DSV Solutions Group GmbH

DSV Solutions Group GmbH

Bremen

Befreiender Konzernabschluss zum Geschäftsjahr vom 01.01.2022 bis zum 31.12.2022

DSV A/S

Hedehusene/Dänemark

Annual Report 2022

Keeping supply chains flowing in a world of change

Delivering sustainable growth

DSV is one of the world's leading freight forwarders. We help companies connect with the world and ensure smooth and efficient storage and transport of their goods. By air, sea and road.

We keep supply chains flowing - from shipper to customer doorstep - and help to deliver sustainable growth. By giving our customers the logistics services they require. By running a profitable operation that delivers return on investment for our shareholders. And by giving our people an inspiring place to work and equal opportunities to develop their talent.

Combining the latest technologies and the talent of our strong global workforce, we make supply chains leaner and greener. That is how we will help to shape a sustainable future.

Welcome to our Annual Report 2022.

Contents

Management's commentary

Introduction

Letter from our CEO

Highlights 2022

Five-year overview

Strategy and financial targets

Our strategy: Growth. Efficiency. Sustainability.

Sustainable logistics for a fast-changing world

Our business model

Our industry and market trends

A responsive approach

Outlook for 2023 and 2026 financial targets

Capital structure and allocation

Financial and non-financial performance

Financial review

ESG performance

Air & Sea

Road

Solutions

Corporate governance and shareholder information

Risk management

Corporate governance

Board of Directors

Shareholder information

Other information

Quarterly financial highlights

Financial statements

Consolidated financial statements Income statement

Statement of comprehensive income

Cash flow statement

Balance sheet

Statement of changes in equity

Notes to the consolidated financial statements

Definition of key figures and ratios

Group company overview

Statements

Management's statement

Independent Auditor's reports

Parent Company financial statements

Parent Company financial statements

We integrated Agility GIL within a year - our fastest integration to date.

Letter from our CEO

Keeping supply chains flowing in a world of change

In extraordinary market conditions with continued supply chain disruptions, our teams delivered a strong set of results in 2022. It was also a year when we finalised the integration of Agility's Global Integrated Logistics business (GIL) and we continued to drive the sustainability agenda.

In addition, we had to adjust to an increasingly volatile macroeconomic and geopolitical environment.

Strong financial performance

2022 was a good year for DSV. I am proud of the results we have achieved for the year and we also made good progress on our longterm strategic ambitions. Our gross profit for the year amounted to DKK 52.1 billion (+33.3%), and operating profit before special items was DKK 25.2 billion (+48.0%).

Our adjusted free cash flow for 2022 amounted to DKK 22.8 billion (+163.4%) and ROIC improved by 550bp to 25.1 %. Read more about our Group results on pages 19-22.

The significant supply chain disruptions increased the value of our services and had a positive impact on our financial performance for 2022. As the freight markets gradually normalise and the general economic slowdown continues, we expect a significant decline in earnings for 2023. This development is reflected in our outlook.

Navigating macroeconomy and geopolitics

COVID-19 had a lasting effect on our industry and global supply chains. Over the past two years, we have managed to adapt to the challenges it created, mitigate disruptions and offer our customers robust logistics solutions.

Although today the world seems to have moved on from COVID-19, the pandemic made a significant impact on 2022 and still casts its shadows across our industry. Market volatility persists. At the start of 2022, capacity was tight, freight rates reached unprecedented highs, and then plummeted. In the second half of 2022, we have been in a period of economic slowdown and declining transport volumes across most markets.

Several factors caused the current slump - normalisation of consumer behaviour after the pandemic, the ongoing energy crunch and inflationary levels not seen in decades, to name a few. Not all geographies and industries have been affected the same - the Middle East region and the healthcare and energy industries are examples of more resilient areas.

The volatile macroeconomic environment in 2022 was further fuelled by Russia's invasion of Ukraine. In response, we divested or closed down our operations in Russia and Belarus. In response to Ukraine's humanitarian crisis, we have donated transport and logistics services, food and supplies, and in some instances, our staff have opened their homes to take in families fleeing the war.

Navigating market volatility and tough challenges is not new to DSV. Our cost discipline, focus on keeping net working capital under control, strong capital structure and scalable asset-light business model are all designed with this purpose in mind.

A stronger company

We integrated GIL within a year - our fastest integration to date. To bring together two large and complex organisations across multiple countries and divisions is a considerable undertaking, and we are very happy with the outcome. Lessons learnt from previous integrations, cultural synergies between our two companies and the close collaboration all contributed to a successful integration.

We are a different company today compared to only a few years ago. Our journey of successful acquisitions and integrations has transformed us into a top three player in our industry. We have added new highly skilled colleagues to our teams, and by joining forces, we have a more comprehensive service offering, greater scale and a stronger global network. On top of this, we have worked to develop our digital production platforms and create more transparent supply chains. That means we are now even better placed to support growing customer needs.

Our organisation and market position are already strong, but M&A remains an important part of our strategy, and we will continue to monitor the market in search of value creation opportunities.

Committing to net-zero by 2050

In 2022, we raised our ambitions and took additional steps to create a more sustainable business. On the environment, we recalculated our 2019 CO₂ emission baseline to reflect our larger size after the GIL integration. We implemented an internal CO₂ fee to support new sustainability initiatives and innovation with funding.

But most importantly, we committed to net-zero emissions across our operations by 2050.

To achieve our sustainability ambitions, we also changed our organisation in 2022 and established a new Operational Sustainability Team headed by our COO. Its purpose is to connect our operational teams directly to our sustainability targets. This will more concretely embed sustainability into our operations and help us drive innovation and implement environmental and climate initiatives.

We are determined to reach our long- and mid-term targets, but we know we are at the start of a long and complex net-zero journey. We cannot get there alone; we must collaborate closely with our customers, suppliers and other stakeholders across the industry. And ultimately, we depend on continued technological development in our industry.

Success built by our people

I have always believed that DSV is a people business, and I will never grow tired of celebrating our employees' hard work and contributions. They are central to our current and long-term success.

Operating in the volatile and challenging environment of recent years has reinforced the importance of our people and their outstanding efforts in supporting our customers - making our success during this period even more remarkable. A huge thanks to all of them for their amazing work and team spirit.

Whatever market challenges persist in 2023 and beyond, we are optimistic about the future and are committed to keeping supply chains flowing in this world of change.

Highlights 2022

Group results

EBIT before special items

EBIT before special items was up 48.0% for 2022, in line with our latest outlook for the year. Growth compared to 2021 was driven by strong performance across all business areas and geographical regions and by the addition of Agility Global Integrated Logistics (GIL), which was fully integrated during the year.

Adjusted free cash flow

The earnings growth was converted to cash, and the adjusted free cash flow was also impacted by improved net working capital. In line with our capital allocation policy, we allocated DKK 21,633 million to shareholders in 2022 through share buyback and dividend.

ROIC before tax

The increase in ROIC (pre-tax) was driven by the strong earnings growth, while invested capital stayed stable in 2022. Earnings and ROIC for 2022 were boosted by the extraordinary market conditions. We maintain our 2026 target of a minimum ROIC of 20%.

Air & Sea

The division achieved 38.5% increase in gross profit and 53.0% growth in EBIT for the year. This was driven by the successful integration of GIL and by earnings growth across all regions. The results were positively impacted by the extraordinary market conditions, which led to higher gross profit per shipment, especially in the first half of the year. Towards the end of 2022, freight markets declined, and the division increased its focus on productivity and cost management.

EBIT before special items:

DKK 20,658 million +53.0%

Road

The increase in EBIT before special items was driven by 11.0% growth in gross profit. In a market impacted by new regulation, geopolitical events and by significant cost inflation, all regions performed well and contributed to the growth.

EBIT before special items:

DKK 2,040 million +9.2%

Solutions

Solutions achieved 35.3% growth in gross profit and 47.4% growth in EBIT in 2022. This was driven by the inclusion of GIL, primarily in the Middle East, and strong organic growth across all regions.

EBIT before special items:

DKK 2,701 million

+47.4%

Five-year overview

^* The implementation of IFRS 16 Leases as of 1 January 2019 had a material impact on the financial statements and key ratios for 2019 onwards. Comparative figures for 2018 have not been restated.
^** Comparative figures have been restated, as our method for calculation and data transparency has improved.

For a definition of financial key figures and ratios, please refer to page 83.

For definition of ESG data, please refer to Sustainability Report.

Our strategy: Growth.

Efficiency. Sustainability.

Following the successful integration of Agility's Global Integrated Logistics business (GIL), we have in 2022 reinforced our focus on initiatives to support organic growth. We have also raised our ambitions for sustainability and reconfirmed our M&A strategy.

Our strategy is anchored in our corporate purpose of keeping supply chains flowing in a world of change. The four focus areas for delivering our strategy remain consistent: sustainable growth, our customers, our people and operational excellence. With this focus we aim to create longterm value for our stakeholders and make DSV fitter for the future.

Helping our customers grow sustainably

By combining a broad range of logistics service offerings, competitive pricing and a strong geographic footprint, DSV continues to enhance the customer experience we deliver. We are able to leverage our scale and global reach, providing capacity and consistent service levels across our network.

Across the three divisions, our end-to-end logistics services and digital integrations enable customers to achieve visibility and control of supply chains, which is essential when operating in today's complex market conditions.

Throughout our operations, we seek to support customers' growth while remaining mindful of the environmental impact of our services and providing options for reduction of emissions through our Green Logistics services.

In 2022, we completed the integration of more than 35,000 customers from GIL, adding to our foothold among both the large, global customers as well as small and mid-sized customers. Our industry-specific solutions in automotive, industrial, chemicals, retail and fashion, healthcare, technology and energy help customers in those sectors succeed, and we will continue to strengthen our expertise, not least in the fast-growing healthcare and e-commerce sectors.

We proactively manage customer relations through our Global Customer Success Programme. In 2022, we received feedback from more than 13,000 customers, and in line with our internal targets, we responded to the evaluations within 48 hours.

Our organic growth target remains unchanged: we aim to take market share across our three divisions and the markets we operate in.

Supporting our people to develop their talent

Our employees are the heart of our business and responsible for the long-term success of our company. DSV employs more than 75,000 people worldwide - from office workers to warehouse operatives. Regardless of function or position, we respect our employees' rights.

Our purpose:

Keeping supply chains flowing in a world of change

For nearly five decades, we have moved millions of shipments across oceans and continents. Knowing how to do that in the most streamlined way is how we have earned the trust of our customers and partners. And it is how we will continue to deliver global transport and logistic services that can help businesses and societies prosper.

We work to create a safe, healthy and nurturing workplace where everyone has the chance to grow and develop their talent.

To enable our employees to do their best, we give them the right digital tools, training and conditions. In recent years, the pandemic showed the importance of the skills and knowledge of our experienced teams, and the continued development of our industry will increase the need for further skills.

As for any company, hiring and keeping talented employees is critical for us. To attract, motivate and retain the best of them, we provide careeradvancing opportunities through our DSV Academy and our talent management programme.

DSV operates globally and employs +150 different nationalities. In combination with an inclusive and responsive culture, diversity - also related to gender and other factors - makes our workplaces more dynamic and ultimately leads to better business decisions. In 2022, we continued our focus on diversity and inclusion across our organisation, supported by mandatory e-learning programmes.

Operational excellence, every day

Local empowerment and global scale

We maintain a flat, locally empowered organisation, firmly anchored in local markets. This has always been a core strength in DSV, and we continue to believe in local ownership and decisions based on sound business acumen, supported by solid data.

As a global company, we aim to benefit from our scale where we can. We work together as one global network, and we have centralised selected activities - e.g. in our International Shared Service Centres and group functions such as our Global Commercial Organisation, Group Property, Group Insurance and Group Procurement.

Transparency, productivity and scalability

Through our focus on transparency, productivity and scalability, we support more efficient global trade flows for our customers. And more efficient workflows for DSV.

We support transparency by measuring productivity and financial performance, ensuring that our managers have good insights to inform their decision making. High data quality across systems, activity-based costing and a strong financial organisation are key elements in this.

We boost productivity by defining and standardising our service catalogues across geographies and divisions. Standardised service catalogues enable digitalisation, automation and efficient workflows across the organisation. By streamlining our services across the organisation, we can deliver a high and consistent service level - this is exactly what our customers are looking for.

To support our growth strategy, our physical and digital infrastructure must be able to scale. Working according to the principle of one main system per business area, we run a consolidated, standardised and scalable IT platform and, where available, we use standard off-the-shelf IT systems with high focus on data quality and security.

Developing our infrastructure

Based on our knowledge of the logistics markets, technological trends and our ongoing dialogue with customers, we plan development of our IT infrastructure as well as the long-term planning of warehouses (and warehouse automation), terminals and offices.

We prepare strategic roadmaps for each business area, closely managed and prioritised by our Group Executive Committee. All planning of our infrastructure and innovation is based on enterprise solutions which can be applied across our network.

Continued focus on M&A

DSV has had a remarkable journey in recent years. The acquisitions and successful integrations of UTi Worldwide, Panalpina Welttransport and Agility's Global Integrated Logistics business have transformed us into a top three global player in our industry. Our worldwide organisation is now bigger than ever; our geographical footprint is more diverse; and the services we offer to our customers are more advanced.

We continue to focus on balancing stable, above-market organic growth with an active acquisition strategy. Measured by revenue and profit margins, we are one of the industry's largest and most profitable players. This gives us a strong market position and forms the foundation of our ambition to continuously grow our business.

Within the fragmented transport and logistics industry, we believe there is room for further consolidation, and we will continue to monitor the market for relevant, value-creating opportunities.

Fitter for the future

Our ambitions for the coming years revolve around three themes: growth, efficiency and sustainability. At a practical level, that means continuing our focus on M&A, strengthening our market position through organic growth, enhancing our logistics and digital capabilities, continuing our work on the sustainability agenda and exploring new opportunities in response to changing market dynamics.

As we engage in all of these activities, our mindset will always be to try to do more with less, accelerating our operational excellence initiatives and digital transformation to constantly find more efficient solutions to support our customers.

Key strategic projects for each of our divisions are described in the divisional reviews on pages 24-30.

Sustainable logistics for a fastchanging world

DSV's approach to sustainability has evolved systematically over recent years. As the world's third-largest transport and logistics provider, we take an active role in the sustainability agenda in our industry, and today, this is fully integrated in our corporate strategy and business operations.

Sustainability strategy anchored at the top

Our sustainability strategy and efforts are driven from the highest management levels in our company. In close collaboration with the Executive Board, the Board of Directors sets the direction, reviews the performance and further develops our Sustainability targets and strategy.

We are guided by our commitment to promote and fulfil the United Nations' Sustainable Development Goals (SDGs). Our strategy and targets are based on our analysis of materiality, risks and opportunities and our dialogue with our major stakeholders.

Our sustainability strategy is centred around our sustainability priorities within environment, social and governance. These priorities and our associated material topics are highlighted in the adjacent figure.

Raising our environmental ambitions

We - and the whole industry - need to do more to protect the environment. To hold ourselves accountable to that goal, we have now committed to reaching net-zero carbon emissions across our operations by 2050. To make sure this follows a common, robust and science-based definition, we follow the recognized SBTi Net-Zero Standard.

We continue to work towards our 2030 emission reduction targets, and this year, we increased our target ambition for the 1.5 °C global warming scenario for scope 1 and 2, in line with the latest climate science. We also recalculated our 2019 CO₂ emission baseline for all scopes, to reflect our larger business size after the integration of Agility's Global Integrated Logistics business (GIL).

Our biggest challenge to reach net-zero is technological; in our industry today there are still no carbon neutral solutions available at scale. Another challenge is that the majority of emissions in our supply chain are not in our full control.

As an asset-light freight forwarder we do not own or control the transport equipment and we have limited direct influence on investments in new technologies. Still, we take responsibility for our scope 3 emissions and engage with our customers, suppliers and other partners in finding new and more sustainable transport solutions to be able to optimise supply chains and offer our customers lower-emission transport alternatives.

Our approach to managing the risk and opportunities from climate change is an embedded part of our risk management framework, as described on page 36.

Driving innovation in logistics

Delivering our targets will require a huge effort across our industry. We have strengthened our governance and initiated various organisational changes in DSV to anchor our ESG strategies in our business operations and help drive innovation and implementation of our environmental and climate initiatives. Solar panels on rooftops, partnerships with suppliers on sustainable fuel and pilots with electric trucks are examples of the innovation initiatives we worked on in 2022 to investigate the possibilities within these technologies.

In 2023, we are introducing an internal carbon fee - the fee will be levied on our activities, based on their CO₂ emissions. The funds generated will be invested back into our innovation initiatives.

At the end of 2021, we implemented our Green Logistics services to help customers reduce emissions from their supply chains. We continue to promote and develop these services, and we expect growing demand in the coming years, as many of our customers have set their own, ambitious climate targets.

Partnerships and stakeholder engagement

No one, DSV included, can tackle planet-wide environmental challenges alone. Collaboration and partnerships are key to finding and implementing effective and long-lasting solutions to our most pressing sustainability challenges.

We engage regularly with employees, customers, suppliers and investors on our sustainability strategy - and use their input and ideas to enhance our plans. During 2022 we evaluated more options for expanding existing partnerships and working with innovative new companies. These are partnerships that can help us develop more sustainable energy sources, scale sustainable fuel technologies and run alternative trucking technology pilots.

Integrity and transparency

As one of the world's largest freight forwarding companies, our global network spans geographical and cultural borders across the globe, engaging with customers, suppliers, business partners and public authorities in more than 80 different countries.

We are committed to conducting our activities with integrity and engaging with our stakeholders in an open and transparent manner. We strive to ensure that we apply and maintain uniform high ethical standards across our global organisation as defined by our Code of Conduct. To safeguard this focus, we run global awareness campaigns and recurring training programmes for all employees.

As a freight forwarder we are aware of our position in the global logistics value chain in which our services are, to a large degree, performed by third-party suppliers. How our suppliers act reflects back on us as a company and on our industry as a whole. Our Supplier Code of Conduct outlines our ethical business standards, which we require our suppliers to follow. And our new centralised third-party risk management vetting platform and ongoing annual supplier audits are other measures to safeguard compliance with our standards.

Our social responsibility

Freight forwarding is a people business, and ensuring that our employees thrive in an inspiring working environment is a central part of our HR strategy. We believe that a diverse and inclusive working environment consisting of people from across different nationalities, cultures, genders and ages generates better work dynamics and provides a stronger basis for engaging with our customer base.

Being mindful of employee safety is also high on our agenda which we manage through several health and safety initiatives as well as addressing labour and human rights.

We apply this mindset everywhere we operate globally, and when we integrate companies - like GIL in 2021 /22 - we make sure this culture and these standards are implemented across the organisation. In 2022, we performed our first global people survey - this has provided us with valuable information to further enhance these values and culture, making DSV an even more attractive place to work.

Across the globe, we continue to engage in and support the communities we are part of. In 2022, the war in Ukraine only confirmed how quickly things can change and how important it is that we are ready to respond as a company with both financial and logistics support.

Our business model

We ship freight by land, sea and air - and provide contract logistics too. Our business model is flexible and asset light, which helps us to keep supply chains flowing efficiently, from shipper to consignee.

A light model for the right reasons

Our business model allows us to quickly scale activities to match changes in market demand or modes of transport. It also helps us choose the best partners for any service, based on reliability, available capacity, sustainability factors, transit time and price.

Although we are a global business, we are always close to local markets. Working with container carriers, airlines, road hauliers and railway operators, we move goods to wherever they are needed. And being one of the largest buyers globally means we - and our customers - benefit from keen pricing and strong, long-standing relationships with carriers.

We offer a unique combination of a highly skilled workforce with extensive industry know-how, advanced IT systems, modern warehouses and terminals, strong carrier relationships and a global network across more than 80 countries.

Adding value to complex supply chains

As well as transport, our customers buy a full range of freight forwarding, logistics and distribution services from us. And we constantly develop new services to keep ahead of what customers need.

Our workflows are highly digitalised, and our systems tightly integrated with customers and suppliers. To cut the environmental impact of our business, we work closely with customers and suppliers to track and minimise emissions across our entire supply chain - from shipper to final destination.

Our industry and market trends

By understanding market trends in our own industry - and in others that affect us - we can take advantage of opportunities and act quickly to reduce risks.

A fragmented competitive landscape

We are one of the top three global freight forwarders, with a market share of roughly 4%. Together, the top 20 forwarders have an estimated global market share of 30-40%. The rest of the market consists of a long tail of smaller regional and local freight forwarders.

The mix of industry fragmentation and service standardisation creates a competitive pricing landscape. But because of our scale, global network, strong IT systems and logistics competences, big freight forwarders like DSV are in a good position to consolidate the market and gain market share. Our acquisition track record is a strong example of this, and we expect the consolidation trend to prevail in the coming years.

New competition emerging

In recent years, new competitors have entered the industry. One category is the digital forwarders, who typically offer a simple, standardised range of services, mainly focused on online price quoting and booking. Digital forwarders have a high level of digital capabilities but a lower level of logistics capabilities, such as operational expertise, global networks, scale, warehouses and carrier relationships.

Furthermore, a few of the large ocean carriers now aim to provide door- to-door transport services, air and overland transport in addition to ocean transport.

This has created scenarios where these carriers are both suppliers and competitors to freight forwarders.

So far, the new players have not gained material market shares. Based on our strong logistics capabilities and our clear roadmap to further enhance our digital capabilities, we are confident that DSV will remain highly competitive.

GDP sets the pace for market growth

In recent years, global trade growth has been on level with GDP growth, and we believe this correlation will continue in the long term - with different growth rates between regions.

As a result of the slowdown in the global economy and a post-COVID shift in consumer spending away from goods and towards services, global trade volumes have contracted during 2022 and have developed worse than the general economy. This development will also impact our markets going into 2023. Our asset-light model enables us to quickly adjust our capacity to such changes in demand.

Our industry has changed dramatically in recent years. New trends and market dynamics are affecting transport and logistics globally and locally. We must understand these dynamics so we can act quickly to capitalise on opportunities and mitigate threats.

In the following chart we have listed important ongoing trends affecting DSV.

A responsive approach

At DSV, we continuously monitor the latest trends and adopt new technologies that benefit our business and our customers.

Our business operations rely on strong systems and technology. Last year, our scalable, digital platforms handled almost 270 million jobs, shipments and order lines. This platform not only supports efficient workflows; it also ensures a fast and smooth integration of M&As and supports our growth strategy.

Hybrid computing and Al

To fulfil our strategy and react quickly to our dynamic markets, we have a strong, scalable IT infrastructure. We take a hybrid computing approach blending on-premises and cloud-based infrastructure across operational systems, customer integrations and engagement services.

On top of our Advanced Integration Platform that we implemented in 2021, we are now applying artificial intelligence (Al) to improve our operational efficiency in various ways. In 2022, we implemented systems for improving data quality of vendor data and for automated scanning of customs declaration forms. Our modular approach to developing Al solutions allows us to quickly reuse models and data across the business to roll out even more solutions and respond to customer needs in a quick fashion.

Delivering supply chain visibility

Digitalisation is changing the way we interact with customers and vendors through every phase of a shipment. From quote, purchase order, booking, shipment tracking and status alerts to final billing and KPI reports. Our digital tools provide supply chain visibility to DSV customers - and make it easy to do business with us.

Our digital freight forwarding platform, myDSV, is part of our critical IT infrastructure, not only managing bookings but also tracking, claims and reporting. In 2022, bookings on myDSV were up by more than 30%.

Besides myDSV, we provide direct customer integrations for large customers. Increasingly, we are seeing EDI connections replaced by more advanced API integrations.

Automated, efficient warehousing

Automating and optimising warehouse processes improve customers' experiences and enable us to utilise warehouse space more efficiently. The structural growth in e-commerce transactions means that the demand for efficient warehouse solutions is growing too.

The journey towards more automated warehouses continued in 2022. Our automated goods-to-person storage and retrieval program, DSV Fulfilment Factory, was launched in 2021, and during 2022, it has been rolled out to even more sites and customers. In addition, we are increasing the adoption of a wider range of warehouse automation technologies, including automated guided vehicles and airborne autonomous drones for cycle count.

Digital cargo twins

In more and more warehouses and terminals, we now scan the size and weight of every incoming parcel and distribute this data across our IT systems as a "digital cargo twin”. This gives us a precise view of the utilisation and performance of our warehouses and other assets, allowing us to optimise performance. In addition, the scanning of parcels ensures that customers are invoiced accurately based on the actual size and weight of their shipments.

Staying abreast of the latest trends

Our DSV Innovation Hub drives our global innovation efforts, monitoring trends and technologies and prioritising which to explore. Working with internal and external stakeholders, this team tests ideas, establishes financial business cases and implements projects across our global network.

Outlook for 2023 and 2026 financial targets

For 2023, we expect EBIT before special items of DKK 1 6,000-18,000 million. We maintain our 2026 financial targets and aim for a 45% conversion ratio for the Group.

Assumptions for 2023 financial outlook

After an extraordinary 2022, we expect a decline in our earnings and margins for 2023 as freight markets find a new normal level after the pandemic.

The World Bank projects global GDP growth in the level of 2-3% in 2023 - with lowest growth rates in the advanced economies. Normally, we expect transport volumes to grow in line with the economy, but in the second half of 2022, we saw volumes declining more than GDP due to reduction of inventory levels and normalisation of consumer behaviour after COVID-19.

We expect this negative development in freight volumes to continue in the first part of 2023, but we expect a recovery in the second half of the year.

We have based our guidance on the assumption of declines in air and sea freight volumes of 2-5% for the full year 2023. As transport markets continue to normalise, we expect that our gross profit yields in Air & Sea will decline compared to the average level in 2022.

For Road and Solutions, we expect that markets will be flat or decline by low single digits in 2023. Across all divisions our aim of taking market share remains intact.

We will monitor activity closely across our organisation and adjust our capacity and cost base accordingly.

The outlook for 2023 assumes that the currency exchange rates, especially the US dollar against DKK, will remain at the current level.

The geopolitical and macroeconomic environment remains uncertain, and unforeseen changes may therefore impact our financial results.

2026 financial targets

While we expect decline in conversion ratio and ROIC in 2023 compared to the extraordinary levels in 2022 - mainly for Air & Sea - our 2026 targets are unchanged.

The targets are based on the assumption of stable global economic development during the period 2024-26, with average annual global GDP growth of at least 3% and transport market growth in line with GDP.

All the way towards 2026 we will continue our focus on achieving organic growth ahead of the market, and we see opportunities to improve productivity across the Group. Our IT systems, infrastructure and back-office functions are scalable, providing opportunities to leverage operations in all three divisions.

The targets are based on organic growth and do not include the potential impact from large acquisitions in the period. The strategic objectives of the Group are translated into the following targets:

Forward-looking statements

This Annual Report includes forward-looking statements on various matters, such as expected earnings and future strategies and expansion plans. Such statements are uncertain and involve various risks, because many factors, some of which are beyond our control, may result in actual developments differing considerably from the expectations set out in the 2022 Annual Report. Such factors include, but are not limited to, general economic and business conditions, exchange rate and interest rate fluctuations, the demand for our services, competition in the transport sector, operational problems in one or more of DSV ́s subsidiaries and uncertainty in connection with the acquisition and divestment of enterprises.

Capital structure and allocation

Capital structure

The aim of DSV ́s target capital structure is to ensure:

Our target financial gearing ratio is below 2.0 x EBITDA before special items. The ratio may exceed this level following significant acquisitions.

Capital allocation policy

Our free cash flow allocation prioritisation remains unchanged:

Value-adding investments

DSV pursues an active acquisition strategy. Our acquisitions have created substantial value for shareholders over the years and have also contributed to consolidating an otherwise fragmented industry.

As a Group, we have a track record of successful company integrations - the most recent chapter in this story being the acquisition of Agility's Global Integrated Logistics business (GIL) in 2021.

We have been able to create increasing return on invested capital (ROIC) over time. However, large acquisitions have initially diluted ROIC before tax.

Capital structure

Group Management continuously monitors whether the capital structure is in line with the targets, and excess capital is distributed to shareholders through share buybacks and dividends.

Adjustments to the capital structure are usually announced in connection with the release of quarterly financial reports and are made primarily through share buybacks.

Dividend policy

DSV aims to ensure an annual dividend pay-out ratio of approximately 10-15% of our net profit.

Proposed dividend for 2022 amounts to DKK 6.50 per share (2021: 5.50 per share). The proposed dividend for 2022 is equivalent to 8.1% of net profit. The lower dividend payoutratio for 2022 reflects the extraordinary result for 2022 and expected normalisation of earnings in 2023.

Financial review

The Group delivered strong results for 2022, achieving 33% growth in gross profit. EBIT before special items was DKK 25,204 million - up 48% and in line with the expected level of DKK 24,500-25,500 million.

^* Growth including M&A and in constant currencies.

Strong performance in an extraordinary year

2022 was an eventful year with volatile freight markets, heightened geopolitical unrest, historically high inflation rates and a macroeconomic slowdown. The market for air and sea shifted from congestion, lack of capacity and record-high freight rates in the first half of the year to declining volumes and rapidly falling rates in the second half. The markets for road and contract logistics were less volatile - but certainly also impacted by the changes in the world around us.

For DSV, it was also an integration year. We completed the integration of Agility's Global Integrated Logistics business (GIL) less than one year after the closing of the transaction - a new record for us.

Across all business areas, we achieved growth in earnings in 2022 - with the strongest performance in Air & Sea and Solutions. In the extraordinary market conditions, we delivered 48% growth in EBIT before special items. And very importantly, we converted the earnings to cash. Adjusted free cash flow was up by 163.4% compared to 2021, and in line with our capital allocation policy, we allocated DKK 21,633 million to shareholders through share buyback and dividend.

Earnings per share (diluted and adjusted) was up 59.9% in 2022, driven primarily by growth in earnings and to a less degree a reduction in the number of issued shares.

The performance of each of our divisions is further described in the reviews on pages 24-30.

Integration of Agility's Global Integrated Logistics business

The acquisition of GIL was closed in August 2021, at which date we included GIL in our consolidated financial statements. Consequently, the business combination was only partly included in the comparable P&L figures for 2021.

We finalised the integration during Q3 2022, and in line with previous announcements, we estimate that GIL will contribute at least DKK 3 billion annually to combined EBIT before special items. The integration triggered costs of DKK 1.1 billion in 2022, which are recognised in the income statement under special items.

Ukraine and Russia

As previously announced, we have divested or closed down all DSV subsidiaries in Russia and Belarus. We made this decision shortly after Russia’s invasion of Ukraine, and the exit had no material impact on the financial results of the Group. We also make sure that we comply with international sanctions against Russia and Belarus at all times, and we have stopped organising transports to, from and through the two countries, except for pharmaceutical shipments and humanitarian aid.

Our Ukrainian operations were temporarily suspended when the invasion started in February 2022. During the year, we have resumed activities in the country to the extent possible.

Results

Revenue

Revenue was up 24.3% in 2022. The Air & Sea division grew revenue by 26.1%, driven by the inclusion of GIL and higher freight rates in the first half of the year. In the second half of 2022, the economic slowdown resulted in lower demand for freight services.

In combination with less congestion this led to falling freight rates and lower revenue for the division.

^* Growth including M&A and in constant currencies.

The Road and Solutions divisions also achieved strong revenue growth for the year. This was driven by higher average rates/fuel prices and higher activity (market share gains). GIL business contributed to the growth in both divisions, especially in Solutions, due to its strong footprint in the Middle East and APAC. The economic slowdown also affected Road and Solutions in the second half of 2022; however, less than the Air & Sea division.

Gross profit

Gross profit was up 33.3% in 2022. Growth in Air & Sea was mainly driven by the addition of GIL and higher gross profit yields due to the extraordinary market conditions with port congestion, high freight rates and general cost inflation. In the second half of the year, the division was affected by a gradual drop in yields as congestion started to ease.

^* Growth including M&A and in constant currencies.

Gross profit growth in Road and Solutions was driven by the addition of GIL business and higher activity levels. Solutions in particular achieved high growth as we added new warehouse capacity.

Gross margin for the Group was 22.1 %, compared to 20.6% last year. This increase was driven by the Air & Sea division with high gross profit yields and a change in its product mix. The Solutions division also achieved a higher gross margin, due to increased warehouse utilisation and more efficient workflows.

All regions achieved growth in gross profit in 2022, strongest in APAC and Americas. Furthermore, the Middle East was significantly strengthened by the addition of GIL's network in this region.

EBIT before special items

For the Group, EBIT before special items increased by 48.0%. This was driven by gross profit growth across all divisions and geographical regions and by the addition of GIL.

^* Growth including M&A and in constant currencies.

The 2022 conversion ratio was 48.3%, compared to 43.1% last year. Our Air & Sea and Solutions divisions improved their ratios and Road was on par with 2021, even though inflation put high pressure on the cost base in the second half of the year. In extraordinary market circumstances - and while managing the GIL integration - our teams continued to optimise workflows and systems and leverage our network. As logistics markets gradually normalise, we expect a lower conversion ratio in 2023.

Total staff costs (excluding hourly workers) were DKK 16,315 million in 2022 (2021: DKK 13,025 million). The cost rise was from the inclusion of GIL as well as organic increases in activity, cost inflation and the impact of exchange rate fluctuations.

Other external expenses totalled DKK 5,559 million in 2022 (2021: DKK 4,173 million). They were affected by the same factors as staff costs.

Depreciations totalled DKK 5,071 million in 2022 (2021: DKK 4,194 million). This rise was due to the inclusion of GIL and the addition of several warehouses in our Solutions division.

Special items totalled DKK 1,117 million in 2022 (2021: DKK 478 million), relating to the now finalised GIL integration. The total GIL integration cost came to DKK 1.6 billion.

Net financial expenses totalled DKK 866 million in 2022 (2021: DKK 841 million). The increase was partly due to the inclusion of GIL and an increase in our leasing debt compared to 2021 due to our warehouse expansions in 2022.

Gain on currency translation was DKK 276 million in 2022, compared to a DKK 53 million loss in 2021. Currency translations were mainly related to intercompany loans and had no cash impact. The integration of GIL led to a temporary increase in intra-group currency exposure.

The effective tax rate was 23.9% in 2022, compared to 24.5% in 2021. This was in line with our expectations. The inclusion of GIL and the growth of the Air & Sea division have increased the Group's presence in countries with a relatively higher corporate tax rate.

Diluted adjusted earnings per share

Diluted adjusted earnings per share went up by 59.9% to DKK 81.4 in 2022 (2021: DKK 50.9). This was driven by the significant increase in adjusted earnings and also a reduction in shares outstanding, as treasury shares from share buybacks were cancelled during the year.

Cash flow statement

Cash flow from operating activities in 2022 rose by 120.0% to DKK 26,846 million. Cash flow from operating activities was positively affected by higher EBITDA before special items and an improvement in net working capital, but offset by higher tax payments for the period.

On 31 December 2022, our net working capital (NWC) was DKK 5,116 million, compared to DKK 8,031 million in 2021. The main reason was lower NWC for the Air & Sea division, where lower freight rates and lower activity in the last months of 2022 reduced funds tied up in NWC. Process optimisations, especially in the GIL business, also contributed to lower NWC.

Relative to full-year revenue, funds tied up in NWC at yearend decreased to 2.2%, from 3.5% in 2021.

Cash flow from investing activities was an outflow of DKK 966 million in 2022, in line with our expectations. The cash inflow of DKK 420 million in 2021 was due to including the positive cash position of GIL.

Adjusted free cash flow (adjusted for acquisitions, special items and IFRS 16) was DKK 22,810 million, compared to DKK 8,659 million last year. The adjusted free cash flow was mainly driven by the significant positive increase in cash flow from operating activities.

Cash flow from financing activities was negative by DKK 24,245 million in 2022 (2021: negative DKK 8,680 million). This difference was mainly due to higher proceeds from borrowings last year. In 2021, we issued three new corporate bonds versus only one in 2022.

In line with our capital allocation policy, we allocated DKK 21,633 million to shareholders via share buybacks and dividend in 2022. At year end, the financial gearing ratio was 1.0x EBITDA (2021: 1.4x).

Capital structure

On 31 December 2022, DSV shareholders' share of equity was DKK 71,519 million (2021: DKK 74,103 million). This decrease was mainly driven by allocations to shareholders, partly offset by profit for the period.

The share capital was nominally DKK 219 million by the end of 2022 (2021: 240 million). The share capital is divided into 219 million shares of DKK 1 each. Each share has one vote.

The share capital was reduced on 20 April 2022 through the cancellation of 6 million treasury shares and on 22 December 2022 through the cancellation of 15 million treasury shares.

The solvency ratio excluding non-controlling interests was 45.0% on 31 December 2022, compared to 45.9% on 31 December 2021.

Net interest-bearing debt (including IFRS 1 6 lease liabilities) was DKK 29,870 million by the end of 2022 - close to the level of last year (2021: DKK 29,245 million).

In 2022, we issued one new corporate eight-year bond of EUR 600 million. The weighted average duration of corporate bonds, committed loans and credit facilities was 8.3 years on 31 December 2022, compared to 9.6 years on 31 December 2021.

Invested capital and ROIC

The invested capital including goodwill and customer relationships amounted to DKK 99,540 million on 31 December 2022 (2021: DKK 101,231 million). The decrease was mainly due to lower net working capital, partly offset by higher currency exchange rates.

Driven by strong growth in earnings, return on invested capital (including goodwill and customer relationships) was 25.1% for 2022 (2021: 19.6%). Excluding goodwill and customer relationships, return on invested capital was 105.1% for 2022 (2021: 77.9%).

Reporting on corporate social responsibility

Reporting on corporate social responsibility cf. section 99a of the Danish Financial Statements Act

We have reported separately on corporate social responsibility in our Sustainability Report 2022, in accordance with section 99a of the Danish Financial Statements Act.

Reporting on management gender composition cf. section 99b of the Danish Financial Statements Act

We have reported separately on management gender composition in our Sustainability Report 2022, in accordance with section 99b of the Danish Financial Statements Act.

Reporting on diversity cf. section 107d of the Danish Financial Statements Act

We have reported separately on diversity in our Sustainability Report 2022, in accordance with section 107d of the Danish Financial Statements Act.

ESG performance

In 2022, we committed to an ambitious 2050 net-zero target, and we restated our 2019 baseline for CO₂ emissions to now include GIL. We also completed our first global employee engagement survey and updated our human rights assessment programme.

Performance on CO₂ emissions

In 2022, we raised our ambitions and committed to reaching net-zero carbon emissions across our operations by 2050, and we revised our 2030 emission reduction targets for scope 1 and 2. According to our revised targets, we will reduce our scope 1 and 2 emissions by 50% by 2030 and our scope 3 emissions by 30%.

Our total CO₂ emissions in 2022 increased by 4% compared to 2021. The increase was primarily due to the full-year effect from GIL, but this was offset by declining volumes within air and sea due to the economic slowdown in the second half of 2022. The growth in scope 1 and 2 emissions was also impacted by the growth in our Solutions division and an increase in our own truck fleet.

Compared to the 2019 baseline - now including GIL - our total emissions declined by 22%. The main reason for this was an overall decline in freight volumes in the period. As volume growth is expected to return in the coming years, we need to achieve lower carbon intensity per transport.

Carbon intensity has generally improved over the years as transport equipment becomes more efficient enabling better utilisation of capacity. For sea freight, carbon intensity saw a negative development in 2021 and 2022, mainly due to less slow-steaming in a period with port congestion and tight capacity - we expect this situation to reverse in the coming years as more capacity is added.

With our CO₂ baseline in place, we are now working on a roadmap with initiatives which over time can contribute to reducing our emissions across all business areas. This includes the continued development of our Green Logistics offerings, the use of sustainable fuels, pilots with electric trucks, own production of energy and continued focus on optimising our own buildings.

A business powered by people

We successfully integrated GIL in 2022. Across the organisation we were able to retain the key GIL employees, which was very positive. In a tight labour market we also achieved a relatively stable development for existing DSV employees, and as a result, our employee turnover adjusted for synergies was 22.1 %. This was on level with last year and we estimate that this is on level with our industry.

Promoting health and safety capabilities across the organisation is a key priority for us in order to keep employees safe. It is reflected in our lost time injury frequency rate, which this year dropped to 2.8 compared to 4.5 in 2021.

Conducting our business activities responsibly and applying strong ethical standards is high on our agenda. This includes ensuring that we comply with the latest human rights regulations, and in 2022 we developed a new and improved Human Rights programme which will be fully rolled out in 2023.

Towards the end of 2022, we carried out a global engagement survey across our organisation. The survey achieved a high response rate and provided valuable feedback and insight on how we can make DSV an even better place to work. The results of the survey are currently being reviewed, and we look forward to addressing these findings over the coming year.

Working with integrity

The DSV Code of Conduct forms our ethical foundation and guides our principles, behaviour and culture. We conduct mandatory internal e-learning modules every year, and in 2022, we achieved a 100% completion rate among the employees assigned this year.

As freight forwarders, we depend on our suppliers who perform the transport services. This year, we have implemented a new global third-party risk management system, enabling us to improve our risk assessments, approval and monitoring capabilities. In combination with new automated distribution and sign-off capabilities of our Supplier Code of Conduct, these solutions will help enforce our standards across our entire supply chain.

We will continue developing the new platform in 2023, improving our supplier screening and evaluation capabilities.

Gross profit

DKK 34,624 million

+38.5%

Operating profit

DKK 20,658 million

+53.0%

Geographic segmentation based on gross profit

EMEA

39%

AMERICAS

32%

APAC

29%

The Air & Sea division operates a global network specialising in transportation of cargo by air and sea. The division offers both conventional freight forwarding services and tailored project cargo solutions.

Air & Sea

For 2022, the division reported a 38.5% increase in gross profit and 53.0% increase in EBIT before special items. This growth was driven by the inclusion of GIL, high gross profit yields in extraordinary freight markets and a continued focus on operational excellence.

^* Growth including M&A and in constant currencies.

Market situation

Navigating volatile markets was a major theme in 2022. During the year, there was a significant change in the dynamics of the global freight markets. At the start of the year, supply chains were still heavily impacted by congestion and COVID-19 lockdowns. This resulted in lack of capacity, high freight rates and low schedule reliability.

During the second half of the year, demand for transport services declined as a result of the general macroeconomic slowdown, de-stocking in the retail sector and a gradual normalisation after COVID-19 lockdowns as consumption shifted away from material goods and towards services. Congestion across supply chains gradually eased and capacity started to recover, leading to a more balanced market situation by the end of the year.

Air

The global air freight market saw gradually declining demand during 2022, especially for export from Asia to Europe and to North America. Demand for air freight was also impacted by improving schedule reliability and lower rates in the sea freight market, which made sea freight a more competitive alternative. The available air freight capacity gradually increased as bellyspace capacity in passenger planes returned. As a result, air freight rates declined, mainly in the second half of 2022.

This year, we achieved air freight volume growth of 3% (including M&A impact). Adjusted for the acquisition of GIL, the division's 2022 volumes were down by approximately 7%, compared to an estimated general market decline of 8-10%.

Sea

In the global sea freight market, port congestion was still an issue on the US East Coast and in Northern Europe in the first part of 2022, but available capacity gradually increased as congestion eased during the year. In combination with weaker demand - especially on the Asia-Europe and Trans-Pacific routes - this led to rapidly declining spot rates from the historical high rate levels we saw at the end of 2021.

In 2022, we achieved sea freight volume growth of 7% (including M&A impact). Adjusted for the acquisition of GIL, the division's 2022 volumes were down by approximately 7%, which we estimate to be in line with the general market.

The volume development compared to the market for both air and sea was impacted by our relatively high exposure to the Asia-Europe trade lane, which was among the weakest performing in 2022. Furthermore, our ability to outgrow the market is normally limited during an integration year.

Strategic and operational highlights

We successfully completed the integration of GIL in 2022, less than a year after the acquisition - thanks to the strong efforts from our teams worldwide. The inclusion of GIL has strengthened our Air & Sea network across most geographies, especially in the Middle East and APAC. With the integration of GIL, we also gained new competences, e.g., within the energy and the chemicals sectors.

With the GIL integration behind us and general demand declining, our focus has shifted to adjusting our capacity and workforce and managing the impact of cost inflation on our business. This was a theme in the last part of 2022 and will continue to be high priority for us in 2023.

In 2022, we continued to develop systems and service offerings to customers. Our workflows are already close to paperless, but we see potential to use and further improve our systems, focusing on areas like digital customer integrations and booking data quality. This will help us provide better and faster supply chain visibility to customers - and increase our own productivity.

Our air charter network provides tailor-made solutions to customers on specific routes. In 2022, we added new lanes to the network, e.g., from Singapore to Los Angeles. We operate the network with a clear focus on flexibility so we can scale capacity up and down as demand changes. LCL (less than container load) in ocean freight is another business area where we increased our focus in 2022. We have gained a strong position within LCL in recent years, and we see good growth opportunities in this market.

We saw increasing interest from customers for our Green Logistics services in 2022, especially around carbon footprint transparency and supply chain optimisation. The market for sustainable fuel is still relatively immature with volatile pricing and limited availability. We expect this will improve in the coming years, and it is highest priority for us to make sure that our customers have the option to choose lower-emission transports.

Results

DSV Air & Sea revenue was DKK 174,431 million in 2022 (2021: DKK 131,901 million), a growth of 26.1%.

This revenue growth was driven by the addition of GIL business and higher freight rates for both air and sea compared to 2021. Geographically, all regions contributed to the growth in revenue.

Gross profit came to DKK 34,624 million for 2022 (2021: DKK 23,769 million), a growth of 38.5%. The increase was driven by the addition of GIL and high yields per unit for both air and sea freight compared to the same period last year.

The extraordinary market conditions over the past years have had a positive impact on gross profit per TEU (sea freight) and per tonne (air freight). Our skilled forwarders, scale benefits and strong carrier relationships have enabled us to navigate the complex markets and offer transport solutions for our customers despite the challenges. With weaker demand, less congestion and lower freight rates, our gross profit yields started to decline in the second half of 2022.

The division's gross margin was 19.8% for 2022 (2021: 18.0%). The increase was mainly due to the extraordinary markets as well as a change in product mix compared to 2021 - with growth within higher-margin activities like LCL and decline in lower-margin project business.

This year, EBIT before special items was DKK 20,658 million (2021: DKK 12,768 million) - an increase of 53.0%. The significant growth was driven by the inclusion of GIL, the general gross profit rise and our continued focus on productivity, achieving synergies and managing costs (operational excellence). All regions contributed to the EBIT growth in 2022.

The conversion ratio came to 59.7%, compared to 53.7% last year. The conversion ratio was positively affected by extraordinary high gross profit yields. As yields normalise, we expect conversion ratio to decline. The improvement in 2022 was also driven by the GIL integration and the achieved synergies.

Net working capital (NWC) was DKK 5,849 million at the end of the year, compared to DKK 10,675 million at year-end 2021. This was due to a combination of lower freight volumes and lower freight rates in the last part of 2022, but also process improvements, especially in the GIL related business.

In 2022, return on invested capital was 29.1 %, compared to 21.9% in 2021. The increase was driven by the strong earnings growth.

Focus areas for 2023

After completing three large integrations in recent years, we have achieved a strong market position. We have the network, skilled people and digital tools to provide market-leading global services to our customers, and our clear target is to gain market share. Today, some companies are taking a critical look at their supply chains. We see this as an opportunity, and we are ready to help them with production relocation, dual sourcing strategies, lowering emissions and by creating more supply chain visibility/predictability.

In 2022, we had good momentum within sectors like energy, healthcare and semiconductors, and we will continue to focus on these sectors. Furthermore, we will continue to develop our LCL network, express services and our air charter network as well as adapting to future changes in demand.

Supply chain disruptions and volatility will still be an issue in some parts of the market in 2023, but the soft markets we saw in the second half of 2022 are likely to continue in the first part of 2023.

Due to the transport market slowdown and increasing competition, we expect a decline in gross profit yields compared to the 2022 level, and we will do our best to navigate the markets, adjust capacity and protect our margins.

Gross profit

DKK 7,911 million

+11.0%

Operating profit

DKK 2,040 million

+9.2%

Geographic segmentation based on gross profit

EMEA

93%

AMERICAS

7%

The Road division is among the market leaders in Europe and furthermore has operations in North America, South Africa and in the Middle East. The division operates more than 23,000 trucks and offers full load, part load and groupage services through a network of more than 250 terminals.

Road

For 2022, the Road division achieved 11.0% growth in gross profit and a 9.2% increase in EBIT before special items. The increase in earnings was mainly driven by organic growth. The division delivered strong operational performance in a market affected by tight capacity and cost inflation.

^* Growth including M&A and in constant currencies.

Market situation

We estimate that our main road freight market in Europe grew by around 1 - 3 % in 2022 - in line with European GDP. With the general economic slowdown in the second half of the year, the road freight market slowed down and market volumes dropped below 2021 levels in the last quarter of the year.

The road market was characterised by tight capacity and lack of truck drivers during most of 2022. The EU Mobility Package came into effect at the beginning of the year, and the new regulation effectively reduced available capacity. On top of this, the market was impacted by higher fuel costs and general cost inflation, which also contributed to increasing freight rates and costs.

In a challenging market, we estimate that our Road business grew its share across most markets as a consequence of our strong network and market position.

Strategic and operational highlights

The war in Ukraine, EU's Mobility Package and other market challenges were top of mind in 2022. Following the outbreak of the war, many Ukrainian truck drivers left Western Europe and returned to their home country. This added to the already tight situation with structural lack of truck drivers.

Our effective procurement setup and network meant that, in most cases, we were able to provide necessary capacity for our customers. We believe that this was an important factor behind our market share gains in 2022.

We also made progress on our Road Way Forward programme. We implemented improvements across our European groupage network, including enhanced planning, better equipment utilisation - and most importantly, more departures and higher and more consistent customer service levels. Our new transport management system is live in the Baltic countries, but we made less progress than expected in 2022. We have now changed our approach and reduced vendor dependency, and we are confident that we will achieve further progress in 2023.

The GIL acquisition had a limited impact on the Road division, but it did add road activities in the Middle East, which continued to perform well in 2022.

We have continued our work to help customers optimise their supply chains and reduce their carbon footprints. This includes promoting our Green Logistics services, where we are seeing good interest - especially in Northern Europe and among large customers. Longer term, we are involved in strategic partnerships with truck manufacturers, and we are testing different technologies and equipment. This includes electric trailers, which have the potential to reduce CO₂ emissions from transport by up to 40%.

Results

DSV Road revenue was DKK 41,507 million in 2022 (2021: DKK 35,416 million) - a growth of 16.4%. This was driven mainly by higher freight rates and higher fuel surcharges. For international transports and busi- ness-to-business shipments, we achieved growth year-on-year. Busi - ness-to-consumer shipments were down, mainly due to lower activity for customers within e-commerce and construction/do-it-yourself and similar sectors. In a market with record-high rate increases and cost inflation, the division has tracked developments closely and has generally been able to adjust prices and provide capacity to our customers.

The division has more than 85% of its revenue in Europe and saw good performance across most countries in this region - especially in our German operations. Our still relatively small operation in North America achieved the highest organic growth rate in 2022, and adding GIL's road activities also contributed to growth.

Gross profit was DKK 7,911 million in 2022 (2021: DKK 7,095 million), an annual increase of 11.0%.

The division's gross margin was 19.1% for 2022, compared to 20.0% for 2021. Capacity shortages, higher fuel prices and general cost inflation - partly due to the EU Mobility Package - led to higher direct freight cost for the division. The pass-through element of cost inflation had a negative impact on the gross margin.

EBIT before special items was DKK 2,040 million in 2022, compared to DKK 1,857 million in 2021. This 9.2% increase was driven by the gross profit growth and solid performance across all regions, except for South Africa which was loss-making in 2022. The conversion ratio came to 25.8% for 2022, compared to 26.2% for the same period last year. In an environment with high inflationary pressure on the cost base, the division has maintained focus on productivity and cost management.

Net working capital (NWC) was negative DKK 586 million at the end of the year, against negative DKK 2,133 million at year-end 2021. This development was mainly a result of pre-payments related to property projects included in NWC at the end of 2021.

Return on invested capital was 20.1% in 2022 and was on level with last year.

Focus areas in 2023

We expect a competitive market in 2023, with activity levels still impacted by the economic slowdown. During the year, we will monitor activity levels closely and adjust capacity when needed. Our target of gaining market shares across geographies remains unchanged.

Across our network, we will continue to develop our services and systems, supporting our customers' need for supply chain visibility. We take more than 90% of customer bookings digitally, and we aim to enhance data quality in these bookings to improve customer service quality and our own productivity. We will also continue to promote and develop our Green Logistics services, and we expect an increasing demand for these services.

We continue to see North America as an attractive market with strong potential for DSV Road, both organically and through M&A.

The Road Way Forward project continues in 2023. This includes rolling out our transport management system in more countries and continuing development of our European groupage services - aiming for greater geographical network coverage and improved performance on first/last mile distribution. Based on the network improvements we have already made, we expect growth in international groupage shipments in 2023.

Gross profit

DKK 9,318 million

+35.3%

Operating profit

DKK 2,701 million

+47.4%

Geographic segmentation based on gross profit

EMEA

71%

AMERICAS

17%

APAC

12%

The Solttigps division offers warehousing and logistics services globally and controls more than 500 logistics facilities. The service port includes freight management, customs clearance, order management and e-commerce solutions.

Solutions

The Solutions division achieved a 35.3% increase in gross profit and a 47.4% increase in EBIT before special items. The strong performance was driven by organic growth and the addition of GIL activities.

^* Growth including M&A and in constant currencies.

Market situation

The contract logistics market grew by an estimated 3-4% in 2022 compared to the previous year. The market had strong momentum for the first part of the year, but growth decelerated towards the end of the year. For many companies, especially in the retail sector, inventory levels increased during the year, but in- and outbound transactions in warehouses declined compared to the high activity level in 2021.

Throughout the year, warehouse capacity stayed in high demand across most markets. As a result, warehouse utilisation has been high, and the market was impacted by lack of labour, increasing energy prices, general cost inflation and higher interest rates.

We estimate that Solutions took market share in all its major markets during the year. This was driven by a strong service offering, addition of new warehouse capacity and high utilisation of existing capacity.

Strategic and operational highlights

In 2022, we completed the GIL integration. The contract logistics operations in the Middle East and South-East Asia added activities across several industries, including pharma/ healthcare, and were a strong contributor to the growth.

We continued executing our long-term strategy for developing multi-client warehouse campuses based on strategic roadmaps for each region, and in 2022 we added more than 800,000 m² of warehouse facilities - of which approximately 300,000 m² was a net addition to the existing capacity. The campuses are partly replacing existing facilities but are also adding new capacity and are a key organic growth driver for the division.

The new warehouses can be equipped and automated to match the needs of customers in different industries - and can accommodate changes in customer needs around seasonality and growth. Having several customers in the same location delivers significant scale benefits, including improved utilisation of space and equipment, warehouse automation and better staff planning. This is clearly reflected in the division's higher profit margins in recent years.

Across both new and existing warehouses, we continue to focus on sustainability, launching several initiatives to reduce the environmental impact of our operations. Our new warehouses are certified in line with leading standards, such as BREEAM, and we increase the utilisation of rooftop areas for solar panels.

Our ongoing consolidation efforts also include the IT infrastructure. More than 70% of all sites operate on the division's global Warehouse Management System, enabling standardisation of services and workflows while reducing the cost per transaction (order line).

In 2021, we launched DSV Fulfilment Factory. This solution enables us to offer warehouse automation to all sizes of companies with multiple distribution channels, both B2B and B2C. We continued rolling it out in 2022 and now have 8 of 16 planned sites in operation.

Results

Solutions revenue was DKK 24,409 million in 2022 (2021: DKK 18,734 million), an annual growth of 26.2%. Growth was strongest in the first part of the year and was driven both by the inclusion of GIL and by organic growth across all regions.

Gross profit was DKK 9,318 million in 2022 (2021: DKK 6,653 million) - an annual increase of 35.3%. The division achieved a gross margin of 38.2%, compared to 35.5% last year. Higher activity, high warehouse utilisation and more efficient workflows in the new campuses were the main drivers behind this development.

EBIT before special items was DKK 2,701 million (2021: DKK 1,775 million). This increase of 47.4% was driven by organic growth across all regions and the successful integration of GIL.

The conversion ratio was 29.0%, compared to 26.7% last year.

This improvement was driven by growth in gross profit, and it was achieved despite general cost inflation affecting the cost base - especially in the second half of the year.

Net working capital (NWC) was DKK 1,624 million at the of the year, compared to DKK 1,061 million last year. The increase was mainly due to higher activity levels and property projects in progress.

Return on invested capital came to 1 2.4%, compared to 11.3% last year. The growth in earnings was partly offset by an increase in average invested capital compared to 2021, mainly due to increases in warehouse leasing commitments.

Focus areas in 2023

The current economic slowdown is also impacting the contract logistics market. We are closely monitoring developments and maintain high focus on continuously adjusting capacity and managing our cost base to match demand levels.

Despite the temporary economic slowdown, we still expect the market to be characterised by strong demand for modern, efficient and automated warehouses in the right locations.

We will continue to develop multi-client, automated warehouses with a high focus on sustainability and energy efficiency. We aim to strengthen our footprint across existing countries and focus particularly on growing our presence in Americas and APAC. Bolt-on acguisitions may be relevant for us, especially to gain specific industry competences or a foothold in a specific market.

We maintain our target of gaining market share - our improved pharma sector offering and strengthened e-commerce products are examples of commercial initiatives we expect will support growth in 2023.

Several industries are focusing on creating more robust supply chains.

This may lead to relocating production for our customers, more regional production and assembly, higher inventory levels and more stock points or distribution centres closer to the end consumer. We will work closely with our customers and pursue the opportunities this will provide.

Risk management

Risk governance structure

As a global freight forwarder, we are exposed to a variety of risks that are inherent to our operations. Managing these risks is an integrated part of our management activities.

Our risk management framework is based on structured risk identification, analysis and reporting processes, all of which provide the basis for ongoing risk assessments and subsequent initiation of relevant mitigating actions.

Our flat organisational structure allows for fast escalation and timely response to issues that may have a material impact on the Group's earnings and financial and strategic targets.

The Board of Directors is responsible for the Group's risk management strategy and the overall framework for identifying and mitigating risks. The Audit Committee supervises compliance with the established framework.

The Executive Board is responsible for the day-to-day risk management processes as well as the continuous development of the Group's risk management activities.

Risk management

Our risk management process is structured into two parallel tracks:

Operational risk management

Every week, the operational risks that arise as part of the daily business operations are registered and processed across the organisation, followed by initiation of mitigating actions.

The risks and risk management procedures initiated are reported on a weekly basis to the Executive Board as well as to senior management across the Group.

Our weekly operational risk reporting forms the basis for the Executive Board's day-to-day risk management activities and serves as input for the regular reporting to the Board of Directors and the Audit Committee. The weekly report is also distributed to lower management levels across the organisation to create awareness and support knowledge sharing on risks and other matters of importance to the Group.

Strategic risk management

The operational risk management process is followed up annually by high-level strategic risk assessments. They focus on identifying and mapping the key risks facing the Group.

These assessments are based on input from the operational risk management process and extensive risk surveys involving a number of key employees across functions, departments and regions.

The key risks identified are addressed by the Executive Board and assigned to risk owners within the Group to make sure that relevant preventive measures are implemented. In line with the established framework, the key risks are reported to and addressed by the Audit Committee and the Board of Directors.

Key risk assessment 2022

The latest assessment of the Group's internal and external strategic risks was carried out in Q4 2022.

The analysis confirmed the eight overall key risk areas - also identified in previous years - which may have a significant impact on the Group's earnings, financial position and ability to achieve other strategic objectives, should they materialise.

The results of the risk analysis are presented in the adjacent risk map and described in greater detail in the following pages. The risks are not listed in a specific order.

The indicated likelihood of occurrence and annual EBIT impact are based on our best estimates, taking mitigation strategies into consideration. As such, it should be noted that the quantifications applied in the risk map carries some degree of uncertainty.

Financial risks

Our daily operations involve various financial risks. However, these are not considered key risks. Our financial risks are monitored by our Group Finance departments to ensure a high level of management attention on the effectiveness of our hedging strategies. Please refer to Chapter 4 of the notes for additional information on our financial risks.

IT security - System breakdowns and cyberattacks

Risk description

IT systems, networks and related processes are crucial to our day-to-day operations - from the delivery of our core logistics services to our analytic capabilities and reporting to the financial markets.

This makes us vulnerable to system breakdowns, cyberattacks and failed IT implementations.

A breakdown or an attempt to cause damage to DSV, our customers, suppliers or partners through unauthorised access, destruction, corruption or manipulation of data or systems could pose a significant risk to the Group.

Mitigation strategies

Consolidation, centralisation and standardisation of our systems and processes are cornerstones of our IT strategy and security setup. When integrating acquired companies, we migrate these to our IT platform as quickly as possible.

The Group is focused on IT security and awareness, and we conduct regular audits and continuous analyses of current controls and regular security updates. Migration to cloud-based solutions, continuous cyber awareness training across the organisation, multi-factor authentication, anti-virus and patch management and disaster recovery training are among the measures implemented to mitigate the potential impact of this risk.

Our global IT organisation oversees IT risks and is responsible for ensuring infrastructure preparedness. The Executive Board and the Audit Committee actively monitor cyber risks and the effectiveness of our key IT controls through reporting and regular meetings with the IT and compliance teams.

Risk assessment

In 2022, we have experienced stable performance from our IT and security platforms - both in terms of operational performance and in terms of mitigating cyberattacks, phishing attempts and other IT security risks.

The geopolitical situation and increasing digitalisation of our industry and workplaces have accelerated the risk of targeted cyberattacks. This trend is likely to continue, and our strategy for IT security is already based on this. To mitigate the increased risk, we maintain a high security level, and we have - among other initiatives - expanded the IT security training of employees.

During 2022, the Agility's Global Integrated Logistics business (GIL) operational systems were successfully migrated to the DSV platform, reducing last year's heightened exposure level.

Everything considered, the IT risk of the Group remains on par with last year, with a slight increase in risk of occurrence.

Macroeconomy - Recession and changes to global supply chains

Risk description

An economic recession triggered by, e.g., geopolitical conflicts, rising inflation and interest rates, distortion of the financial markets or a pandemic will have an impact on our activity levels and, consequently, on our financial results.

Similarly, protectionist measures enacted by the major world economic powers can also have a negative impact on global trade. Some restrictions may be counterbalanced by increasing domestic activities and, as a result, sale of other logistics services.

Finally, changing industry and consumer patterns which lead to lower global trade volumes or shortened logistic chains (e.g., because of increasing environmental awareness or industries bringing production closer to home to mitigate supply chain exposures) is also something we monitor closely, although we have yet to see a material impact of this on our business.

Mitigation strategies

To diversify our geographical exposure, we have for several years focused on organic and acquisitive growth outside Europe, which has historically been our main market. The acquisitions of UTi, Panalpina and GIL have significantly strengthened our network in Americas, APAC and MENA.

Our asset-light approach implies that the majority of our terminals, warehouses and operational equipment are leased on short- to medium-term contracts, with the average duration closely monitored to accommodate capacity requirements. This allows us to quickly adapt to any potential slowdown in individual markets.

Certain global supply chains are gradually changing, and we continuously adapt our network and service offerings. This way, when production is established in new markets and dual sourcing strategies are applied, we are ready to support our customers.

Risk assessment

During 2022, the global economy and trade volumes have slowed down. Going into 2023, we are facing lower demand for transport services. This slowdown is already included in our financial guidance for the year - but, obviously, there is uncertainty related to the development both in terms of timing and severity.

We maintain our long-term assumption of 2-3% annual growth in global economy and transport volumes growing in line with this.

Navigating economic downturns and the resulting fluctuations in demand is not new to DSV. Our cost discipline, focus on keeping net working capital under control, strong capital structure and scalable asset-light business model are all designed with this very purpose in mind.

As a consequence of the economic slowdown, our macroeconomic risk has increased from last year.

Employees - Retention and attraction

Risk description

Our employees are our most important asset and vital to ensuring that we succeed when it comes to executing on our strategies and meeting our financial targets.

As freight forwarding is a people-reliant service offering, we depend on highly qualified management teams and employees with technical and operational qualifications, customer and market insights at all organisational levels.

Failure to attract new talent or to retain existing, experienced key employees can potentially have long-term consequences for the operational, strategic and financial development of our company.

Mitigation strategies

We strive to make our company an attractive place to work by offering a supportive and inspiring working environment for all employees. This includes ensuring that our office and warehouse premises are modern and safe places to work as well as encouraging a safe and healthy working environment.

We have established a performance culture centred around the empowerment of the individual, which allows our employees to take responsibilities, make decisions and influence their everyday work life. We also offer clear career-advancing opportunities to talented employees.

We implement this strategy through several initiatives driven by both local management teams and our Group HR department. Examples include initiatives to promote our diversity and inclusion policy, DSV Academy, talent development programmes and retention bonus programmes for key employees.

Risk assessment

During 2022, it remained a challenge to recruit new candidates for certain open positions and in some cases to retain existing colleagues. Skilled employees and managers will most likely continue to be in high demand, but as the global economy slows down, we expect parts of the labour markets to ease.

Compared to previous years, we were able to retain a stable turnover ratio for our employees, despite the challenging market in 2022.

The integration of GIL now completed, we see that we have managed to retain key staff throughout the GIL organisation, as we intended.

Despite the positive notes, it is our assessment that the challenges involved in recruiting and retaining staff for key positions have intensified. This implies that the employee risk has slightly increased.

Compliance - Increasing regulatory complexity

Risk description

At all levels of our organisation and in all the regions and countries we do business, we are committed to honest and ethical business practices and complying with all relevant international and local regulations.

As a result of our global operations, we are subject to extensive national and international regulatory requirements. In particular, regulations relating to tax, customs, VAT, data privacy and competition law continue to increase in scope and complexity. Trade embargoes impacting international transports is another area currently increasing in magnitude.

Cases of non-compliance may carry a long-term impact on our public reputation, which may in turn have a negative impact on our relationships with customers and other stakeholders.

Additionally, cases of non-compliance may lead to significant fines, claims, etc., for the Group, members of our Management or our employees.

Mitigation strategies

'We do not deal in compliance' is a mantra which is well-known throughout the DSV organisation. This fundamental principle has been defined to safeguard the company and its employees, but also because we believe it is the right way to run a business.

Our internal procedures, systems and employee training programmes are designed to ensure awareness of this core principle and to ensure proper understanding and compliance with relevant legislation and our Code of Conduct.

Our compliance framework is integrated into our business processes, containing clear guidelines on how to identify compliance-related issues and how to act accordingly. In addition, communicating and creating awareness of relevant issues is high on our agenda and activated through regular news updates, global newsletters, webcasts and internal conferences.

Significant compliance-related risks are monitored and managed at Group level in close cooperation with our local business units.

Risk assessment

Following the trend from previous years, regulatory requirements continue to expand in number and complexity. The fact that our operational activities span more than 80 countries and jurisdictions adds to this complexity.

To ensure adherence, we keep a close track of changes in the regulations governing international taxation, transfer pricing as well as goods and country restrictions - the latter currently emphasised by the international sanctions imposed as a result of the Russian-Ukrainian war.

The integration of the GIL business into our compliance framework was completed in 2022, significantly reducing the risk of non-conformance with existing DSV compliance processes.

Although the GIL integration has been successfully completed, regulatory complexity remains high. In addition to this, the current geopolitical situation also poses challenges. This leads us to conclude that the overall compliance risk exposure has increased slightly.

M&A - Acquisitions and integration failure

Risk description

Growth through strategic acquisitions is fundamental to our corporate strategy and has been for many years.

Acquisitions always involve the risk of unsuccessful integration of the acquired company, which could result in cost synergies, strategic advantages or economies of scale being delayed or not fully realised.

Deciding on and carrying out the wrong acquisition may also be costly and take up valuable resources that could have been spent on other potential acquisition candidates.

Mitigation strategies

We have a history of successful integration of acquired companies and realisation of expected synergies. This rests on several factors. First of all, we stress the importance that any potential acquiree matches our business model.

Our IT, reporting and operational systems are designed to be scalable and to accommodate effective integration of acquired companies.

Large integrations are headed by an integration board, and the activities are organised into work streams (operational, commercial, financial, IT, legal, tax, etc.). The integration of operational activities is anchored with and led by local management teams, based on guidance from Group Management. Local ownership ensures that acquired activities are integrated, with due consideration of local legislation, market conditions and cultures.

Risk assessment

A little over a year after the takeover date, the integration of GIL was finalised in 2022. The integration of operations, IT and back-office functions across close to 60 countries was carried out according to our plans and in line with our financial business case.

M&A remains an important part of our strategy; this can lead to both large and small acquisitions and integrations in the coming years. We continue to apply our strong governance structure around M&A, but the financial risk related to each transaction will depend on the size and type of the acquired company.

Due to the completed integration of GIL, the M&A risk has decreased compared to last year.

Technology - Disruption and technological adoption

Risk description

As with most industries, freight forwarding undergoes continuous technological developments, while also being exposed to gradual changes in the competitive landscape, driven by both existing players and new entrants to the market.

Currently, we see digitalisation and automation of processes (quoting, booking, tracking, reporting and billing) and the increasing focus on sustainability as the most significant developments impacting the freight forwarding industry in the coming years. These developments provide an opportunity to optimise workflows and increase productivity, while also providing higher levels of service and product offerings to our customers.

Failure to keep up with, adapt to and utilise these new technological opportunities - as well as tackle the competitive challenges they bring - will lead to gradual loss of market share and earnings.

Mitigation strategies

Central to our mitigation strategy is the monitoring of the logistics market, our customers' needs and emerging technologies that could impact and improve our operations or services.

Strategic planning, innovation and continued development of our digital and physical infrastructure are anchored with our COO. Based on strategic roadmaps for each business area, we focus on developing our service catalogues, systems and operational procedures to ensure that we have a strong and competitive product offering that meets customer needs.

The aim of our strategy is to ensure that we can continue to benefit from our logistics expertise, scale and global network as a classic freight forwarder, while increasing our digital competences and utilising the benefits of technology.

Risk assessment

We believe that we are well positioned in our industry within these areas, and that our current development and strategic plans will ensure that we will remain so in the coming years.

In 2022, we have continued to invest in and develop our IT platforms across our service offerings. The COO function was established in 2021 and has been further strengthened during 2022.

Consequently, we assess that our technology risk has remained largely unchanged from last year.

For additional descriptions of our current technology focus areas, please see 'A responsive approach to technology and digitalisation' on page 16.

Commercial - Failure to execute on organic growth strategy

Risk description

With the acquisitions of UTi in 2016, Panalpina in 2019 and GIL in 2021, DSV has grown significantly over few years, more than tripling our revenue and the number of employees of the Group.

Our network and market position have been strengthened, but growth also carries challenges. While we integrate acquired companies and grow as a business, we must make sure to maintain a strong commercial focus and stimulate collaboration across the organisation.

Most important of all, we must retain our focus on customer needs, know how to adapt to market changes and develop our services to ensure that our value proposition is clear. If we fail to deliver in these areas, our ability to execute on our organic growth strategy will be impaired, and this will influence our long-term financial results.

Mitigation strategies

Managing our commercial risk is anchored with the Executive Board and the Group Executive Committee. In this forum, strategic initiatives are aligned and our commercial threats and opportunities are explored. For each of our business areas, we define the overall strategy and purpose, our value proposition and which customer segments we target.

Through regular business reviews with divisions and our operational companies in each country, Executive Management ensures that each division and country is aligned with the Group's strategy and policies. These reviews include financial performance, market situation, organisation, local strategic initiatives, etc.

Risk assessment

During 2022, we estimate that DSV has taken market share across most of the markets we operate in. For the coming years, we maintain our target of achieving organic growth above the market.

A number of strategic projects are in place to support our organic growth ambitions. In 2022, we implemented a more systematic approach to managing and prioritising these projects. The initiatives are anchored with our COO and include enhancing our digital capabilities, deepening our vertical expertise, improving our green logistics services and strengthening the cooperation across divisions.

We go into 2023 with a stronger network and market position than ever. Still, we assess that the current macroeconomic slowdown will limit our short-term growth potential and intensify the competition across our industry. Based on this, we estimate that the potential impact from commercial risk for 2023 has increased slightly.

Climate - The long-term impact from climate change

Risk description

The long-term negative effects of climate change (as forecasted by the UN IPCC and others) have the potential of significantly impacting our industry. As such, it is a risk that we monitor closely.

Associated risks may manifest themselves as physical disruptions of our logistic sites and operations or other forms of disruption in the global supply chains, triggered by an increase in the number of extreme weather events.

Increasing climate regulations, taxations and customer requirements may also impact the financial results of our company - for example as a result of higher fuel costs or tax on emissions - to the extent that we are not able to transfer the associated costs to our customers.

Finally, increasing consumer climate awareness may also lead to changes in global supply and demand patterns, resulting in supply chains moving closer to home markets. This could have a dampening effect on the long-term growth potential on the more profitable intercontinental transport lanes.

Mitigation strategies

Oversight and management of climate-related risks is anchored with the Board of Directors. To support the Board of Directors in this role, we have established a Sustainability Board, headed up by the Group CEO. The Sustainability Board takes the lead when it comes to identifying, assessing and reporting on the development in climate-related risk.

To address the longer-term risk from climate change, we have committed to the Science Based Targets initiative. We aim to achieve our CO₂ emission reduction targets through a number of initiatives, such as making lower-emission transport alternatives available to our customers and investing in modern and energy-efficient infrastructure.

As part of our mitigation strategy, we include the potential impact from climate changes when we plan our physical infrastructure. For example, new warehouses and logistic centres are designed to withstand more extreme weather conditions; and when deciding on placement, locations with lower risk of flooding is also taken into consideration.

Furthermore, our asset-light business model allows us to adapt to changes in the market, as we have not invested in specific transport equipment.

For additional details and results on our 2022 TCFD climate risk assessment, please see the DSV Sustainability Report 2022: https://www.dsv.com/en/sustainability-reports

Risk assessment

Climate change and sustainability continue to move up on our agenda. In 2022, we have - among other initiatives - increased our ambitions and introduced a net-zero target for carbon emissions. And to support innovation and ensure that our sustainability ambitions are embedded in our operations, we established an Operational Sustainability team, headed up by our COO.

We continue to develop our climate risk assessment framework based on guidelines set by the Task Force on Climate-related Financial Disclosures (TCFD).

As reflected in the risk map, it is our current assessment that the overall climate risk to our company is unchanged from last year, with a potential low-to-moderate impact on our business, should unmitigated risks materialise.

Making projections on the long-term effects of climate change on our business involves a high degree of uncertainty, hence our assessment may change in the future.

Corporate governance

The Board of Directors and the Executive Board form the governing body of DSV, the ultimate authority resting with the shareholders at the General Meeting. The allocation of tasks and responsibilities between the two boards is defined by the Rules of Procedure.

Management structure

The Board of Directors outlines and supervises the overall vision, strategy and objectives of the Group's business activities.

The Executive Board is responsible for the execution of these and for the day-to-day management of the Group. It also provides input and supports the work done by the Board of Directors.

Divisional Management is responsible for managing the operational activities of the divisions, supported by centralised Group functions.

The Board of Directors

Board composition

The Board of Directors must comprise five to nine members in accordance with the Articles of Association and currently numbers eight. Directors are elected for a term of one year, and new Directors are elected in accordance with the applicable rules of the Danish Companies Act.

At the ordinary General Meeting in March 2022, Annette Sadolin resigned from her position after serving more than 12 years on the Board. Benedikte Leroy joined in her place, bringing substantial management experience from the tech industry as well as extensive expertise in the fields of legal compliance, ESG and business ethics.

All members of the Board of Directors are considered independent in accordance with the Danish Recommendation on Corporate Governance with the exception of Birgit W. NØrgaard, who has served more than 12 years on the Board. Birgit is not up for re-election at the Annual General Meeting in 2023.

Board competencies

The Board is composed so as to ensure that the competencies of its members are diverse and business relevant, so it can perform its duties as intended. Overboarding is also taken into consideration when determining the Board's composition.

The current competencies required of Board members are: knowledge of the transport sector, international commercial experience as well as experience in strategy, M&A, risk management, IT, human resources and accounting. See page 40 for a description of the individual members' competencies and experience.

Board self-evaluation

Once a year, the Board of Directors self-evaluates its composition, competencies and performance during the year. Diversity, overboarding, internal management cooperation, succession planning and strategic focus areas for the coming year are some of the topics evaluated.

The Chairman of the Board is responsible for initiating and running the evaluation process, which includes a mix of questionnaires and interviews. When completed, the outcome is presented to - and discussed by - the Board.

At least every third year, external advisors are brought in to help conduct the annual self-evaluation. The last time was in 2021. Using external advisors helps give an independent perspective on the performance and compositions of the Board of Directors. The Board can then use their input to support the self-evaluation the following years.

The 2022 self-evaluation addressed a number of topics - including Board members' mix of competencies and insight in areas like digitisation and ESG regulation. The summary report had no reservations on these topics and validated the appropriateness of the current Board composition.

Board committees

The Board of Directors is assisted by an audit, nomination and remuneration committee. Each is responsible for carrying out various preparatory tasks around the Board's key areas of responsibility.

The committees also assist the Board by preparing and assessing all managerial and strategic proposals presented to the Board, to ensure a solid and informed basis for decision-making.

The rules of procedure for the committees are available at:

https://www.dsv.com/en/board-committees

Board meetings

In 2022, the Board of Directors held nine ordinary and no extraordinary meetings. The agenda for each is defined in accordance with the annual cycle of the Board to make sure the strategic and operational policy framework of the Group is always up to date and in accordance with the emphasis defined by the Board.

Besides the work laid down in the annual cycle, this year the Board mainly focused on M&A and growth strategies, various integration topics around the acquisition of Agility's Global Integrated Logistics business (GIL), cybersecurity and the continuous development of our digital freight forwarding platforms.

The Board also addressed various strategic considerations and business adaptations in light of the European energy crisis, emergence of a global economic downturn and other macroeconomic impacts brought on by the war in Ukraine.

Remuneration of the Board of Directors and Executive Board

Remuneration policy

Remuneration of the Board of Directors and Executive Board is carried out in accordance with DSV's Remuneration Policy as adopted by the Annual General Meeting.

The purpose of the Remuneration Policy is threefold: to make sure DSV can attract and retain qualified members of the Board of Directors and Executive Board; to align the interests of the Executive Board with those of our investors and other societal stakeholders; and ultimately to create incentive for generating long-term value for shareholders and executing on goals set by the Board of Directors (for example around sustainability or other strategic business initiatives).

The latest DSV Remuneration Policy is available at:

https://www.dsv.com/en/remuneration-policy

Remuneration report

We report on the remuneration of members of the Board of Directors and Executive Board separately in the DSV Remuneration Report.

The report is prepared in accordance with section 139b of the Danish Companies Act and the Danish Recommendations on Corporate Governance and is available at: https://www.dsv.com/en/remuneration-reports

Report on Corporate Governance cf. section 107b of the Danish Financial Statements Act

In managing DSV, the Board of Directors applies the latest Recommendations on Corporate Governance issued by the Danish Committee on Corporate Governance.

The Board uses the Recommendations for guidance when setting up management structures, tasks and procedures and checks against them to make sure we are acting in accordance with the principal intentions of the Recommendations. The Board regularly assesses its procedures based on the Recommendations.

DSV fully abided by the Recommendations in 2022.

We report on our adherence to the Recommendations - including internal controls and risk management systems applied as basis for the financial reporting process - in the Statutory Report on Corporate Governance available at https://www.dsv.com/en/governance-reports

Reporting on Data Ethics policies cf. section 99d of the Danish Financial Statements Act

We report separately on our policies and approach to Data Ethics in accordance with section 99d of the Danish Financial Statements Act. The reporting is available in our Statutory Report on Data Ethics, at:

https://www.dsv.com/en/data-ethics

Executive Board

Jens Bjorn Andersen

Jens H. Lund

Michael Ebbe

Board positions

ME = Member

CM = Chairman

DC = Deputy Chairman

ME = Member

^* = Listed company

Board of Directors

Thomas Plenborg

Committee

Skills and experience

• Management experience from directorships and honorary offices

• Strategy and financial management

• Professor of accounting and auditing at Copenhagen Business School

Other Board positions

Jorgen Moller

Committee

Skills and experience

• General international management experience

• Extensive experience in shipping and logistics (industry expert)

• CEO of DSV Air & Sea Holding A/S 2002-2015

Benedikte Leroy

Committee

Skills and experience

• International board and general management experience

• Extensive experience in technology from international leadership roles in Dell, Symantec, GE and Apple

• Legal compliance, ethics and extensive insight in environmental, social and governance regulation (ESG expert)

• Acquisition and divestment of enterprises

Beat Walti

Committee

Skills and experience

• Professional board and general management experience

• Dr. jur. and legal experience serving as an attorney-at-law

• Acquisition and divestment of enterprises

Other Board positions

Marie-Louise Aamund

Committee

Skills and experience

• General international management experience

• International tech leadership experience from Microsoft, IBM and Google

• Cybersecurity, digital transformation and sustainability

• Acquisition and divestment of enterprises

Other Board positions

Birgit W. Norgaard

Committee

Skills and experience

• General international management experience

• Strategy and financial management

• Acquisition and divestment of enterprises

Other Board positions

Niels Smedegaard

Committee

Skills and experience

• General international management experience

• Extensive experience in shipping, logistics and the airline industry (industry expert)

• Acquisition and divestment of enterprises

Other Board positions

Tarek Sultan Al-Essa

Committee

Skills and experience

• General international management experience

• Extensive experience in shipping and logistics

• Acquisition and divestment of enterprises

• Extensive insight in environmental, social and governance regulation (ESG expert)

Other Board positions

Shareholder information

Share price performance in 2022

At year-end, the closing price for DSV shares on Nasdaq Copenhagen was DKK 1,096.5 - down 28.2% since yearend 2021. During the same period, the Danish C25 Index decreased by 13.5%.

The average daily trading volume of DSV shares on Nasdaq Copenhagen was 383,288 shares in 2022 (0.2% of shares issued).

At year-end, DSV's market capitalisation (excluding treasury shares) was DKK 238 billion against DKK 358 billion at the end of 2021.

Ownership

There is no complete record of all shareholders. Based on the available information as of 31 December 2022, DSV had 92,179 registered shareholders. The registered shares totalled 211 million, corresponding to 96.2% of the share capital. The 25 largest shareholders owned 60.9% of the free-floating share capital.

DSV has no majority shareholders.

Shareholders owning more than 5% of the share capital in DSV A/S according to latest shareholding notifications are:

Share buyback and treasury shares

In 2022, DSV acquired 18.6 million treasury shares at a total purchase price of DKK 20,313 million (average purchase price DKK 1,092.8 per share).

During 2022, 21 million treasury shares were cancelled in connection with reduction of the registered share capital.

On 31 December 2022, DSV held 2.1 million shares as treasury shares, corresponding to 1.0% of the share capital.

On 1 February 2023, our portfolio of treasury shares amounted to 3.1 million shares.

Throughout 2022, we have engaged in five share buyback programmes. The purpose of these was to accommodate the exercise of share options under incentive schemes and to adjust the capital structure in accordance with the financial targets.

The shares were acquired under the authorisation of the Annual General Meeting. One programme was carried out outside the Safe Harbour principles, while the remaining programmes were executed under the Safe Harbour principles.

Dividends

The Board of Directors proposes an ordinary dividend of DKK 6.5 per share for 2022 (2021: DKK 5.5).

Capital allocation policy

Our capital allocation principles are described on page 18.

Authorities granted to the Board of Directors

The following authorities have been granted to the Board of Directors:

Communication with shareholders

We wish to provide the basis for fair and efficient pricing of the DSV share by practising open and proactive communication.

To keep investors and other stakeholders up to date with the latest developments, our Executive Management host conference calls following the release of financial results. Throughout the year, Executive Management and Investor Relations stay in close contact with existing and potential investors as well as market analysts, engaging with them through roadshows and conferences hosted by various brokers.

We observe a four-week silent period prior to the publication of annual and interim reports. DSV is covered by more than 20 equity analysts. For more information about analyst coverage, please visit investor.dsv.com

DSV share data

Company announcements

In 2022, we published 71 company announcements (Nos. 936-1006).

The most important of these are listed in the chart below:

Financial calendar

The financial calendar for 2023 is as follows:

Quarterly financial highlights

Please refer to page 83 for a definition of key figures and financial ratios.

^* Reference is made to note 2.1 Segment information for a reconciliation of revenue, gross profit and operating profit before special items.

Consolidated financial statements 2022

Income statement

Statement of comprehensive income

Cash flow statement

Balance sheet

Statement of changes in equity

Notes to the consolidated financial statements

Income statement

Statement of comprehensive income

Cash flow statement

Balance sheet

Statement of changes in equity

^* For a specification of reserves, please see note 4.1.

Notes to the consolidated financial statements

Contents

Chapter 1

Basis of preparation

Introduction

Basis of measurement

Changes in accounting policies

Management judgements and estimates

Basis of consolidation

Foreign currency

Presentation

New accounting regulations

Chapter 2

Profit for the year

2.1 Segment information

2.2 Revenue

2.3 Direct costs

2.4 Other external expenses

2.5 Staff costs

2.6 Amortisation and depreciation

2.7 Special items

2.8 Financial income and expenses

Chapter 3

Operating assets and liabilities

3.1 Impairment testing

3.2 Intangible assets

3.3 Property, plant and equipment

3.4 Contract assets and accrued cost of services

3.5 Inventories

3.6 Leases

3.7 Pension and other post-employment benefit plans

3.8 Provisions

Chapter 4

Capital structure and finances

4.1 Equity

4.2 Capital structure and capital allocation

4.3 Financial liabilities

4.4 Financial risks

4.5 Derivative financial instruments

4.6 Earnings per share

4.7 Financial instruments - fair value hierarchy

Chapter 5

Tax

5.1 Income tax

5.2 Deferred tax

Chapter 6

Other notes

6.1 Acquisition and disposal of entities

6.2 Share option schemes

6.3 Remuneration of the Executive Board and the Board of Directors

6.4 Fees to auditors appointed at the Annual General Meeting

6.5 Related-party transactions

6.6 Contingent liabilities and security for debt

Chapter 1

Basis of preparation

The 2022 Annual Report of DSV A/S has been prepared on a going concern basis in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and additional disclosure requirements for listed companies in the Danish Financial Statements Act.

IFRS standards have been applied to the extent these have been adopted by the European Union.

The consolidated financial statements are presented in Danish kroner (DKK) and rounded to the nearest million.

Introduction

The Annual Report of DSV A/S comprises the consolidated financial statements of DSV A/S and its subsidiaries.

The Board of Directors and Executive Board considered and approved the 2022 Annual Report of DSV A/S on 2 February 2023. The Annual Report will be submitted to the shareholders of DSV A/S for approval at the Annual General Meeting on 1 6 March 2023.

Basis of measurement

The Annual Report has been prepared under the historical cost convention with the exception of derivative financial instruments and acquisition opening balances, which are measured at fair value. Non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The accounting policies described in the notes have been applied consistently for the financial year and for the comparative figures.

Changes in accounting policies

All amendments to the International Financial Reporting Standards (IFRS) effective for the financial year 2022 have been implemented as basis for preparing the consolidated financial statements and notes to the statements.

None of the implementations have had any material impact on the statements or notes presented.

Management judgements and estimates

In preparing the consolidated financial statements. Management makes various accounting judgements and estimates that affect the reported amounts and disclosures in the financial statements and notes to the statements.

These are based on professional experience, historical data and other factors available to Management.

By nature, a degree of uncertainty is involved when carrying out these judgements and estimates, hence actual results may deviate from the assessments made at the reporting date. Judgements and estimates are continuously evaluated, and the effects of any changes are recognised in the relevant period.

The primary financial statements items for which significant accounting judgements and estimates are applied are listed below:

Additional description of management judgements and estimates made are provided in the relevant notes.

Basis of consolidation

The consolidated financial statements include the Parent Company (DSV A/S) and all subsidiaries over which DSV A/S exercises control. Entities in which the Group directly or indirectly controls at least 20%, but not more than 50%, of the voting power are accounted for as associates and measured using the equity method. Investments with negative net asset values are recognised at DKK 0.

The consolidated financial statements are prepared based on uniform accounting policies in all Group entities. Consolidation of Group entities is performed after elimination of all intra-group transactions, balances, income and expenses.

Group composition

The Group holds interests in 473 entities and was composed as follows at 31 December 2022:

Foreign currency

Functional currency

A functional currency is determined for each Group entity. The functional currency is the currency used in the primary financial environment in which the individual Group entity operates.

Foreign currency translation

On initial recognition, foreign currency transactions are translated into the functional currency at the exchange rate at the transaction dates. Foreign currency translation differences between the exchange rates at the transaction date and the date of payment are recognised in the income statement under financials.

Monetary items denominated in a foreign currency are translated at the exchange rate at the reporting date. The difference between the exchange rates at the reporting date and the transaction date or the exchange rate used in the latest annual report is recognised in the income statement under financials.

Foreign currency translation differences arising on the translation of non-monetary items, such as investments in associates, are recognised directly in other comprehensive income.

Recognition in the consolidated financial statements

When preparing the consolidated financial statements, the income statements of entities with a functional currency other than DKK are translated at the average exchange rate for the period, and balance sheet items are translated at the closing rate at the end of the reporting period.

Foreign exchange differences arising on translation of the equity of foreign entities and on translation of receivables considered part of net investment are recognised directly in other comprehensive income.

Foreign exchange differences arising on the translation of income statements from the average exchange rate for the period to the exchange rate at the reporting date are also recognised in other comprehensive income. Adjustments are presented under a separate translation reserve in equity.

Presentation

Cash flow statement

The cash flow statement is prepared using the indirect method based on operating profit before amortisation, depreciation and special items. The cash flow statement cannot be derived directly from the balance sheet and income statement.

Materiality in financial reporting

In preparing the Annual Report, Management seeks to improve the information value of the consolidated financial statements, the notes to the statements and other measures disclosed by presenting the information in a way that supports the understanding of the Group's performance in the reporting period.

This objective is achieved by presenting fair transactional aggregation levels on items and other financial information, emphasising information that is considered of material importance to the user and making relevant rather than generic descriptions throughout the Annual Report.

All disclosures are made in compliance with the International Financial Reporting Standards, the Danish Financial Statements Act and other relevant regulations, ensuring a true and fair view throughout the Annual Report.

Presentation of items and subtotals

The presentation of items and subtotals is based on separate classification of material groups of similar items. In the income statement, income and expense items are classified based on the 'nature of expense' method in accordance with IAS 1. Furthermore, the use of special items is applied to improve the transparency and understanding of the Group's financial statements by separating the core performance of the Group from exceptional items. For a definition and reconciliation of Group results before and after special items, refer to note 2.7 Special items.

New accounting regulations

The IASB has issued a number of new standards and amendments not yet in effect or adopted by the EU and therefore not relevant for the preparation of the 2022 consolidated financial statements. DSV expects to implement the standards and amendments when they take effect.

None of the new standards issued are currently expected to have significant impact on the Group's financial statements when implemented.

Chapter 2

Profit for the year

This chapter includes disclosures on components of consolidated profit for the year. The consolidated profit is based on the combined results of our three operating segments - Air & Sea, Road and Solutions - as described in the following.

Reference is also made to the comments on the financial performance of the Group and the divisions in Management's commentary.

2.1 Segment information

Accounting policies

Operating segments are defined by the operational and management structure of DSV, which is derived from the types of services we deliver and our geographical presence on the world market. As such, our operating segments reflect our divisional and Group reporting used for management decision-making.

Operating segments

Our business operations are carried out by three divisions, forming the basis of our segment reporting.

Air & Sea

The Air & Sea division provides air and sea freight services across the globe. This includes a projects department, handling out of gauge cargo and special transportation projects.

Road

The Road division provides road freight services across Europe, Middle East, North America and South Africa.

Solutions

The Solutions division offers contract logistics services, incl. warehousing and inventory management, across the globe.

Measurement of earnings by segment

Our business segments are measured and reported down to operating profit before special items. Segment results are accounted for in the same way as in the consolidated financial statements.

Segment income/expenses and assets/liabilities comprise the items directly attributable to the individual segment as well as the items that may be allocated to the individual segment on a reliable basis.

Income and expenses relating to Group functions, investing activities, etc., are managed at Group level. These items are not included in the statement of segment information, but are presented under 'nonallocated items and eliminations'.

Financial position of business segments

Assets and liabilities are included in the segmental reporting to the extent they are used for the operation of the segment.

Assets and liabilities that cannot be attributed to any of the three segments on a reliable basis are presented under 'non-allocated items and eliminations'.

Geographical information

DSV operates in most parts of the world and has activities in more than 80 countries, which are divided into the following geographical regions:

Revenue and non-current assets are allocated to the geographical areas according to the country in which the individual consolidated entity is based. Refer to note 2.2 for regional segmentation of revenue. The corporate headquarter of DSV is located in Denmark, which is included in the EMEA segment. Our business is based on transactions in our global network rather than in individual countries or regions.

Intersegment transactions are made on an arm's length basis.

Major customers

DSV is not reliant on any major customers. No single customer exceeds 5% of combined Group revenue.

^* Reference is made to the income statement for a reconciliation from operating profit (EBIT) before special items to profit for the year.

^** Non-current assets less tax assets, customer relationships and goodwill.

2.2 Revenue

Accounting policies

Revenue comprises freight forwarding services, contract logistics and other related services delivered in the financial year.

Revenue from services delivered is recognised in accordance with the over-time recognition principle following the satisfaction of various milestones as the performance obligation is fulfilled towards the customer. Our main services comprise air, sea, road and solutions services as described in the following.

Air services

Air services comprise air freight logistics facilitating transportation of goods across the globe. Air services are reported within the Air & Sea reporting segment. Air services are characterised by short delivery times, as most air transports are completed within a few days.

Sea services

Sea services comprise sea freight logistics facilitating transportation of goods across the globe. Sea services are reported within the Air & Sea reporting segment. Sea services are characterised by longer delivery times, averaging one month depending on destination.

Road services

Road services comprise road freight logistics facilitating transportation of goods by road networks mainly in Europe, Middle East, the US and South Africa. Road services are reported within the Road reporting segment. Road services are characterised by short delivery times, as most road transports are completed within a few days.

Solutions services

Solutions services comprise contract logistics, incl. warehousing and inventory management, across the globe. Solutions services are reported within the Solutions reporting segment. Solutions services are characterised by very short delivery times, happening almost instantaneously as agreed actions under the customer contract are carried out.

General recognition principles

Revenue from services delivered are recognised based on the price specified in the contract with the customer. Revenue is measured excluding VAT and other tax collected on behalf of third parties, and any discounts are offset against the revenue. Incremental costs of obtaining a contract with a customer are not recognised as an asset but as an expense when incurred due to the short delivery times.

Trade receivables from services delivered are invoiced to the customer and are not adjusted for any financing components, as credit terms are short - typically between 14 and 60 days - and the financing component therefore insignificant. Where services delivered have yet to be invoiced and invoices on services received from hauliers have still to be received, contract assets and accrued cost of services are recognised at the reporting date.

Revenue allocated to remaining performance obligations are not disclosed following the practical expedient of IFRS 15. Revenue also comprises income from sale of property projects in the form of sale of land and buildings acquired, constructed and held for sale in the ordinary course of business.

Revenue from property projects is recognised at a point in time in the reporting segment to which it relates when control of and legal title to the property have been transferred to the customer. Revenue is recognised based on the price specified in the contract with the customer, and the consideration is due upon transfer of the legal title. Delivery times on property projects are typically 8-18 months.

If the property is leased back after completion, the right-of-use asset arising from the leaseback is recognised at the proportion of the previous carrying amount of the asset that relates to the right of use retained by DSV. As such, any gain or loss recognised only corresponds to rights transferred to the buyer.

Sale of services and geographical segmentation specify as follows:

2.2 Revenue

Revenue is specified as follows:

Sale of services includes revenue from freight forwarding services, contract logistics, sale of property projects and other related services. Sale of property projects recognised at a point in time constitutes less than 1% of total revenue (2021: less than 2%). Other operating income includes rental income from terminal and building leases, gains from disposal of non-current assets and income from insurance contracts.

2.3 Direct costs

Accounting policies

Direct costs comprise costs paid to generate the revenue for the year.

Direct costs include settlement of accounts with haulage contractors, shipping companies, airlines, etc. Direct costs also include staff costs relating to hourly workers used for fulfilling orders and other direct costs of operation, such as rental of logistics facilities and costs of property projects.

2.4 Other external expenses

Accounting policies

Other external expenses include expenses relating to marketing, IT, other rent, training and education, office premises, travelling, communications as well as other selling costs and administrative expenses, less costs transferred to direct costs.

2.5 Staff costs

Accounting policies

Staff costs include wages and salaries, pension costs, social security costs and other staff costs for salaried employees, but exclude staff costs for hourly workers, which are recognised as direct costs.

Staff costs are recognised in the financial year in which the employee renders the related service. Costs related to long-term employee benefits, e.g. share-based payments, are recognised in the periods in which they are earned.

Reference is made to note 3.7 for detailed information on pension plans, note 6.3 for information on remuneration of the Executive Board and the Board of Directors and note 6.2 for detailed information on the Group's share option schemes.

2.6 Amortisation and depreciation

Accounting policies

Amortisation and depreciation for the year are recognised based on the amortisation and depreciation profiles of the underlying assets (refer to notes 3.2, 3.3 and 3.6).

2.7 Special items

Accounting policies

Special items are used in connection with the presentation of profit or loss for the year to distinguish consolidated operating profit from exceptional items, which by their nature are not related to the Group's ordinary operations or investment in future activities.

Special items comprise:

Management judgements and estimates

In the classification of special items, judgement is applied in ensuring that only exceptional items not associated with the ordinary operations of the Group are included.

Special items reconcile to the income statement items as specified in the table below:

2.8 Financial income and expenses

Accounting policies

Financial income and expenses include interest, share of associates' profit/ loss, foreign currency gains and losses, bank charges as well as amortisation of financial assets and liabilities, including finance lease obligations. Furthermore, realised and unrealised gains and losses on derivative financial instruments that cannot be classified as hedging contracts are included.

Interest income includes interest on financial assets of DKK 323 million (2021: DKK 202 million).

Interest expenses include interest on financial liabilities measured at amortised cost of DKK 1,453 million (2021: DKK 977 million).

Chapter 3

Operating assets and liabilities

This chapter includes notes disclosures on the Group's invested capital that forms the basis of our business activities. Invested capital represents the Group's property, plant and equipment, intangible assets and net working capital in the form of operating assets and liabilities.

Invested capital is structured based on our asset-light business model, including our focus on minimising funds tied up in working capital to optimise the generation of available free cash flow. Invested capital also comprises significant intangible assets mainly relating to acquired goodwill from business combinations carried out over the years.

3.1 Impairment testing

Accounting policies

Goodwill

The carrying amount of goodwill is tested for impairment at least annually together with other non-current assets of the Group.

Impairment testing is performed for the lowest cash-generating unit to which consolidated goodwill is allocated, as defined by our divisional management and operational structure. The cash-generating units thereby follow our divisional structure: Air & Sea, Road and Solutions.

Goodwill is written down to its recoverable amount through the income statement if lower than the carrying amount.

The recoverable amount is determined as the present value of the discounted future net cash flow from the cash-generating unit to which the goodwill relates. In calculating the present value, discount rates are applied reflecting the risk-free interest rate with the addition of risks relating to the individual cash-generating units, such as geographical and financial exposure.

Other non-current intangible assets, property, plant and equipment

The carrying amount of other non-current assets is tested for impairment at least once a year in connection with the impairment test of goodwill. If the tests show evidence of impairment, the asset is written down to the recoverable amount through the income statement. The recoverable amount is the higher of the fair value of the asset less the expected costs to sell and its value in use.

The value in use is calculated as the present value of expected future cash flows from the asset or the division of which the asset forms part.

Management judgements and estimates

For goodwill impairment testing, a number of estimates are made on the development in revenues, gross profits, operating margins, future capital expenditures, discount rates and growth expectations in the terminal period. These are based on an assessment of current and future developments in the three cash-generating units and on historical data and assumptions of future expected market developments, including expected long-term average market growth rates.

Material value drivers affecting the future net cash flows of the three cash-generating units are:

Air & Sea

The Air & Sea division operates globally, so developments in the global economy and world trade therefore have a material impact on the division's future net cash flow. Developments in gross profit per shipment, cost management initiatives and development in internal productivity (number of shipments per employee) also affect the division's cash flow.

Road

The Road division mainly operates on the EMEA and US markets, which means that the division's future net cash flow is affected by the growth rate in these regions. Developments in gross profit per shipment, including truck and terminal utilisation rates, cost management initiatives and development in internal productivity (number of shipments per employee) also affect the division's cash flow.

Solutions

The Solutions division operates globally, so developments in the global economy and world trade therefore have a material impact on the division's future net cash flow. Developments in warehouse lease costs and costs of related services, utilisation of warehouse facilities, cost management initiatives and development in internal productivity (number of order lines per employee) also affect the division's cash flows.

The expected future net cash flow is based on budgets and business plans approved by Management for the year 2023 and projections for subsequent years up to and including 2026. From 2026 onwards, DSV expects the growth rate to remain in line with the expected long-term average growth rate for the industry.

Impairment test

Goodwill was tested for impairment at 31 December 2022. The tests did not result in any impairment of carrying amounts.

The assumptions used, including a sensitivity analysis, are stated in the following paragraph. The pre-tax discount rate is calculated in accordance with IAS 36.

The sensitivity analysis assesses the impact of changes in cash flows and discount rates on the impairment test results. The analysis concluded that even negative changes, which are unlikely to occur, will not result in impairment of goodwill in any of the three cash-generating units.

Sensitivity analysis

The sensitivity analysis shows the lowest possible growth rate or highest possible discount rate in percentage points by which the assumptions used can change before goodwill becomes impaired.

Other non-current intangible assets, property, plant and equipment

Other non-current assets were also tested for impairment indications together with goodwill at 31 December 2022. No indication of impairment was identified in connection with these tests.

3.2 Intangible assets

Goodwill

Only goodwill arising from business combinations is recognised in the financial statements. Goodwill is measured as the difference between the total of the fair value of the consideration transferred, the value of non-controlling interests and any equity investments previously held in the acquiree, compared to the fair value of identifiable net assets on the date of acquisition.

Goodwill is not amortised, but is tested for impairment at least annually.

Customer relationships

On initial recognition, customer relationships identified from business combinations are recognised in the balance sheet at fair value. Subsequently, customer relationships are measured at cost less accumulated amortisation and impairment losses.

Customer relationships are amortised over a period of eight years using the diminishing balance method.

Software and software in progress

Software bought or developed for internal use is measured at the lower of cost less accumulated amortisation and impairment losses and the recoverable amount. Cost comprises payments for the software and other directly attributable expenses of preparing the software for its intended use.

After commissioning, software is amortised on a straight-line basis over its expected useful life. The amortisation period is 1-8 years.

3.3 Property, plant and equipment

Accounting policies

Land and buildings and other plant and operating equipment are measured at cost less accumulated depreciation and impairment losses.

The cost comprises the acquisition price and other expenses directly attributable to preparing the asset for its intended use. The present value of estimated expenses for dismantling and disposing of the asset as well as restoration expenses are added to the cost if such expenses are recognised as a provision. Material borrowing costs directly attributable to the construction of the individual asset are also added to cost.

If the individual components of an asset have different useful lives, each component will be depreciated separately.

The cost of self-constructed assets comprises direct and indirect costs for materials, components, subcontractors, wages and salaries. Costs for self-constructed assets are recognised as property, plant and equipment in progress on an ongoing basis until the assets are ready for use.

Subsequent costs, such as partial replacement of property, plant and equipment, are included in the carrying amount of the asset in question when it is probable that such costs will result in future economic benefits.

The carrying amount of the replaced parts is disposed from the balance sheet and recognised in the income statement.

Depreciation is carried out on a straight-line basis over the expected useful lives of the assets. The expected useful lives of the overall asset categories are as follows:

The basis of depreciation takes into account the residual value of assets and is reduced by any impairment losses. The residual value is calculated on the date of acquisition and reassessed once a year. Depreciation will be halted if the residual value exceeds the carrying amount of the asset.

Assets are transferred to assets held for sale if it is highly probable that their carrying amount will be recovered primarily through sale rather than through continuing use.

Management judgements and estimates

Judgement is applied in determining the depreciation period and future residual value of the assets recognised and is generally based on historical experience. Reassessment is done annually to ascertain that the depreciation basis applied is still representative and reflects the expected life and future residual value of the assets.

3.4 Contract assets and accrued cost of services

Accounting policies

Contract assets and accrued costs of services include accrued revenue and accrued costs from freight forwarding services, contract logistics and other related services in progress at 31 December 2022.

Contract assets are recognised when a sales transaction fulfils the criteria for revenue recognition, but the final invoice has yet to be issued to the customer for the services delivered. Refer to note 4.4 for disclosure of credit risk as trade receivables carry substantially the same characteristics as contract assets.

Accrued costs of services are estimated and recognised when supplier invoices relating to recognised revenue for the reporting period have yet to be received.

Management judgements and estimates

In the preparation of the consolidated financial statements, significant estimates are applied in assessing services in progress, including accrual of income and pertaining direct costs. These estimates are based on experience and continuous follow-up on services in progress relative to subsequent invoicing.

3.5 Inventories

Accounting policies

Inventories are measured at the lower of cost and net realisable value. The cost of inventories comprises all costs of purchase, processing and other costs incurred in bringing the inventories to their present condition. Writedowns of inventories to net realisable value are recognised as direct costs in the income statement.

Inventories consists of land and buildings under construction held for the purpose of sale in the ordinary course of business (property projects) and stocks. In total, DKK 1,231 million relating to property projects was recognised as an expense in 2022 (2021: DKK 1,562 million).

3.6 Leases

Accounting policies

Whether a contract contains a lease is assessed at contract inception. For identified leases, a right-of-use asset (ROU) and corresponding lease liability are recognised on the lease commencement date.

Upon initial recognition, the right-of-use asset is measured at cost corresponding to the lease liability recognised, adjusted for any lease prepayments or directly related costs, including dismantling and restoration costs. The lease liability is measured at the present value of lease payments of the leasing period discounted using the interest rate implicit in the lease contract. In cases where the implicit interest rate cannot be determined, an appropriate incremental DSV borrowing rate is used. In determining the lease period extension, options are only included if it is reasonably certain they will be utilised.

At subsequent measurement, the right-of-use asset is measured less accumulated depreciation and impairment losses and adjusted for any remeasurements of the lease liability. Depreciation is carried out following the straight-line method over the lease term or the useful life of the right-of-use asset, whichever is shortest.

The lease liability is measured at amortised cost using the effective interest method and adjusted for any remeasurements or modifications made to the contract.

Right-of-use assets and lease liabilities are not recognised for low value lease assets or leases with a lease term of 12 months or less. These are recognised as an expense on a straight-line basis over the term of the lease. Any service elements separable from the lease contract are also accounted for following the same principle.

Extension options are only included in the lease term if extension of the lease is reasonably certain. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor.

Management judgements and estimates

In accounting for lease contracts, various judgements are applied in determining right-of-use assets and lease liabilities. Judgements include assessment of lease periods, utilisation of extension options and applicable discount rates.

Leases

Right-of-use assets classified as land and buildings mainly relate to leases of warehouses, terminals and office buildings, whereas assets recognised as other plant and operating equipment mainly relate to leases of trailers, trucks, company cars, forklifts, IT hardware and other office equipment.

Land and building leases normally have a lease term of up to ten years, whereas leases of other plant and operating equipment normally have a lease term of up to five years.

Land and buildings may include extension options with the intention of securing flexibility in the lease - however, any leasing period beyond the normal ten years expected at the initiation of the lease will normally be reflected in the contractual lease term agreed.

Analysis of lease liabilities showing the remaining contractual maturities is provided in the following table:

The profit or loss and cash flow impact of leases recognised for the year are specified below:

3.7 Pensions and other post-employment benefit plans

Accounting policies

Pension obligations relating to defined contribution plans, under which the Group pays regular pension contributions to independent pension funds, are recognised in the income statement for the period in which they are earned. Contributions payable are recognised in the balance sheet under other current liabilities.

In regards to defined benefit plans, an actuarial valuation of the present value of future benefits payable under the plan is made once a year. The present value is calculated based on various assumptions, including the future development in wage/salary levels, interest rates, inflation and mortality. The present value is only calculated for benefits to which the employees have become entitled during their employment with the Group. The actuarial calculation of the present value less the fair value of assets under the plan is recognised in the balance sheet under pensions and other post-employment benefit plans. Pension costs for the year are recognised in the income statement based on actuarial estimates and the financial outlook at the beginning of the year.

Differences between the calculated development in pension plan assets and liabilities and the realised values are recognised in other comprehensive income as actuarial gains or losses.

Changes in benefits payable for employees' past services to the company result in an adjustment of the actuarial calculation of the present value, which is classified as past service costs. Past service costs are charged to the income statement immediately if the employees have already earned the right to the adjusted benefits. Otherwise, they will be recognised in the income statement over the period in which the employees earn the right to the adjusted benefits.

Management judgements and estimates

In determining pension obligations, management makes use of valuations from external and independent actuaries as basis for the estimates applied. The actuarial assumptions used in the valuations vary from country to country owing to national, economic and social conditions.

Pension obligations

Of these obligations, DKK 856 million relates to unfunded pension obligations (2021: DKK 1,032 million) and DKK 327 million relates to partly funded obligations (2021: DKK 124 million). The latter is primarily due to the Swiss plans being overfunded.

Total pension costs for the year

In 2022, net costs of DKK 848 million relating to the Group's pension plans were recognised in the income statement (2021: DKK 658 million) and specify as follows:

Defined benefit pension obligations

Development in the present value of defined benefit pension obligations is specified as follows:

The expected average duration of the obligations is 14 years.

Pension plan assets

Development in the fair value of pension plan assets is specified as follows:

Actuarial loss included in statement of comprehensive income amounts to DKK 395 million. DSV expects to contribute DKK 61 million to defined benefit plan assets in 2023 (2022: DKK 55 million). The pension plan assets are composed as follows:

Sensitivity analysis

The following table illustrates the change in the gross obligation relating to defined benefit plans from a change in the key actuarial assumptions. The analysis is based on reasonably probable changes, provided that the other parameters remain unchanged.

Significant pension plans

The most significant defined benefit plans of the Group relate to Europe, with Germany, Sweden and the UK being the largest. No other countries have individual defined benefit plans of significance. The plan in Sweden is a final pay scheme, which covers all salaried employees born in or before 1978 and is based on a collective labour agreement. Salaried employees born in or after 1979 are covered by a defined contribution plan.

The plan in Germany covers both salaried and hourly workers. Under this plan, employees earn a fixed amount for each year in service. The plan has been closed for new employees since 1994.

We continuously work to change our defined benefit plans in DSV into defined contribution plans for the benefit of the Group and the employees.

Applied key assumptions for the most significant pension plans are as follows:

Mortality prognosis table

Mortality prognosis table

3.8 Provisions

Accounting policies

Provisions are recognised when, due to an event occurring on or before the reporting date, the Group has a legal or constructive obligation and it is probable that the Group will have to give up future economic benefits to meet the obligation.

Provisions are measured on the basis of Management's best estimate of the anticipated expenditure for settlement of the relevant obligation and are discounted if deemed material.

Management judgements and estimates

Management continually assesses provisions, including contingencies and the likely outcome of pending and potential legal proceedings. The outcome of such proceedings depends on future events, which are, by nature, uncertain.

When considering provisions involving significant estimates, opinions and estimates by external legal experts as well as existing case law are applied in assessing the probable outcome of material legal proceedings, etc.

Provisions

Provisions have not been discounted, as the effect thereof is immaterial. Provisions are expected to be settled within two years in all material respects.

Restructuring costs

Restructuring costs relate mainly to the integration of acquirees and the restructuring plans previously announced, which consist mainly of termination benefits and costs under terminated leases.

Disputes and legal actions

Provisions for disputes and legal actions relate mainly to probable liabilities taken over at the acquisition of enterprises.

Other provisions

Other provisions include indemnification liabilities totalling DKK 1,843 million relating to various company- and value added taxes (2021: DKK 1,818 million). Furthermore, other provisions mainly relates to restoration obligations in connection with property leases and onerous contracts.

Chapter 4

Capital structure and finances

This chapter includes disclosures on the financial basis and exposures of the Group's activities derived by our capital structure and net working capital.

The capital structure is linked to our long-term financial target of a gearing ratio below 2.0 x EBITDA before special items and the principles for capital allocation.

In order of priority, the free cash flow is used to reduce the Group's net interest-bearing debt in periods when the gearing ratio exceeds the target, for investments and business combinations, and for share buybacks or distribution to the Company's shareholders.

4.1 Equity

Accounting policies

Share capital

At year end, the share capital of DSV A/S amounted to 219 million shares with a nominal value of DKK 1 each.

Shares consist of only one share class and include no special rights, preferences or restrictions. All shares are fully paid up.

Reserves

Reserves as presented in the statement of changes in equity comprise treasury share reserve, hedging reserve and translation reserve, as specified on the previous page.

Treasury share reserve

The reserve comprises the nominal value of treasury shares. The difference between the market price paid and the nominal value plus dividends on treasury shares is recognised directly as retained earnings in equity.

Treasury shares are bought to meet obligations under the Company's incentive schemes and to adapt the capital structure.

The reserve is a distributable reserve.

Hedging reserve

The reserve comprises the fair value of hedging instruments qualifying for hedge accounting.

Hedge accounting ceases when the hedging instrument matures or if a hedge is no longer effective.

Translation reserve

The reserve comprises foreign currency translation arising on the translation of net investments and related hedging in entities with a functional currency other than DKK.

The reserve is dissolved upon disposal of entities.

4.2 Capital structure and capital allocation

Capital structure

The capital structure of DSV is intended to maintain financial stability, optimise cost of capital and to ensure financial readiness allowing to act on business opportunities as they present themselves. The gearing ratio was 1.0 at 31 December 2022 (2021: 1.4). The target gearing ratio is below 2.0 x EBITDA, but may exceed this level following significant acquisitions.

Capital allocation

The Group aims to spend its free cash flow in the following order of priority:

Net interest-bearing debt

The Group increased its net interest-bearing debt in 2022 by DKK 625 million (2021: increased by DKK 11,056 million). Net interest-bearing debt can be specified as follows:

Distribution to the Company's shareholders

In 2022, the Group spent DKK 20,313 million on purchase of treasury shares and DKK 1,320 million on dividends distributed (2021: DKK 1 7,841 million and DKK 920 million, respectively). It is proposed to distribute a dividend of DKK 6.50 per share for 2022 (2021: DKK 5.50).