DFDS Group

Good morning and welcome to DFDS's Q3 2024 conference call. I am joined here by Karen Bosen, our CFO, and Søren von Holt, our Head of Investor Relations. This morning we released our Q3 numbers and last Friday, November 1, we lowered our 2024 outlook for EBIT and the adjusted free cash flow. The outlook change was partly driven by our financial performance and partly by the termination of the ECOL acquisition, which we also announced last Friday. The termination of the agreement is, of course, unfortunate, but we believe the right decision under the circumstances. As many of you know, ECOL Logistics is a large and valued customer in our Mediterranean route network. Given our customer relationship and an ongoing dialogue about the future post-determination, I cannot at this stage provide additional information about the situation. We have a very strong Mediterranean ferry product, and we continue to see Turkey as a compelling growth market. In the coming weeks, we'll continue the dialogue with the eco-logistics about the future relationship, both as a supplier and as a customer at the owner's terminal in Yalova. So let's now turn to our Q3 performance and the outlook for the rest of the year. If we turn to page three, we will, as usual, start with a reminder of our moving together towards 2030 overall elements to reach the strategy. It's about unlocking network value. It's about the green transition. And it's about financial ambitions when it comes to adjusted free cash flow and ROIC and leverage in particular. Obviously, as you can see on page four, the trend line for some of these financial ambitions are not heading in the right direction. Our ROIC is at 6% last 12 months. Our capex is reduced as we are tighter on our investments. And unfortunately, we also had to lower the adjusted free cash flow to 1.2 billion expected for this year on the back of the reduced EBIT and leverage. remains above 3 as EBDA is slightly down. Moving to page 5 with a headline of working through market and operational headwinds, Q3 was a challenging quarter. We also expected that, but we had expected that during the quarter we would start to see a rebound. which did not come. We've achieved organic revenue growth, particularly driven by logistics, and of course, fully in line with our strategic focus. The growth is possible through our customer focus and our strong network. Despite the growth, as mentioned, the financial performance was down, and this is due to the intensified price and margin pressures that we do experience in several markets. It's a pleasure to report that the first high season for our acquisition in the Strait of Gibraltar was performing, was showing a great performance in line with our expectations. And we continue to see relatively strong performance also in October. The rebound did not happen in Q3, and we can now see that also Q4, we have a slowdown in the European economy. We are particularly sensitive to the automotive sector where things are tough. We also see that the continued terrible war in Ukraine is putting a damper of growth in the Baltics, and it's also spreading a little bit to Eastern Europe, which then with the trade between Baltic Eastern Europe and Sweden is a tough situation. On the full load, this is primarily in the continent, we see continued overcapacity, and therefore also very difficult environment to get the price increases that are necessary to cover the inflationary pressures that we experience. Then, when we look to the outlook, the Q3 results were below expectations, obviously, 2.4 is actually what drives the outlook change. And we have now lowered it to 1.5 to 1.7 billion from before 1.7 to 2.1. And as I mentioned, the cash flow reduced the same size. As we move forward, it continues to be a strong organic growth focus. We have seen that from an 11 ferry operation on the Calais Strait, we are now down to eight ferries. P&O have reduced two. Irish ferries have reduced one ferry. Whether this is a permanent adjustment remains to be seen, but it means that we are in a stronger position when it comes to rate negotiations for 2025 We've seen a competitor entering the Turkish market. The existing landscape was that there were two row-row operators, now there are three, and that approximately half of the cargo moves by road and half by ferry. So that's, of course, a challenging situation. Compared to the overcapacity that we've seen in the channel. It's two different markets. The channel has been a market that has been reducing over many years in the past, whereas Turkey is a growth market, and therefore we also think that it is easier to handle new capacity. We completed the previously announced sale of the Oslo route, And as mentioned, we terminated the agreement with ACON. If we move to page six, we have an attempt of giving a overview of our ferry network. And if we look at, yeah, of our transport network, if we look at the First, the ferry network. We've tried to use some coloring here, where the dark blue is a market that is a growth market. The light blue are more low growth, and then the gray is decreasing. And if we start with the market developments that we see throughout the system, then the North Sea is a relatively flat but stable low-growth market. Mediterranean, a growth market, and we saw the numbers we released this morning on volume that despite the new competition, we still have growth in our system in October compared to last year. Channel is a flat market market Last 12 months, I believe, down 0.2%. And Baltic Sea, of course, after a major revaluation of the market size, now also flatties to low growth. Straight off Gibraltar, a strong growth market. On the passenger side, we see that the channel continues to see strong rebounds from COVID, whereas the Baltic Sea is a decreasing passenger market, on the back of less migrant workers, less activity levels, and straight of the browser, strong growth market. In terms of the logistics arena, we have split for this purpose the revenue in two buckets. One bucket, 70% of our revenue where we have reported a 4% EBIT margin up 0.1% actually from last year where we see good growth in the freight and where we are also then able to retain our margins. And then we see the challenge logistics areas, approximately 30% of our revenue where we see overcapacity and where we are in markets with low growth or no growth. So, this is just to give a picture of our markets as we see them and how we deal with the different parameters in the markets. There are some comments here about the different elements in the market. You can study those afterwards. Then if we turn to page seven, just a reminder of who we are and why we have the logistics and ferry network the way we have it. It's network strength, it's customer focus that characterizes us. The unique combination of ferry, road, and rail in the corridors and regions, combined with logistic solutions, provide a very strong offering to our customers. We have strong people. Our operational skills and resilience mean that customers get reliability, frequency, efficiency from DFGS. We've talked now about new competitive situation in the MET. We've talked a little bit about how a situation in the channel is developing. And those of you who have been investors for many years have seen other situations like this, where we have a very good and strong track record of overcoming periods with intensified competition. So with those few words, then I will hand over to Karen for a more detailed walkthrough of the numbers on page eight.

Thank you, Torben, and good morning, everyone. As Torben said, challenging quarter. New was going to be challenging, but still challenging also in terms of the outcome. Overall, we do see a good revenue increase, which we are happy with. Overall, across the group, a 4% increase in our organic revenue. This is split with 7% coming from logistics and 2% from our ferry operations. So happy with that. Unfortunately, it does not translate into the same growth as the EBIT. Our EBIT is down compared to the same quarter last year with about 11%. And if you see the EBIT down, You will also see that Ferry is only slightly down and has an okay-ish performance for the quarter, given also the external circumstances that Tom also alluded to, whereas our logistics business is significantly down compared to the same quarter last year. And this is due to both external factors but also some internal factors that we will come back to later in the presentation. Moving to the next slide. Just very high level on our income statement. You can study it in detail later, obviously. Revenue up, $8 billion revenue for the quarter. EBITDA of $1.5 billion, down 3%. However, I would have to remind everyone that we did have $135 million of one-offs in our 2023 results of Q3. So that means that there is a gap there to be closed. But obviously, we also have straight-up Jepaltar now included in 2024, so they more or less go out against each other. Ultimately, we are down on our EBIT, as mentioned, and also our financing cost is slightly up compared to a previous quarter. Moving on to zooming in a little bit more on our 4% organic growth, coming mainly from logistics with the 7%, And from passengers within ferry, where we in particular on Channel saw a good quota for passengers on our Channel ferry routes. The freight ferry increase you see here is mainly driven by our BAF arrangements. And then you see the larger revenue driven coming in from Strait of Gibraltar mainly and a little bit from Estuarine. So overall a healthy top line, but as I said, not translating into the results that we would like to see. Zooming in on ferry, we have an overall variance of only 23 million, so not significant. Again, freight down slightly, and then we see the positive uptick from our passengers. If we look at overall the lane meters, they are decent and stable to somewhat. Obviously, we have the situation in Mediterranean and Ferry where we have seen a competitor enter on our Istanbul-Trieste route that was also mentioned previously, and that we do see impacting this quarter slightly and will also impact the Q4. Strait of Gibraltar is not listed here separately, but we are content with the result, and it's fully in line with expectations from the acquisition of the Strait of Gibraltar routes. Then moving to logistics, slide 12. If we look at the overall results, it's, of course, absolutely not satisfactory for us. What we do and what you will see both in our report and obviously also speaking to in this presentation is We can isolate the problem areas really to 30% of our revenue, and we have isolated those very clearly where they are from, and we have focused plans to turn those around, whereas we have 70% of the business that runs with an 8-bit margin of, on average, 4%. So a lot of attention going into these areas. These are impacted a lot by external factors, the Brexit phase three, the UK food imports, which is continuing to be lower, market pressure due to competition and overcapacity in the continent of Europe, and then particularly our own Nordic coal chain that is challenged due to also market situations and as a consequence of that overcapacity in our own infrastructure. If we move on, cash flow. Cash flow was also lowered as part of our guidance as a consequence of the lower earnings, which means that we are managing our capex. We have also lowered our capex slightly for the year, but not to an extent that we can maintain our 1.5%. Just a free cash flow for the quarter is around 400 million, also reflecting that this is a good quarter for us generally in terms of seasonality in our business, but not enough to keep it. And our leverage is up due to the lower APTA, so we are slightly up this quarter. And moving on to moving to green, I'll pass on back to Torben.

Thank you Karen. On page 15. Line progress on green and social targets. We continue to reduce our emission intensity from our ferries. 1% bone feed, 2% across route network when including the chartered in vessels. We had applied for EU funding for an ammonia green row row corridor project. Unfortunately, The application was not approved, so at the moment we are not moving forward with those ammonia vessels. In terms of e-trucks, we now have 117 in operation. Latest was a launch in the UK with 10 e-trucks and exciting customers. We expect to... to increase further 1015 this year. We are rolling out shore power in the terminals we call and on the ships that call those terminals, which is part of living up to the EU regulatory framework that comes into effect in 2025, where you need to have 2% of your fuel from sustainable fuels and where the electricity from the shore power is included. And that's also why we are expanding the investments here. In terms of women ratios, the non-office positions increased two percentage points on the back of our wave of talent programs in Turkey, Spain, Morocco, where we've been able to attract significant numbers of women for our ship personnel. Safety, we have significantly increased the focus. We now have much more transparency. We still need to get more information more results, but we are on the right track. Moving then to page 17, total capital distribution of 600 million this year. The share buyback is close to complete with 384 million bought so far. out of a total of 431. Then moving to page 18, the outlook, Karen has already talked about it, but we don't expect the growth road rebound in Europe this quarter, which is partly driven this. We have an increased competition situation in Turkey, the margin pressure on our full load businesses continue, whereas passenger is still delivering positive impact. Moving to page 19, a repetition that the EBIT range and cash flow outlook is lowered. Slight difference with revenue now that we don't have ECOL the last quarter. But more importantly, of course, the EBIT outlook now 1.5 to 1.7 rather than 1.7 to 2.1. And then just a free cash flow of 1.2 billion. Then moving to the last page before the Q&A. What are our priorities? It continues to be the organic growth focus, protecting our key fairy market positions and continue adding enterprise accounts, these plus 10 million euro accounts that typically buy several products from us. Strong focus on the logistics earnings trends. We have seven targeted turnaround projects that are securing the turnaround. We have a strong cost focus. It's clear that the inflationary pressure is tough on us in markets where we cannot get similar price increases. So we are taking out cost in our different entities throughout the network. Then the green transition will continue to deliver on our targets. And in the Mediterranean, we will, of course, adapt to the new situation to secure the continued profitability of our business. With that, I will turn over to Q&A.