DFDS Group

Ladies and gentlemen, welcome to the DFDS Q3 Report 2025 conference call. I am Healy, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Torben Carlsen, CEO. Please go ahead.

Thank you very much. Good morning and welcome to DFDS's Q3 2025 conference call. I am, as usual, joined here by Karen Bosen, our CFO, and Søren Brønhold, our Head of Investor Relations. It has been an eventful morning. On this call, we will focus on the Q3 report, the cost reduction program, and the assumptions behind the outlook change for 2025 that mainly relate to uncertainty about Q4. With regard to the board's initiation of a search process to find my successor, we'll try to not make that a focus in today's call. I'm of course sad to be leaving DFDS. I have truly enjoyed every minute here. Let me emphasize also that I am still at DFDS. I'm staying until a successor is in place. Fully committed obviously to my responsibilities and dedicated to support DFDS throughout the CEO changeover and also of course the initiation of our cost reduction program. What's important is that we are staying the transition course. We made further progress on the logistics booth projects in Q3. Our new Mediterranean price model raised rates in September. And our third focus areas, the Turkey and Europe's south turnaround, progressed, but with less pace than expected, also in Q3. But let's start with putting it all into perspective on slide three. There you see our pathway to a higher level of financial performance. We launched as part of our first outlook for the year three focus areas that we needed to resolve in 2025. our logistics booth projects 810 areas with challenges in our logistics network adapting our mediterranean ferry network to a new competitive situation and then the turnaround of our newly acquired turkey and and europe south business we are now With the challenges we've had in primarily the two latter focus areas, adding a cost reduction program to the effort, it will have a 300 million Danish kroner impact in 2026. It will unfortunately mean a reduction of around 400 mainly office positions. assisted with a number of specific cost reductions that we are carrying through. To implement the program, we foresee one-off costs of around $100 million during Q4. Moving to page four, just a repetition of our overall strategy of moving together towards 2030. which is about, as you know, unlocking network value. A lot of that is about organic growth. Green transition is still there. During this quarter, we've signed off for the SBTI targets and now have 24 months to get a pathway approved, a pathway that is not too dissimilar to what we already have planned. And then, of course, a cash flow focus to bring our leverage down through debt reduction, non-core asset review, and specific net working capital initiatives. Moving to page five, a little talk about the... macro backdrop and market situation. Geopolitically, you are as informed about this as us, but still some turbulence. U.S.-China seems to be a little more support for Ukraine and Europe in the war from weights by Russia. And the German spending, we are not seeing the impact yet, this 1,000 billion euro program, but we expect that to come late next year. So markets growth still very slow, and we expect that to continue in Q4. Luckily, the meat export ban following the and mouth disease have eased and we are almost back to normal in terms of volumes. We see some oil spread increasing, also quite a volatile market as I'm sure you all have noticed. Competition-wise, the Turkey-Europe market is volatile. We've seen intensified competition during Q3 on the Italian corridor, and we've seen attempts that now seem to succeed to start a route by a different competitive group from Turkey to France and Spain that will presumably impact us in Q4. On the continent road market, where we've talked a lot about over supply, we see a move towards normalization of the balance between supply and demand, also helping in our general boost and turnaround of logistics performance in Europe. We have entered a space charter agreement with TT Line, which gives us better balance between supply and demand in that market, but also access to new markets and higher frequencies for our customers. We've seen some additional freight ferry capacity in the North Sea South, which obviously can have some spillover effects on our routes, primarily from Rotterdam to Felixstowe, which is also part of the Q4 uncertainty. Moving to page six, staying the transition course, some September positives. The Q3 results, are on level in the ferry division. The logistics division excluding tests, so the Turkey and Europe South new network performed well above 24 in line with what we have previously communicated. The test business was below expectation. Primarily, an extended seasonal dip affecting August caused this delay, but also some continued issues with rail performance and problems in accessing enough visas for our drivers. In terms of cash flow, Karen will come back to that. We have a negative adjusted cash flow for the quarter, but this is driven by the high-season passenger reversal of prepayments and then a yearly ETS payment where we, during the year, receive the money from our customers. Three focus areas, logistics boost projects on track, further improvements coming in Q4. The new pricing model in the Mediterranean has been launched, and we see increasing rates per meter. The test turnaround continued progress, but not at the targeted pace. So a lower Q4 outlook due to the uncertainties of primarily the two of the three focus areas. Rest of network looks stable. we have implemented, will implement various asset sales in Q4 to strengthen the cash flow and then as mentioned we launched a cost reduction program that will not have a positive effect in Q4 but will accelerate the transition to improve performance for 2026. With that I will hand over to Karen, so please turn to page 8.

Thank you, Torben, and good morning, everyone on the call. Turning to our revenue first, we continue to see growth in our revenue, again, driven by inorganic addition, so the addition of our BU tests and organic growth was slightly negative when you clean out for the acquisition. Slightly positive story on our passenger revenue from the existing business channel and Baltic where we are slightly up. However, overall a negative impact on the revenue by the loss of the Tarifa-Tangeril route and the Oslo-Copenhagen route compared to last year. Great ferry. obviously down because of the situation in the BUMED and the competition there. However, some positive impacts from our new route, the Jersey route, the Spain route, and the Egypt route. Overall logistic on par, and that overall takes us to the revenue of the quarter of 8.3 billion. Turning to page 9, the income statement, EBITDA down following the challenges we face, 7%. Depreciation up, which is all activity driven really by adding the U-test and other new activities, taking us to the EBIT of the $532 million for the quarter. Finance costs slightly up driven by higher debt and some leasing interest payments that are higher. That is profit before tax then $331 and then the profit after tax of $304 million. Turning to page 10, just putting the Q3 a bit in context with previous years. Obviously not where we want to be, and in line with our year this year, we are down compared to previous years. This is all coming from, in this instance here, from with the situation that we have mainly in the BU Med, but also some impact from those changes. That is exemplified on page 11, if we turn to that, where we have the impact from Safari EBIT. Again, overall, the existing business is performing at level with last year, and we find that important to mark. We then have some route changes, which is really the loss of the Oslo Copenhagen and the Tarifa Tangerville, both routes that have their strongest season in Q3, so therefore the impact is strongest in this quarter. And then the Mediterranean challenges with the competitive situation down there. Those are the two things really impacting the fair result for the quarter. And then turning to page 12, we have a similar clarification on the logistics performance. Actually, we see an uptick for both Nordic and continent, so a 48 million stronger position for those two entities compared to last year. Again, I find that worth noting. And then UK and Ireland at level, then with the loss-making EU test that we have acquired, that drags it down again to the result for the logistic division for the quarter. Last slide on the financials, turning to page 13, the cash flow. An operating cash flow of just shy of 600 million, with a capex close to 400 million, Interest payments takes over all our adjusted free cash flow down to just below zero. However, our year to date is at $740 million. The $600 million of operating cash flow is, as Torben mentioned, impacted by some unfavorable move in our working capital. This was expected because it's seasonal in the way that the ETS clearance payments for 2024 all falls in August 2025, which means that all the prepayments we have received for ETS charges from our customers or passengers throughout the year, then are due payable in August 2025. And in addition, we then have a classic seasonal for our passenger business where we have prepayments for Q3 that then gets reversed by the end of the quarter. Turning to our leverage situation, we have reduced the net interest-bearing debt down to 15.9 million, despite taking on more debt, so that's an improvement within the year of more than 1.3 billion. Our leverage ratio with one decimal then ends at 4.3, driven by the lower EBITDA, and we are seeing that reducing slightly towards the end of the quarter. With that, I will hand back to Torben.

Thank you, Karen. Moving to green and great place to work. The page 15 information relates to our continued drive to reduce our emissions from our ferries. We reduced 2.7%. This was last year here, helped by increasing the burning of biofuel on a couple of our Rotterdam-based routes. We committed in this quarter to a science-based targets initiative where we now work with the SBTI organization to agree a pathway that will not be miles away from what we already work with internally. e-trucks, further launching of e-trucks and also having now more solar infrastructure in both Ballymena in Northern Ireland and Peterborough in the UK. Safety, we have a very measured approach to reduce our lost time incidents and we are now quite significantly seeing improvements both in our logistics and ferry divisions and the balance between women and men in leadership position is improving compared to last year by another two percentage points. Moving to page 17, our priorities, nothing It's the logistics boost projects. It's adaptation of our Mediterranean network to the new realities, and it's a continued improvement of our Turkey and Europe South business. And if we take them separately on page 18, the boost projects, We have with you talked about eight boost projects that we initiated in 2024. In Q3, seven of those projects or those areas that we are focused on had a break even or better. There's still lots improvement potential, but it is a clear sign to us that the project structure works. We are using this structure also for other areas than these eight, and there we also see progress, and this is also the reason for the relatively strong performance of our logistics network at large when excluding tests and when comparing to last year. As you can see from the table, it's a Denmark domestic, where we still have further improvement and where we expect a move to positive in Q1 26. Moving to page 19, Mediterranean's new pricing model that we talked about in Q2 would come in September, have caused better rate levels. We have seen more intensified competition on the Istanbul Trieste corridor. We have reduced capacity on our corridor. You saw maybe an investor message that we sold a vessel this week from that network. We've seen positive impact, not full impact. We'll see more in 26, but at least a good trend. When you look at the total market, volumes in Q3 were up 6% versus last year, mostly driven by road conversion and then relatively small market growth, especially in a Turkish perspective of 1%. The market share for DFDS of the total market, where you have 50% road, as you can see on the graph, We had then 32% of the market of trailers from Turkey to Europe and other ferry companies 18%. Turning to page 20, the test turnaround, slower pace than targeted. We've done, our team down there has done really well in terms of right-sizing the business and implementing organizational changes. There are still opportunities. What is hurting is that our volumes are lower than expected. There are some good commercial initiatives that is reverting this trend, and we are seeing in October an uplift that we expect that we can continue. We see that on the cost side, Rail performance is lacking. There are a lot of infrastructure issues from Italy through to Germany and France through to Germany that we cannot impact, but there are also areas where we can work with our supplier and internally to improve things. So we are hoping for some uplift there. In addition, we are struggling with getting enough visas for Turkish drivers which move cost up as we have idle capacity waiting for this. But in general, progress, clear delay, but the arrow pointing in the right direction. Moving to page 22 and our outlook. Unfortunately, despite the good Q3, we have decided to up front include the uncertainties we see in Q4 in our outlook. So we've lowered the outlook. It was, of course, already at the low end of our previous outlook, but we've decided to take it down a notch to 600 to 750 million, excluding The one-off program costs of around 100 million for the layoffs. And as mentioned, the key driver for this are the uncertainties related to the network, primarily the Mediterranean network and tests. The ferry division, other than MET, looks stable, volumes stable. And for logistics, we will continue to see the improvement trend from Q2 and Q3 following into Q4. So EBIT, as I mentioned, now 600 to 750 before the 100 million cost that we expect mostly to hit in 2025. capex reduced compared to previous outlook from 1.3 to 1 billion driven by primarily sale of assets but of course also some capex discipline and then on the adjusted free cash flow with the capex reductions we could uphold the 1 billion but we have then reduced cautiously reduce the 100 million in program cost to lower it to around 900. Moving to page 24, key priorities, some overlap to our focus areas, obviously organic growth focus still in In all we do, Mediterranean, stay disciplined on the increased yields, test, strengthen the turnaround progress, see if there are more levers we can pull, also jointly with our ferry network, a rigid implementation of our cost reduction program, and continued focus on working capital, where we believe we can release cash from particularly net working capital, continue the green transition, and we, of course, stay true to our values when it comes to DE and I. We will hand over to the operator to run the Q&A session.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of from RBC Capital Markets. Please go ahead.

Good morning. The first question on the 300 million targeted improvement from the cost program, how will that be split across divisions? And then on full year 26 expectations, clearly You have the cost program that should help. The midpoint of your range implies improvement in Q4, so could you talk at all about full year 26 expectations at this stage? And then, yeah, finally, just perhaps a comment on the channel. Is it stable there, given it didn't come up in the prepared remarks? Thank you.

Hello, Rory. The cost split, I can... I cannot give you that. You have probably similar impact to logistics and ferry, but you also have impact in corporate functions, and those costs are split out to the divisions. I don't think we at this stage can tell you the exact split on the divisions, but it is a sizable impact on both divisions. In terms of 26, we unfortunately cannot at this stage help with guidance. The program is of course an attempt to make sure that we solidify the expectations that we have internally and of course we have also seen what analysts think 26 can look like. In terms of the channel, we have different businesses. We have our route from Ireland to Dunkirk. We have our New Haven jet. We have the Dover routes and we also have now Jersey. We see some increased volumes are challenged on the channel and that seems to raise a little bit the competitive intensity. We, of course, think it's from the competitors, so there is a little there, but overall an okay performance on the route from Ireland, the New Haven, Jeb, and the Channel. The start-up of Jersey has proven harder than expected. There was a very short timeline due to the tender process had to be changed last minute by Jersey. We are working with Jersey to see how we can agree different changes to both secure a good service to the islanders and visitors, but also can ensure that we, going forward, can deliver the results that were implied in the agreements we made with Jersey. So a long answer, but channel performance a little bit down in Q3 due to this issue. Thank you.

We now have a question from the line of Dan Togo Jensen from DNB Carnegie. Please go ahead.

Yes, hello, and good morning. A few questions from my side as well. Just take them one by one here. Could we maybe start with the route from Istanbul to Trieste and the price increases you have introduced here? How much have you increased the prices and what is the difference to Grimaldi now? And what is the impact on volumes here in September? Is it a net positive, so to say? And how do you see that pan out for the rest of the year? And maybe also a few comments on why it is exactly that you can basically charge more than Grimaldi. And maybe also on that, is Grimaldi actually following suit or are they just staying at the same price point?

These are all good questions. I think you will... understand why we cannot go into details on this. I will try to give you an overall understanding of how things are developing. We've seen the competition entering a fourth vessel in October following, you can say, our price initiative. Whether it's connected or not, we don't know and we don't Don't speculate on that. But our initiation of price increases were necessitated by the results that we could see we were delivering despite relatively strong volumes. On that particular route, we have an earnings problem. So we decided to increase prices. Have they been increased as much as we would have liked? No. Have they had an effect? Yes. In terms of volumes, we've lost, I think, versus last year, we are probably 10-15% down in volumes between Turkey and Italy. But we have also reduced capacity. So it is definitely the right path. The price increases will have further impact in 2026. We can hope for a little more tailwind in terms of growth in Turkey as well next year. So we have a positive impact from the net of the price increases and the loss of volumes. And it is the path that we will stay on. And again, as we said already in last quarter, we are not looking too much to what the competition is doing. And I cannot speculate. Of course, we hear a lot of rumors about what the price differential may be, but we look at our own, the necessary prices we need to make this a profitable route.

And maybe some words on what will happen with the PLT terminal now. You are forced to reduce your demand. your tendons or your slots here, can you make room in your own terminal to accommodate, or will you need to reduce the frequency on the immersion route?

We are very unhappy with how we have been treated in the PLC terminal. That is a fact. We have established a project to see how we can... can make sure that customers pick up trailers faster from our own terminal to see if we can free space to accommodate these extra calls. And we're also looking at whether we have to reduce calls to succeed. We can already see, of course, that operation has become more challenging at our own terminal But I will be able to update you better when we have seen the full impact of this move by the terminal in Italy.

But I guess these chances are pegged into the new guides? Absolutely. Then maybe if we can jump to the Marseille route, where you now see a competitor, and I understand that they now have permission to move traders that was initially banned from them, as I understand, but now they have the permission here. Are the dynamics similar in this market, or is, I mean, you've been able to, stick with your key clients in the Trist Istanbul route but this market between Turkey and France can you maybe give some indication of how that market functions is it similar and are we heading into a similar market dynamic as we see in Trist Istanbul and what will your response be down there

We know that apparently this week this new operator has been starting operating. We can see from the schedule that it's a schedule that goes to Marseille, but also to Tarragona in Spain. So it's quite a long sailing schedule. where you have to stop in Marseille. Obviously some of our customers will like the fact that they now have a Spanish route. Others will like our frequency and our point-to-point service plus our rail connections. We've obviously picked our terminals in a time where we had, you know, first pick and And we think that's a quite big competitive advantage. We have seen, looked at what capacity will come in from the competition, and it's a different capacity that we are facing on the Italian corridor in terms of size and efficiency. So we have not seen quite the same response from our customers in terms of price focus. There's always, of course, some focus, but again, we have a strong network, we have a strong frequency, we have a very competitive setup. So there's always impact, of course, when you have more capacity, especially when you call a new area where Maybe others would have taken hours before and drive. But we see an impact. It's baked into our forecast. And then, of course, we'll see longer term what the impact will be. But I guess we've learned from the first situation in Turkey to believe more in our own strength and have really focused on what it is we are offering. And that seems to be working well with this new situation.

How much of the volumes to Marseille and on that route is equal, actually?

Well, we don't have a route to Marseille. We have a route to CET.

CET, yeah, sorry. Yeah, of course. But on that route that is in competition with the new one here, how much is equal here?

Ecol is a top three customer on that route. So it's a little bit, it's probably more, the set route probably have even larger concentration among customers than the Trieste route. So, you know, the top five has a larger percentage of the market than the top five on the Trieste route would be my

So it's easier for you to defend? Can you conclude that?

We think we have a really strong service. We think the nature of the competition is different than what we are seeing on the Italian corridor. So we don't see the same impact from the new competitive situation that we have seen in the Italian corridor.

Okay. And then just maybe a household question for Karen maybe. When you look at logistics and the employee costs here, it's more or less the same Q1, Q2 and Q3 compared to Q2. But with 1,000 FTEs being reduced, I know some of them are being circumvented, coming back in as you hire them. But why isn't employee cost coming down faster, so to say, in logistics Q&Q?

In Q3, we still have a bunch of redundancy costs as well for the actions taken back in Q2 as well.

Okay. And how much is that?

I think we can, but it's in the ballpark of 10 million, maybe. Okay.

But it's across the board, right? But I also, you know, the 1,000 people, are you comparing quarter to quarter?

Yeah, quarter to quarter, yeah.

Yeah, exactly. That has happened since... since the start in November, and of course, against last year, you only had six weeks of tests. I think it may also simply be a matter of that you don't have good comparisons. We'll try to find something for you that if you want to talk to IR, we can maybe give you more clarity.

I just want to understand, you know, what you are now introducing, the 300 million, and how much, you know, is from this program as well?

Yeah, but no, it is completely different. The 1,000, that's a lot of outsourcing of traction to subcontractors. The 300 million is by the clear majority office-based workers throughout the system and actually not... not to any large extent to do with the tests. This is the old network primarily where this comes from.

Thank you.

You are welcome.

As a reminder, if you wish to register for a question, please press star and one on your telephone. We now have a question from the line of Ulrich Back from Danske Bank. Please go ahead.

Yes, good morning, Torben and Karen. First question on the Mediterranean segment. Just an update on this new competition from the new competitor, UGN Roro. And also, we've seen Grimaldi adding a fourth vessel, the terminal situation in Dresden not going according to your preference. these items or these factors, do they impact the way that you have implemented the price increases? And perhaps also part of the reason why you have not gotten the level of price increases through as you hoped for, as you alluded to in your prepared remarks. And then also these factors, what do they mean for the market recovery prospects into next year?

Of course, the competitive situation in the market has an impact on what prices you can charge. We have, again, as I said to Rory before, we have focused on what we need to run a profitable route or profitable routes. And we have started the journey to get back to the required profitability. That's not easy and that's not fast. So we've taken what we believe is feasible in this first round. And there has, of course, been pushback from customers. And then we have settled a certain level where we see improvement. And we already have commitments that will mean further improvements in 2026. It's clear that coming mid-year or September and ask for price increases are harder than price increases 1st of January. So we are on a good traction, and it's harder to get price increases when you have... Before you had the choice of road, you had the choice of Ulusøy, now you have another choice, and that obviously means that it is a little bit harder. But we focus on our network, our services, and stay the course. Will it impact our 26th outlook that there's also now a competition on the French route. We are of course factoring that in when we build our bottom-up expectations for 26. And then we will talk more about it when we get to February.

Understood. And then these changes that Grimaldi has made with the fourth vessel and now also having improved terminal access in Trieste. So if you had to evaluate your service from Istanbul to Trieste and Grimaldi currently, so I guess their service has relatively to yours improved, given that you now face some challenges in Trieste. Is that a fair assumption? And what do customers say in terms of this service between you and Grimaldi?

Our service is very strong still. We have a very high frequency. We have a very, very strong rail connection offering. You know, we have some congestion issues. There are also congestion issues in PLT. So we're very comfortable with the strength of our network.

Understood. Then on the test business or the old ECOL, how is that affected by this new ferry operator, UGN Roro? Is it affected at all in terms of pricing or competitive tension? Just to get some feedback on that.

That's relatively marginal, the impact to test from this.

Understood. Then in terms of your leverage and liquidity position, I see that you make a sale and lease back of three warehouses in Q3, giving proceeds of more than 700 million. You've now also sold a vessel here in Q4. Earlier this year, you also initiated factoring program, which has also released some liquidity. So how many more of these initiatives do you have in the draw? And how are you looking at your debt or that leverage ratio at the moment and in terms of your debt covenants? Are you comfortable with the levels? And if you can just also remind us where are the debt covenants and if there are certain thresholds you need to get below at a certain point in time, it would be appreciated.

I'll let Karen answer just one correction. We didn't release 700 million from the sale and lease back of the warehouses. We released the profit element of, was it some 50 million? But anyway, Karen, over to you.

And just staying on that, that was actually, that was a renewal. It was existing warehouses that we had on sale and lease back, but we had a purchase option that had value. And that was what we released. And then we prolonged with the additional years possible. the sale and lease back of those warehouses. So it's not of the magnitude that you mentioned there, Audrey. But, of course, it was, of course, providing some improvements, right? Then in terms of questions, the first question was if we have more of that in our pocket. We are constantly adjusting our capacity base, of course, to the business needs. And as you saw earlier this week, we have sold a vessel. So I think that's a part of our continuous housekeeping to adapt our fleet and our infrastructure on the logistics side to the requirements of our business. So that cannot be ruled out, but it's not like we sit with a list of 10 assets that we are just waiting to execute on tomorrow. So that would be my answer to that part. And then your questions around leverage ratio. I mean, we have been transparent about that our leverage ratio is higher this year than where we want it to be. And we are, of course, monitoring and making the improvements we can, in particular on the net interest-bearing debt reduction in terms of improving working capital, in terms of reducing capex to the minimum, and so forth. And we'll continue those efforts until we get to a level which is our targeted level. In terms of headroom, we are still comfortable with the headroom we have. We have good support from all our core banks. We have no concerns on their side, and we are able to continuously refinance debt as required.

there was quite a few questions in your in your so maybe one of them that i missed i'm not sure no i i think that was great um just just the final one also uh some housekeeping your depreciate depreciation level is increasing quarter or quarter um i think i see that it's logistics that's uh that that's sticking out here so so any Has there been some restructuring one-off or anything? You're just trying to get a sense of what the run rate will be from Q4 and onwards?

No, but there's been some general renewal of the fleet, which would be trailers and trucks. And of course, then the starting point for the depreciation gets up. And we have done that both in BU tests and in other places.

And of course then there is the fact that TESS is still not in comparison numbers from last year. There was an adjustment at TESS regarding previous quarters for just over 40 million. Yeah, you see that there is an increase in EBIT there, but then also an increase in depreciation, so that on the EBIT level it's unchanged.

Okay. And this adjustment of 40 million should be excluded going forward, I suppose.

It's 46 actually, I think. But let's take that offline with CERN as well, how that and where it comes from. Yeah.

Okay. Thank you. Thank you so much.

Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Torben Karlsson for some closing remarks.

Thank you, and thank you for listening in and having good questions today. Let me wrap up the call. We are still in transition to a higher level of financial performance. We will now start to see stronger quarters than the comparison going forward. We made progress in Q3, but we still have major challenges to resolve. We are working hard to achieve that. Our new cost program will firm up earnings in 2026 along with our well-performing business units. Thank you very much for joining the call and your questions. Look forward to speaking to you again soon. Have a good day.

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