Innovative marketing and services/solutions concepts made DSV a leader in the global supplier of transport and logistics solutions. Like other companies, the year 2009 was an unusual year for DSV. Basically, the integration of ABX LOGISTICS (ABX) and the crisis in the world economy impacted DSV financial returns and the group in general. Due to the global financial crisis, the volatility in freight volumes, freight rates, exchange rates and fuel prices were experienced. Despite of this occurrence and as a consequence of DSV's asset light business model combined with an aggressive cost cutting programme, the groups still achieved results that they consider satisfactory. DSV are now employing expressive transport and logistics system which enables the management to analyse customer needs and preferences both on the regional and local market bases and customise service/solutions designs to exceed customer expectations and also in order to address the group's weakness. Despite of this effort of the group, the current financial situation of the group is quite unusual, thus a need for financial situational analysis is a must. For most businesses today, the progress and development they created are recorded as basis of their success. These records also serve as essential thing in making decision in business and of course as a benchmark for measuring the firm's performance for the period under scrutiny (Ali, 1993 and Pike & Neale, 1999). A financial situation analysis is one such gauge that documents current and future financial situation in an attempt to determine a financial strategy to help achieve organisational goals.
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The objective of this paper is to evaluate and analyse the business performance of DSV by reviewing the financial information for the year 2009. Actually, it attempts to examine the financial statements of the group by using tools such as Ratio Analysis and also to see what might be the other factors that can influence the group's growth and its decision making and than to see the limitations of the financial analysis. These performance indicators are better known as ratios and constitute the main tools of conventional financial analysis. This serves as a proof that more and more organisations are realising the importance the analysis of their financial situation in order to keep up with the demands of the business world.
Corporate Profile of DSV
DSV is a global supplier of transport and logistics solutions. The Group has companies in more than 60 countries all over the world. Together with their partners and agents, the group staff was around 21,300 employees that offer local distribution, European road transport, air and sea freight within and between the largest continents, and professional overall solutions in more than 110 countries. Basically, the business of DSV was divided into 3 segments i.e. DSV ROAD, DSV AIR & SEA and DSV SOLUTIONS.
DSV ROAD transports all kinds of freight by road all over Europe in a quick, efficient, flexible and environmentally friendly manner - creating good connections to the rest of the world. Apparently, DSV AIR & SEA is an international freight forwarder which plans and effects the forwarding of all kinds of air and sea freight in a quick, efficient, safe and environmentally friendly manner within and between continents, whether on short-sea routes in Europe or intra-Asia routes, always combining the means of transports when most appropriate. And DSV SOLUTIONS designs and offers logistics solutions across the full supply chain from design through freight management, customs clearance, warehousing and distribution to information management and e-business support.
Figure 1. 2007 to 2010 Business Performance of DSV
As seen in figure 1, the performance of DSV is at its peak in the 3rd quarter of 2007. But suffers from continues decline in year 2008 up to the 1st quarter of 2009 due the global recession experienced not only by DSV but of most businesses around the globe. Despite of the recession, DSV still devices some strategy that will enhance their business performance. As seen in the presentation, there is also a slight revival of business performance in 2009 and it seems that this trend will continue up to the end of 2010. As recorded in ft.com, DSV A/S (DSV:CPH) closed at 95.10, 9.69% below its 52-week high of 105.30, set on January 11, 2010. Over the last week DSV A/S (DSV:CPH) outperformed the OMXC 20 index.
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As indicated in the group report of DSV, their primary markets are located in more than 60 countries all over the world and currently there are lots of competitors that pose significant threat to them. The top 4 major competitors of DSV are Deutsche Post AG, FedEx Corp, TNT NV and United Parcel Service Inc. Despite of this treat, the group still believed that they have the have a competitive edge over their competitors in their primary markets as their extensive network of services are focus on three major groups in logistics such as road, sea and air and solutions. As part of the business development of the group, they currently exercise the full control over their point-of-sales network and dictate to their distribution chain 'how' to serve and not only 'what' to serve (DSV, 2009). Furthermore, DSV also control their supply chain, from the creation of solutions up to the distribution and marketing. In general, the group considers FedEx as their main competitors in terms of assets and expansion efforts.
With respect to the performance of businesses in which DSV belongs, FedEx is still undeniably the global leader in its industry. The company also provides e-commerce and supply chain management services to its clients in more than 210 countries. The corporation has some 215,000 employees and contractors and offers a wide range of delivery options including worldwide express delivery, ground small parcel delivery, freight delivery, and customs brokerage. Integrated business solutions are provided through a group of operating companies, of which Federal Express Corporation is the largest.
FedEx was the pioneer of the express transportation and logistics industry. In addition, FedEx is also regarded as one of the world's leading transportation companies that focus on the transportation of parcels and packages worldwide. In accordance to the activity around us especially when it comes to the speed and efficiency needed to serve the clients better, FedEx also has improved its performance when it comes to service through continuous changes in its information systems (IS) and addition of certain programs like tracking lost parcels within thirty minutes which is of good help to clients and the such. This is very important so as to keep the company consistent of being number one on its spot. In this way, it will never fail to attract more clients (Federal Express Corporation, 2010).
Characteristically, financial measures as well as the affiliations employed in performance depth are designed to stress outcomes with least or no consideration of the decision processes of the manager. The usual or conventional way of performance was based on episodic profitability gauges without the concern to particular variables that drive these measures (Daroca & Nourayi, 2002). Performance in the past is mainly based on conventional accounting and measures based on market performance. In particular, these measures include the evaluation on net income, return on equity/capital employed, and earnings per share as well as share-price return. Some financial outrages have put corporate governance in the business spotlight. Basically, the issues and interest in the subject corporate finance can be traced back at least to the eighteenth century and economists such as Adam Smith. Certainly, there is probably little new in the existing debate involving to financial negligence, except for the range of the financial and economic consequences which replicate the greater importance of finance in the current economy. As stated previously, the aim of this presentation is to scrutinise the economic and financial context of corporate governance of a logistic and solution group i.e. DSV. It attempts to evaluate the past, current and future situation of this business in terms of the financial reports. Basically, corporate governance has significant impact for the performance of the financial sector and, by addition, the economy as whole. Well-organised resource allocation is supported by strapping shareholder control rights, which assists investment in fresh development actions and confines the scope for corporate over-investment.
Actually, investment decisions are further correlated to corporate governance insofar as investors prefer to invest in suitably supervised businesses and be fitting to avoid investing in uncertain environments. In this manner, the investor assertion created by sound corporate governance stipulations and the security of marginal shareholders encourages the financial market progress by encouraging share ownership and capable capital allocation across firms. Transparent financial reporting is necessary to sending efficient corporate governance.
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For the last several years, the business solutions and logistics industries have seen the rapid growth of the number of firms offering financial situation analysis services. This serves as a proof that more and more organisations are realising the importance the analysis of their financial situation in order to keep up with the demands of the business world.
Analysis of Information
As seen in figure 2, the DSV's 2009 revenues fell 3.61% from 37.44bn to 36.09bn. This along with an increase in selling, general and administrative costs has contributed to a reduction in net income from 1.23bn to 185.00m, a 84.92% decrease. From the record for 2009, the group actually suffers from profit decline due to the effect of global recession. As seen, their 2008 performance is expressive compared in 2007 or even in 2009. From these results, we can deviate that DSV was not performing well in 2009 and 2007 as compared to their expressive 2008. Despite of some downturns in 2007 and 2009 due to the global business crisis, the year 2010 shows interesting trend. From the gathered information, it is expected that in 2010 both the revenue and net income of DSV will be constantly moving upward.
Figure 2. Summary of Profitability Ratios
(Prices are in DKK)
From the given situation and results of revenue and net income of DSV, the group not only needs to evaluate their business strategies but also the political, economic, and cultural factors of their host country i.e. Denmark. It is not whether the business is in a market oriented status or not. The business norms in Denmark have been changing and are becoming more compatible with international codes and norms after a series of economic reforms (Barton, Newell & Wilson, 2002). Given the nature of the Denmark economy and the large potential of the market, doing business with Denmark requires a continuous process of learning, caution for instability, and flexibility to catch opportunities. In terms of gross margin, DSV was still behind FedEx. But despite of the large market of FedEx, DSV was still performing expressively.
Liquidity and Debt Ratios
In financial analysis, the balance sheets of group reports conform to the financial ratios (see Appendix for the details of condensed balance sheet of DSV). The purpose of ratios is to find out how profitable the group is, we can calculate if group has enough liquid resources to pay its creditors, employees and finance charges. It is a useful to shareholders to find out their value of shares. Ratios are most powerful and simplest tool to evaluate group's performance and its validity (Riahi-Belkaoui, 1998).
Atril & Mclaney, (2004) stated that by calculating a relatively small number of ratios, it is often possible to build up a reasonably good picture of the position and performance of a business. Ratios help to highlight the financial strengths and weaknesses of a business, but they can not, by themselves, explain why certain strengths or weaknesses exist, or why certain changes occurred. Just by details investigation will find the reasons. Ratios can be grouped into certain categories; each of them identifies a particular aspect of financial performance or, position. In this part of the paper, we'll be considering the liquidity ratios and debt ratio of DSV.
Figure 3. Summary of Liquidity and Debt Ratios
It is evident in the computations that DSV was always in good position to meet its short-term debt for the years 2005, 2006, 2007 and 2009 compared to 2007 despite of the global crisis. Actually, DSV has a Debt to Total Capital ratio of 0.55%, little changed from the previous year's 0.00%. This means that DSV is always bale to meet their current liabilities using their current assets (cash, inventory, receivables). The figures are not high so as to make the shareholders fear that the assets of the group are not working to grow the business, and not low so as to drive creditors away with respect to the level of risk present. Since quick ratios are perceived as a sign of the group's financial strength or weakness, the figures in the previous table shows the relative stability of the financial strength of DSV. A higher number would indicate stronger financial performance, and a lower one means weaker performance.
Apparently, the high financial leverage ratios of DSV provide an implication that the organisation is solvent in the long-term. With this regard, the debt ratio shows the DSV's position to meet its long-term obligation or liabilities. Debt ratios are dependent of the group's classification of long-term leases and other items as long-term debt (Pike & Neale 1999). Pike & Neale (1999), stated that this is the gauge with which the financial strength of a group is a sign of the ratio of capital that has been funded by liability, counting preference shares.
A higher debt ratio (which means the group has low equity ratio) does not give the firm's creditors the security they require from an organisation (Pike & Neale, 1999). The firm would, as a result, find difficulty in raising supplementary financial support coming from outside sources if the firm wishes to take such action. Therefore it reveals that the higher the debt ratio, the harder it is for the group to raise funds from the outside.
Regardless of exceptionally hard market circumstances, DSV attained reasonable financial results for 2009, which on the whole were in line with the expectations disclosed. 2009 was a year characterised by the sustained financial crisis and extremely fluctuating freight rates, currency rates and fuel prices. This was a challenge both to operations and to the financial affairs. DSV spent significant resources on the incorporation of ABX LOGISTICS (ABX) and additional facility adjustment and on underpinning its equity by a capital increase and the sale of treasury shares (DSV, 2009). 2009 was the first full year of combined DSV/ABX activities as ABX was recognised in the consolidated financial statements of DSV as from 1 October 2008, for which reason the comparative figures include three months of activity of the acquire (DSV, 2009).
From the 2009 performance of DSV, the revenue reduced from DKK 37,435 million in 2008 to DKK 36,085 million in 2009, or a decline of 1.2% when adjusted for foreign currency translation differences (see Figure 4). The main reasons are significantly lower sales prices and a reduced activity level, which resulted in a reduction in total revenue compared with 2008 despite the acquired revenue of ABX. Organic growth was a negative 20.2%, attributable to the difficult market conditions.
Figure 4. DSV 2008 and 2008 Revenue
Source: DSV 2009 Annual Report
With respect to the given information in the group website and 2009 annual report, the following presentation will show the SWOT analysis of DSV. Actually, SWOT analysis can provide a framework for identifying and analysing strengths, weaknesses, opportunities, and threat. This can also provide an impetus to analyse a situation and develop suitable strategies and tactics, a basis for assessing core capabilities and competences. Moreover, this can provide the evidence for, and cultural key to change and a stimulus to participation in a group experience.
Wide experience in solution and logistics market - as they have been in the business for almost 34 years now, their directors can consider their experience in operating venture as strength.
Reasonable price offerings of solutions and services- since they able to keep their overheads low, this allows them to have better control of their prices. This is considered strength because naturally, people would look for a reasonably-priced place to stay in that equally do not sacrifice service quality.
Already has developed a good reputation for value for money - since they have been operating for great number of years, they already have built a name for themselves, attracting a number of loyal customers along the way.
Good industry skills - the directors of different divisions of DSV are natural for the business that they ventured into, both being outgoing and friendly, the most important public relation skills that clients look for.
Although, the group has seen much strength, DSV also encompasses some weaknesses.
One of its weaknesses is the declining confidence of some of its shareholders. Even though the group was successful, some of the shareholders are not confident due to the current crisis. The group should create ways to address this weakness.
Another weakness of DSV is their inability to have a system that will enhance their marketing and distribution processes in Asian market. The advancement of technology nowadays is one of the weaknesses of DSV especially if they wanted to have a market in Asian countries. Although the group are now adopting different advance technologies, the room for improvement are still open. Thus, it is suggested for the group to have focus in their research and development department.
Actually, the group was expressively dominating in the market of Denmark but with regards to the current global financial crisis, DSV are dragged by the current condition of the country as seen in their financial ratios. Thus, another form of their weakness is their mutual bond to the economy of Denmark and America. However, if economic growth grows at a rate greater than inflation, then the total of business earnings should be dragged along as well.
To increase profitability in the face of increased demand for their business offerings - this opportunity came from the social areas in the rise in the number of population and changes to consumer preferences.
To better improve business performance - due to the presence of more competitors, they have the opportunity to develop the business' core competencies so that they can still get ahead of the game.
To expand business coverage - through excellent management and marketing activities, the DSV could enlarge the business, not only increase the size of the physical facilities and improve offered amenities, but also to expand market scope, possibly to other countries.
Continued increase in the number of competitors. Increase in competition would mean tougher business development.
Inability to cope up with modern developments - this serves as a serious threat, as the competitors have shown that they have the capacity to include modern technology in their services and products offerings.
Aggressive competitors - as seen in the current environment of Denmark and countries in which DSV are operating, there are numerous businesses that offer services and solutions similar to DSV. This is, off the bat, the most aggressive competitor that the business has to face for the time being, aggressive with respect to the quality of product and services offerings.
Porter's Five Forces
A Five-Force model (see Figure 5) was conducted in the context of the global cosmetic industry. Despite being a market leader, DSV is not yet resting on its laurels of success, but instead, continuously innovating and developing their group in order to maintain what it has managed to achieve up to this time. Thus, they have constantly formulated competitive strategies in order to attain this. Forces outside the industry are significant primarily in a relative sense; since outside forces usually affect all firms in the industry, the key is found in the differing abilities of firms to deal with them.
Figure 5. Porter's Five Forces Model
Industry Competitors. In the global business industry, regulatory and technological changes are the main catalysts, making entrenched competitive structures obsolete and mandating the development of new services, new processes, new strategies, and new public policies toward the industry under analysis. Financial centres, in vigorous competition with each other, have undergone further regulatory change in their efforts to capture a greater share of international trade in financial services, even as common efforts at the regional and global level have tried to support safety and soundness and a reasonably level competitive playing field. Basically, there are numerous logistics and solution players in the industry, included in the list is DSV, who strive for market leadership in all their business aspects (DSV, 2009). As such, the level of industry competition is very stiff and very aggressive.
Potential Entrants. Natural barriers to entry in the global logistics and solutions industry include the need for capital investment, human resources, and technology and the importance of economies of scale. It also includes the role of contracting costs avoided by a close relationship between the vendor and its client, which in turn is related to the avoidance of opportunistic behaviour by either party. The competitive structure of the industry therefore depends on the degree of potential competition. This represents an application of the 'contestable markets' concept, which suggests that the existence of potential entrants causes existing players to act as if those entrants were already active in the market. Consequently, pricing margins, product quality, and the degree of innovation in this industry exhibits characteristics of intense competition even though the degree of market concentration is in fact quite high.
Buyers. Logistics and solutions services have a long history--a history rich in product diversity, international scope, and, above all, continuous change and adaptation. These competitive changes have forced adaptations, and in general have improved the level and efficiency offer to clients, thereby increasing transactional volume. Coupled with these, the customers have become informed concerning logistics and solutions services that DSV-like companies offer. They have required that service providers meet their very specific individual needs, therefore showing that clients to this industry have shaped what it is right now. This means, on an overall note, that buyers have a high influence on the workings of the global industry pertaining to home logistics and solutions services, as they have the ability to affect it.
Suppliers. The suppliers to this industry are mainly the providers of technology and communication logistics and solutions services firms use in the conduct of their businesses. There is an enormous variety of new 'hard' and 'soft' technologies at work within the said industry. Hard technologies include advances in telecommunications, computers, analytics, software tools, and video communications, which are enabling participants to have better information at lower cost; to integrate this information with thinking, communication, and analysis; and, finally, to use the resulting knowledge along with other technologies to distribute services to clients more efficiently, effectively, and economically. Soft technologies, or financial innovation - things like, say, the use of derivative instruments such as interest rate and currency swaps - often use these hard technologies to rethink the delivery of services. Out of these hard and soft technologies have come the securitisation and globalisation movements so often talked about in the press. From the above enumeration, it could be said that suppliers significantly affect the cosmetic industry through their tools of trade.
Substitutes. There is a high level of substitutes for the logistics and solutions services industry, evidenced by the numerous numbers of major players in the global market. The cost to transfer to another logistics and solutions services firm is also relatively low, so the substitution rate is pretty high.
The results of the analysis carried out on performance, financial and marketing indicated very significant effects on business sustainability, even amidst the threats of unrest. Therefore, we could conclude that the business strategies such financial and marketing could still be expected to improve business sustainability faster than average.
The review of financial capabilities and resources towards business sustainability revealed very little inconsistencies regarding its strategies. This is coherent with its traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for marketing.
Moreover, it can be said that DSV is a group whose financial situation is stable and highly likely to improve in the years to follow. To sustain their development, the group should regularly assess the value of their portfolio of its business. They have to be positioned on fast-growing opportunities, whether geographically or by market segment through choosing to invest in businesses with long-term tail-wind profiles. If the current financial situation carries on consistently, DSV would well achieve their vision of becoming the leader in their industry and a major player in each of their market segments and key geographical markets. The comparison of the past and present performance helped in bringing out pertinent bits of information which led to the conclusion that the Denmark offices adds value and contributes significantly to the progress of the firm as a whole.
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DSV. (2009) 2009 Annual Report. [Online] Available from http://www.dsv.com/irj/go/km/docs/documents/DSV_DFDS%20Transport/Integrated%20Internet/Corporate%20Web%20Repository/Public%20Content/Annual%20Reports/ENG/UK-Annual%20Report%202009.pdf Accessed on [03/18/2010].
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