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DFDS AS
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Welcome to the DFDS Q4 conference call. [Operator Instructions]. Today, I am pleased to present Torben Carlsen, CEO. Please begin your meeting.
Thank you, and good morning to everybody. Welcome to our Q4 and full year conference call. I'm, as usual, joined by Karina Deacon, our CFO; and Søren Brøndholt, our among other things, Head of IR. We closed 2021 with Q4 in line with our expectations. And I must say I'm happy to leave 2021 behind with its many impacts from COVID-19, Brexit supply chain bottlenecks that at times have made life somewhat challenging for our ferry and logistics businesses. The key takeaway, though, for me is that, once again, DFDS has shown strong resilience of our business model and with our customer relations. I'm anxiously looking ahead to 2022, where passengers return and will demonstrate the strength of our logistics business following the ongoing integration of the HSF Logistics Group. But let us take a closer look at the quarter, moving to Page 3 of the presentation. Headlines set to grow further in '22 on back of a strong result for '21. Our full year EBITDA was up 25% to DKK 3.4 billion for the full year, as mentioned. The growth driver has been freight as passenger results have remained on level with 2020 due to the ongoing COVID-19 situation. Mediterranean has achieved strong profit improvement and logistics division is boosted by the acquisition of HSF Logistics group that went through mid-September. In 2022, we will make our decision on the green -- first green ferry transition within a couple of months. For more details, I'll now turn over to Karina.
Thank you, Torben. A few words on the fourth quarter of the year. EBITDA of DKK 915 million, up 19%, both against 2020, but also against the pre-COVID 2019. If we look at the freight ferry, then it was a flat development. In Q4 2020, you will recall that we had the Brexit buildup. So if we look at the volumes in Q4 of '21, the volumes to the U.K., they declined 15%. On the other hand, we saw continued improvement in BU Med.If we look at the passengers, we saw an improvement in EBITDA of DKK 67 million before the restrictions were put in place, again. In mid-December, we've seen a good uptake in the activity on the passenger business, particularly on the Oslo-Copenhagen route, so we did see an improvement compared to the last year of 2020. On logistics, a significant increase in EBITDA, mainly driven by the inclusion of HSF for the full fourth quarter. Non-allocated, just a timing difference. So nothing to mention on that one. If we turn to Slide 5 on the income statement. You will see that the revenue was very high in Q4, up 46% driven by boat ferry with 26%, but particularly logistics with 76% of course, HSF with DKK 900 million driving that a lot. Further down the P&L, higher depreciation, we have recorded that throughout the year. We have higher charters for the new routes. And then we also now have the impact from HSF. On finance costs, a significant decrease compared to the fourth quarter of '20, a little bit deceptive because if we look at the interest cost they were steady, but we benefit from a currency adjustments, particularly the cost base we have in Turkish lira. If we look at special items, it was an income of DKK 4 million. It represents the net effect of some -- of a sale of assets and ships and then restructuring. And then, of course, when we compare to 2020 -- in 2020, we had a significant impairment that impacted. Turning to Slide 6 on the capital side. Again, we saw a strong operational cash flow. But if we just start first with the assets, of course, they increased significantly due to the addition of HSF. We have -- we did include the preliminary PPA already in Q3. We didn't have many significant changes in Q4. So we end up with goodwill related to HSF of DKK 756 million. So operating cash flow, which I just touched upon, it improved to DKK 843 million, but then we had the second payment for HSF and we also paid our first ro-pax for the Baltics. So adjusted free cash flow was minus DKK 1 billion fully as expected. That also meant that our net interest-bearing debt increased somewhat because we did the second payment of HSF. Thereby also when we look at leverage on an LTM pro forma basis, we saw an increase compared to Q3, but we knew that when we said yes to do the full payment of HSF. So when we compare to last year, we still saw a reduction now down to 3.7 compared to the 4.2 last year. On ROIC, we saw an increase before special items up to 5.2% from the 3.5% at the year-end in 2020. Turning to Slide 7. Just a few words on each of the BUs. We had, as we saw a total increased EBITDA in ferry by DKK 73 million basically -- or equivalent to 11%. Overall, there were volume declines of 8% due to the tough comparisons in the U.K. But if we go back and compare against '19, we saw an increase of 4%. North Sea EBITDA that was basically because of the comparisons with the U.K. stockbuilding in 2020. The positive development in BU Med, which we have talked about throughout the year, continued also in the fourth quarter. We had a volume growth of 6% and then we kept seeing stable operations and also improved results for port terminal and rail activities. On the Channel, no surprise, volume reductions of 17% but the negative impact was partly offset by an increase in passengers. However, we are still significantly below our 2019 level. And we also benefited from duty-free sales, as we've talked about before, we still need to see the passengers to come back to really get an estimate of the long-term magnitude of that. Slide 8, on the Baltics, we saw them being on level with 2020, slight reduction in volumes due to capacity reductions between Sweden and Estonia and that impacted both the freight and the passenger level. Finally, if we look at the business unit passenger, we saw for the first time in a long time, an increase in the number of passengers, particularly on the Oslo-Copenhagen route, following the easing of the travel restrictions in the autumn and it gives good hopes for when we look into '22. On Slide 9, a few words on logistics. As announced and also we sent out some comparative figures, we have reorganized our logistics business. So we're now organized and hence, also reporting in dry goods and cold chain. And in the -- if I may call it, the old DFDS business, the dry goods, we saw a decline of EBITDA of DKK 20 million. It is basically back to what we discussed after Q3, the lack of coverage of increasing costs. It had also an impact on Q4, less severe than in Q3, but then we were also still impacted by imbalance particularly on our activities on the continent. Cold Chain, we saw DKK 105 million in EBITDA from HSF very much in line with our expectations before we acquired them. And then if we look at the -- in general, cold chain was also impacted by cost increases that we saw in the dry goods side. And then the last thing to mention in the old DFDS U.K. business, we saw a negative impact from lower activities in our Scottish aquaculture business. That completes what I want to say about Q4. So back to you, Torben with the outlook.
Let's -- thank you, Karina. Let's take a look at 2022 and start with the freight. We expect U.K. freight market to grow after the slowdown we experienced in '21. This is also confirmed by our January volume report that we sent out earlier today. We expect further growth for Mediterranean where we have increased the capacity to match the expected growth. We've strengthened our Baltic network by 2 new buildings. One have has already been deployed. The other will join within a couple of months, both increasing our freight capacity and our passenger capacity. Channel naturally, as passengers come back and overcapacity is increased by new competition, we do expect some negative impact here. Logistics, we'll see the full year impact of HSF who, as you saw from Karina is off to a good start. And we also expect to see margin improvements for our forwarding business margins that were depressed somewhat by the cost development in '21 and where we believe that we now have corrected also the pricing corresponding to these cost increases. If we look at the overall -- before I go to the passenger outlook, we can see revenue growth midpoint 25% from our DKK 18 billion. So significant revenue growth. And on the EBITDA side, we expect to deliver somewhere between DKK 3.9 billion and DKK 4.4 billion of EBITDA. Investments, DKK 2.3 billion and normal operational investments and in new equipment, DKK 1.4 billion and then some acquisitions and ferry elements for a total of DKK 2.3 billion. A little more detail on the passengers on Page 12, and the assumptions underlying the outlook we expect that we will regain about half of the lost EBITDA when we compare to 2019. So we expect DKK 0.5 billion EBITDA back from our passengers. This is helped by duty-free impact that we saw very good signs end of '21, mainly, of course, on the Channel, but also some on our Amsterdam-Newcastle route. It also includes a negative impact from the overcapacity mentioned before on the Channel market. And we will see, hopefully, some benefit of our new buildings or our new buildings on the Baltic network, AURA and LUNA that significantly raise the passenger experience. Turning from the financial outlook to our key ESG focus areas in '22 on Page 13. We have an exciting challenge in Q1 and Q2, where we need to make a decision on our first green freight ferry for the long routes. We need to make decisions on fuel type. We need to decide on the ferry technology and be in close discussions with the manufacturers on what is available and when. We are working with various partnerships to determine fuel availability and to enter into commitments for fuel. On the logistics side, we will deploy the electric trucks as soon as Volvo can deliver them to us and to our system. We are focused on gender ratio, we have on the land side, 29% women, and we want to raise this. We have also strengthened our health and safety organization to make sure that everybody can go to work safely at DFDS both to be prevented from injury, but we're also looking at harassment, making sure nobody is feeling unsafe neither physically nor mentally. Turning to Page 14. What are the focus areas relating to our strategy vessel, we will continue to grow the solutions to automotive and forest and metal, a number of organic growth initiatives started in '21 should pay off in '22. We continue on our digitization, will enhance solutions for our logistics business as 1 element. As mentioned before, we develop and expand our network by new buildings in the Baltic and also further acquisition. On the passenger side, we will get passengers back. We'll get a chance in '22 to test full scale our new -- or the Oslo-Frederikshavn way that was added in the midst of COVID. Duty-free sales, both on board and in our border shops in Calais and Dunkirk will be tested and all the new concepts on board should add to the value we generate from passengers as they come back from their COVID isolation. As mentioned, environmental transformation will happen through the deployment of the electric trucks we have ordered, and the decision on the green ferries. So with this, over for questions to the audience.
[Operator Instructions] And the first question is from Ruairi Cullinane, RBC.
Firstly, your ferry guidance seems to allow for deterioration in freight given the passenger recovery. I was just wondering if that was entirely driven by the channel? Or would you expect earnings from freight to be lower anywhere else to your network? And then secondly...
Ruairi, it was very hard to hear the first part of your question. Could you repeat it, please?
Yes, sure. I was just wondering if you expected earnings from freight to be lower anywhere in your network other than the channel given your outlook for 2022? And secondly, when I think back to your 2019 Capital Markets Day, 2023 was likely to be a year limited to maintenance CapEx. I was wondering if that was still the case. And if so, would you be able to give an indication of what level of the DKK 2.3 billion investments that you're guiding to this year, would you consider maintenance CapEx?
Yes. No, other than the channel, we don't expect reverse development in our freight business units. On the CapEx, we are not, of course, at this stage, guiding specifically for '23, but the maintenance CapEx, as you call it, which also includes normal organic growth in logistics, for example, should probably be expected to be around the DKK 1.4 billion that we are showing in also this year's CapEx forecast when you exclude the new buildings and the -- yes.
The next question is from Dan Togo, Carnegie.
Three questions. Let's take them one by one. On the passenger side, your assumption of 50% sort of say, the damage of the COVID to be recovered here in '22. When can we start to see evidence of this assumption actually stick throughout '22? Will it be visible in your bookings, et cetera? So during Q2? Or do we need to basically pass Q3 before we know whether this is achievable? And a related question included here, how much of the [ part ] of this improvement of this -- yes, around DKK 500 million on passengers alone relates to the channel where you actually mentioned, both have, of course, the tax-free upside, but you also have the increasing competition from Irish volumes. So that's the first question.
Should we answer that before you take the next?
Yes, let's answer that, and then let's take the -- come to the other questions.
The visibility in the passenger market has further decreased, you can say, during the COVID pandemic. What we can see is that we have strong bookings for our ski season now on the Oslo-Copenhagen route actually stronger than in '19. So we will be able to have some indications in Q1. Obviously, if anything happens with COVID then in Q2 and Q3, those estimates will quickly be gone. But if the pandemic develops, as we see now, we bought us in the U.K., opening Denmark, Norway opening and some easing in France then we don't see any reasons why we should not be able to deliver this recovery. But of course, we will go through Q1, we will get even more firm in our belief.
And the Channel...
The distribution -- yes, the distribution without having the exact details, and I don't think we guide so specifically, but the DKK 500 billion (sic) [ DKK 500 million ] is the majority comes from Oslo or from the BU passenger, well, maybe more 50-50 BU passenger and Channel and then a little bit on the Baltics.
Yes, because of the duty-free sales...
When you include the duty-free sale, it's more 50-50.
If we look at the number of passengers, we see a stronger recovery on the [ OSC ] and Channels also for the reasons you mentioned that we also have increased competition. But because of the duty-free, when we look at earnings, then that evens out a little bit.
And the conversion on Oslo is a little bit less than you would normally expect because we were able to stop operation half a year in '21, where we also save significant operating cost. So in terms of money, the impact is a little bit less on Oslo and therefore, as Karina said, it's probably 50-50 between.
Okay. Good. Then on depreciation, at least compared to my estimates, depreciation seems to have been lifted in Q4 and I understand some TC vessels are impacting here and, of course, also the HSF acquisition. But how should we think of this going forward? Some of the TC vessels are in there to build in order to receive these new Ro-Ro's, ro-pax specials that you have coming on stream, will part of these TC vessels exit the fleet and depreciation will, sort of say, normalize? Or how should we think of the depreciations going into '22?
You should expect that those vessels, they are still in '22, so you should expect the sort of elevated level. We have them on charter for '22 as well.
And how many vessels are we talking about here?
It's 3 extra we got on the BU Med. And then we, of course, also will get the impact of the 2 GSIs in the Baltics.
Good. And then the final question on '23 of course, approaching and you have this Win23 target. I know it has been revised somewhat on the way. But can you maybe elaborate a bit on how you view your Win23 strategy now?
I'm not sure it has been revised. I believe we said DKK 5 billion to DKK 5.5 billion back in the 2019 Investor Day. And of course, we now guide DKK 800 million up from 2021 and I can see we need another DKK 800 million at least in '23 to get to that amount, but we have not given that up. Again, it will, of course, require a full recovery of the passenger side. And then we need another DKK 300 million, and we'll have to find that somewhere.
[Operator Instructions] And the next question is from Ulrik Bak, SEB.
Also a couple of questions from my side, I will take them one by one. First on your guidance, you assume that passenger -- the positive passenger delta will be DKK 500 million in '22 and then we have the full year effect of the logistics acquisitions of HSF and ICT, which should yield around or above DKK 300 million. So in total, DKK 800 million positive EBITDA delta in '22. Your lower end of your guidance is DKK 3.9 billion, so where do you see the main sensitivities to this earnings delta of DKK 800 million, which would mean a midpoint of DKK 4.2 billion? That's my first question, please.
Well, we have, of course, as we've already discussed, some uncertainty around the passengers. It's also important to remember that we did receive a 3-digit million number of money from DfT in '21 for Brexit emergency standby services. And then, of course, you have the situation on the Channel with lower capacity. So I think the DfT and the Channel situation somehow eliminates the upside you see on the other businesses than the ones you mentioned.
Okay. It's just when I read your section on the market outlook, it looks -- it sounds positive. U.K. trade is expected to increase. Mediterranean is expected to benefit from growth in Turkish exports, Baltics will benefit from ferry capacity. And then there's this downside from Irish ferries. So is it fair to assume that the net effect of these effects is negative as you indicated in the guidance range?
Well, again, don't forget the DfT one-off in '21 as well when you make this calculation.
Okay. Yes. And then a question on HSF. It was a long closing period, took 9 months to close the deal. Is it fair to assume that it's still a DKK 400 million EBITDA business in 2022 as you announced -- when you announced the deal in January '21?
Yes, we've not been disappointed with what we've seen in HSF so far. So I think that's the right assumption.
Okay. And then a question on the duty-free sales. Now we are in February, and you've had more time to study the impact of the duty-free sales. So have you gotten any closer to an average or a new normalized spending per passenger?
It's -- January is even without COVID very small passenger month and we'll go with still smaller. So we're still basing our estimates mainly on drivers' behavior, but with some evidence that our estimates are not completely off when we also include normal tourists. But again, we have to simply wait for bigger numbers to conclude finally on this.
Okay. And then a question on the EU mobility package. Have you made any calculations about what that would mean for the supply chain situation in Europe? '21, we've heard about scarcity of truck drivers. And with this mobility package, the pressure on the supply chain could increase? And could that have a negative impact on congestion levels and hence your volume?
Well, we believe the market is aware of the impact of the mobility package. There can still be some uncertainty to the exact cost impact but we had the dialogue with all our customers. They understand that there will be a cost impact. So that part, we think we have under control. In terms of whether it means that congestion and driver shortage will be back. We don't have indications of that at this stage, but of course, we'll have to wait and see how things develop over the coming months.
Okay. And then a final question on the Mediterranean segment. You've grown volumes by an impressive 25% in '21. Can you provide any color on what volume growth you expect for this year? And also if there are any capacity restrictions on the portside terminals that could limit this growth?
Well, it will be a double-digit growth for Mediterranean again in '22. We have the ongoing capacity issues that you mentioned in Trieste. We work with the port. We work with outside areas as to optimize as good we can. And we believe that the growth we will now get from the additional tonnage we have deployed will also be manageable in '22. It could definitely be a better service for our customers, but we'll have to make good with what we have.
And we haven't received any further questions at this point. So I hand back to the speakers.
Thank you very much for joining the call and the good questions. As I said to begin with, I'm excited and we are excited about the prospects of '22, and we look forward to delivering on our outlook helped, of course, with all our brilliant colleagues around the system. So look forward to speaking to all of you soon again. Have a good day.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.