DSV A/S (OTCPK:DSDVF) Q2 2024 Results Conference Call July 24, 2024 5:00 AM ET
Company Participants
Jens Lund - Group Chief Executive Officer
Michael Ebbe - Chief Financial Officer
Conference Call Participants
Cristian Nedelcu - UBS
Lars Heindorff - Nordea
Muneeba Kayani - Bank of America
Ulrik Bak - SEB
Alex Irving - Bernstein
Parash Jain - HSBC
Peter Sehested - ABG
Sathish Sivakumar - Citi
Marco Limite - Barclays
Operator
Welcome to the DSV Trading Update for the first half of 2024. Today's call is being recorded. [Operator Instructions]. I would now like to introduce Group CEO, Jens Lund; and Group CFO, Michael Ebbe. Please begin.
Jens Lund
Thank you very much to all of your listeners. Welcome to our Q2 investor call. We are here in Hedehusene. Michael Ebbe and I, we are ready to take you through the presentation. And then afterwards, we will have the questions and we will allow two questions per participant in order to ensure that everybody gets the opportunity to ask questions.
The call will be an hour. And if we go through the agenda, we can see that it's the usual agenda we have. And I would just encourage you to have a look at the forward-looking statements as well, so that we also check the box when it comes to compliance. And then we will quickly move to the next slide and talk about the highlights. I think when we sit in the management team and look at the numbers, it's good to see that we now sequentially see growth in both GP and EBIT.
It's been a journey where we've seen a decline for some quarters in a row. So really good to see that we are back on the growth trajectory. We're also raising our guidance so that we narrow it and take the lower end of our guidance out. We previously had DKK 15 billion to DKK 17 billion, now we have DKK 15.5 billion to DKK 17 billion. If we look at the cash flow of the company, it's impacted by the increased activity level and of course also by the rate levels going up, but we still launched a share buyback of DKK 1.5 billion for the next quarter, a little bit up from the previous quarter as well.
And then we also basically take yet another step in our operational efficiency program and trying to accelerate that a little bit because of the market conditions that we're seeing, and that will kick off here in the second half.
So if we move to the next slide, we will go to the Air & Sea division. And of course, the overall figures are very nice to see that also here. We sequentially make some progress when it comes to both GP and EBIT. And I think it's also important to note here that now we see that the conversion ratio is also moving in the right direction. So driving the conversion ratio of the EBIT level is also now increasing again.
So very positive second quarter for Air & Sea division. If we go into the products and skip to the next slide, we could take the Air product first. Here, you also see that the yield a little bit down, but we see that the tonnage is going up. So actually a nice development for us. And I think there's been a lot of questions about the yield, and I think we can all see that it seems to be plateauing around this level.
The markets where we're doing well is obviously out of the APAC area. And it's in areas like textile and also in the health care segment that we're doing well. So all in all, also a good development when it comes to that.
If we move to the ocean freight on the next slide, I think here we can also see that we've actually benefited a little bit on the yield side from the red sea situation. I think this was also what we alluded to in Q1. When it comes to the volumes, we are also growing here as well, driving the GP up. So also a development that we really like to see. For the ocean freight, we grew in line with the market here in the second quarter.
I think both in Air and Ocean, we expect that we're going to see further progress through the next quarter. So we're quite positive when it comes on that.
If we skip to the next slide and go to our Road division, I think it's fair to say that the road market is a very tough market. And had we not been able to take the market share that we've done, we would not have been able to produce the GP that allows us to keep the profit margins that we are keeping. It's a very tough market these days. And I think we really appreciate the efforts that our team has put in to keep the levels that we are having. So very solid development on the Road side.
If we move to the Solutions side, it's a little bit the same, also a difficult market situation, stock levels coming down, increased competition. But still, we've managed to produce extra volumes and also produce extra GP. And that's actually allowed a situation where there's a little progression also on the EBIT side. And if we look at the operating margin also a little bit up from the previous quarter, we have to remember that normally Q1 is actually a quarter where there's less output in Solutions. So it should also come up here in Q2, but it's very good to see that this is also what has happened.
So if we go to the next slide, we have the NEOM project. Here, we're still waiting for some approvals. The business plan is unchanged. And basically everything is apart from the sort of inauguration is basically going according to plan on the NEOM side.
So with all that said, I'm very happy to hand over to Michael, who will take you a little bit
more into the details on some of the numbers. So here you go, Michael.
Michael Ebbe
Thank you, Jens. Then on Page #10, with the profit and loss. Just a few highlights I would like to touch upon. Like Jens already has mentioned, this has been a strong financial result for the second quarter. Obviously, our revenue is impacted by the increased activity and freight rates.
Jens also said that we've increased sequentially. This also can be seen in our conversion ratio. We still have focus on our cost base, and that means it's more or less stable despite the inflation that we have seen compared to last year.
We've also, like Jens touched upon, just started on efficiency initiatives here in the second quarter, where we expect to get this savings of around DKK 750 million, and that will gradually be phased in over the coming quarters. Then just the financial items. The FX adjustments, it's important just to mention, it's mainly due to FX, of course, and this is our internal loan. So it has no cash impact. It's how we have to do it according to IFRS.
Our net interest costs are impacted by higher interest rate levels. And then if we go to the cash flow on the next page, again, we believe we have a solid cash flow despite the higher net working capital. It's a timing issue. We have our net working capital under control. We don't see any kind of, you can say, bad things in terms of overdue and so forth.
So we have it under control, so it will be a matter of timing. Of course, it's impacted by the rates and the activity.
In terms of our financing activities, it's important to mention that we issued a new 5-year Eurobond during the quarter of EUR 500 million. Last thing about, you can say, the net working capital. We've touched upon it earlier this last quarter. The property projects, we still expect that, that will increase over the coming quarters as well. And the net working capital will stabilize, of course, depending on the rates and activity.
So then a nice slide, on the next page, with the allocation to shareholders. As you can see that we follow our normal capital allocation policy, and when it's feasible, we have to allocate cash back to our shareholders. And as you can see, up until now, we have allocated more than DKK 4 billion back to the shareholders. And this morning, like Jens also mentioned, we announced a new share buyback of DKK 1.5 billion. It's, of course, based on the performance for the first half of 2024, our current shape and then also the expectation to the remaining part of the year.
And speaking about the remaining part of the last slide from my side. We have also narrowed our outlook for 2024. Jens touched upon that. And that also means that we've also put in now that we expect special items in connection with the operational efficiency program of DKK 650 million, which will be, you can say, expensed here in the second half of 2024. And yes, you can read the main assumptions for our outlook. And that is it, Jens, back to you.
Jens Lund
So the key takeaways, basically, we believe we have produced a strong set of Q2 results, with sequential growth and market share gains. And of course, our operational efficiency has always been a trademark of DSV, and we try to put a little bit more focus on that in the coming quarters and then, of course, that we've sort of narrowed the guidance to the upper end of our guidance, which is also in line with what we typically do on the biannual figures, try to narrow the guidance a little bit so that we're a little bit more precise in where we expect to end out at the end of the year.
So with that said, I think we can go to the Q&A session. And on the next slide, you will be able to see what to do. If you have a question, you will then be in the line and then we will take the questions as we go along. So over to the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] The first question is from Cristian Nedelcu from UBS.
Cristian Nedelcu
May I ask you that the first one, I guess, in Ocean on your gross profit for the second half, you're talking about the Red Sea slight improvement in profitability in the second half. Just if you're trying to frame this, you've done DKK 6 billion gross profit in Ocean in the second half of 2023. Do you think you can increase this by more than 10%, 15% year-over-year, a combination of the higher GP per unit due to Red Sea and your volume growth? Or is this too optimistic? Can you give us any color there?
And then I guess the second one is on your strong pipeline in Air & Sea. Again, any more color to give us what does the strong pipeline means? Can you outgrow the market volumes by 2%, 3% over the next few quarters or more or less? And equally, so within the strong pipeline, is this more volume with your large customers? Or is it more value-added services sold?
And I guess related to this also, what's your visibility in GP per unit in the pipeline, especially in Air, but also in Sea?
Jens Lund
Okay. If we take the ocean freight and basically, what is happening both on the Air & Sea side is that from a volume perspective, we do expect solid volumes into the next quarter. So I think we will outgrow the market. It's a little bit difficult for us already now to project what the market is going to do in the second half, but we can say that we will produce progress.
This is what we can see from the volume that we are producing currently.
So I think this is what we can say on that. If we take the yield side, I think basically what we said into Q2 was that there would be a slight progression on ocean freight. I think this will probably continue into the next quarter. And if we look at air freight, I think we are more on a neutral level when it comes to that. I think this is what we can say when it comes to volume and yield.
And at the end of the day, we should be measured on the GP that we produce and also, of course, what we can then convert to EBIT. But you talked about the pipeline as well. And of course, we are happy to talk about that as well, what is driving the company forward, our strong SME segment, which we sometimes tend to forget, it's actually doing well.
And then I think where we've upped our game a little bit is also on the larger accounts, where we are performing just as well as we are in the SME segment, and if you look at our yield, I think basically the progress that we're making, you can see from the numbers, we don't really sacrifice the yield. Normally, when you drive growth, it's actually that you expand your pipeline, the market pays what it pays for certain services. So we need to produce more volume, and we need to be in contention for more volume as we move along. I think this is very important when we look at it. And of course, here, our commercial sort of refocusing has helped us to get on to the growth trajectory.
So I think this is basically what we can say. So it's not either the small or the largest. It's actually across the board if we want to drive growth like you've seen that we've done that we need to be successful.
Operator
The next question is from Lars Heindorff from Nordea.
Lars Heindorff
The first one is on the net working capital, almost DKK 9 billion, which is [indiscernible] you mentioned yourself Michael that it's mainly caused by the higher freight rates. But just if you can help us out on this stance, the composition of the net working capital, how much do you normally tie up in terms of the property development that you have over the years? I know you had 2 big terminals this year. One is already sold and the other one probably sold here during the second half. And then if the new strategy with the focus on the bigger customers that will have any impact on the amount of net working capital that you're going to consume going forward?
That's the first one. And then the second one is on the Solutions. Very strong revenue growth, maybe a bit more insight into what is driving this revenue? And also to what extent that you can maintain the GP margin above the 40% that you've been indicating earlier on.
Michael Ebbe
I'll take the first one last for the net working capital. It's correct, like we also wrote in Q1 that we have seen an increased level of investment tied into property projects. Again, it's an interim thing. It's a timing issue that we also said here we would reduce net working capital in that aspect with around DKK 2 billion over the coming quarters, and that's still the plan. Then whether larger customers, they impact the net working capital, it's not significant the development on that one.
Lars Heindorff
And just as a follow-up, the property development, how much of that typically consume of network capital?
Michael Ebbe
Yes. I cannot give you an exact number of how much it typically is because we have had a strong pipeline. We have invested, as you can see, in some of the facilities, which also mentioned in Solutions. So we have had a higher level this year than we would normally do. I would most likely look at what we had last year.
Jens Lund
Good. And then you talked about revenue growth in Solutions, Lars, and how this could impact the GP. I think what happens on our multi-client facilities and solutions is that we continue to drive a pipeline of sort of not totally large, but sort of large midsized accounts that we move into these multi-client facilities where they then get the benefit of being part of large footprint and also being part of the resource planning and VMS setup that you would have jointly in such a site.
And we see that we have significant traction when it comes to that. The GP and Solutions is, of course, also if we're busy, there are more order lines. So this is driving our GP when it comes to this. So right now, yes, we get more volume in, but actually, the number of order lines per square meter, if you want to measure it like, this is perhaps a little bit on the downward trend. So that's probably driving the GP. So getting, what can I say, more activity into society. I think this is the key for us. It's not so that we see the margins on what we sell, [indiscernible]. So I think this is what we can say when it comes to Solutions.
Lars Heindorff
So the increased activity in these multi-client facilities, is that something that will continue into the coming quarters?
Jens Lund
Yes. As we add more volume, of course, we have to -- our capacity, we have to add more volume to these sites. So that's what the direction we are driving at. So I would say that this would typically be the case. Of course, you've seen now the destocking or inventory levels, they are a little bit down. And also the activity levels, they are not really that -- they are okay, but it's not like it's booming.
Operator
The next question is from Muneeba Kayani from Bank of America.
Muneeba Kayani
The first question around your cost and operational efficiencies. I wanted to understand, why did you decide to launch it now when there seems to be volumes improving? We heard from I guess your competitor yesterday about them actually putting -- reducing the restructuring the plan because of the pickup in volume. So I wanted to understand from your side? And also, as we think about that DKK 750 million coming through next year, is that offsetting inflation that you would be expecting on the OpEx side?
Or should we kind of take the OpEx now and reduce it by DKK 750 million? And then just on the market environment, in Ocean & Air, what you think where we are in the market? Is this kind of a demand pull forward or are you seeing signs of a restocking? And how does that inform your thoughts into the second half of the year from a market level?
Michael Ebbe
I will take the first question, and then Jens will take the market thing. It's clear that we have started this initiative like we mentioned, and you ask why now. I think we have, over the years, invested in physical infrastructure, in digitization, in AI and all these kinds of things.
And then now when we see things somehow normalizing to a further extent that's what we have seen. I think it's a good, you can say, time to take advantage of some of the investments that we have done in order to maintain our ratios, in order to also be able to deliver, you can say, to our customers at the right price levels as well.
And in terms of, you can say, inflation, I think this is not taken into inflation. So you need to take that into your consideration as well.
Jens Lund
Yes. I think it's fair to say that we all experience that the market is highly competitive. So of course, having to increase our conversion, we simply have to capitalize on the initiatives that will be, as Michael says, has put forward. It's clear. And then, of course, when it comes to the demand side, I think it's -- we see a situation where I think the destocking that has taken place has probably come to an end.
And now there's a more balanced situation between demand and supply. I think that's what we see in the market right now. I don't see too many of our customers, at least not with what we can see building up inventory levels at this moment in time. So I think that's the current situation in the market.
Operator
Next up, we have [Patrick Creuset]
Unidentified Analyst
First of all congrats on the strong Q2 print. I just have 2 questions in terms of what you've baked into your updated guidance range. And the first one is coming back to your Swiss competitor yesterday guiding for a really strong sequential increase in second-half gross profit. And I think you've talked to essentially an improvement -- continued improvement in Ocean yields going into Q3. But if we try to get a sense of the magnitude that you've sort of put into your budget, we see an absolute gross profit increase of around 5% in Air & Sea, Q2 over Q1.
Have you assumed an acceleration of that sequentially into Q3 and Q4, sort of a stable development in terms of the GP from Q2 into the second half?
And then the other question was, have you made any big assumptions on Q4 at this stage? I guess you have good visibility on Q3, but especially as we think about the upper end of your guide, have you got any strong views into Q4, especially in Air also comparing to last year?
Michael Ebbe
I think if we sit and look at our situation when it comes to the situation on the GP side, I think we demonstrate our strong traction if we take the Air product. I think if you compare self a little bit to the other company you probably alluded to, then we are not a 2PL when it comes to air freight. I think they are. So you have as well there, of course, obviously, a big 3PL as well, but they are also a large producer of volume. So they will probably have a little bit of a different situation with the air freight rates they have come up.
Then is the market competitive or not? Yes, it is competitive. So basically, our yield as a classic freight forwarder will probably remain in the level that we see. So we have to drive our GP up by producing additional volumes. And here, we have a good outlook that also makes us, what can I say, quite positive on the sort of second half of the year, so not only the first quarter.
When it comes to ocean freight, I think it's a level playing field. The 3PLs, half 3PLs and here, we, of course, see that we have benefited a little bit from the Red Sea situation. In the second quarter, we expect that to continue into the next quarter. And then I think our growth rate is -- we're probably going to see them a little bit higher from what we can see right now.
And it's probably, to a certain extent, also going to continue into Q4.
So the percentage you mentioned, I think we will be able to deliver on that.
Operator
The next one is Ulrik Bak from SEB.
Ulrik Bak
Also a question on the efficiency initiatives. Could you perhaps just elaborate a bit on the nature of these initiatives? Yes, that would be my first one. And then related to that, this efficiency program, as you alluded to before, Michael, is that a result of volumes actually stabilizing at a lower level than you initially anticipated since you didn't do it last year?
Michael Ebbe
No. I think you -- the program that we have started is broadly founded. That means that it will more or less have an impact on all our cost lines in the P&L. And it's not necessarily volume driven. It's -- you can say it's in all divisions.
It's in nearly all countries. It's in all levels within the organization where we have to go out and find bits and pieces everywhere.
Ulrik Bak
Okay. And then perhaps a follow-up. So this upgrade of guidance is the efficiency program that you're announcing today, is that part of this upgraded guidance? Or was that already part of your initial thoughts when you came up with your original '24 guidance?
Michael Ebbe
No. I think our, you can say, updated outlook, it's a bit of both, actually. So it's the expectations for the remaining part of the year. And also part of it is this program as well.
Jens Lund
To remember, we started now, so it will be a long time before it has the full-year impact. That will be from next year. So it's not -- it's moving the needle, but not that much.
Michael Ebbe
There will be a phasing in. But again, the full-year impact is expected in the next year.
Operator
Next up, we have Alex Irving from Bernstein.
Alex Irving
Two from me, please. First of all, on Air volume trends, it really looked very nice year-on-year in the second quarter. Do you expect to accelerate as we go through the rest of the year? And more generally, what are you expecting for a peak season on Air in 2024?
And then secondly, on your Air gross profit yields in the second quarter. I noticed these were down quarter-on-quarter, while your Swiss competitors' yields were up. Is that industry vertical mix? Are you having more success large corporates that come in to lower unit GP? Or what's really behind that, please?
Jens Lund
Yes. I think if we look at air freight and in particular, with what can I say, the e-commerce coming out of Asia these days. I think it's putting, what can I say, rates up. And I think this will continue into the second part of the year. I don't know if some of the governments in certain areas will try to change the dynamics of that market, we will see, but I think it's -- there's a fair chance that we're going to see some peak in the second half of the year.
When it comes to the GP level, I think if you compare ourselves to the competitor you mentioned, I think it's very important that we understand the 2PL part of what we are doing here because I think that drives a big difference in the numbers. So if you looked at their numbers in Q1, where rates and capacity was perhaps -- the dynamic was different at that time compared to the second quarter here, then it means a lot whether you are a production company or not. So we are the classic freight forward, and you can see our yield is very stable.
Alex Irving
Just one quick follow-up then. You still have some of the charter network from the legacy Panalpina acquisition. Does that give you some of the same benefits or not really?
Jens Lund
You can say what we do is when we work, we now talk about the gateway situation where we run some of the gateways. But probably 12%, 15% of our volume in the gateways. And here, we would have BSAs typically in place so that we could move the volume. These BSAs, they are quite different from let's say that you have an ACMI agreement on a full 747-8 then we would be committed, let's say, 3 months or 6 months or sometimes 12 months for a certain tonnage on these gateways. So it's a completely different way of contracting where if you take an ACMI deal, you might have a 5-year deal on a plane, where you have a fixed cost committed for 5 years.
Then of course, if the market is low, then you -- it's like you run the production yourself. Here, we can change the dynamics as we go along with our contract portfolio. So we are shorter, if you want to put it like this. And it's not a very big part of our business.
Operator
The next question is from [Ben Togo] from [indiscernible].
Unidentified Analyst
Two questions from my side as well. Firstly, continue on Air. About a healthy Air growth we see in Q2. How much of that growth is based on existing clients? And how much new wins, I guess, on existing clients, you can be more competitive on price as costs should be lower that is the first question.
Second question, maybe some color here on the Road side. Could you give some color here? Because at least compared to my expectations Road is somewhat of a surprise with market being some muted, prices under pressure, et cetera. So maybe some words on the relatively strong Road development you mentioned with the EBIT year-over-year, at least that's a bit of surprise to me in my book.
Michael Ebbe
Yes. I think if we look at our growth, I think we'll probably split -- so that we perhaps grow 5%, 6% of the volume with -- basically on existing clients. And then the remaining part is from new accounts, new logos, as we call it, so yes, we get new accounts in. It's very nice.
And then we also see that we have a good development on our existing portfolio. And I think that's a very healthy way to develop it so that we don't churn too much.
When it comes to the Road, I think your observation is absolutely spot on. It's a very tough market, prices are being driven down. So if we've not managed to grow our volumes, we would be in an awkward situation when it comes to Road. So we can sort of barely push through with the volume increase that we see. But actually, we are growing our volumes quite a bit in order to keep the GP as you can see from the reporting.
So I think your observation is spot on, but it's just to have the right underlying figures that allows us to compensate for it. We are in a situation now on Road by many of the subcontractors they have started to go out of business. So the market is very much under pressure because the customers they are tendering quite heavily on the Road side. So I hope that color gives a little bit of information on this.
Unidentified Analyst
We want to do market-wise to -- in order to grow more than the market, what, in particular, is your advantage? Is it the size of the network, you've also spoken about this group product previously.
Jens Lund
I think the 2 things that we really have focused on where we get solid traction is, as you say, the group product so that we have a very structured offering when it comes to the group side.
And then the other thing that we've tried to introduce is the segmentation of our customers and then also bringing in particular, the larger accounts into our control tower so that they work with DSV, the network through sort of one point of entry instead of working through multiple points of entry. We really see that. We have actually a tool for implementing customers in the control tower. So it's based on some of the strategic initiatives where we have changed the infrastructure or the way we operate so that we basically produce more service, more value for the customer.
It's not because the customers they then want to pay us more, they will still ask for a competitive rate. That's how it works.
Operator
The next question is from Parash Jain from HSBC.
Parash Jain
I have one question. And when we see your expectation of 3% to 4% of Air volume growth. When we look at the Sea, Sea is comfortably growing at double digits. Is it fair to say that in your expectation of 4% market growth, you probably don't take into consideration a China-bound e-commerce volume? And similar, on the same track, would that a lot of those Chinese e-commerce players have taken most of the air cargo space for the peak season.
Does it allow you or force you to rethink about your business model in terms of keeping capacity short going into the peak season. Any color on that would be helpful.
Jens Lund
Yes. If you look at the market growth, I think we're also right that it's the addressable market for us. So there's typically 2 areas where we are not very present. That would be in the perishables and then also in the e-commerce market as well, where we basically many of these e-commerce companies, they have a direct relation with some of the carriers because they would produce certain fixed volumes in certain areas.
Our addressable market is typically industrial companies, pharmaceutical companies, could be high tech, et cetera, where we produce the volume. So they would go direct to the market, to the atlases of this world or whatever they are called [indiscernible]. So I think that's correct.
If we then look at us producing volumes, I think there's still a lot of normal capacity in airlines in the market where we will be able to source volume. And so far, we've managed to live up to the agreements that we have with our customers sourcing through these channels, and normally, we would then -- if we have very fixed commitments, we will get BSAs in place so that we would be able to ensure that we get uplift for the volume of our customers.
So it's not been a problem so far. And of course, we are planning for it. And as you say, it's part of our concern that we ensure that we can live up to the agreements we have with our customers. So I would say that as per now and also where we have been diligent, we don't foresee any issues honoring the commitments that we have.
Parash Jain
And my second question is with the uplift -- with the sequential improvement that we have seen with potentially front load of peak season, including freight rate. Is it fair to say that we have seen the new trough for the Ocean EBIT for your business?
Michael Ebbe
I think basically, much of the cargo right now, the volumes that we are shipping out of the origin destinations or the origin areas, it's very high volumes that we are shipping out. So of course, that will impact our numbers when they come to the receiving end. And right now, we also see that cargo is still being rolled in the port. But I guess we see that perhaps it's tapering a little bit off the rolling of the cargo, which could indicate that we've seen sort of the peak.
And I think people would ship cargo a little bit sooner this year because of all the disruptions so that they have the cargo they need at the end of the year.
What then happens on many of the areas is that we actually try to speak to our customers and see how is their order book looking? And I would say that actually more than 50% are actually quite positive on the second part. But time will tell whether it's anecdotal or whether it actually also feeds into real numbers.
Operator
The next question is from Peter Sehested from ABG.
Peter Sehested
I would also like to address your efficiencies, but not the program, rather the underlying efficiencies where you also in the end of the second half -- first half, correction, report more than 15% efficiency approvals. And I suspect that, that is measured shipments per employee.
So my question related to that, we are continuing to see an underlying decline in employees [indiscernible] so we continue underlying and that the efficiency yielding on top of this will further decrease that? And how can we translate this entire number? Should we continue to see an underlying improvement measured as more cargo units per employee going forward?
That's all of my first question.
Jens Lund
I think basically, transactions per person per day, as you say, is a very key thing for us because that sort of is the cost that we have on the GP is 70% of our cost approximately. So it means a lot, and that's what we see that we drive the productivity up right now, as Michael talked about, there's technology involved, but there's also a change of workflows, et cetera, that we take into consideration. And the whole idea is that we want to capitalize further on some of these initiatives, for example, so that we'll continue this development. And if I was then building a model, then I would probably look at how does my sort of personnel expenses or staff costs evolve in the model and try to factor that in somehow.
Peter Sehested
Good Second question is related to your organic growth initiatives and former rule of thumb that you had with respect to EPS growth. I mean, if you already have succeeded securing that increased share of wallet that you are targeting, I sort of speculate that the former rules of thumb look a bit conservative and would it then make sense to sort of either -- whether it's a Capital Market Day or sort of extended strategy update to do such a thing in the second half if you don't do any stuff below the border, or sub border in order to sort of give us more firm guidance on the potential of your organic growth transformation over the past -- next couple of years?
Jens Lund
Yes. I think we would really like to talk just about an organic strategy and our commercial strategy. And of course, now that we've been sort of executing on the strategic part and been more vocal about that for some quarters, then I think it's also easier for us to give you more, what can I say, solid guidance. And I guess it would be appropriate and that we would have some kind of a gathering where we would do that. Meanwhile, either you can speak to our IR team, they perhaps can give you some color on it or you can speak to Michael and myself also as we go along when it comes to that.
But I think you're absolutely right that we should perhaps have a joint update. This is also what we are looking at. So I think that's the best we can say. And I think even if one or the other thing occurs, I think still that we need to have such a session in any way.
Michael Ebbe
Maybe just a short follow-up on your question number one about the efficiency program. I think now you're focused on Air & Sea and the productivity in there. I think it's important, like I mentioned in the beginning, this is broadly founded. So it's not only in Air & Sea that this initiative will take place.
Operator
The next question is from the line of Sathish Sivakumar from Citi.
Sathish Sivakumar
So first is around the mix shipment versus the volume, you have seen volume growth of 4% in sea freight and can you give some color, what does it translates into a number of shipments? Are we still seeing that continued trend towards more transaction/shipments but lower volumes? And what is the LCL [ mix place ]? And the second one is around your efficiency -- how much of it is actually related to Road way forward in the Road division? And also, is the split of DKK 750 million would be between 70% south and 30% intra? Or is it going to be slightly different?
Jens Lund
I think if I take the first one, Michael can answer the part on the efficiency. I think if we sit and look at it, I think in the latter part of last year and the first part of this year, we actually saw a trend where shipments, they got smaller and smaller. Now I think the shipment size is more or less unchanged. It's not so that we see that the shipment sizes have increased a lot.
And I think this is a general trend within the industry that shipment frequency increases all the time.
And then, of course, it's more outspoken depending on how the market develops. So I think this is what we can say on the mix. And then, of course, our focus on the LCL, which we've also alluded to, we've seen that we actually continue to have good traction within the LCL area, and we produce more and more cubic meters in this structure. We certainly have some initiatives in place here that really support that development. And then Michael, there was something about efficiency as well.
Michael Ebbe
Yes. And then -- for the efficiency program, like we touched upon prior, it's -- we have invested significantly in both processes and also digital infrastructure as well. And then, of course, in the Road division, where we have part of the Road Way Forward program is actually directly related to processes. So that will be part of that initiative in Road as well.
Sathish Sivakumar
So does that mean that the process on Road Way Forward is actually on track with your expectations?
Michael Ebbe
It's important that we've talked about it before that the Road Way Forward program consists of 2 different tracks, so to speak. One thing is the digitization. And another thing is the workflows and the standardization and the latter part is actually according to plan.
Operator
The next question is from Marco Limite from Barclays.
Marco Limite
My first question is about Q2 volumes in Air & Sea. Can you just clarify why you're growing market share in Air but you are not in Sea? What's the difference between the 2 markets? And the second question is a follow-up on the second half outlook. So my understanding is that you still expect a very strong volume growth in Air, you're expecting yields in Sea to improve.
Are you also expecting the pretty solid revenue growth in Road and Solutions to continue also in the second half? And if the answer is yes, don't you feel the current guidance is quite conservative, and therefore, you can easily get to the, let's say, upper end of the range? Because it seems like all the divisions have got nice tailwinds in the second half.
Jens Lund
I think if we sit and look at it on the 6 months figures, we have grown both Air & Sea. Sometimes it fluctuates a little bit the volumes of your customers. So it's sometimes good if you see it over a couple of quarters. Actually, I think with the visibility we have, we will grow faster than the market at least here in Q3. Of course, we will see what the Q4 brings.
We already talked about that, but we are fairly positive about this. Then we talked about Road and Solutions, and I actually think that we are taking market share on these. The problem is that the rates we get there are lower. So it doesn't lead to a situation where we generate a lot of extra GP. So we have to produce more volume just to make the same gross income or a little bit higher.
I think that's the situation when it comes to Road and Solutions. So as you say, if everything sort of works out nice, we will have a good message for the next quarter. But I think it's also when you run a company we have to make sure that we can deliver on the promises that we make. And then, of course, you can make your assumptions in the spreadsheet. It's a little bit, I guess, easier to do that than if we have to do it sort of in the real production. So I think we are a little bit still cautious when it comes to the development.
Let's see it in the numbers. And then once it's there, we will address it as well.
Michael Ebbe
It's clear we go to work every day in order to outperform. So that will, of course, also be nice to do that. But as Jens mentioned, it is an outlook, and there is -- we think we need to be aware of.
Operator
The next question is from a line where we could not hear the name. So please introduce yourself with name and company before asking your questions.
Unidentified Analyst
[indiscernible] from Spain. I just had one question. I wanted to ask you about the development in the purchase of Schenker. I want to know there has been any new movements and how the process is going now that the rest of the competitors are starting to drop out of the race. So that was my question.
Jens Lund
Yes. We have a policy. We don't comment on specific transactions. So there's not a lot of color we can add to the situation you are inquiring about. In general, I can say we have an M&A strategy in DSV, which I think is familiar to most people on the call.
And I think that's the best we can do when it comes to this question.
Operator
The next is a follow-up from Cristian Nedelcu from UBS.
Cristian Nedelcu
Just a technical one, the DKK 750 million cost savings, how should we split that between the divisions? Is it mostly Air & Sea or a rough indication how we should model that? And secondly, just on your balance sheet, having in mind your M&A strategy, I'm thinking at sort of maximum levels of net debt to EBITDA, which you believe the business could sustain temporary. Would you be willing to go to 3, 3.5x net debt-to-EBITDA temporary in case there is a large acquisition or that would be too high? Can you give us any color how you think at your capacity there on the balance sheet?
Michael Ebbe
If I start with this operational efficiency, then we have said DKK 750 million, and we are actually planning to specific which division. So we cannot give you any hard indications on it yet. But again, it will be broadly founded so there will be in all of the divisions and central functions as well.
Then in terms of the balance sheet and our gearing ratio, I think it's -- it would be hypothetical to discuss at what level we should have. One thing that is though clear, we have a good cooperation with our rating agencies and then we can maintain our rating, even if we are outside the 2.0 for a period of time as long as we proved that we are able to pay back and get below the 2.0 again.
Jens Lund
That's a strategy that we don't change the rating of the company. But there are many ways, as Michael says, that we can handle that.
Operator
The next follow-up is from Lars Heindorff from Nordea.
Lars Heindorff
Just a question on the group's share in growth given the growth, I don't know if you were willing to share any sort of development, how much group do account for now compared to what it was last year? That's one. And the other one is NEOM. You said you're still waiting for some regulatory approval. I understand that there's one country that still needs to approve these things here.
Should be put in any material impact from NEOM, both from network impact or [indiscernible] from the JV this year?
Jens Lund
I don't think I would put a lot into my plate on NEOM this year. So it's a little bit unpredictable when we get the last details in place. And then on the group side, I think it's increased 1 percentage point, I think so far of the -- what can I say, total volume inroad. But of course, it means something if you drive it in this direction when you look at the numbers.
So I think this is, in reality, you would have the group it and then you have the part load as well. This is really where we are driving our company forward. If you take the full loading, it's a very difficult market. Great. I believe this was the last question.
So I would like to take the opportunity to thank you all for your interest. I think we've had a good session where we have covered many important topics. So thank you very much for that. I would also like to extend the thanks to all the DSV employees. Many are listening in.
And if they're not, they can perhaps say to their colleagues that we from the management side, really appreciate the efforts they put in. It's been a very challenging period. And I think they have done exceptionally well in order to ensure that we deliver the results that we've done.
So with these words said, Michael and I, we would like to thank all on the call and look forward to the next quarter. Have a continued good summer.