Welcome to the DFDS Q4 conference call. Throughout the call, all participants will be in listen only mode, and afterwards there will be a question-and-answer session. 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 Nielsen, our, among other things, Head of IR. We closed 2021 with a Q4 in line with our expectations. 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 a 2022, where passengers return, and we'll demonstrate the strength of our logistics business following the ongoing integration of the HSF Logistics Group.
Let us take a closer look at the quarter, moving to page three of the presentation. Headline set to grow further in 2022 on back of strong result for 2021. 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 2021, 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. We did see an improvement compared to the lackluster 2020. On logistics and 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 five on the income statement, you will see that the revenue was very high in Q4, up 46%, driven by both ferry with 26%, but particularly logistics with 76%. Of course, HSF with DKK 900 million driving that a lot. Further down the P&L, a 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 2020. A little bit deceptive because if we look at the interest costs, they were steady, but we benefit from a currency adjustment, 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 a net effect of a sale of assets and ships, and then a restructuring. Of course, when we compare to 2020, in 2020 we had a significant impairment that impacted.
Turning to slide six on the capital side. Again, we saw a strong operational cash flow. If we just start first with the assets, of course, they increased significantly due to the addition of HSF. 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. Operating cash flow, which I just touched upon, it improved to DKK 843 million. Then we had the second payment for HSF, and we also paid our first RoPax for the Baltics, so adjusted free cash flow was 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. 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 seven, just a few words on each of the BUs.
We had, as we saw, a total increased EBITDA in ferries 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. If we go back and compare against 2019, we saw an increase of 4%. North Sea EBITDA that was basically because of the comparisons with the U.K. stock building in 2020. The positive development in EU Med, which we have talked about throughout the year, continued also in the fourth quarter. We had 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. 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 eight. 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. It gives good hopes for when we look into 2022. On slide nine, 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. 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 we were also still impacted by imbalances, 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. In general, cold chain was also impacted by cost increases that we saw in the dry goods side. The last thing to mention in the old DFDS UK business, we saw a negative impact from lower activities in our Scottish aquaculture business. That completes what I want to say about Q4. Back to you, Torben, with the outlook.
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 2021. This is also confirmed by our January volume report that we sent out earlier today. We expect further growth from Mediterranean, where we have increased the capacity to match the expected growth. We strengthened our Baltic network by two newbuilds. One 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 impacts here.
Logistics, we see the full year impact of HSF, who, as you saw from Karina, is off to a good start. We also expect to see margin improvements for our forwarding business, margins that were depressed somewhat by the cost development in 2021 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. Significant revenue growth. On the EBITDA side, we expect to deliver somewhere between DKK 3.9 billion-DKK 4.4 billion of EBITDA. Investments, DKK 2.3 billion.
Normal operational investments and in new equipment, DKK 1.4 billion. 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 half a billion EBITDA back from our passengers. This is helped by duty-free impact that we saw very good signs end of 2021. 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.
We will see hopefully some benefit of our newbuilds 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 2022 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 side. We need to decide on the ferry technology and be in close discussions with 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 logistic 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 strategic vessels? We will continue to grow the solutions to automotive, forest, and metals.
A number of organic growth initiatives started in 2021 should pay off in 2022. We continue our digitization with enhanced solutions for our logistics business as one element. As mentioned before, we develop and expand our network by newbuilds in the Baltic and also further acquisitions. On the passenger side, we will get passengers back. We'll get a chance in 2022 to test full scale the Oslo-Frederikshavn leg 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.
Other 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 ferry. With this over for questions to the audience.
Ladies and gentlemen, if you have a question for the speakers, please press zero and one on your telephone keypad and you'll enter the queue. After you're announced, please ask your question. Please hold until we have the first question. The first question is from Ruairi Callan, RBC. Your line is now open. Please go ahead, sir.
Hi. Good morning. Firstly, your ferry guidance seems to allow for a 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 in your network? Um, and then second.
It was very hard to hear the first part of your question. Could you repeat it, please?
Yep, 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. 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 you would consider maintenance CapEx? Thank you.
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 2023, but the maintenance CapEx, as you call it, which also includes, you know, normal organic growth in logistics, for example, should probably be expected to be around the DKK 1.4 billion that we're showing in also this year's CapEx forecast. When you exclude-
Thank you.
-the, the new buildings and the, um, yeah.
Yeah. Thank you.
You're welcome.
The next question is from Dan Togo, Carnegie. Your line is now open. Please go ahead.
Yes. Hi, and good morning, everybody. Three questions. Let's take them one by one. On the passenger side, your assumption of 50%, so to say, of the damage after COVID to be recovered here in 2022, when can we start to see evidence of this assumption actually stick throughout 2022? Will it be visible in your bookings, et cetera, so during Q2? Or do we need to, you know, basically pass Q3 before we know whether this is achievable? And then a related question included here, how much of the passenger improvement this around DKK 500 million on passengers alone relates to the channel, where you, as you mentioned, both have, of course, the tax-free upside, but you also have the increasing competition from Irish Ferries? That's the first question.
Should we answer that before you take the next?
Yeah, let's answer that, and then let's go to the other questions afterwards.
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 2019. 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. If the pandemic develops as we see now, with borders 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. Of course, we will get even more firm in our belief as we go through Q1.
The channel distribution.
Yeah, the distribution without having the exact details, and I don't think we guide so specifically, but the DKK 500 million is it's the majority comes from Oslo or from the BU Passenger.
Mm.
At that, well, yeah, maybe more 50/50 BU Passenger and Channel, and then a little bit on the Baltics.
Yeah, because of the duty-free sales on the.
Duty-free, 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 OFC and channel also for the reasons you mentioned that we also have increased competition.
Mm-hmm.
Because of the duty-free, when we look at earnings, then that evens out a little bit.
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 2021, where we also saved significant operating costs. In terms of money, the impact is a little bit less on Oslo, and therefore, as Karina says, probably 50/50 between them.
Okay. Good. On depreciations, 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. How should we think of this going forward? Some of the TC vessels are in there you know, to bridge in order to receive these new Ro-Ros and RoPax vessels you have coming on stream. Will part of these TC vessels exit the fleet, and depreciations will so say normalize? Or how should we think of depreciations going into 2022?
You should expect that those vessels, they're still there in 2022. You should expect the sort of elevated level. We have them on charter for 2022 as well.
How many vessels are we talking about here?
It's three extra we got on the BUMED. We, of course, also will get the impact of the two GSIs in the Baltics.
Yeah. Good. The final question on 23 is of course approaching, and you have this Win23 target. I know it has been revised somewhat on the way. Can you maybe elaborate a bit, Torben, on how you view your Win23 strategy now?
I'm not sure it has been revised. I believe we said DKK 5 billion-DKK 5.5 billion back in the 2019 Investor Day. You know, of course, we now guide about DKK 800 million up from 2021. I can see we need another DKK 800 million at least in 2023 to get to that amount w e have not given that up.
Okay.
Again, it would of course require a full recovery of the passenger side. We need another DKK 300 million, and we would have to find that somewhere.
Sounds good. Thanks a lot.
You're welcome.
Ladies and gentlemen, before we go to the next question, just as a reminder, if you would like to ask a question, please press zero and one on your telephone keypad. The next question is from Ulrik Bak, SEB. Your line is now open p lease go ahead.
Yes. Good morning, Torben and Karina. Also, a couple of questions from my side. I'll take them one by one t he first on your guidance y ou assume that passenger, the positive passenger delta will be DKK 500 million in 2022. Then we have the full year effect of the logistics acquisitions of HSF and ICT, which should yield around or above DKK 300 million. In total, DKK 800 million positive EBITDA delta in 2022. Your lower end of your guidance is DKK 3.9 billion. 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, you know, a three-digit million DKK money from DfT in 2021 for Brexit emergency standby services. Then, of course, you have the situation on the channel with lower capacity. 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 export. Baltics will benefit from additional ferry capacity. There's this downside from Irish Ferries, the competition. Is it fair to assume that the net effect of these effects is negative as you indicate in the guidance range?
Well, again, don't forget the DfT one-off in 2021 as well when you make this calculation.
Thank you. A question on HSF. It was a long closing period. Took nine 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 2021?
Yeah. We've not been disappointed with what we've seen in HSF so far. I think that's the right assumption.
Okay, then a question on the duty-free sales. Now we are in February, and you've had more time to study the impact of this duty-free sale. Have you gotten any closer to an average or a new normalized spending per passenger?
January is, even without COVID, a very small passenger month, and with COVID, still smaller. We're still basing our estimates mainly on drivers behavior. With some evidence that our estimates are not completely off, when we also include normal tourists. Again, we have to simply wait for bigger numbers to conclude finally on this.
Okay. A question on the EU Mobility Package. Have you made any calculations about what that would mean for the supply chain situation in Europe? You know, 2021, 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, you know, 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, you know, cost impact. We have the dialogue with all our customers. They understand that there will be a cost impact. That part, we think, we have under control. In terms of whether it means that 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. Thank you. Then a final question on the Mediterranean segment. You've grown volumes by an impressive 25% in 2021. Can you provide any color on what volume growth you expect for this year? Also if there are any capacity restrictions on the port side terminals that could limit this growth.
Well, it would be a double-digit growth for Mediterranean again in 2022. We have the ongoing capacity issues that you mentioned in Trieste. We work with the port; we work with our outside areas at Trieste to optimize as best we can. We believe that the growth we'll now get from the additional tonnage we have deployed will also be manageable in 2022. It could definitely be a better service for our customers, but we'll have to make do with what we have.
Okay. That's very clear. Thank you for that. No further questions from my side.
Thanks.
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 2022, and we look forward to delivering on our outlook, helped of course with all our brilliant colleagues around the system. 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.