Ladies and gentlemen, welcome to the DFDS Update Conference Call. I'm Sargent, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Torben Carlsen, CEO. Please go ahead, sir.
Thank you very much, and welcome to everybody for joining this call, where we will talk about our preliminary 2024 results, our preliminary 2025 outlook, and a cancellation of our midterm, long-term financial ambitions that previously were communicated. As usual, I'm joined by Karen Boesen, our CFO, and Søren Brøndholt , our Head of Investor Relations. If we turn to page three, revenues for DFDS are up 9% for 2024 to DKK 29.8 billion, which is in line with the outlook range of 8%-10% growth for the year. Our 2024 EBIT is DKK 1.5 billion, which is in the low end of the latest outlook range of DKK 1.5 billion-DKK 1.7 billion that we communicated after Q3. The adjusted free cash flow for the year ended at DKK 1 billion versus the outlook of DKK 1.2 billion.
Turning to page four, the preliminary 2025 outlook is an expected EBIT of around DKK 1 billion. This includes a substantial negative full-year earnings impact from the Mediterranean's changed competitive environment. It also includes the impact of the newly acquired Ekol business, where a turnaround as planned is underway. Turning to page five, we have previously communicated that in 2027 we would achieve 10% ROIC, that we on a yearly basis would deliver DKK 1.5 billion of adjusted free cash flow, and that our financial leverage would approach 2.5 in 2026. Given the developments in 2024 and 2025, these financial ambitions are no longer applicable. If we turn to page six, what is our focus in 2025? It is continuing to unlock the value of the expanded network. Organic growth was strong in 2024, and we expect this to continue.
It is a focus on resolving specific focus areas, and it is a cash flow focus. And if we dive deeper on page seven into the specific focus areas, then it is to adapt our Mediterranean ferry business to the changed competitive environment that we have experienced during the last four months of 2024. It is to successfully turn the Ekol acquired business around, approaching a break-even by the year-end 2025. And it is to continue the progress of the logistics turnarounds that we have previously communicated and where we have solid plans in place that should deliver results in 2025. I will turn to Karen on page seven, eight, for more detail on the cash flow focus.
Yeah, good morning, everyone. Yeah, obviously, as part of our strong, strong performance focus for the year, cash flow is a core element of that. We will continue to run a discipline around our CapEx, but enforce it across our business throughout, and that means, of course, prioritization on a, yeah, strong basis. We will review our asset base for non-performing or non-core assets, and this is still on a smaller scale, but it's part of our focus on generating cash, and then, obviously, a strict monitoring and governance around our CapEx spend this year.
Thank you. And turning to page nine, just a reminder of our Moving Together Towards 2030 strategy that absolutely stays in focus for DFDS: Protect and Grow Profits, Standardize to Simplify, Digitize to Transform, Moving to Green, Be a Great Place to Work . We are not diverging from this strategy. And, of course, a number of the elements that we have talked about today is about protecting and growing the profits. With this, we will turn over for Q&A.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time, and we have the first question coming from the line of Dan Togo Jensen from Carnegie. Please go ahead.
Yes, thank you, and good morning. Maybe you can start with bridging the decline of DKK 500 million in EBIT from DKK 1.5 billion to DKK 1 billion in 2025. As I read it, there's two reasons: the entry of new competition and the inclusion of Ekol, whereas you state in your statement that other businesses' areas are upholding, so to say, not contributing significantly to any decline here. So can you quantify also how should we read this DKK 500 million? Is it split in two between the two, or is one outweighing the other? That's the first question.
That's understood. And just to confirm your understanding, if we look at, let's call it, classic DFDS, so all the businesses outside of Turkey or outside Turkey, we do expect more or less a flat development in 2025 versus 2024. There is some cost pressure on some of the ferry and maintenance side, but that's compensated by slightly stronger performance in the logistics section. So the reduction from 2024 to 2025 is centered around Turkey, and it is early days. And we will obviously be more specific when we release our 2024 results in February and talk more specifically about the guidance for 2025. But it is probably three-quarter ferry, one-quarter Ekol that is driving the downturn.
Okay, so the math that you provided in connection with Q3, that the new entrant of a competitor here providing a DKK 75 million negative development in Q4 or providing that, and if you multiply that by four, we end up with these DKK 300 million. So that math is still upholding, so to say, as I understand what you're saying here. And another question relating to this: what are the mitigating factors that you will introduce to, so to say, bring profitability back to a satisfactory level, as you write in the note or in your comment? And what is a satisfactory level? Is that supporting a free cash flow of DKK 1.5 billion? And when do you see that? I know this might be a bit early to answer that, but when is such a free cash flow level feasible again?
We will try to keep this call pretty narrow to also the content of the announcement yesterday and the slides and be more elaborate in February when we meet again. But you are right, an acceptable level for DFDS is the adjusted free cash flow of DKK 1.5 billion. And we will communicate when we have more clarity about when that will be back. In terms of the mitigating factors, we do touch upon them in the announcement. We do believe that the new competitive situation in Turkey is a permanent one. And therefore, we, of course, need to make sure that we offer the right capacity so that the supply-demand balance supports a profitable business.
And to that end, we are making sure that that is what will take place during 2025. And we will be more specific when we meet in February in terms of what that exactly entails.
Very good. Then just one question left here, because when I backtrack, so to say, what we can expect now with an EBIT of DKK 1 billion in 2025, and that should suggest an EBITDA of just around DKK 4 billion or short of that, and with a debt north of DKK 16 billion, approaching DKK 17 billion, gearing is at 4 or above that. Could you give some guidance of where you see what your covenants are and how this can trigger anything from the banks? And does it provide any second thoughts, or will that impact also how you see your CapEx, let's say, for both this year and next year?
Let me start with the end. As Karen just went through, we have a full focus on cash flow, obviously, in 2025, as we have had in 2024, and will continue to have, especially on the CapEx side, strong discipline. In terms of your EBITDA assumptions, there is probably a slightly different split between depreciation and EBITDA favoring the leverage calculation related or relative to your assumptions. So we are quite confident that in terms of leverage, of course, we see an increase to around the 4 level, but that's with plenty of headroom for any bank covenants and not a cause for concern.
Okay, thank you.
You're welcome.
The next question comes from the line of Ulrik Bak. Please go ahead.
Yes, good morning, Torben and Karen. Just a clarification about the negative delta in terms of the earnings in 2025 for Grimaldi and Ekol. Have you seen any worsening of the situation compared to the last update compared to today, given that you end up in the lower end of your 2024 guidance?
I think we have, of course, needed some time to understand exactly the implications for the ferry business from the new entrants, but no major surprises. I think the addition of Ekol came and have helped move us to the lower end of the range, and we decided not to change the range despite Ekol getting on. So it is, of course, a disappointing Q4, but it's not been worse than anticipated due to the Turkey situations. So that we come out now is not because all of a sudden things have worsened. It is because we have seen with the market comments that probably the market had not significantly taken into account the ferry downturn and the full year impact implications on 2025, but no worsening compared to what we have seen for a while.
Okay, that's clear, and then in terms of the competitive environment with Grimaldi in the Mediterranean segment, what have you assumed in your 2025 guidance? That it should be sort of constant flat earnings development in 2025, or that it will improve gradually over the quarters during 2025 as you adapt your network, as perhaps pricing gets more benign? Just some thoughts on that.
Yeah, I think we cannot be too specific also for antitrust reasons. But as I did mention, and as we did state in our announcement, we do, of course, adjust our capacity to the new situation. And typically in markets, when we do that, the supply-demand situation allows us better pricing power. So that is, of course, part of the plan to see a stabilization in the market. And this is what we always see when markets are disrupted, that some periods are required until a new stabilization is established.
Okay, got it. And then usually you apply a range around your EBITDA or EBIT outlook. This time around, you only present a single figure. Should we interpret that 1 billion number as the usual midpoint, or should we rather see it as the lower end of a range?
You will have to reflect over that yourself.
Okay, noted. Then a question on the Mediterranean ferry segment again. Just your thoughts about how it will develop into 2026. I know it's still very early days, but I noticed that you booked DKK 2.5 billion-DKK 3.0 billion in goodwill when you acquired U.N. Ro-Ro. And I suppose that this impairment testing will rest on assumptions for a longer-term business case of that segment. So how should we think about potential impairment risk based on the guidance that we see here for 2025, but also looking a bit further ahead? Because I don't expect this is not something that is easily solved. Perhaps it's going to be better, but it probably won't go back to the way it was before Grimaldi entered.
Again, let me start with the end of what your comments are. We have a strong history of restoring profitability in areas where we have seen changes in competitive developments lately on the channel, where we, despite a different competitive situation, are delivering relatively strong results. So we have the same expectations that over a period we will be able to restore profitability in Turkey. Of course, the timing, we cannot specify at this stage. In terms of the goodwill, then we have these. Now it becomes a little technical, and maybe I need the help of Karen, but we have these cash-generating units, and that's our full RoRo business. And therefore, there is no. I don't think you need to speculate about any goodwill impairment on the ferry side.
Okay, that's very clear. And then also in terms of your leverage, as Dan also mentioned, you'll probably be above four times if you reach those one billion in EBIT in 2025. You have a credit rating. If that were to be downgraded, what would that mean for your financials, interest, expenses, and so forth?
It's, of course, speculative. We raise debt where it is most attractive. And if we were to lose the credit rating, then a new raise of bonds would potentially be marginally more expensive. And I do not recall if we have any expirations.
We have in March 2026.
March 2026 would be the first renewal of any bonds. Based on history, we are talking less than 25 basis points for such a renewal, and could that be for NOK 1 billion? So that's a marginal implication.
Okay, understood. Thank you so much.
You're welcome.
The next question comes from the line of Lars Heindorf from Nordea. Please go ahead.
Yes, morning. Thank you for taking my questions. Sorry if I may repeat some earlier statements, but I came in a few minutes late to the call. Now, regarding the impact, if I understand it correctly, from both Ekol and Grimaldi combined, it's around about DKK 250 million in 2024, which suggests that the rest of your business has been doing around about DKK 1.75 billion. I think you're right in your statements from yesterday evening that you expect most of the other businesses to be flattish. Does this then mean that with the guidance of DKK 1 billion, that the estimated impact that you have assumed in the guidance from Ekol and Grimaldi combined is around DKK 750 million?
Even though you are late, Lars, your calculator is working, so that's good to hear. On the margin, you may be a little too pessimistic on this, but broadly, I think your rationalization is working.
Okay. And then, I don't know if Karen, you mentioned about the cash flow that you talked about, that there might be some sale of non-core activities and other stuff. What is considered non-core?
I think the main thing behind this is some of what you've seen before, if we have too many assets. So it's a reduction of trucks. It's potentially sale and leaseback vessels, maybe even reduction of one or two vessels, and then if we see, as we did with the Copenhagen-Oslo, but nothing in that scale, that there will be a small business that maybe we don't see supporting the network, then we would also look at that. But I think, as also Karen alluded to, it's not going to be something major. It is on the asset base that our main focus is.
But I understand if you cut back on your capacity and sell some vessels, that will, of course, help. But if you just sale and leaseback, then that will not really help your debt levels from going to 3x size 16.
Yeah, it depends a little bit on the structure and whether the vessels are already on our balance sheet or not, but that becomes a little technical. But also, we have inherited a very large truck base in Turkey where we expect a major reduction and a partly different business model based more on subcontractors and freight forwarding than potentially being a pure haulier.
Okay. And then on Ekol, you mentioned in connection with the call, I think it was back in November last year, that you expect to improve Ekol margin up to 5%. But you also said that it will be expected to reach break-even by the end of 2025. Is that still the case?
We certainly have an ambition to get close to a break-even during some of the Q4 months in 2025. We, of course, need a little more time before we have all the firm plans in place. But based on the first couple of months of working with the new acquisition, nothing has changed the ambition level.
Okay. And then back to the logistics side, I would like to ask about the goodwill risk and impairments. Surely, I mean, given the performance in the logistics division, also with the recent acquisitions, particularly HSF, any risk there on, I assume, that you take the entire logistics as a cash-generating unit as you do maybe with the ferry as well, which is the reason why there might not be something on the ferry, but could it be on the logistics side?
You are correct. That's one cash-generating unit. And of course, Ekol has joined with a negative impact to that with the expectations we have. And of course, as I'm sure you're aware, these tests are made every quarter, but in particular and in depth for the year-end. We do not see any risks either on the logistics side for impairments.
Okay. But I mean, given that you've now seen a few quarters where you've seen negative year-on-year growth in the existing business in logistics, and then you add Ekol, which is going to be loss-making. I know that you probably do five-year predictions there, but you acquired HSF back in 2021 and still not really performing. You have a Cold Chain, which is still loss-making. Returns, which are still way below what most of the competitors are doing. I mean, it just doesn't sound like that this is a business unit or cash-generating unit where you can defend some of the previous acquisitions, to be honest.
The total logistics business certainly is not being impaired, and obviously, we have done very careful projections and calculations in that connection.
Okay. All right. Thank you.
We have a follow-up question coming from the line of Dan Togo Jensen from Carnegie. Please go ahead.
Yes, just a follow-up here and back to Turkey and the Med. In your December trading update, you state that underlying Turkish volumes are holding up or back on the level where it was in 2023, basically. Can you give some flavor on how the composition is here between what is not Istanbul Trieste and the rest, and henceforth to understand how much is price in this and how much is volume? So some flavor here. Thanks.
We cannot provide that detail, but for you to understand why we are keeping the volumes, you need to look at the split between road and ferry in the overall market, and with the lower and more attractive ferry prices, there's been quite a conversion from road to ferry, which means that despite the loss of volumes to the new competitor, that has been compensated by the fact that the market in general, the ferry market, has grown with a similar percentage.
Many Thanks.
You're welcome.
We have another follow-up question coming from the line of Lars Heindorf from Nordea. Please go ahead.
Yeah. Thank you for taking my follow-up. One other thing I forgot was, given the leverage that you have where you yourself point out that you're going to be around four times EBITDA, will there be? I mean, surely there won't be room for buybacks, but could we foresee a situation in which you're going to cancel dividends?
I think we cannot comment on that since this is obviously the Board that will come with that. But it's obvious that right now, return to shareholders is not the main priority. Cash returns to shareholders.
Okay. All right. Thank you.
There are no more questions at this time. I would now like to turn the conference back over to Torben Carlsen for any closing remarks.
Thank you very much. And thank you, everybody, with short notice to attend this call. We wanted to, given the changed 2025 outlook versus expectations, we wanted to give everybody a chance to get more details. But of course, also realize that with still one month to go before we release the full details, that is not everything we've been able to comment on. So appreciate your patience and continue to wish you a good day. And again, the normal releases will come in February, and we will provide more detail. Thank you.