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DFDS AS
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Ladies and gentlemen, welcome to the DFDS Q2 Report 2023 Conference Call. [Operator Instructions]. Today, I'm pleased to announce Torben Carlsen, CEO. Please go ahead.
Thank you very much. And please turn to Page 3. Good morning. I am joined today by Karina Deacon, our CFO; and San Brondholt, our Head of IR, as usual. As you have seen, we raised our outlook yesterday on the back of Q2 earnings above our initial expectations for the year. Last quarter, I mentioned we were confident about the resilience of our combined very road and rail transport network and our supplementary contract logistics solutions, and we remain confident about the next quarters as well. On Page 3, you see some of the key current drivers. Our operational performance was strong. We have adapted to the volume slowdown. We've achieved freight value rate increases, and we've taken steps to lower cost. Thus, we are very focused on continuing to be the preferred partner of customers. The strong performance was delivered despite headwinds on the channel due to the comparison to last year's situation and the Baltics due to the war in Ukraine. Turkish volume growth slowed down. And lastly, the oil price spread has returned to normal levels. Our logistics acquisitions are doing well, and the recent acquisition of Estron in the Netherlands is expected to close this month. Our customer offerings are stronger and we gain scale benefits. The final thing that's top of mind is optimizing our cash flow. Our adjusted free cash flow is trending at DKK 1.5 billion as our CapEx they mainly comprise regular maintenance. All in all, we are optimistic about the second half of the year, and we have our hands firmly on all the levers we can control to navigate safely through the current challenging market conditions. So let's turn to Slide 4. DFDS Group EBITDA down 5% to EUR 1.4 billion. The Q2 2022 comparison, as I mentioned, impacted by elevated channel earnings from P&L suspension last year. Barry Freight EBITDA is down 20% due to lower volumes, the channel 2022 boot and oil price spread normalization. Our passengers EBITDA is up 28%, driven by higher volumes. Logistics EBITDA is up 26%, including the positive impact from acquisitions. So with this high-level introduction over to Karina on Page 5.
Yes. Thank you. If you look at the revenue, the reported revenue decreased 3% to DKK 6.9 billion, but it was significantly impacted by lower bunker charges as the fuel cost declined. So if you exclude those bunker charges under the [Indiscernible], revenue was actually up at 2.5% for the group. Looking at the waterfall here to the right, we see the sale charters reflected in the very decline, which was almost entirely explained by the search charters. The volume decline that we saw was almost compensated for by higher rates. As in the business, up by 24% in number of passengers compared to Q2, 22. Q2 '22 was slightly impacted still by COVID restrictions. But nevertheless, 24% was pleasing to see, and we also saw higher spend, which increased the revenue. If we look at the sort of old DFDS logistics, we saw a decline in revenue. There were lower volumes in the entirely digital network. And we also in the logistics area, had lower surcharges for variables such as fuel and electricity. Finally, we closed in 2Q a relatively small business in Norway. But however, it did have an impact on the revenues here. Acquisitions, as you know, McBurney included for the first time for a full quarter. So they account for the majority of the EUR 390 million here. Turning to Slide 6. We already mentioned that EBITDA was down 5%. But as we also explained in the outlook, it was still better than what we had expected. Looking further in the P&L on the depreciation, it was increased by 6%, but very much due to acquisitions. Then EBITDA, down fall of 13% to DKK 765 million. This also meant that we saw a margin reduction of 1.2 percentage points. A line that we don't normally talk so much about, but with the relatively large new acquisition, the amortization line increased quite significantly from the purchase price allocation in relation to the acquisitions. Then we have the finance cost, significant increase. We have higher interest rates. It was almost a doubling on average since the second quarter of '22. And then when we compare again against '22, we also have had an increase in the absolute level of net interest and debt. Finally, the effective tax rate quite low in this quarter of around 4%. Nothing special there. It was simply due to some prior year adjustments as you always have. But because our absolute level is relatively small. We've had a large impact. There's no change in our long-term cation of 5% to 7% effective tax rate. Turning to Slide 7 on the balance sheet and cash flow. When we look at ROIC before the acquisition intangibles, we saw an increase to 11.4%, up from 8.5% in the second quarter of '22. We also saw an increase in ROIC reported now at 8.4%, up from 6.3% in the same quarter last year. As Torb mentioned, we strengthened our operating cash flow. It was slightly reduced by our working capital increases and the higher finance costs. But with the lower maintenance CapEx, we saw an adjusted free cash flow almost on the same level as last year of DKK 600 million. LTM cash flow was DKK 1.5 billion as mentioned by Torb. And finally, looking at leverage, we maintained with 2.9 leverage in our target range, despite the acquisition of McBurney. This was, of course, well ahead of the 3.3x earnings that we had in the second quarter of last year. Slide 8, a few words on Ferry. Reported freight value revenue was down 13%, but only 2% if adjust for gas for the change in the past surcharges. And that means that the 15% volume reduction was almost offset by the higher rates that we have implemented from the beginning of the year. But all in all it meant that the EBITDA was down 20%, partly impacted by the reduced volume, but also due to the exam impact from '22 and higher net bunker costs following the decrease in spreads. Patent revenue, as I mentioned, up 14%. The increase in number of testers came across all the activities, but the most significantly on the channel. And we saw an increased onboard spend, not least on the duty free, where we saw a good uptake compared to Q2 '22. So it's beginning to take off as we are hopeful. That meant that the EBITDA and the passenger activity was up 28% following the volumes and the spend. And then we saw in the Passenger division a saving on the bunker simply because of the lower fuel price. Finally, on Page 9 on the logistics. Overall, revenue was up 4%. And if we look into the 2 divisions, the dry goods revenue was down 2% and 7% down in the [Indiscernible] activities because in the logistics business, we saw quite a tough quarter with volumes significantly down. And then we also saw the surcharges as a in decrease. Cold Chain reported a 10% increase in revenue, but obviously, net had an impact. So if we look at the organic growth, it was minus 12%. Also here impacted significantly by lower volumes, especially within the meat transportation. And then as I mentioned, the closure of activities in Norway is part of the Cold Chain business. Total EBITDA in Logistics was up 26%. And of course, the acquisition had a significant impact. If we look at the old CFS businesses, it was slightly down but we think that with the increasing or decreasing volumes, it was good to see that the dry goods held on to their earnings, whereas the Cold Chain saw a slight reduction, but that was also including certain restructuring charges after we have announced a closure of our office in [Indiscernible]. That concludes the review of the numbers, and then back to you, Torb.
Thank you very much, Karina. On Page 10, very CO2 emissions intensity reduced 8% across our new network, which is ahead of our 2030 plan, now 45% of our $125 million all of eTrucks have been deployed, customers show strong demand, and we have no -- we see no problems in deploying the remaining as they get delivered. We have launched the DFDS decarbonization solution platform where customers can now purchase CO2 reductions certificates from us linked to when we use biofuel and electricity in our operations. We have rolled out or beginning -- begun rollout of new health and safety system primarily for the land-based operations where we feel that we still have potential to improve. Turning to Page 12. The summary of all what you've heard here is that we have made an EBITDA outlook raise. And this is, as we mentioned, due to a strong H1 performance, but also that we see that the commercial and operational initiatives that we have launched and execution in H1 will support H2 performance where also, as you can see, in the Ferry division, we managed in H1, lower volumes and fuel spread normalization. And that volume decline is set to level off in H2, as Karina earlier explained. The Ghent position was able in Q2 to protect earnings despite lower volumes, and it's our expectation that we are able to mirror that performance also in the second half. So revenue continued to be an unchanged outlook of around DKK 27 billion CapEx outlook also unchanged. But as mentioned, EBITDA outlook raised to now DKK 4.8 billion to DKK 5.2 billion for the year. Our key priorities on Page 13 is a continued focus on capacity management to match demand and supply. We continue to execute on our cost adaptation initiatives. We focus strongly on our customers and new customers so that we can fill the network in a balanced way. As mentioned, we have an Estron acquisition that closed this month and will help strengthen our network further. Our green transformation projects will continue to move forward. On the social element of ESG there's an intensified drive to improve our gender of Splits picture of as Seaways with Chief Pantene and Penedes in the end in room, and we will more and more see larger groups of women on both the individual vessels to create a more balanced work environment. And as mentioned, continued safety improvements have also been launched. So with that, so introduction for Q&A from the audience.
Ladies and gentlemen, at this time we will begin the Question and Answer session. [Operator Instructions] And we are having our first question from Ruairi Cullinane from RBC Capital Markets.
My first question is on the price mix effect within your freight business, where Karina highlighted that freight revenues are down 2% on volumes 15% lower. So how much of that is pricing? I guess how much were rates up on average this year? And how much of that is a mix effect? Secondly, given your M&A ambitions, how do you see the 7.5% ROIC in logistics? Do you see that as in line with the 8% target, given we're at in the cycle? Or do you think more work needs to be done? And if so, where? And then perhaps just on freight volumes, where the freight volume decline is still quite steep, given we're now starting to lap more comparable comps. Could you please expand a little on your expectations there? And is there the inventory destocking perhaps playing a role?
Ruairi, that were many questions. The -- I think when you look at the -- and I think when you say freight volumes, you referred to our ferry freight volumes. What has happened is that the largest decline we've seen on the channel. So those are also our cheapest main meters since the distance is relatively short. So when our lane meters primarily or those parts are reduced on the channel, then the mix is so that the lane meter price goes up, and that is the background to the relatively significant increase in lane meters that you have a mix change. But as we also right, we have also managed to get price increases, for example, in the Turkish network where we have not introduced general price increases since our acquisition in 2018. We have now managed a general price increase. On the -- and you had to follow up if I missed some of it, but on the acquisitions and your subtle questions about ROIC performance in logistics in that connection. We are, of course, not pleased with 7.5% ROIC and mind you, the recent HSF acquisition has generated revenue in the Ferry division with some DKK 4 million, DKK 5 million of benefits to the ferry. But regardless of that, we have seen some challenges in the meat market, where many meat producers in Europe have had challenges. This has caused relatively big imbalances in our Cold Chain system. This has been accentuated a little bit with the bad summer where also where some of the Italian and Spanish crops were destroyed. So we certainly expect over, let's call it, the next 6, 9 months, an increase in ROIC performance in logistics overall, but primarily coming from the Cold Chain side. Then you asked about...
Expectations of say in second half?
Yes. And if you're talking Ferry Freight, then as I think Kaina mentioned, we've had these unusual situations. One that P&O didn't operate last or '22 Q2 or most of the quarter and also the impact of the war in Baltic had not fully set in last year. Now when we get to the second half of '23, the comparisons are more regular, and we'll see a significantly lower decline in volumes in the second half of the year than we saw in the first half of the year. And maybe more specifically, we still see that Baltic channel and North Sea will have slight declines and probably a fairly flat Mediterranean volume development.
The next question is from the line of Ulrik Bak with SEB.
Also a couple of questions from my side. I will take them one by one. Firstly, you mentioned quite of comments about the bunker spread and surcharges. And you mentioned that Q2 revenue actually increased 2.5%. If you adjust for these longer surcharges compared to the reported growth of minus 3%. If I calculate that correctly, that corresponds to a negative impact of DKK 400 million in Q2 compared to last year. Can you shed some light on how much of this negative delta comes through to your EBITDA in Q2? And also in that context, how we should think about Q3 and Q4?
Well, that part of plots is a simple wash because that is just passing on the increase in the charts or the decrease in the jobs. So that part, the DKK 400 million, you shouldn't calculate anything of that. Then, of course, you can do that what else impacts the bunker cost on a net basis. And there, we have -- I think we also talked about that out per Q1. We have initiated some schedule optimization programs where we look at changing the speed of our sailings. And of course, then there's also the normal optimization of the number of savings we do. We have talked about -- on the channel that we could optimize after the collaboration with P&O. So all these things have added to reduced oil usage, hence, some savings on that. And then eventually, I know you're going to come to the development in the oil spread, where we -- as we talked a lot about last year, had quite a significant spread in Q2 last year. that for various reasons, which I just explained, we were able to mitigate that negative effect.
Okay. And looking at H2, have you hedged your position, so you'll be able to mitigate it, too?
I would say, yes, we have hedged, but we cannot mitigate because if you recall, the spread levels in Q3 and Q4, they were very significant compared to where we are at the moment. So we will see also a significant impact in the second half of the year from the spread effect.
Understood. Then a question about the channel. Obviously, we've spoken a lot about the market dynamics with the 3 operators. But can you just give a quick update on how you see the competitive landscape at the moment? And also, how you expect the P&L 2 new vessels will impact these dynamics?
We continue to do well operationally and in terms of getting the market share that corresponds to our operational number of trips. The dynamics, when you look at the market shares seem to be that the tunnel actually has lost market share whether that's a consequence of their firm surcharge policy with the electricity or whether it is -- or maybe a combination of also the strong schedule that we now offer with P&O. It's, of course, hard to tell. But this means that some of the market share that IFRS have picked up has been sponsored by the tunnel. And as far as we can see, P&L are doing have market shares above their capacity where the opposite is true for [Indiscernible] varies. So maybe that is a consequence of the larger ferries that they now operate P&L. But all in all, we are pleased with the performance. And on the Passenger side, the market is strong also in terms of the pricing mechanics that are in place in the market.
Okay. So you haven't factored in a market share loss following P&Os to new ferries, which will enter the trade line in H2?
Well, one of them has entered already. So we -- if we lose a 0.3% market share, that's not going to change our outlook, right? We're very confident with our outlook for the channel in H2.
Okay. And then just a final question, just your revenue per lane meter also to the previous question you asked. With channel making up a higher share of your volume mix, should we expect revenue per line meter to decline in H2 and also the impact from the bunker spread, would it be a fair assumption that the revenue billing this should decline in H2 compared to H1?
Channel will not have a bigger share. Channel has reduced its share. But if it then -- if we assume that the reductions in the Channel volumes now start to resemble the rest of the system, then there would not be that mix impact. In terms of the fuel, then I think, of course, if fuel goes down, then our landed price including June will go down, but that we can adjust for in the calculations. But the underlying price is not going down per lens. We don't offer reductions to customers other than the changes in BAF on a monthly basis.
The next question is from the line of Dan Jensen with Carnegie Investment Bank.
Could you speak a bit about your implied guidance for second half implying DKK 2.4 billion, DKK 2.8 billion at the EBITDA level. And when we compare to last year, where you had 2.7%. And what should take it down relatively towards the DKK 2.4 million? You have mentioned now the bunker spread. But are there other things that could work against you when we compare to last year to elaborate a bit on that spread you have implied for second half? That's the first question.
Unfortunately, the bunker impact is quite significant. I think we have touched upon that a few times. So on the negative side, that will the explanation. And then there are certain positives on the other side that potentially could take it a little bit up. We have, of course, the acquisition impact and a small improvement on both the Freight Ferry and the pack side. But overall, from the negative side on above.
Okay. Fair enough. And then maybe some words on how you see Turkey developing. You're mentioning you're definitely seeing a slowdown primarily was caused by slowdown in Europe. But how should we think of Turkish volumes going into '24, you mentioned to sort of flat more or less here in second half. Is that also a good, so to say, projection for '24? Or should growth return at some point?
For '24. I think for now, we can see that the slowdown in primarily in Germany is part of the explanation for the flat development in Turkey. The economic measures that Turkey is now taken to curve inflation are hurting a little bit, but hopefully only in the short run, we see this as very positive that inflation is getting cured. And of course, we hope that in '24 markets have normalized. And if Germany is back in shape in '24, together with the rest of Europe, then for certain Turkey is a place we would see strong growth. But I have nothing scientific at this stage. We are much more focused, of course, on the next 6 months. And there, we see this flattish development.
Okay. And then finally, just on CapEx, your DKK 2.8 million that includes the DKK 1.2 billion in M&A. So underlying DKK 1.6 billion, so to say, at one rate. Is that the run rate we should look out for here in coming years? Maybe can you elaborate a bit on show you see, so to say, new vessels entering the fleet decisions of new vessels and how that could impact the DKK 1.6 billion rate CapEx?
Let me comment on the maintenance, the DKK 1.6 million. I think we are probably a little bit in the low end with the expectation for DKK 1.6 billion. We also have some acquisitions, for instance, Latona, which has a bigger fleet. So I would -- without giving any guidance, I would spreadsheet up it a little bit in the coming years. And then I'll let Torb talk about this.
Yes. We have no new vessels in the horizon.
Next question is from the line of Michael Vitfell-Rasmussen with Danske Bank.
Three questions from me. First of all, could you just talk a little bit more in detail about the cost initiatives that you do in the Logistics division. Do you expect to further accelerate that into the second half in terms of the market environment that we see out there? And then maybe also if you could comment something in absolute terms in terms of costs?My second question is on the unallocated EBITDA. What is driving the difference from DKK 50 million to DKK 100 million? And finally, if you could just discuss a little bit on the target EBITDA margin for Ferry Passenger. Now you see duty-free growing? What do you expect going forward from that division?
When we start with the logistics cost we have -- what we do is that when we see volumes dropping, we reduce our haulage. So we are reducing third-party audits. We're reducing internal haulage, which means selling trucks, reducing our number of drivers is in the planning sections where it's very much proportional to the activity level that we make adjustments. And then it has a lot been about -- that's not on the cost side, but to make sure that we get the right volumes, the right customers in so that when we lose volumes northbound that we that we don't get more volumes in the southbound but rather compensate what we have lost. So it is basically -- and in the EBITDA area, this is a continuous mindset to adjust. We have '23 been very clear that this could happen. And therefore, we have acted fast, and this is part of the reasons why Q2 looks so relatively good. Part of the explanation is also that we had some units in '22 that did not perform 100%. And we have successfully managed to turn some of those units around also helping safeguarding the level, of course. In absolute numbers, I cannot tell you the cost savings because it is a mix of having reduced third-party allies internal cost. And the third-party allies are a lever that we can automatically increase and decrease on to on a net basis.
Yes. I can take the unallocated. The answer is that it may much a rounding. If you look at '22, it was DKK 76 million and then when we guide, we try to have round numbers, Q1, we set about DKK 50 million. Now maybe it was sort of rounded up to DKK 100 million. So don't put more into that. If you're looking for the marginal increase, then slightly more C&I or IT that we-- the C&I costs, but not -- don't put anything or put more into that other than it's a slight rounding. When you asked about the margin in the passenger business, it's a little bit of a difficult one because remember the way that we report our EBITDA in Passenger. We have sort of the full cost, if you could say like that from what the old BU Passenger. So the Oslo-Copenhagen and the new parcel on Amsterdam, whereas when we measure profitability on the Ghent, we take it as a marginal income compared to the Freight business. So I don't think we did meaningfully give a percentage number for the Passenger business, it will not depend on the split between them. But there's no doubt that we work very hard on improving what we get out of each passenger. And that comes, of course, both on the sea fare that we can charge. And then, of course, looking at the onboard spend being due to free on the U.K. route of being other spins on our other routes. So we are quite pleased with what the team is doing there, and they continue to see if they can improve.
Great. And if I just may add another question. So on ECO, if you could just add a bit more flavor on kind of the next steps from your side. And also just to understand the phrase that you put in the report here in terms of the commitments in relation to continuing access for all logistics players to your Ferry network. So please explain that pricing, please.
Can you repeat that what was tending to refer to commitment?
Yes. So what you put in the report is as a part of the review process, DFDS has undertaken commitments in relation to continued access for all logistic operators to DFDS ferry routes to from Turkey.
Well, the tonnage of RCs have said that if we were to acquire Ekol, they would not object to it. That has taken 1.5 years almost to you a bit before, at least, we decided to ask them until the conclusion has come. As past that, there have been a number of questions, and one is whether we would -- as a consequence of this, would restrict other whole and freight forwarders access to our far services. And we have, of course, gladly entered the commitment to say, no, we are not going to restrict anybody else's access to our very network because of this acquisition. So that's what that sentence means. In terms of what's next, because it has taken a long time, we are not up to date in terms of the performance of Ekol and it has not been possible to keep the process going for that long. So we will restart the process we have discussions with Ekol and then if they turn out positive, I would expect something earlier in '24, not before that.
The next question is from the line of Lars Heindorff with Nordea.
Also a few one for me, taking one at a time. A question regarding the bunker. I'll try to ask in a little bit different way. I can see that you offered lane minuses up by roughly 2%, but your consumption is down by 13%. You've already indicated that you've been doing some network optimization and also maybe selling a bit slower. I just wanted to get your thoughts about this. Is this a relationship that will continue into the third quarter and maybe also even beyond that?
It's a little bit hard to hear all your views last but we expect the drive to reduce consumption will continue and my guess is that we still have initiatives that will also show significant decreases next quarter. Part of it is from the slowdown part of this. I think also Karina mentioned the partnership with P&O where we have not just slowed down, but actually cancelled a number of savings on the channel because we can offer attractive schedules without performing all the savings ourselves. And that will also still have an effect in Q3 since that was not put in place at that stage last year. So we'll continue to see reduced longer consumption through our network in Q3. Sorry, if I didn't hear your question completely.
That's fine. You answered very clearly. And then a question on the Passenger side. You've been talking quite a bit about increasing spend. But if I calculate a revenue per tax, it's down by 7% year-on-year in the second quarter. And I just wanted to get your view on what is driving this decline because we also have been seeing quite a decline in the previous 4 quarters. And then because at the same time, you talk about increasing spend per pack and you talk about the duty-free that you've been setting up as well. So I mean, what is driving this decline? Is that an underlying structural change? Or should we see something along the same lines into the third quarter?
We haven't calculated it. But when we look at this, we look at it on a route-by-route basis where we see the increase when there are mix changes. And in this quarter, I'm pretty confident we have seen the channel potentially moving. And even though they now spend duty-free, it's in comparison to how much the passenger on board, so could making spend much less. So my guess is it's mix changes, but we can come back to that if you talk to in afterwards. But it's definitely not what we see on the individual rates.
But you also had lower volumes in Q2 '22 when there were still COVID restrictions. And that meant that you had the average spend was higher as opposed to when you have higher volumes. So there's a dynamic there.
Yes. the implicit thing is that the drivers spent more than the regular passengers. And they were put -- you can get some details on that. But when we just look at the route by route and the segments, then there is a higher spend.
Okay. All right. And then on the logistics side, the GP margin up to 38% almost 38% here in the second quarter, quite a step-up compared to what we've seen in the past 3, 4 quarters. I just want to -- is this a sustainable gross margin level as we head into the second half?
We have a little bit of a change with the acquisitions, the way that they are set up, they come in with higher gross margins. And as we talked about after Q1, it's a new disclosure that we are making, and we should really look at the EBIT or EBIT margin when we look at it. But the increase in the gross margin right now is impacted by the acquisitions.
Can you say just -- can you ballpark, say, how much, I mean, of the M&A, which is causing the increase?
I don't have that number right now, but then we can post...
Okay. Never mind. And then maybe if you -- just sort of more liquid housekeeping questions. Karina, you talked about the closure in Norway. I mean what effect does that have in absolute numbers? You had, I think you said 300 something which was the M&A impact. I just wonder how much the Norwegian is counter products in this.
We could have shown it net of acquisitions, but we didn't put it in there. We put it into the old logistics business. In round numbers, it was about DKK 150 million top line.
And that's per quarter?
Full year. [Indiscernible]
On the profit side, we don't -- there is no impact really.
Yes. No, I understand that. And then just housekeeping, the interest impact from the higher interest rates on IFRS 16 related to leasing costs. Can you give us any indication on what's the impact on the net financials?
So yes, the impact of?
The higher leasing costs or the interest on...
Yes, it's less mechanical than when you're linked to Europe or cyber or whatever, but we do see an increase on the leasing liabilities as well.
Okay. And the impact in the quarter or we can get to that afterwards, in any way, maybe I can have a chat with Soren. And then can I just one more thing on Ekol. Also a follow-up on that. I mean, I guess, this is as you point out yourself, this is a defensive move if you decide to acquire Ekol. And I guess, I mean, the interesting part here is, I mean, what kind of money you will pay for maintaining the volumes. And as a part of that calculation, you probably need to come up with kind of an assessment if you don't acquire and then someone else could it be, I don't know, whoever it might be. Is this part of your assessment? And is the potential loss of volumes is someone else acquire Ekol. Can you give an idea? I mean, what do you expect there?
When we look at an acquisition like this, we -- the defensive part is a soft factor, like we will have probably some handful of things where we say other than the financing projections that we show here and the return, the shareholder value, et cetera, et cetera, other things we should consider. And in that, there will be -- there's a defensive move embedded here. There are a number of other things. We will not go ahead and make an acquisition that is not creating value on a stand-alone basis, if you call that or with the financial benefits it can deliver for us. The other parts are soft factors that we consider and the Board will consider when they decide to go for it or not.
The next question is from the line of Stefan Oberg with Sinmith.
Yes. Yesterday's raised outlook for 2023 made me a bit curious to hear about your thoughts about ROIC and performance of invested capital. Given that invested capital increased 10% compared to Q2 2022. Could you please try to elaborate a bit about your thoughts about reporting at this EBITDA level? That was question #1. And I would very much appreciate if you could take my #2 as well. I would appreciate if you could elaborate a bit about the Ferry and Logistics division. How this invested capital taken into consideration when you are calculating possible acquisitions or investments. Does the -- do you have a percentage EBIT target? Or is it only at the EBITDA down level?
I can -- let me take the second first. We have a ROIC target of 8% for the group. And when we make acquisitions, we therefore obviously make ROIC predictions and calculations. And depending then on the strategic interest, we've shown when we acquired in Turkey, for example, that we're willing to accept ROIC levels for 2, 3 years below the 8%, but that we would then expect it to reach the target. And that's not different across the divisions that we make those calculations. So I'm not sure exactly if that answers your question or what your underlying question.
No. My underlying question is that it's a bit difficult to -- as an investor for me to see the value of an investment if it is at the EBITDA level, I would very much like to see if there is any difference between how much is actually performed as cash flow or at the EBIT level instead of the EBITDA level since what we had last year was that in this quarter that you increased the capital 10%, but actually, we have a decreased performance at the cash flow and EBIT level. And that makes me wonder if you kind of take the EBIT and the cash flow into consideration, this is primarily a question of ROIC as I see it now.
Well, I think actually ROIC is, of course, the EBIT or a number close to the EBIT is used to making the right calculations. So the answer is yes. Of course, we do. I know we report our EBITDA a lot, and that's where we guide. We also report EBIT numbers. And of course, when we make the calculations, we do discounting cash flows. We do ROIC. We look at the EBIT and the so-called NOPAT. So the net operating profit less adjusted taxes, which is at least on the very side close to EBIDTA even on the logistics you just need to adjust for the taxes typically to find these valuations. So I can assure you that we use conventional valuation margins when we look at acquisitions.
Thank you very much. Is there a specific target that you kind of would like to achieve on an EBIT level?
We -- I don't think the EBIT level depends on the assets we acquire because obviously, it's different if you acquire a shipping company with significant vessels or whether you acquire a logistics company, with no assets. So when you look at our divisions, you'll see that our EBIT level for our Ferry division is significantly higher than for our Logistics division. And that's, of course, also taken into considering when we make the evaluations.
We have a follow-up question from Ruairi Cullinane.
So in Q2, Passengers were at 87% of 2019 levels. And it looks like they were higher in July. What would you expect for the remainder of the year? And would you be able to quantify in any way the sort of headwind we should expect at current fuel prices from bunker spreads going into 2024?
Karina, if you can take the fuel.
Yes, we will have a slight upside on the passenger vessels from the lower fuel price. That's clear.
Is it only related to Passengers, Ruairi, your question?
Yes. So it was just in a Passenger recovery in H2. So in recent months, we had had a run rate of Passengers around sort of 88% of 2019 levels, but it looks to me that in July, Passengers are much closer to 2019 levels. Is that a step up? Or does that reflect the 2019 comp? Or would you agree with my calculation that we are...
We're still behind '19, but -- and we are also seeing that some of the high-value Norwegian passengers are still behind '19 and the international segment on the Ferry and on the channel, things have not recovered as fast as -- so there's still -- in theory, there's still upside in, I call it, a COVID recovery in the number of passengers. And of course, when fuel goes down, that benefits our Passenger business because we don't have any fuel surcharges on that side.
We get that, but in our assumptions, we have assumed that we will -- we will get closer to '19, but we will not be on level with '19 for the full year.
Thank you very much. Thank you very much for your participation today and for the good and wide range of questions. As I mentioned in the introduction and through the presentation, we are optimistic about delivering our outlook. We continue to pursue development opportunities to further enhance our customer offerings, and we very much look forward to speaking to you again soon. Thank you very much, and have a good day.