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DFDS AS
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Good morning to this DFDS call. This is Torben Carlsen, joined by our CFO, Karina Deacon, and our Investor Relations Head, Søren Brøndholt. We are sending a company announcement a little bit out of the normal time window due to the extraordinary situation of the COVID-19 and the consequences for DFDS. And with the announcement this morning, we intended to give the market an update on how we are doing and what the status is for DFDS. We will start with a brief walk-through of the announcement, and then we will leave for questions afterwards.The -- as many of you know, the large majority of our operations is freight-related, 84% of total revenue in 2019 versus 16% related to passenger transport. During the COVID-19 period, so far, all our freight activities continue to operate throughout these different lockdown situations in Europe and Turkey. But we have suspended our passenger routes for obvious reasons as passengers are not allowed to move, except for emergency situations.What have we then done to adjust to this situation? As mentioned, we continue to operate all our freight network. We have reduced capacity. I'll come back to that, in certain of the activities. But everywhere, we continue to fulfill all our customers' demands and needs. We have obviously had to introduce a number of health-related procedures and measures to succeed on that, not least when it comes to crew changes, keeping major workplaces as ports operating, et cetera, et cetera. Since mid-March, we suspended Copenhagen-Oslo and a week later Amsterdam-Newcastle, where we have a significant overweight of passengers versus freight when we operate. And therefore, it does not make sense to operate services like that in this situation.On the freight side, we have reduced about 12 of our 50 ferries are laid off. This corresponds to around 20% of our capacity. This is to respond to the reduced demand for freight, particularly hard hit is the automotive industry as I'm sure some of you have noted, which is a large customer for DFDS, both on the North Sea and in Turkey.On the ro-pax side, so that's our channel operation with normally 6 ferries and Baltic Sea, we have taken various measures to make sure that drivers are safe and that we devote to regulations so that we continue to be able to carry drivers, which is, of course, essential for being able to continue operating these routes.We have sent home 2,200 employees approximately on leave within various government programs throughout Europe. A significant part of the employees sent home relate to the 2 passenger routes, but there are also other employees related to the freight activities that have been sent home. We participate, of course, for these people in these different government programs, also some fixed cost compensation programs exist around Europe that we participate in. We, obviously -- which is also seen from the reduction in ferries being operated, we adjust our operation everywhere to fit to the demand. Due to our large market size in most of our operations, we are able to maintain good quality services on most routes despite the reduction in frequencies since we still have relatively good frequencies in most routes.We have looked at our cash spend in 2020, and we'll be able to reduce our investments by around 20%. The reason it is not more than that are already made commitments for new investors that are coming in and also some regulatory demand for docking costs and others that we cannot postpone.So all in all, a tough situation for DFDS, but we're addressing the challenges, continue operating the full system so that our customers can live up to their demands. And the only place where we are really hard-hit is on the passenger side.What have we then done in response to this with our financial position? We have entered the COVID-19 situation very strongly from a financial position perspective. But we have decided in this period to increase our liquidity resources, which by the end of Q1 amounted to DKK 1.7 billion by another minimum DKK 750 million to make sure that with all the scenarios at least that we can predict that we'll have plenty of liquidity to face the future.In connection with the acquisition of U.N. Ro-Ro back in June '18, we entered a loan agreement with certain covenants on the leverage side. There, we have talked to our banks, and they have agreed to significantly increase those covenants so that, again, with anything we can predict, there's no risk of DFDS breaching such covenants.With that, I will pass over to Karina, who will walk through Q1.
Thank you, Torben. Yes, we decided to share some preliminary key figures for Q1. Obviously, we are not fully ready with Q1 numbers. They will follow on 7th of May, but we can share some preliminary key figures with you.When we look at the top line, we saw a decrease of 1.5%. We were up until mid-March, very much in line with expectations. But from mid-March, we saw an impact mainly from our passenger revenue because we stopped the passenger traveling on the Copenhagen-Oslo from the 12th of March.Looking at the EBITDA, we are down 10% compared to Q1 2019. We had already informed you that we expect it to be lower in Q1 than last year, because in 2019, we had a benefit from the stockpiling in the U.K. ahead of the Brexit. So we were prepared for a slower and lower result in 2020 than in 2019. Half of the decrease, however, is more or less related to the lower passenger activity, both on the cruise ships but also related to lower number of passengers on the channel.The other half of the decrease from last year is a number of things. There is the U.K. stockpiling impact. There's also a slight impact from negative development in the freight business, but to a lesser extent obviously than on the passenger. And finally, we have, in our special cargo business in logistics, we had some one-off costs in the first quarter of the year.If we look at the finance, on the net position, we are at minus DKK 35 million compared to minus DKK 75 million last year. It's, to a large extent, related to unrealized foreign exchange adjustments. And that gives us a bottom line profit before tax of DKK 98 million compared to DKK 159 million in 2019.
Thank you, Karina. Key risks going forward for us, of course, is if we are not able to continue our freight operation, governments throughout Europe plays a lot of focus on us being able to continue operating, as we are part of the infrastructure. This is also the reason for some of the financial incentives that we are receiving to continue operating. We believe we are over the biggest risk in terms of employee health, customer health issues and have not been close to situations where we've had to lockdown any of our operations due to health. So we're quite optimistic about that.Passengers' earnings in the high season, obviously, at high risk. There are no indications of when passenger services can restart. And of course, it's also not clear how -- if we can restart how our customers will respond to traveling already now. So a big risk that the high season on the passenger side is lost for 2020 or at least a big part of it is lost. We have seen, as I mentioned before, the automotive sector closing down most of the factories throughout Europe, restarting again this week and other manufacturers announced that it will be the following weeks. So we are hopeful that April will be the hardest hit we are seeing and then gradually there will be some return to normal operation, not just automotive but also other production sectors.We, of course, have to monitor carefully if our customers or counterparts get in trouble. So far, we have seen minimal problems in this area, and Karina's department continue to monitoring -- monitor it very closely.So all in all, a company that has been hard-hit by the COVID-19 situation but also a company that is in good shape financially. A company that also start to see opportunities in the market as things that we thought would not change are now starting to change in terms of how competitors respond, how customers respond. So also a little sign of positivity and optimism towards the opportunities that will arise once the COVID-19 clouds lift again.With that, we hand over for questions.
[Operator Instructions] Our first question is over to the line of Casper Blom at ABG.
First question here. If we assume that there is no passenger business in Q2 and Q3, what would the delta be on your earnings? I know we can, of course, see what you reported in the passenger part of the Ferry business last year. But assuming that there are some fixed costs also, could you talk about sort of the potential delta in a worst-case scenario where there is no passenger business in, yes, Q2 and Q3?
No. We cannot give you complete guidance on this today. But it's obvious that we will -- we do have quite an operating leverage on the passenger business, so a significant impact if there's no revenue in Q2.
Okay. Fair enough. Then -- and secondly, on the change to the covenants, as I understand it basically, the -- I believe it was 4.55 net debt-to-EBITDA covenant has been increased. Can you comment on to what level? And to -- for how long it has been increased? Have you sort of been given an additional 12 months or 24 months? And sort of what's the flexibility in this?
We will not comment on the new levels. They have been set sufficiently high that there will not be a risk of us breaching the covenants, and we have had them reset for a period that is sufficiently long that we will be back to our normal debt leverage levels from before the COVID crisis.
Okay. Last question then. As this is happening, you alluded a little bit to it, opportunities also arise I suppose. Are you seeing sort of new possibilities for acquisitions on the back of this? Or is that really not what you want to do in the current situation?
It's not our first priority to make acquisitions now. We are monitoring closely what is happening out there. And there may be a number of different situations that can occur, whether it's M&A or consolidations or cooperations that maybe did not exist before, and we're monitoring that closely. But there is nothing -- no specific M&A that we are set on completely.
We now go to the question of Dan Jensen at Carnegie.
Few questions from my side as well. On the compensation side, is there any compensation included from mid-March due to you shutting down the passenger business? And can you just remind us exactly how this compensation is working? That's the first question.
We can -- there are many, many different schemes around Europe. The one in Denmark works the way that the government pays 75% of the salaries for salaries up to DKK 30,000. And Karina, very little included in Q1.
Yes. The people sent home was primarily in Denmark. So we have a little bit of compensation for those people, but it's a minor amount. It's a small 1-digit million number. And for the other countries, it was simply too early to really to have an impact on that. And then we, of course, have all the government schemes to cover fixed costs, and they are too early to assess yet. So they have not been included in Q1.
And I guess you also get compensated, is that 50% on the fixed costs?
That's too early to -- depends on where the revenue ends.
Okay. It seems like also that you are preparing yourself, I guess, for definitely a slump or a downturn right now, a significant downturn. But you're also keeping people onboard, you are keeping activities onboard. We are hearing of all other companies that are simply using this opportunity to cut in capacity and in the organization. Will you, at some point, be prepared to do that? I am leaving a bit to it. If this continues for a long time than you expect, what are the next steps that you can depend -- you can effectively take?
We are monitoring the situation on a daily basis and make decisions on a daily basis. You can see that the number of vessels that we have laid off actually means that we are able to keep relatively good utilization percentages, which is key for minimizing the impact. In terms of our organization, there are some trade-offs between whether you want to be in the government packages or whether you are free to make more permanent reductions. And we are constantly monitoring the -- what makes best sense for us with the outlook that we can see. So next step could also be that we would have to make more permanent changes.
Yes. And I guess, what you alluded to here, Torben, was the high utilization that you aim at. But that, of course, depend on exactly how competition reacts as well. Any indications here, what is P&O doing on the channel? What is Stena, Cobelfret, et cetera, is doing in the North Sea at the moment?
Yes. We have -- it's very easy. We just go through the T&C. But they -- on the channel, P&O had reduced departures in a similar percentage to us. And I think we are down around 25% or so in departures on the channel, for example. In many of the markets, we have a very strong market position, Sweden, Turkey, other places. So there, it's more a matter of us simply adjusting to the changes in demand.
And no take really on what Cobelfret and Stena is doing at the moment?
Cobelfret and Stena have also -- again, Stena is not that many places we are directly competing with Stena. They have a lot of passenger business. Cobelfret have also taken out vessels where -- especially where there are heavily automotive impact is.
Okay. And then just one final question...
We are not -- if your question is, are we losing market share? We are not losing market share from what we are doing here.
Okay. Good. A final question on the financial side. These changes and more flexibility you now have on the financial side, does that saying about cost, so to say, that will be at some point visible in the P&L?
Yes, the coverage is like many other companies, we have a margin grid on that. So we do have a slightly higher margin as we go up in the covenant. If you look for timing in that, bear in mind that we are still around the level where we have been before. So it's not a huge impact in 2020. There will be some, but the main impact will probably be in '21.
And not a dramatic one in any case, so...
Our next question is from Lars Heindorff at SEB.
The loan that you've been talking about, I know you cannot disclose and will not disclose the covenants. But I think you indicated a little bit that you have now got a flexibility both in terms of the level of covenants but also the timing. Does that also mean that the maturity of the loan has changed? If I recall it correctly, the maturities of the loan was in '23?
Maturity has not changed.
Okay. Second question regarding the costs. Dan has been asking a little bit about it. Now by idling docking 12 out of 50 vessels, I mean, how much of your variable cost base will that take out roughly? Last year, if we look at it in total, I think bunker cost was around 20% of our total costs. And then you had, what you call, if I recall it correctly, ferry and other ship costs, which in total account for almost DKK 4 billion. Just to get sort of a sense for how much -- how that will impact the P&L when you actually put those vessels idle?
We cannot give you a detailed answer to that. It obviously reflects that our revenue is going down. So we are trying to minimize, you can say, the impact from losing revenue and making sure that we keep the utilization high and take out voyage-related costs. But it varies a lot across whether it's North Sea channel or Turkey how the impact is. So you'll have to wait for that for Q2 numbers.
Okay. And speaking about Q2, you mentioned in your presentation that you see some of the automotive factories starting up again. Have you seen any indications whatsoever in the forward bookings that you get in your systems for cargo that there's signs of improvement? Or is it still, I don't know, which way, whether it's further down or flattish or I don't know?
We have a very little visibility always on forward bookings. We have received notifications from car factories starting up again notifying us to be ready, both on the logistics and ferry side so that we can handle it. Some factories start up with 25% capacity, others with full capacity, some this week, others next week and some early May. So it's a scattered picture. And of course, we'll have to see what then happens on demand, whether it's a stable picture.
Okay. And then the last one is on the CapEx. I assume that most of the CapEx that you have is committed with the vessels that you have, I think it's 3 vessels this year and 2 vessels next year coming in. Is there more that you can do besides the 20% that you've been communicating? And also if you can do that, will that sort of lead to sort of a pent-up demand for more CapEx going into '21 and '22?
I do not believe that the move we have done now will not significantly impact the future year's CapEx. In terms of -- you're right. The main thing that we cannot change is the committed vessels. So you should not expect us to be able to do much more than what we have done so far.
Okay. And then maintenance CapEx is around, what?
It's around this year DKK 700 million. It's around, yes, DKK 600 million, DKK 700 million.
Okay. So that will be sort of a steady-state level?
We are -- yes, we are reducing it slightly, but nothing that has a major impact.
Okay. And then I know I said final question, but I have one more regarding the working capital. How will that be affected by the COVID-19?
That is a very, very good question. Obviously, we're doing everything we can, as Torben mentioned before, to monitor the development in our receivables. And hopefully -- or thankfully, we haven't seen any losses yet, but it's clear that we are being met with the request for extended credit terms, et cetera. On the other hand, we are, of course, also working with our close partners, our suppliers and asking for their support to us. So at this point in time, it's really too early to say, but it's not a year where I would expect that we are improving working capital. It's probably the other way. But how much, I think you can't tell.
Our next question is over to the line of Ruairi Cullinane at RBC.
I'd like to know which investments you're planning not to make this year. And secondly, could you just repeat what you said about how your fixed costs will be impacted by these government compensation programs? I didn't quite catch your answer to the last question on that.
Yes. The CapEx that we are not doing are we are reducing our general level for dockings, et cetera. We are postponing some investments in ports. I think those are the main factors. We're also reducing heavily on the logistics side, equipment, as obviously there's less demand for new equipment. And we also able to reduce some IT CapEx.
Okay. Is the port of Trieste included in that?
No, this is primarily a Dutch port that -- where the investments will be somewhat delayed. Your other question was the fixed cost. We -- there is a Danish scheme where companies can ask for coverage of some of their fixed costs. The program was, over the weekend, increased to a maximum of DKK 110 million for a 4-month period. It's too early to say how much DFDS will receive from this, but it will be a significant part of -- well, we don't know where we end up, but I'll be surprised if it wouldn't be at least DKK 50 million that we would be able to get. It depends a little bit on the definitions. We are also in discussions. Some of you, U.K. based, maybe have seen that there was launch -- a program launched for the ferries from Northern Ireland to the U.K. by the U.K. treasury they will support. We also believe that they are considering whether the channel routes should receive similar support. And there obviously, we would qualify to some extent. But how much is difficult to say.
Our next question is over the line of Marcus Bellander at Nordea.
Related to the party that start 2 things looming off completely. So just a couple of follow-up questions. So you've reduced -- or you've laid up about 25% of your ships. Does that mean that utilization is normal on the ships that you have not laid up? Or is utilization considerably lower also in the ships that are still sailing?
That's a mixed picture. I believe in Turkey, we are able -- and of course, the higher -- the bigger an operation we operate, the easier it is to take out vessels and keep utilization high. So in Turkey, where we have many vessels on similar routes, we're able to keep utilization high. In the Baltic, we are almost not impacted so far by the COVID situation. On the North Sea, we are seeing lower utilization on some routes due to the lower vessels deployed on each route. And on the channel, we are seeing a significant reduction also because, of course, there, we are losing the passenger side. So a mixed picture. But in general, we are keeping utilization relatively high. The 25% you said we've taken out in terms of capacity probably represent around 20%.
Sorry, I did not catch that or did not understand that.
It's probably, on average, the vessels we have taken out are smaller than the average. So even though it's 12 out of 50, it may only be around 20% lane meter.
Okay. Understood. That's helpful. And then my second question is just a follow-up on what you said about the 2,200 employees you've sent home and the -- how 75% of their salaries will be reimbursed by the Danish government. Is the remaining 25% paid by DFDS? Or is it split between DFDS and the employee?
If I said 2,200, then I was inaccurate. The 2,200 is all across Europe. So they -- 600, 700 are probably under the Danish scheme, where it's 75%, 25%, where we pay the 25%. And there's a maximum as well. So if the salaries are higher than a certain level, then we pay more than 25%. Norway, the government, as I recall it, pay almost all. Sweden, we can send people home. But if we then get 60% coverage by the state, they are still allowed to work 40%, which is useful, for example, on the Gothenburg Ro-Ro terminal. U.K., there's an 80% coverage by the state and no obligation that we pay the rest. So it's very different throughout the different places we operate. But we, of course, try to participate in the best way possible to reduce our operating costs. But you are correct that some of it is still DFDS cost, in most places.
Okay. And would you be able to give us some kind of average there for how much you pay of their salary for the lazy analysts?
We -- why don't you use 25%? And then I think that's a good starting point.
Our next question is over the line of Stefan Roehle at KfW IPEX-Bank.
I have one question. Could you perhaps elaborate a little bit? You said you have laid up 12 vessels. Where you -- on which region which you have laid up these vessels and elaborate a little bit on the capacity utilization in the different regions. You mentioned the automotive industry. I think it's quite important in Turkey, for instance. And second thing is, is there any calculation that you have made with respect to breakeven revenue on EBITDA or EBIT level that is necessary for you to breakeven on these two figures?
Let me start with the first question without being necessarily 100% accurate. We've taken out 4 passenger vessels for the 2 passenger routes. We have reduced 1 vessel on the channel from 6 to 5. We reduced 3 vessels between Sweden and Belgium from 6 to 3, reduced from 3 to 2 between Sweden and the U.K., from 2 to 1 between Germany and U.K. and then we have reduced from 14 to 8 in Turkey. I think that's the picture right now in terms of laid-ups. Utilization is not significantly different than before. The channel, probably the exception, where we have a lower utilization. And there can be changes here and there, but on average, we're keeping utilization high.Breakeven, yes, we have a continuous calculator, trying to see what services should we continue and which ones should we stop. I don't know if I can get it closer than that.
Yes. Okay. Is it possible to estimate, let's say, that, I don't know, a 20% drop in revenue would mean a lot for you? Or is it difficult to make such calculation? I mean, it depends on what revenue is missing at the end.
If you have one ship and 100 in revenue, and we lose 20% of that, then if this is a non-accompanied service, then I think we have, in the past, guided that then we probably lose 60% to 70% profit. If it is an accompanied travel, then we lose upwards against 80% from that. But that's not necessarily relevant because we've just explained that when you then lose a lot of revenue, you then also take out vessels and therefore reduce cost. I don't think I can get it closer than that.
Okay. That's fine. And if I'm not mistaken this with respect to the ships you have taken out at least in the Ro-Ro business, it's primarily Turkey. But all the other regions are so far with the same number of vessels, except, of course, for the passenger vessels that you have taken out?
No. As I explained, we have taken out 3 vessels between Sweden and Belgium, that's Ro-Ro vessels, 1 between Sweden and U.K., 1 between Germany and U.K. That's all Ro-Ros as well.
Our next question is from the line of [Carson Sundernal at Merge Invest ].
Thanks for doing this update. Much appreciate it. I have a couple of questions left. Could you give us some detail on your Turkish business? We saw at some stage that there was a lot of trouble with the road traffic and border crossings. So I was wondering if that had improved your market share on the Turkish traffic. And also, if you could give us a general update on how your operating efficiency is now.
Yes. All right. In Q1, we had set the expectation that Turkey would -- well, not just in Q1, but in 2020, would be operating so that we would see financial improvements. And when we mid-March had to start reducing operation, we were indeed somewhere between 5% and 10% up volume wise year-to-date and at higher earnings than the year before. We have been helped somewhat by -- there was the Bulgarian border where you had, that's probably what you're referring to, so 60-kilometer queues. But that was solved relatively swiftly. So I don't think over the quarter, you could say that we are benefiting greatly from road problems. We probably had similar, if not bigger problems on the ferry side because of the challenges of flying drivers from Turkey to Italy and France, where France and Italy closed down for planes. So I think it probably evens out between the 2 modes of transports in Q1, the complications. This also leads to the final question that we gained some market share. I think if we gained market share from road, it's very marginal, but we have at least not continued losing as we did during '19. I think we may be up 0.5 percentage point or something. I don't remember the exact details.
And your own operational efficiency, how's that?
Well, the congestion issues have solved themselves. So we have no issues operationally in Trieste with these levels of utilization. But we, of course, continue to prepare for the day that the volumes are back. We saw continuous improvements during the last quarter in '19. And also when we had the high volumes beginning of the year, much better situation than before. So it's gone from a red alert to a yellow situation, if you could use that. So we're not as concerned as we have been about that.
Okay. Then I have a question on implementation of safety. I guess you must have had some extra costs in Q1? Or will it be the same also for Q3 -- Q2 and Q3?
Yes, I don't think those costs is significant enough to move the needle for us. There has been a lot of complications and practical issues. But the cost, it hasn't reached our level, I think, yet. But I'm sure it has cost some millions, but not double-digit millions on the other hand. If we had to charter also some extra planes to get crews shift and stuff like that, but not now.
Okay. The final question in the queue at the moment is over to the line of SEB, Frida Marie Bruun.
Yes. I was actually going to ask about the Turkey and the Mediterranean network. Can you just answer -- talk about this? But could you also maybe say a bit about the signals of supply and demand from Turkey now given the Turkey is an emerging market, which could be harder hit economically than Europe? And how is the Mediterranean network holding up so far with respect to this other than what you already commented?
I don't know that we have any views on the macro consequences for Turkey at this stage. The car factories that have announced openings, that's also true for Turkey. Daimler, for example, is opening again. And in terms of the impact of corona, we have not seen that turkey is harder hit than -- or of course, they are less hit than the Southern European counterparts. So the first challenges we have was actually that Turkey was talking about not allowing the ships coming from Italy in, but luckily, that was solved. So I don't think we have anything noticed anything in particular with regard to Turkey. We have not seen like we saw with the currency crisis in '18 where we saw an immediate impact on the strength of our customers. We have not detected something to that extent this time.
Okay. As that seems to be the final question on today's session, may I please pass it back to you for any closing comments at this stage.
Thank you very much. Thank you for listening in. An unusual situation and I understand that there could be some frustration that we cannot give you all the answers, but we are trying to give as much guidance as possible. We are at good spirit here in DFDS and also throughout our system experiencing a lot of enthusiasm getting together to support the operation and the company. And we will, of course, make sure that we don't disappoint our colleagues who work hard to make very complex situations operating through this situation, but also to make sure that we do everything that is necessary to keep the company healthy. And so far, we believe we have managed that. And with the recent adjustments to the loan agreements and the liquidity amounts that we have available, we can fully dedicate our efforts on optimizing and developing our operation. So looking forward to hearing from you after in connection with our Q1 reporting early May.
Okay. So this now concludes the call. So thank you all very much for attending. And you can now disconnect.