables and what's included and what's not. So I think it's important that when we talk about addressable markets, as mentioned on Page #5.

[Jens Lund, executive]

And I have just one more comment on that. For example, for us, perishables has never been, what can I say, a very important market. It's something we inherited from Panalpina. We've kept a little bit of it, but we've divested most of it. The GP on a product like perishables is very low. It compared to doing full loading in road. And you also have specialists that do that. So they have a business model that fits this. It doesn't fit into our normal network business.

[Alexander Irving, analyst]

Maybe one quick follow-up just to ensure I understood this correctly. At the moment, you've got a higher weight of base cargo in your overall airfreight mix. And as you get more combination types of cargo, that should help the unit gross profit going forward?

[Jens Lund, executive]

I would not say that we have a non-balance situation today. I think what is very important is that we keep on basically maximizing the volume metric sort of capacity that we have so that we sell all the way then we sell all the space. And this is a continued journey where you have to have very high focus on basically your production, your gateway so that you utilize this. So it means that you sell actually below the market, but because you can utilize the space and the volume because the cargo can then be combined, then you are still profitable on it. This is how you make money on airfreight.

[Operator]

The next question will be from the line of Andy Chu from Deutsche Bank.

[Andy Chu, analyst]

Just 1 question from me, please. When I look at the industry pre-COVID, the sort of industry trend for GP per unit has been on a downward trend. You're obviously starting with a much higher absolute GP per unit. But nevertheless, the trend has been downwards. And against that, I guess, you've been kind of in line with the market and at times below the market growth rate. So is a new strategy kind of nod to the fact that the past has been driven by M&A and actually the organic growth has been kind of relatively benign? And then in terms of the GP growth rate going forward, what do you think that looks like for DSV kind of through cycle going forward?

[Jens Lund, executive]

Yes, I think it's fair to say that when we've had the focus on M&A, of course, there's been less focus on organic growth. Now we've basically completed all the transactions we have done recently. And of course, it's normal that we didn't go back to our growth focus. We've actually done that before. So -- but I guess we are more, what can I say, outspoken about it. You're also right. when you say that the service business, the customers, they expect that we are more efficient from year-to-year. Then we can add more value to the transactions and -- try to protect our GP margins. And if we can't do that, we have to push more volume through the platform in order to grow our GP. And then to grow our GP is basically, for us, what is very important is that we outgrow our peers. It's really, really important. So have a look at Q1, see how our peers are comparing. Look at '23, see how our peers they are comparing. What we need to do is we need to do better than them and hopefully even significantly better than them, then we have a strong position in the market and a model where we will be one of the winners at the end of the day. This is our plan. And the market might go up and down, but this is basically a metric that will work in all scenarios. So I hope this answers your question. And by the way, for the rest of the year, of course, we have to make more money than we did in Q1, just so that we are clear on that.

[Andy Chu, analyst]

And then sorry, in terms of 3-cycle growth rate, what do you think that looks like? Is that high single digit? Or is it mid-single digit?

[Jens Lund, executive]

After '24, you're thinking the way I understand it. If we sit and look after '24, and you would say that the global economy would grow, let's say, 3% then we have to outgrow that with a couple of percentages going forward because then we are absolutely certain that we deliver stronger results than the market.

[Operator]

The next question will be from the line of Dan Togo from Carnegie.

[Dan Jensen, analyst]

Just 1 question left here for me. Maybe some color on the momentum going out of Q1 into Q2 that you allude to here. Any particular verticals, business units, Air, Sea, Road, Solutions would be appreciated. Any color on that?

[Michael Ebbe, executive]

I think we actually have strong momentum in all areas, actually. So I think that's a short answer -- .

[Jens Lund, executive]

I would say also in the business is falling away in all the areas, if you look at Road, if you look at Solutions, we have a lot of energy. If you look at both where we come from on airfreight and ocean freight sequentially, very solid momentum there as well. If we should then think about some verticals, if you want, what can I say, more color on it. Then I would say that probably an area like both automotive technology, we're actually making pretty good progress right now, but also on -- a little bit on our classic and [indiscernible], I think we're also seeing some good traction with some of our clients.

[Operator]

The next question will be from the line of Marc Zeck from Stifel.

[Marc Zeck, analyst]

Just one left for me, a bit more in the macro or market side, I would say. Would you say is correct that volumes in Ocean into the U.S. are currently quite good, quite free in terms of year-over-year and versus pre-pandemic levels. And at the same time, Europe, import and export [indiscernible] Ocean are lagging behind the momentum in the U.S. And if that's true, do you see any maybe turnaround for European volumes if you look at maybe early cyclicals or verticals that might be early cyclical like chemicals. Is there any chance that we see an uptick in European this been the originated volumes for the latter part of the year. That's one question.

[Michael Ebbe, executive]

I think if you look at our main ocean trade lanes, then I think you're right. Trans-Pacific is actually one where we expect the most of the growth of the market and also, of course into Asia. Europe is a little bit more soft. But we -- of course, if you look at the progression from the data figures that we have, there is also expected slightly recovery in that as well.

[Marc Zeck, analyst]

But it's not that you see kind of -- for early cyclical like chemicals, you don't see a particular uptick yet already for Europe?

[Jens Lund, executive]

No, it's not like we have, what can I say, I think the Europe sort of situation is, we are in a crunch time right now and perhaps we are getting a little bit out of, what kind I say, that slow growth. So I think the way you can look at this, that we probably take share if you look at our -- performance.

[Operator]

The next question will be from the line of Sathish Sivakumar from Citigroup.

[Sathish Sivakumar, analyst]

I've got 2 questions here. So first on the volume growth, especially like you gain market share, can you give some color where does the market share gains have come from? Is it actually from other freight forwarders? Or is it more from the liners that you've taken market share from? And then also within that, which verticals are you actually -- you think that you have outgrown? And also which region is it into Europe or into U.S.? So that's on market share. And the second one on the cost initiatives, if I understand correctly that you've probably done with most of your cost initiatives, saving initiatives as of Q1. Going forward, it's all about volume growth and some EBIT uplift coming through. Can you, again, clarify on what else do you have in terms of improving that conversion ratio as you go into quarter 2 and quarter 3?

[Jens Lund, executive]

Yes. I think Michael will talk about the cost part, and I can talk a little bit about the volume situation. So right now, if we sit and look at where we grow our volumes, I would say we have quite good traction within the automotive vertical, if I then look at. And also basically the progression, I guess, on consumer retail is because of, what can I say, lack of destocking or the destocking has sort of stopped, then these volumes, they continue then to grow and then also a little bit on our industrials, we do see certain volumes on certain lanes. I think it's probably more positive in the U.S. than it is in Europe if we sit and look at for these accounts. So I think that's basically an overall explanation, and it ties a little bit up to some of the things that we've said earlier on the call as well. And then I think Michael will talk a little bit about the cost.

[Michael Ebbe, executive]

Yes. I think a couple of comments to the cost base. I think it's an integrated part of our DNA in DSV that we always have a strong focus on the cost base and adapt when needed. So that's going in on everything that we do. And then, of course, we also need to look at it in terms of how the volume develops, the activity picks up. I believe we can still take more volume in without increasing our cost base. And lastly, I think that you also need to bear in mind, Jens mentioned the strategy initiative before, a big part of our strategy is also operational excellence, as we call it, with the aim to increase productivity. So we are quite certain that this is the cost base that we can control also for the coming quarters.

[Jens Lund, executive]

Great. Well, I think that was the last question that we are having for today. So thank you very much for your interest. And I would also like to thank all the DSV employees for all their hard work they have put in. We will now go on the road and meet new investors and have a good dialogue about all the initiatives that we have in place. We are very pleased with where we are at and have very positive view on the future. So thank you very much for today, and we'll be in touch after Q2. Thank you.