Investeringspodcasten Special: Jens Lund fra DSV

Well, a thousand thanks for letting me come. If we start from the very beginning, you could say, who is Jens Lund? Well, yes, I can say I have been on the management board of DSV since 2002, but in principle, I wrote the first business case as a corporate finance advisor for DSV in the year 2000 when they bought DFDS Dan Transport, so I have known the company from before. But I have been part of the management board for the last 21 years at DSV, working with finance and business cases, planning and IT, and infrastructure, and in recent years as Chief Operating Officer, and also a role as Vice CEO, so much strategy work, business development, all M&A, and some business cases I have made and also implementations thereof, and so on. So I feel I know the company very well.

Yes, it is a bit of a mix. I think we need to answer in several different strands to that question. You could say, we are essentially a forwarding business, meaning we resell transport services; we don't perform the transport ourselves, that's done by subcontractors. So if the market has low prices for transport services, our revenue will also fall slightly. We measure our real revenue or value creation in our gross profit. So how much gross profit can we create? And we can see that it is a bit lower than last year. Our ability to run an efficient business is how much of that gross profit turns into operating profit. Our cost ratio is lower, so you get that the numbers, in net bottom line, are lower than last year, for example. So that could be one way to look at the numbers. Then you could say, what is gross profit made of? Besides price, it also consists of volume. And there you can say we have different business areas. Let's look into how they have performed. We can start with air freight, which is the business area with the worst volume development. We have had a decline that is actually a bit higher than the market. We measure against the market how it's going, and we are slightly below market. However, if we look at gross profit relative to what we get for what we do, we have some colleagues who move into business areas where you earn particularly good money for doing it, and we actually refrain from that because we want to be measured on gross profit – so how much gross profit we create and what development we have there. We can compare with a large colleague we have in Switzerland in air freight, and we see that our gross profit decline is much smaller; we are around 30% in gross profit, while they are over 50% in gross profit decline. So that business we have is healthy, it works. We have adjusted our cost structure, and when the market grows again, we can scale up. Around sea freight, volumes have after a while reached a plateau, we are maybe around market level. But again, in terms of gross profit development, we have a healthy volume, and it is probably flattening out. Air freight is expensive transport, so when we need to save and supply chains otherwise work, air freight is used when there are problems in supply chains and you need to fly something in a hurry. It's marginal for some things, especially when we need to save money, which we all do now, so people try to avoid it, which gives high volatility. Sea freight is more stable, it goes down slowly and then up slowly. There you might see modest growth now. So that is in relation to that. Then we have two other products or services we deliver: Road, which is ordinary truck transport, and there we have, if we look at volume and gross profit, a reasonable development also relative to market, so it is actually relatively stable. That's also because in a classic business, there are many things we need to consume – we need food every day, or maybe not expensive clothes, but we need winter clothes or whatever. So there are many things we produce in Road. And you can see in the economy that some services that might be a bit less, like flat-screen TVs, but we still need food, if you could say it that way. Then we have Solutions, our warehousing and logistics facilities, and there we see how many order lines we run through. And we have actually growth, but that's because we are growing our platform – we are getting more customers in, more pallets in. The number of order lines per customer is actually slightly falling, but we get more customers in. So in essence, we have a healthy business that adapts to the market. We miss taking some market share in air freight compared to what we have done, but our efficiency when we produce has, if you look at key figures, almost never been better.

When it comes to what businesses we think fit best in DSV's context, well, it should be such that we can add value, create something that customers are happy with, but of course we are also happy with, otherwise we have a resource consumption that in essence doesn't really yield anything, and that goes back to our thinking about capital allocation – we put resources in, which is investors' money that we commit, and if we get a satisfactory return for the work we do, then we strengthen the company. And we have – DSV was actually started by 10 haulers in a conservatory together with Le Gule in 1976, I think it was the 13th. They had lost their jobs, had no money, and it was existential for them to get some work. They had the trucks and a man sitting in the dispatch office, that was Le Gule. So they had to work to get something in, and if they put in the resources they had, then we had to earn some money, otherwise we wouldn't have anything to eat. And that culture is essentially return on invested capital. So it has been in the company – it's not something I invented. We can, if we have a financial approach, put fine words on it, but it's like a cultural thing within the company that I am proud we can carry forward. But it's our invention, it was invented there in the conservatory, if you could say it that way. And it is a core value that one must never let go of, and it is also the good contact we feel we have with investors. Yes, if you can follow me in that, because that respect for it, you can hopefully still feel when we sit and talk here, and we should continue to do so together.

Well, we talked a bit about the economy earlier, where the place with the most expected growth is NEOM. About a year ago, we received an inquiry from NEOM whether we were interested in being part of a process to qualify for negotiating a contract to become a supplier for what we call 'from port to site', meaning from port to the operation site or construction site, as it also needs to be built, and so on. And of course for the services that need to come from the world outside, doing the logistics associated with it. We don't know who else was involved, but there have been a number of actors. Then there is a proposal on the table about how to contract. I think you shouldn't focus too much on the percentages, because whether we have one percentage or another, when you make such an agreement and ensure that the money we get from investors, we are comfortable committing to this joint venture, and we also have an experience of getting it back again as we usually do in our own structure, so we can send it back to investors if we need it. That is very important for us with capital – we have a very dynamic communication with the stock market. Many talk about communication with the stock market as if we hold a general assembly and talk nicely to each other. That is also great communication, but I think communication is much better when we get some money from the stock market if we need to buy a company or other things, and if we don't need the money, we send it back. That's what I call communication with the stock market, at least. Here in relation to NEOM, you make a contract, and there are some conditions in that contract, and there are a range of conditions we need to agree on to run it. For the first thing, they come with a consolidated volume – that's what they bring into the joint venture. They know how to do transport, that's why they want someone like us. We then bring in the transport competence and the network out in the world that can make this happen. And then we operate, so that's our competence built upon, and it's something we can be proud of as a Danish company competing with the largest colleagues. They say we are the most skilled to solve this task, and it is very unique here to consolidate the entire supply chain, which I've never seen before. So to say, we can have a company that can scale up and deliver, that is in principle what it's about. And then it's clear that if we end up in a situation where we are not comfortable, there are conditions in the contract so that we don't end up in a bad situation, and then we should talk about the 10 billion also to understand what it consists of. When you have a partner, they might be more focused on other ways of doing things, so we try to look at what is actually happening down there to understand it, because otherwise it becomes a bit of an odd conversation if we get some substance in. Down there, they need to build some buildings for construction logistics to start with. So it's about being able to get things in to build a city – it could be kitchens, steel, glass, or many different things. So it's logistics buildings suitable for that, and laydown yards where you also need things outside, as it rains a lot, so you can say you can maybe store more things outside, but it needs to be done. When you do it in the desert, there are other considerations. So in the first instance, we have to take responsibility for owning these facilities, but when we build such a facility, we make a small agreement that they write on the back so that we remain – it can be used for other things. We have what's called an off-take agreement, or back-to-back agreement, so we are sure to get a return on the capital we invest. They have accepted that, they understand it well, because otherwise we break our agreement with our shareholders, and then we can participate. They know that. So also for what we call in-state, when people eventually need to move in, we also need to build logistics in. They have consulted on all sorts, and railways are under the city too – it needs to be transported, you can't drive with cars down there, so it's a very modern way of doing logistics that is actually very environmentally friendly. And clearly, it's the buildings and infrastructure needed for that. Then there are two other things: equipment – to start with, we need trucks and forklifts to get things moved, and over time until end of 2031, 1 billion dollars will be used for that. And the last thing is we need to charter ships for bulk – for containers, but for bulk. Normally when we charter a ship, we do it for three months on behalf of a customer or something, but here because there is such large demand, you do something called a time charter, which runs a bit longer. And accounting rules say you should capitalize this, so it's actually others who own the ship, but we have an agreement over three or four years, and that should be capitalized. That amounts to 3 billion dollars. So those are the components. Then there is depreciation on something like 500 million dollars a year, so we get assets gross at the end – this is a gross investment, so you depreciate every year. At the end, there might be 5 billion on the balance sheet by end of 2031. That's the time charters, equipment, buildings, and so on. Then with this mark, the financial investors become very important for such a project. When people see it becoming tangible, and the financial investors believe in it, we can start financing buildings and such things as we usually do, so we can get it off the balance sheet. Whether that happens in '26, '27, '28, we don't know – it's about trust in the market. If the market is as it is now, there might be less trust, and there are other times – you've also been involved for many years, so you know that sometimes it's easier to access capital.

No, you could say when you do this, we have a model – what do you call it – open book or cost-plus. So as soon as we start, we will earn money. It's actually very unusual when you start a business, especially of this size. We pay no goodwill for this business – we should remember it's a business larger than our Road or Solutions division when it's up and running. We pay no money for it, so we get this business to work really well without paying goodwill. Then in practice, we need to send some money down there – it's always like that when you start something up – and it's maybe 1 billion dollars we need to send down gross to start with over some years, three, four, five years, depending on how quickly it gets going. Then the company starts to earn money itself. Then you could say, normally you would send that home as dividends – we always do, we run all our companies thin, so we take all the money up all the time, and then you get money if you need to use it. When you have a business plan like this, there is a tax efficiency that makes you want to keep it down there. You can easily repatriate it if you want, and pay withholding tax, and then send it down again. But we have this agreement with our joint venture partner that plans should lie a bit further ahead, and then we see how much capital it needs. So we refrain from repatriating it down again, but it's an investment setup. So you could say in reality, the 25 billion that needs to be shot into that business plan – there lies 1 billion in, and the rest comes from retained earnings, what do you call it in Danish? Accumulated profit. Yes, which then comes in. So if you then sit and look, what do we do with buybacks? It's clear, the 1 billion we can buy back shares for. No, but that's what we're talking about – it's dollars. So if we now make a straight point and go back to Europe, and we look at something that DSV has certainly been involved with in the future, I almost put words in your mouth when I say this – it has nothing to do with whether you are more or less involved or interested in DB Schenker, because it's still something that will presumably come up for sale, and you will look at it completely independently of what you've done here. Yes, our strategy is unchanged in relation to those things, but clearly now when we need to get this going, we need to concentrate on it. But it's such that we can do one thing at a time, and it's concentrated here on this project. If we do an integration, for example, when we bought Schenker, it's 56 countries we need to integrate business in, that requires our full attention. Here, it also requires our full attention in one place, and then we need to support in the whole network and understand it, but it's just business that runs. So we have huge respect for that – don't misunderstand – but we can figure out other things at the same time, and also so, I think you as investors should...

Yes, you could say that if we take NEOM as such, and if we take our code of conduct, we have in principle the same. I think many could really benefit from coming down to Saudi Arabia, the employees we have, for example, her I negotiated the agreement with, she is called Manar Al-Mutairi, it's a woman. She wears a suit when I meet her down in Dubai or Riyadh or in NEOM. So you get handshakes, and it's that I think for a Dane, you think, oh, they are also like that. Yes, they actually are, very much so – it's almost like Paris, it's hot down there, so many things happen just like they do here. We have many female employees who are also managers. I have slept down in the camps myself, I have experienced their reaction when there are workplace accidents and other things – they are well aware that they need a situation where they get... there have been other places, no one mentioned, no one forgotten, that have received very negative press. They are well aware of that. So for such a project to succeed for them, there are many people who need to move there, it can take bad branding, so I think they try to see this as their way out. I see it as if some have also said we can be part of a transformation – I have seen some professors say that, and they should share it. Try to come down and see what a difference we make. We have just hired a female employee from Qatar, and if you see how proud she was to be part of this project and to shape this future. So that's why we have a code of conduct, we stand by it, and the values we chose – they know where we come from. You should also remember we are also chosen for that reason that we have high standards here, and we should actually be proud of them because it is something that stands. You should remember our businesses can withstand scrutiny because they can withstand transparency, and that's the key here – everything we do must be able to withstand transparency. And as said, I have slept down there in the camps, I have actually tried it more than once, and it works fine. It is completely normal – I have nothing to criticize about it at all. So it has been a point of attention, and we are very aware of it. So far, in practice, I have nothing to criticize about it.