DFDS Group

Good morning and welcome to DFDS' Q1 2024 conference call. I'm joined by Carina Bikon, CFO, and Søren Bornholt, Head of Investor Relations. As you have seen from our Q1 report, we are on track to deliver on our outlook for 2024. The Q1 result is ahead of our internal expectations, even though it is below last year's Q1 results. Before we dive deeper into the Q1 report, I would like to start with a strategy update turning to slide three. On the right hand, on the left hand side, you see the, sorry for that, on the left hand side, you see our strategy headlines, unlocking value from our expanded network, the green transition and the financial ambitions we are working towards. With the recent agreement to acquire Ecologistics International Transport Network, we have fulfilled the planned network expansion into high growth markets, namely Turkey and Morocco, and we are now shifting focus to organic growth. Our competitiveness is supported by our strategy to standardize and digitize with a number of specific initiatives underway. To move the green transition forward, we have ordered another 100 e-trucks, and our planning for a freight ferry corridor powered by ammonia is now so advanced that we have submitted a funding application to the EU Innovation Fund. Turning to slide four, You see the financial ambitions related to our moving together towards 2030 strategy. The short-term ambitions for 2024 to generate an adjusted free cash flow of 1.5 billion DKK is on track, as is the CapEx level. As you can see from the ROIC graph, our primary challenge is to raise logistics return. Fairness ROIC is trending at around 9%. and was in Q1 reduced by a tough competitive situation in the Baltic Sea. In logistics, the key challenge is to turn around the Nordic and continent co-chain units. For the last six months, we have not achieved the desired traction in the turnaround, and in March and April, we launched a number of boost projects with enhanced operating efficiency. To sum up, while we are comfortable with our outlook, we continue to focus on improving profits through operational efficiencies, as we are not expecting significant tailwind from markets. With that, let me move on to the quarter, turning to slide five. And here, the headlines are that there's overcapacity impacting our results. We see freight ferry volumes picking up in several areas, but as mentioned, Baltics and channel seeing lower capacity and impact to pricing. The passenger results has improved as the last passengers on the UK France business returning after COVID is impacting positively. And as mentioned, the challenging quarter for cold chain logistics with a mixed volume picture across our land transport markets. We do see that volumes are getting a little firmer. We see that the power capacity on Channel and Baltic Sea will continue, but that the road transport power capacity is reducing lately, and hopefully we'll see match between demand and supply in those markets for the next quarters. In terms of network, we added, of course, the Strait of Gibraltar. That's a very seasonal business that also impacted negatively Q1 when comparing to last year. And we have now finalized the agreement to acquire Equal and expect closing in Q4 2024. Turning to page six, EBIT is lower than last year, but ahead of expectations, as I said in the introduction. Revenues are up, primarily driven by acquisitions, but still a small organic growth when adjusting for those. We are down 45% on our EBIT from both. From both divisions, we'll come back to the details. The ferry EBIT has reduced $169 million, despite higher passenger earnings that could not offset the lower freight result. Logistics is lowered due to the challenges mentioned before. somewhat compensated by acquisitions or offset by acquisitions. So with this, I will hand over to Carina for more details on the results.

Yes, let's look at page 7 on the income statement. Revenue growth, I will detail in a little while, so not dwell on that. As you know, we have, from the beginning of 24, put more emphasis on EBIT, but if we just stop at EBITDA first, you will see that it was down 2%. We saw higher EBITDA in logistics, also impacted by acquisitions, but that was offset by fairy and non-allocated costs. If we then look at the items below EBITDA, we saw a quite significant increase in depreciation. It increased at 26%. It was not a surprise to us. It was a mechanical thing. Some of them, I will remind you of the impact of the Jinglings that we sold last year, where we have in the quarter about 25 million. And that will, of course, continue for the coming quarters as well. In addition to that, depreciation is impacted by acquisitions. both in logistics, but also FRS in ferry. Finally, we had increased docking depreciation. We had, during the COVID time, we had reduced dockings. So when they started to pick up, and in addition, due to inflation, they were more expensive than what we have seen historically, then we also get a higher charge from these dockings. Let me just remind you that the way we depreciate dockings is that normal dockings are depreciated over the time spent until the next docking, meaning that it's about two to two and a half years if we look at it overall. On amortization, slight increase also due to acquisitions and the PPA we do in that connection. And on the finance side, in line with what we have seen in 2023, we were impacted by higher interest rates compared to a similar quarter in 23, and then we also had a slightly higher net interest-bearing debt. Turning to page 8 on the revenue growth, as mentioned, an increase of 11%. If we exclude acquisitions and also the charges of the bus, then we had an organic growth in revenue of 2% across the entire DFDS. Passenger revenue increased 22%. It was mainly driven by the channel, where we saw a quite significant increase in the number of passengers. So with channel now coming back to higher levels, we are now in Q1 at a level which is similar or even above Q1 2019, i.e. before COVID, and that goes for all our passenger areas. In addition to the increased number of passengers, we saw an increase in duty-free on the channel routes, which also helped to increase the revenue. Freight ferry revenue was positive and reflected a net impact of the higher volumes and the lower rates that we talked about, and also the lower buff. Logistics, we saw a decline organically of 2%. We saw in some of our routes, we saw lower road transport volumes, and then there was also an impact of cost surcharges. Finally, the acquisitions, a rather large impact because we had both the impact from McBurney last year and also the strategy browser coming in in January 24th. Turning to slide 9 on the ferry division, we saw a lower EBDA in the ferry freight, and that was driven primarily by lower results in the Baltic and Channel, where we do have the overcapacity, hence also price pressure. In addition to that, we did expect, and we also explained that to you, that Q1 would be negatively impacted by the higher spread on the bunker, which we saw in Q1-23. So we did overall have a higher net bunker cost in Q24. Volumes up 4% after positive development on all our routes. But as mentioned, when we take into account the lower rates, we didn't see the full positive impact of the increased volume. Passenger earnings, as I mentioned, significantly driven by the channel. Then if we turn to slide 10 for just a few words on the logistics, as we say here, it was a mixed result. It was a challenging market. Several areas we saw changes. overcapacity and competition impacted the crisis. We saw a decline in volumes both in the dry business but most significantly in the cold, not least after we saw the Brexit introduction of 1st of February, where we now also have to have inspections of goods arriving into the UK. And Just like with the other Brexit initiatives, it does take time for the market to adapt and to adjust to the new rules. Acquisitions put in here separately with 57 million were as expected, and they're delivering well. With that, turning to slide 11, a few words on cash flow and capital. Our operating cash flow was $0.5 billion. It was reduced by working capital. That is a seasonal impact. Particularly this quarter, we saw an impact due to Easter, where unfortunately some of our also very large customers went on Easter break and said, we will pay you when we get back in April. Of course, not satisfactory, but implying that it's not a structural issue. So we expect to come back to positive working capital in the following quarters. We're in CapEx 0.6 billion, fully in line with our expectations, so leading to an adjusted free cash flow in Q1 of... minus 0.3 billion. Looking at the LTM adjusted free cash flow, we are still at 2.2 billion because it includes the inflow from the sale and lease back in the autumn. Finally, looking at the leverage, we have explained that we expected to see an increase due to the acquisition of FRS. So we have an impact now of around 0.2 here in Q1, which meant that we now saw an overall leverage of 3.2. And with that, back to you, Torben.

Thank you very much, Carina. Page 13, progress across green and social targets. CO2 emissions continue to reduce in intensity by 3% across our network in Q1. We have installed a new shore power facility in Berlin where two of our newest vessels can tank shore power with a couple of thousand tons reduction in CO2e expected from that. More shore power facilities are coming over the next quarters and years. We have, as I mentioned in the introduction, submitted support for a green point or Sweden, Belgium to the EU. There will be six months before we hear news on that. We've ordered another 100 e-trucks so that we now have 225, the largest heavy-duty e-truck fleet in Europe. and 105 of those equal to those who have been delivered have been deployed by the end of Q1. In terms of gender, women's representation in management position increased four percentage points versus same for last year. And in our safety efforts, we have improved the TIF, lost time injured, injuries both at sea and across our land operations, including our port terminals. So turning to page 15, total capital distribution of $600 million on track. We have paid our dividend in March of $169 million, and the Of the expected 430 million share buyback, 185 million was completed by 7th of May. H16 outlook 24 unchanged and still based on an overall flat market environment, we do think that there is a rebound looming in the European economies. And in terms of Turkey, we also see indications that growth should be coming second half of 24. On the passenger side, we continue to see that, especially on the channel market, passengers are coming back to pre-COVID levels. Page 17, not much to report with an unchanged outlook. Revenue growth 8 to 11%, with outlook of 2 to 2.4 billion. And when comparing to 23, there are 300 million headwind in the 24 outlook compared to 223 operating capex, as previously said, around 1.75 billion, and we will deliver the promised 1.5 billion of adjusted free cash flow for 2024. Stage 18, what are we then primarily focusing on? Organic growth, the network in place, With the many good initiatives, we are winning customers that we were not able to compete for before. Operational efficiencies, we need to drive improvement in select areas and have started projects to that effect, as mentioned in the introduction. We continue to deliver on our green transition. The first 100 days integration have gone really well, and now it's the more longer-term system and process integration that is taking place. And we are preparing for the eco-logistics integration that we expect to take place closing Q4. So with this, forward to questions from the audience.