DFDS AS

CSE:DFDS

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, welcome to the DFDS Q3 Report 2022 conference call. [Operator Instructions] Today I'm pleased to announce Torben Carlsen, CEO. Please go ahead.

[Torben Carlsen, executive]

Thank you very much and welcome to this conference call. I'm joined by Karina Deacon, our CFO; and Soren Brondholt, our Head of Investor Relations.We obviously very pleased to deliver both a strong Q3 result and the profit upgrade to now between DKK 4.8 billion and DKK 5 billion EBITDA. We're seeing slowdown in growth in some markets. But we're meeting this possible challenge with a very strong balance sheet, a low CapEx outlook and strong operation.In recent years, we've been tested by corona, Brexit, supply chain bottlenecks, geopolitical tensions, including the war in Ukraine, and tougher competition on key routes. This quarter's result again demonstrated our resilience. This resilience builds on our business model that is focused on moving goods in trailers by road, ferry and rail and moving passengers traveling by car.Trailers are versatile, fast and carry a very broad range of goods, industrial parts, automotive parts and metal products, fast moving consumer goods, meat, seafood, et cetera. This means the we transport goods consumed on a daily basis in Europe. And of course, a slowdown will lower volumes, but trading will continue at a high level for the vast majority of the goods in our network.Our passengers are, post-COVID, looking again as a stable segment, which previously has proven countercyclical as short trips are favored in challenging times.So with those introductory remarks, let's take a closer look at the quarter. Page 3, the headline strong Q3 moves our return on invested capital above our 8% targets and our financial leverage is back in our target range of 2x to 3x net debt to EBITDA.In Q3, the freight ferry demand held steady. But the growth picture became a little more mixed. Logistics EBITDA met the threshold of DKK 1 billion EBITDA for the last 12 months. Our Passenger high season was stronger than we had expected. And actually in financial terms 11% above the 2019 pre-COVID results.As mentioned, the ROIC is now exceeding our target by 8.4% and our financial leverage is back in our target range of 2x to 3x. You can see that we saw a 64% growth in revenue this quarter and an 88% growth in EBITDA with ferry and logistics outlook, as you can see to the right -- sorry, last 12 months to the right.Turning to Page 4, where did the EBITDA come from? Well, a strong recovery in Passenger and an improved logistics results. Ferry freight, EBITDA increased 13% to now DKK 741 million for the quarter, especially up in the North Sea and Mediterranean. Whereas, Channel facing a general market turndown and also different competitive situation was lower.The passenger recovery contributed with additional EBITDA of DKK 569 million compared to DKK 52 million last year. And logistics EBITDA was up 91% which comes from improved cost coverage, strong performance in our so-called Old DFDS logistic units, and then the contribution from the acquisition of HSF and ICT.With this I turn over to Karina for more details on revenue.

[Karina Deacon, executive]

Yes, thank you, Torben. On Slide 5, we have showed the buildup of the revenue growth of the 64%. As mentioned we saw the strong recovery of tax volumes here in the high season of Q3 with the return of passengers on all routes. If you look at the average we were at the index 85 compared to the pre-COVID timing in 2019. And that was an increase up from this 71 which was the index Q2. So a strong return here in the high season.If we look at the Baltics, they were even above 2019 on index 109. And then we have the pax routes on the Oslo-Copenhagen and the Amsterdam-Newcastle at the index 94. Clearly with the competitor on the Channel. The Channel return was not as high, but still on index 81.In ferry freight, the overall volume was negative by 7% mainly due to the Channel. I'll come back to that. But with more or less stable rates then that was not what drove the increase in revenue. It was attributable to the oil surcharges as low sulfur price, the MGO as we call it, it remained significantly up compared to 2021.In the logistics, we saw the continued organic growth around 20% from the increased activity, as we have started various logistics solutions and increased their custom clearance. And then of course also the impact of the price increases including the surcharges that we have talked a lot about during the year.And finally, the HSF and ICT, which we will now show. In respect of HSF for the last time because they were included from the 14th of September, '21.If we turn the slide to -- Slide 6 on the P&L. We have talked a lot about the revenue and EBITDA already, so a few other items to focus on. Depreciation in line with what we've seen during the year, an increase of DKK 106 million in the quarter. Compared to last year, there was the acquisition impact, which accounts for about DKK 60 million. We also have the effect of the 2 GSIs that we have the ro-pax we have deployed in the Baltics, as well as some additional charters made since last year.Good news to see that the increase in EBITDA also shake down to EBIT which almost tripled to be just below DKK 1 billion and that brought EBIT margin to 13.4%, significantly up from the 7.5% in the third quarter of '21.If we look at finance costs, they were up. The interest rate was -- there is a slight increase also within higher interest bearing debt of DKK 14 million, but the remaining difference was due to currency adjustments where we saw some gains in '21, whereas we had some losses in '22. So the net effect of that was quite different. All in all, it meant that the profit before tax, up 224% to DKK 853 million.If I turn the page to slide 7, a few words on the balance sheet and cash flow. Operating cash flow up 16% to DKK 1.3 billion and that's despite the seasonal negative impact on working capital from the prepayments from customers on the passenger routes. Adjusted free cash flow was DKK 85 million after inclusion of the purchase of the vessel on the [ Trieste ] and also the acquisition of Lucey in Ireland which took place right at the end of that quarter.And we've talked about the ROIC now at 8.4%. And as you know, we have for quite a while now seen it below our target, but not least due to the lack of passenger earnings. So with the passenger earnings coming back for the high season, we are now above our target. I think it's also worth mentioning that we've also talked a lot about the EU net driving down, but in this quarter they actually increased up to now 7.2%. So our full target is definitely insight.Net interest bearing debt up compared to the third quarter of '21. But, but due to the strong earnings we saw, the improved leverage that Torben talked about. After Q3 we were at 2.9x. So down from 2.7x at year-end. And with our recent updated outlook, I'd take a little bit of a chance, but I hope and I trust that we will go even a bit lower when we come to year-end.On slide 8, we have included a few remarks relating to our current debt and the debt structure. If we exclude the lease applications, then we are looking at an interest rate debt right now of DKK 11.6 billion. Generally, we have a debt with the variable interest, but we use interest rate swaps, so currently we have about 40% of our debt with the fixed interest rates.The composition of the debt has changed somewhat during the year and we are in the process of changing it further. The large acquisition facility we had in the FSA we had relating to the acquisition of U.N. Ro-Ro is currently being refinanced. It expires in June 23 so we are extending that. We continue to have good support from our 5 core banks who were participated in the in the FSA back in '18 and we have then on-board again for a refinancing which is expected to be completed shortly and especially before year-end.And then we also have the repayment of the -- of DKK 1 billion of bonds in September. It was replaced by a bridge security which runs to the end of '23. So, there will be a more refinancing to be done in '23. We will consider to use these recently obtained investment grade rating and potentially issue bonds, but of course depends on how the bonds market looks in '23.Going back to the results, a few words about our development in ferry on Slide 9. We saw an overall increase of more than DKK 600 million in the ferry division. And that improvement came from all units, but mostly, of course, as we've mentioned now from the return of passengers.North Sea up 45% after growth in revenue and lower operating costs. So despite volumes more or less in line with '21 they reported a significant earning growth. Mediterranean, continue to improve results. They went up by 31% and that was driven by 7% higher volumes. We've been so used to seeing double-digit, so 7% is perhaps not seen as strong as we normally view it. They were impacted by some fires in Trieste area that impacted the operation in the hub. So it was comforting to see that in October they were back at double-digits volume growth again.On the Channel we saw a significant improvement in earnings, but all of it related to the boost in contribution from passenger activities. We have a very tough competition at the -- on the Channel as we talked about before. And then with a market decline, which in the third quarter was 6%, it gets very difficult to have a improved earnings, which were also being seen.Turning to slide 10 on the Baltic, fully as expected volumes down. They were reported to 19% down and that is more or less the same as we saw in Q2, so it seems to have found a stable level. But the Passenger, they were increasingly returning and they together with lower operating costs contributed to the overall increase in EBITDA.Last but not least the Passenger business units, they improved earnings significantly. Both on the OSC and the Amsterdam Newcastle we saw people returning, the index 95 and 93 respectively. But not least important, both routes have a higher revenue per capacity both in terms of per seat fare, but also on the onboard spend.And on slide 11, on logistics almost doubles with EBITDA. Of course with the acquisition impact from HSF but also pax growth and higher margins in the old DFDS business. On the Dry Goods, they were up with DKK 51 million after increased activity. For instance in custom clearance and logistics solutions that I mentioned, but also up improvements of most of the activities in Nordic and Continent. We've had some areas in '21 which we'll need to focus on turning around and we did that successfully and that's reflected in the increased EBITDA overall here.Looking at Cold Chain, up DKK 90 million and of course it's driven very much by HSS. Existing Cold Chain business in U.K., Ireland, they were on level with the Q3 '21 and they continue to be impacted by lower volumes in future business in Scotland.But if you look at the HSF business in Nordic and Continent, they both improved and then we are pleased to see that the integration continues as planned. We have now a runway effect of synergies of more than EUR 7 million of the EUR 10 million we expected.We did the first large system migration here in Denmark with success here in 2 weeks ago they went on our frontline logistics system. And on this Monday they went on live on our new ERP platform both with great success. So that was a significant milestone for us.So with those words, I will hand back to you, Torben.

[Torben Carlsen, executive]

Thank you very much, Karina. On page 12 we continue our strong drive to compete -- or to engage in the green transition. We reduced our ferry emissions 4% this quarter on the back of a number of actions, sailing slower is one of them. We are this month testing biofuel on our route from Vlaardingen-Immingham. It's going well.Yesterday, we launched our first eTrucks in Ghent together with the participation from the Belgian Prime Minister and will deploy in Got -- across Ghent and Gothenburg another 20 trucks the coming 2 months. This year we produce so far 1 million kilowatt of electricity from solar panels. This will triple in '23 based on the installations that we have made.Let us turn to page 14 and the '22 outlook. The revenue is now expected to be around 45%. And as you know we pass on fluctuations in oil cost. And due to the higher costs here, our revenue is also increasing.The EBITDA range is raised from DKK 4.4 billion to DKK 4.8. billion, which was what we raised to in August to now DKK 4.8 billion to DKK 5 billion due to the stronger than expected Q3 result that Karina just provided some details on. The investment outlook is on unchanged.Page 15 some of our key current priorities. Facing some clouds in the horizon in some markets, we of course continue to adapt our capacity to such changes as we always do. We are and have been focused on organic growth, retention of customers, growth with our customers for some years. And we're getting traction in larger industry solutions that we'll continue to focus on.We will also continue our inorganic growth both through M&A possibilities, but also initiatives as you've seen recently in the contract logistics, custom services et cetera. We'll continue making sure that cost increases that we face is also reflected in the pricing we have with our customers. And then we continue our green transition projects, some of those I went through just before.So this was what we wanted to tee off with before handing over for questions.

[Operator]

[Operator Instructions] The first question is from Dan Togo Jensen of Carnegie Bank.

[Dan Jensen, analyst]

Congrats with the strong results in this environment. Trying to understand a bit the North Sea here. You have more or less flat volumes compared to last year, still you improved EBITDA by DKK 130 million. Can you make a bridge here for us? How much of this is relating to the bunker spreads, for instance, and how much is, say, underlying improvement -- structural improvements that you can take with you into '23. Thanks. That would be the first question.

[Torben Carlsen, executive]

Yes, good question, Dan. Yes, there is, of course, some favorable movement in the different oil types and the spreads between them and many of the ships we operate in the North Sea have scrubbers that can benefit from this. So that is part of without being able to tell you exactly how much that is a part of it.A significant part comes also from our pricing discipline. We have introduced different mechanisms for standards in the course and other elements in the pricing to make sure, as I also mentioned in one of my bullets, that we aligned the increases we see in costs with our customers.And there, when you look at Q3 last year, those elements were not all in place. So we have, you can say, catch up or caught up with some of those elements. So I cannot give you a percentage, but a significant piece of the improvements we believe are something that can be repeated in '23.

[Dan Jensen, analyst]

Yes, because you also today saw that October volumes are in decline on freight right now. So it's just how to understand what are the levers, so to say, heading into '23? From where we are now, do you see that Passengers are back for good or do you expect Passengers -- could they be -- could Passenger volumes be hit by a recession or do you see that as more resilient in a recession scenario?

[Torben Carlsen, executive]

We don't know, of course, because it is a special situation right after COVID where people have some money, obviously, for traveling and then now some people facing very high energy cost and cost of living. So far, we have seen a very strong comeback, as Karina also demonstrated with the percentages. And those who are back, pay more for the tickets, they spend more on board.Will that change? Possibly some decrease in demand. When we -- and I know that some years back, but for the financial crisis, we actually saw this counter cyclicality in this Passenger business because people may be normally traveling longer distances, chose the nearer ferries traveling. And will be a slight shift towards more passenger -- sorry, transport-oriented passengers. I also suspect that we have a little more resilience than we even saw back then.

[Dan Jensen, analyst]

And just one question more related to your credit rating here. What are the financial metrics to keep your investment grade? Is that aligned with 2x to 3x net debt-to-EBITDA? Or has it changed? What should we look out for -- what would be the guidelines for your financial leverage going forward to apply and to maintain our credit rating?

[Karina Deacon, executive]

Yes, that's a good question, Dan. It was obviously something we also wanted to have full transparency around because what we have always said and what we maintain is that our target is 2x to 3x. But if a particular acquisition makes strategic sense, we can also go above that if we think that's right from a value perspective.And it was important for us to make sure that it wouldn't mean a downgrade in case we did that. And without sort of having been promised a specific number, in our dialogue with scope we have made sure that we have the flexibility that even if we saw period of time is above the target range, we will still maintain.The most important for them was that management and the Board actually show that we mean it when we say we want to be in that target range. And I think we have justified to that at the moment.

[Dan Jensen, analyst]

Their investment-grade decision is also based on the 2x to 3x net debt to EBITDA?

[Karina Deacon, executive]

Well, we shared with them the numbers that we've also shared with you and our expectations for the future. So having that dialogue, they felt confident that, yes, we are going to be within that target range going forward.

[Torben Carlsen, executive]

And you can, of course, say, compared to when we had those discussions, we have overperformed significantly. So of course, they are an independent entity, and they will have to do what they do. But we've been very clear in our communication that this is our target, but there will also be deviations potentially in shorter periods and they look carefully into our ability to then restore leverage, and obviously came to the conclusion that we were able to do that.

[Operator]

The next question is from Michael Vitfell-Rasmussen Danske Bank.

[Michael Vitfell-Rasmussen, analyst]

First of, I'd like to continue in the M&A side of things here. So maybe you can just discuss a little bit kind of from a strategic point of view, how important is it for continued growth for your business in the mid that you actually get your hands on Ekol co? So that's my first question.My second question is on the implicit Q4 guidance. When I calculate the EBITDA momentum that you need to achieve, it's rather wide. It's almost between flat year-on-year and to up to 23%. So if you can just discuss the assumptions in either -- of also ranges that we need to look for.And then finally, also kind of looking forward, if you could just talk a little bit about the business on the Channel. Now with increased competition and volumes going down, how do you protect or maybe even grow your earnings from here on? Or if you can just share a little bit on what we should see you guys doing here.

[Torben Carlsen, executive]

That was enough questions for the rest of the call Michael. No, but thank you. I can start and then Karina can maybe talk to the outlook part. But the Ekol possible transaction fits nicely into our overall strategy. We like to operate ferry routes where we also have logistics, call it cargo control, stay close to the market can offer these end-to-end solutions.We are performing very strongly in Turkey today without owning Ekol. So you can say there's not an immediate change of the situation by us owning them. We have a long-term contract with them. But in the long run it fits nicely with our overall strategy and would be an important piece in that part to replicate in Turkey, what we do in the other markets.Let me talk to the Channel, and then Karina can talk to the outlook question. Channel is obviously the most challenging situation we have right now. As Karina mentioned, the market has dropped by 6% this quarter. We see signs of that drop continuing.It's a mix probably of still some change from a accompanied to unaccompanied traffic that has taken place with the lack of drivers and where there is probably also some inertia and then moving it back even if drivers get more accessible over the next quarters.So there is this general trend that we also -- that we've seen for a long time. And then, of course, the British economy is impacted post Brexit and probably also impacted more than other economies. Although we don't see any significant impact on our unaccompanied groups at this stage. And they are, of course, then as a consequence of the other remark, probably benefiting from this move to unaccompanied.So what are we doing about it? Well, we had taken the strategic move even before we saw this market downturn and before we saw the new competitive situation to coordinate our offering better with the P&O operator on the Channel to see if we can have a stronger product offering vis-a-vis the ton -- so that's the customer side.The other side of that cooperation is that we are able to reduce number of savings while maintaining the same schedule for the customers or a similar schedule. So we have, during this quarter, reduced savings by 4 per day and also increased the crossing time by -- so we call it 13 minutes per crossing. It doesn't sound like a lot, but it has a lot of impact on our fuel consumption.So those 2 elements is probably approaching a EUR 10 million saving in operational cost, which at least will mitigate what we are seeing on the market side. Karina do you want to talk a little bit about the --

[Karina Deacon, executive]

The outlook in Q4, I follow, of course, your numbers, Michael. As always, when we give a range we base it around the midpoint of that range. So the obvious question is what could bring us below that. We have recently seen this actually a little bit unexpected production stop on some of the automotive production sites where we've seen for a period of time, a rather stable position. So that is something that -- that caused a little bit concern after the October numbers came out. So how much impact will that have the coming 2 months?And then also the Channel, it has in September and in October, it's been a market decline of around 10%, and there is -- it is uncertain what happens there. So it is basically to accommodate for what if things they don't pan out as we hope for them, we could see towards the lower part of the range.

[Operator]

The next question is from Ruairi Cullinane of RBC.

[Ruairi Cullinane, analyst]

I have a question on fuel spreads, and I was interested in how you expect these to trend and whether you've been able to hedge any of this tailwind into next year. Secondly, on Turkey, Turkey seems to be a nearshoring beneficiary. And you mentioned that October freight volumes were back up to double-digit growth in October. Would you be able to give any indication of what level or range of freight growth you're planning for in that business unit next year?

[Torben Carlsen, executive]

Yes. Hi, Ruairi. The spread is very volatile. And in terms of how we then see it versus next year, we think that we are able to maintain spreads similar to this year. It has -- yes, right now, it has been relatively high, but during the year, it has been at different levels. And the way we procure and hedge will mean that we don't see a huge difference in '23, at least with the knowledge we have today. Could there be a small negative impact, probably. But not something that changes the outlook for '23?The other question was Turkey growth. And there, we -- from our largest customers we hear very positive signals. Also for '23, maybe not double-digit, but definitely in the -- approaching those levels. Whether their insight is better than economists or other people, it's hard to say. But what our customers hear from their customers is a continued strong support of Turkey.Also in terms of where you place your production, Turkey is benefiting from lower energy cost than Germany, for example, for car producers. So, we've seen some car manufacturers moving from Germany to Turkey when they have shifted production patterns. And of course, Turkey will continue to enjoy a cheap energy cost compared to some of the European countries.

[Operator]

The next question is from Ulrik Bak of SEB.

[Ulrik Bak, analyst]

Also a couple of questions from my side. I'll take them one by one. The first one is on the DFDS Channel segment. The market share for freight has declined through Q3 while P&O's market share has increased. And in that context, is DFDS' market share in September representative for the market share going forward? Or is there still some potential for P&O to recoup some of the lost share after what happened in Q1 and Q2?And also for Irish ferries sake, it seems as if their market share has plateaued during Q3. But is there a potential for them to gain further market share in '23 as they now have 3 ferries and therefore will be better equipped to compete for cargo contracts? That would be my first question.

[Torben Carlsen, executive]

I'm sure they have now -- everybody has ambitions to do a little bit better than they do currently. But we are quite confident with our market position and the products we offer. So, of course, there can be swings from month to month, but we don't see significant market shares catch up from either of the 2 other ferry competitors. They have been operating Irish ferries the 3 vessels for a while now and P&O have been back in full shape also. So we will fight for our market shares, of course.

[Ulrik Bak, analyst]

Yes. But the full run rate effect of P&O, which were out most of Q2 and Irish ferries, as far as I know, they entered with the second ferry in March and the third ferry in May for the full run rate effect for '23 would obviously should be negative or am I mistaken?

[Torben Carlsen, executive]

Full run rate for '23 will be negative for us, versus '22. Of course, P&O was out for 2 months almost. But when you look at the most recent months, then we believe that things have normalized. Well, we adjust on the half of the ferry market.

[Ulrik Bak, analyst]

And then also in terms of contracts, which are, I guess, are negotiated at the moment, do you see any significant change or look, decrease in pricing on those contracts given the lower volumes and the increased competition?

[Torben Carlsen, executive]

It's too early to conclude on that. It's obvious that consumers, of course, or customers try to benefit from whatever market position they see or market situation, but we are quite confident going into those negotiations. But it's obvious that with lower capacity in the market, it's not price increases that we are most likely to see.

[Ulrik Bak, analyst]

And then a question on North Sea. Obviously, your volumes were flat in Q3 and now for October, they have been declining. Looking into '23 and with what we hear about the U.K. economy, how should we think about the volume development? What are you planning for? And also considering that the automotive segment may rebound a bit, but the net effect, what are your expectations on that for the North Sea?

[Torben Carlsen, executive]

Dan, it's very, very difficult because our customers are not able to say exactly what will happen in '23. As Karina mentioned before, we still see automotive manufacturers struggling with missing parts. Many of them have backlogs in the order books of 9 to 12 months.So I guess, on automotive, we are thinking that it will be -- if there would be a slowdown, it will be relatively limited because there are these backlogs to fill the production lines for the next 2, 3 quarters, which is probably where the downturn could be more severe. So we are not seeing any systematic reduction in volumes on the North Sea routes, and we don't have indications from customers that they are seeing changes to that situation.

[Ulrik Bak, analyst]

Okay. And then my final question is on -- also on your leverage, which is back in the target range. You stated that you are now ready to pursue growth opportunities. And just in that context, what is the latest status on your dialogue with Ekol? And also, what are your CapEx expectations over the next 12 months?

[Torben Carlsen, executive]

I can take the Ekol part, and then Karina can comment on the CapEx. Well, when we say we are ready for growth, I think nothing has changed in our mindset. We have through the crisis made various acquisitions. But of course, now we are entering a potential recession with a very strong balance sheet, where we are, where we want to be in terms of our leverage.With regard to Ekol, as I also -- one of the other questions, we have now filed with the competition authorities to understand whether this is a deal that can be made. And when we -- within the next 3 months or so, hopefully, get an answer to that, we will see if then a deal can be made.

[Karina Deacon, executive]

Regarding CapEx, we have said before that maintenance CapEx is around DKK 1.4 billion, DKK 1.5 billion. We've not put a conclusion to how much we will we have a CapEx in '23. There is a little bit of flexibility. So when we see the prospects for our earnings, we can also decide whether we want to hold something a little bit back or whether we think that we need to spend it also. A little bit too early to tell, but we don't have any significant CapEx lined up that we have to do on top of this normal maintenance.

[Operator]

The next question is from Lars Heindorff of Nordea.

[Lars Heindorff, analyst]

The first one is regarding the logistics division. I don't know if you could share the organic growth, both on revenue and EBITDA for the third quarter, please, if you strip out the recent acquisitions?And then secondly also on logistics, there's been these talks about a lot of price increases in terms of road freights, both in Denmark, Scand -- also across Europe. So maybe a few words on the pricing environment there.

[Karina Deacon, executive]

I can start with the first part and the organic growth in [Technical Difficulty]

[Operator]

Excuse me, madam, I'm sorry to interrupt you. Could you speak a little bit closer to the microphone? We can't hear you very well.

[Torben Carlsen, executive]

There's a background noise, yes.

[Operator]

Yes, sir, I muted that line. Go ahead, please.

[Karina Deacon, executive]

Now it's better. I'll repeat my answer then on the organic growth on the top line in logistics, around 20% and on the EBITDA a bit more than that.

[Torben Carlsen, executive]

And on the pricing environment, it's a very dynamic environment where we have had to catch up with the increases that we saw particularly Q3, Q4 '21, but ongoing with the new EU regulations on drivers. So very dynamic. And for us, the important part is that we are able to not lose out in that part.Margins, I think, should stay more or less the same. Q3, there were some elements that dragged them down. So hopefully, we can be a little bit better. But the main focus is really to make sure that we are dynamic enough with the changing cost pictures that we see in logistics. And there, we've had some good practice in the last year. So we're quite confident that we can keep up with it.

[Operator]

[Operator Instructions] We have a follow-up question from Michael Vitfell-Rasmussen of Danske Bank.

[Michael Vitfell-Rasmussen, analyst]

Just 2 quick follow-ups. We didn't really spend a whole lot of time talking about duty-free. Can you maybe discuss a little bit on if you see that case unfolding as we talked about a few quarters ago?And then just secondly, on costs. So you seem to manage very well so far. But I guess, planning for 2023, just trying to get an understanding in terms of how much fat is there that you potentially could cut in the organization? Have you implemented hiring freezes or anything like that?

[Torben Carlsen, executive]

Let's start with the last. We don't have fat in our organization. I don't know how your organization looked like. But we constantly adapt to the situation. A big part of our cost is, of course, our capacity. So our ferries, our trailers, our trucks. And there, we have some levers that I also mentioned in the beginning.Of course, if we see areas where demand is shifting downwards and if we have people leaving, we may not rehire as fast as we would have done. We have open positions, some of them strategic to ensure our digitization. We continue all of that. Could there be open positions where we say, well, given the macro situation, let's be a little more cautious here. So that's happening, and it almost happens without Karina and I communicating it. But of course, we have had those discussions.But there's not a major cost cutting exercise around the corner in DFDS. We will adjust as things develop. And right now, of course, with the best quarter in our history, the focus is on if we have to transition to a slightly lower growth scenario than we've been used to.

[Karina Deacon, executive]

I can talk about the duty-free. Overall, the answer is we're pleased, it's going well. As you might recall, we had high expectations going into the high season because of what we saw the drivers were spending, but we also said that we need to see how that pans out. And then after -- over the summer period, we probably had to admit okay, maybe we have been a little bit too optimistic. So we lowered expectations of our people at the Channel, lower the expectations.But that being said, we've actually seen it come back again when the many families and children and coaches with teenagers and et cetera, where we placed with more normal transportation needs. So we are in a good position. And if we can have spent ahead around the EUR 15 million to EUR 17 million, that's a good level and that's where we are right now.

[Operator]

This concludes our Q&A session, and I hand back to Mr. Carlsen.

[Torben Carlsen, executive]

Thank you very much, and thank you very much everybody for joining the call and a very good and challenging questions. With our financial leverage back in our target range, we feel we are well positioned to adapt to a more challenging market environment should that come. And we're also well positioned to pursue opportunities to strengthen and widen our network. So we look forward to speaking to you again soon. And again, thank you and have a good day.