Today, I'm pleased to present CEO Torben Carlsen and CFO Karina Deacon. Please go ahead with your meeting.
Thank you very much. As usual, Karina and I are joined by Søren Brøndholt , our Head of Investor Relations. Off to a good start. First two months of Q1, a challenge for our U.K. link freight activities, very strong recovery in March. We've seen a positive impact from various Brexit-linked activities. Our new Irish route, standby capacity agreements with Department for Transport, the customs clearance work that we do for a number of our customers. Also, BU Med, our Mediterranean business, achieved its best quarter while owned by DFDS. At the same time, of course, we had very few passengers in the quarter as travel remained restricted throughout Q1. I'll hand over to Karina for some more details on the numbers.
Yes, thank you. If we turn to page four, our revenue down 1% compared to previous year, basically driven by the lack of passenger activity. On the other hand, EBITDA up 23% to DKK 750 million. The majority of that improvement came from the ferry freight, which was up DKK 158 million, as mentioned by Torben, driven by a good strong result in BU Med and also the Brexit-related activities. Obviously, the travel restrictions were in place throughout the quarter, and impacted the activities. So, we saw EBITDA from across the three business units being down by DKK 42 million. Finally, if we look at logistics, a slight improvement over last year, or after a year, a difficult start to the year. Let's turn to slide five. Looking at the income statement, we have already talked about the impact of pax revenue on top.
We also have had lower bunker charges in the first quarter of 2021. If we look at the freight ferry revenue, in isolation and exclude bunker charges, we actually saw an increase of 13% in revenue, very much due to the new Irish route, which we successfully launched in the beginning of the year. That meant, all in all, that we could see EBIT more than double from first quarter of 2020, reaching DKK 278 million, following depreciation more or less at the same level as last year. A few comments on the finance line. A significant change since last year. There was, in 2020, a one-off income, a FX related gain. On top of that, we also saw interest cost increasing this quarter, because we had the higher interest rates on the U.N. Ro-Ro linked loan.
We had, as we talked about a year ago, from now on, we had a waiver on our covenants relating to this loan. Due to the positive development in our interest-bearing debt and our leverage, we have been able to cancel that waiver again here in the beginning of May. We are back to the original terms and conditions, meaning that we also get back to the original interest levels. One small comment on special items relating to integration planning cost for the acquisition of HSF. Let's turn to slide six. A few words on the working capital. Here we have compared with the first quarter of 2020, as we've talked about in previous quarters, we have seen a reduction, mainly driven by BU Med.
After a strong fourth quarter on our working capital, which was also reflected in strong cash flow, we saw a negative impact in Q1. It was to a certain extent impacted by deferral of payments. In many countries, we had government support in terms of delayed payments of VAT or taxes, et cetera. Some of that benefit came back negative in Q1. The negative working capital impact of DKK 200 million had a significant impact of these deferred payments. If we look at the total free cash flow, which was a negative by DKK 50 million, bear in mind that was also impacted by the payment of the last Jinling, which we took delivery of in the beginning of the year.
Looking at return on invested capital, improved during Q1. Of course still impacted by the pax impact when we look at a last 12 months basis. We reported 4.2% at the end of March. The last thing to mention on this slide is the leverage ratio, which was just below four. Since we have now entered into the period where we will have easy comparisons in Q2, we will also expect to see this ratio go further down. We have put the worst behind us and had the top of this leverage back in the Q3 of 2020. Turning to slide seven, a few words on the BUs. There was an EBITDA improvement of DKK 160 million driven by BU Med and Channel. If we look at the North Sea, it was an increase in EBITDA of DKK 9 million.
The volumes were very low in January following the Brexit. It became better during the period, but the impact of higher bunker costs also meant that we saw a negative impact overall, which could not be offset by capacity agreements with the Department for Transport. Baltics volumes up 12%, but unfortunately impacted by higher bunker costs, so the net result was a decline compared to 2020. Channel, a mixed bag ending up positive. We did have a successful launch of the new Irish route and also the Brexit transition activities. However, clearly the lack of passengers had a negative impact and also a negative net bunker impact.
The Mediterranean, as we said, it was a record high that did have 7% higher volumes, of course, also helped by a continued strong export to Europe, but also a reflection of the savings and the operational improvements they did back in the second half of 2020. Turning to slide eight, not so much to say about passenger, down 13 million in the individual BU, but as you all know, the Q1 is not the strongest quarter, so therefore not a big impact. Also due to the fact that we could benefit from some salary compensations on the furlough staff. Slide nine, logistics. Slow start to the year due to Brexit. We saw ship days going up, increased equipment costs, et cetera, because of the new processes that needed to be implemented, but it was compensated for later by customs clearance activities.
If we look at the individual BUs, the Nordic, they had a particularly slow start, had to face higher costs, both related to equipment and also haulage costs. They did improve during the quarters. Continents, we did see a slight improvement last year. Bear in mind, we had a special cargo issue, which has been fixed since then. Now we are up by DKK 2 million. Finally, UK and Ireland, they benefited from strong results in the Scottish aquaculture business at the end of the quarter after a difficult and challenging start to the year due to the new regulations from Brexit. I think that was it for the Q1. And now, back to you, Torben, for the outlook.
Thank you very much. As most of you will have noted, we raised our outlook on the 23rd of April, where we adjusted some of our key assumptions. We noted that uncertainty remains very high, especially in terms of return of travel with the significant travel restrictions that most countries still enjoy. And also, we have noted that a new entrant will start operating in the Channel market, and it is, of course, difficult to see the exact impact of that. HSF Logistics Group is now assumed to be consolidated from 1st of July versus previously 1st of May, due to some delay in obtaining the regulatory approval from the EU. Turning to page 12, the expression in numbers of what I have just said. The range outlook have been increased to DKK 3.2 billion- 3.6 billion EBITDA versus DKK 3 billion- 3.5 billion.
Revenue is still the same, 20%-25% range. The other numbers are pretty straightforward following from the increased EBITDA range. Turning the page, we come to our current priorities for 2021, which obviously is to integrate the HSF group successfully and its 1,800 people. We'll continue to pursue post-Brexit opportunities. I'll come back to that. We launched a very focused commercial effort mid-2020 that is starting to show very strong results. We expect to see more of that and we'll focus even more on that. We'll continue to increase the return in the Mediterranean business. I'll also come back to that. We are preparing everybody so that we are ready once passengers again can travel. Before turning over to Q&A, it has been a very good quarter seen with DFDS glasses since the Brexit Referendum in 2016, there's been this cloud hanging over DFDS.
When we met a lot of our investors and analysts. It has, of course, been a huge relief to see that the preparations we have undertaken during the last four years, and of course, intensively in the last couple of years, have paid off. Brexit is now behind us. There is still a DFDS. Volumes were low in January, as expected, after the heavy buildup of inventories in Q4. As expected, we also had a lot of practical and technical issues the first couple of months, and some of them are persisting even now. Trade continues with the zero tariff deal, even if transport becomes a little more expensive. We don't think that a transport cost that was before 15%, maybe on goods, increasing by 15%, which is then 2%-4% extra cost for goods, will fundamentally change trade flows.
At least, after the first four months, that is also what has been confirmed by the market. On the other hand, Brexit has revealed opportunities for a company like DFDS. We've started a direct route from Ireland that is off to a strong start. We are helping our customers with customs clearance, hired 150 people, and that's part of the positive story for Q1 that, especially in March, they start contributing to the bottom line. We have also seen the reintroduction of duty-free. Of course, without passengers, it's difficult to test our success, but we have seen driver passengers spending upwards against double of what they used to do on board. We have planned two border shops in Dunkirk and Calais respectively, that will open and be ready when the passengers are back. One heavy cloud that has lifted from DFDS.
Therefore, it is, of course, extra joyful also to see that Mediterranean, that since our acquisition in 2018, and the immediate currency devaluation or crisis a few weeks after, is also showing very strong momentum. A momentum that started in Q3 2020 and have continued in Q4 and now in Q1 2021. One cloud left for DFDS, seen from our chairs, and that's of course the passengers and the COVID impact. There, the vaccines, hopefully, will get that business back on track before the high season hits us. With that, over to questions.
Thank you. If you do wish to ask a question, please press zero one on telephone keypad. If you do wish to withdraw your question, you can do so by pressing zero two on telephone keypad. Our first question come from line of Marcus Bellander from Nordea. Please go ahead, your line is open.
Thank you. Yes, a couple or a few questions, maybe, if I may. Starting with the Mediterranean, you're obviously doing very well there, and we've seen that trend develop over the past few quarters. I'm just wondering how high can margins in the Mediterranean go? I think they were 23% in the quarter and best in class, so to speak. What's the upper limit there, do you think?
I don't think we are having our eyes on that at this moment, Marcus. We are very much focused on having an operation that can support the customers. That's, as you know from previous discussions, having enough space in the ports, managing the interface with the rail services. If that means that there could be a couple of more percentage points margin, we will see. It's not driven by increasing prices, but more by reducing cost and making sure with targeted fee initiatives that customers support our operational efforts to improve the efficiency.
All right. Understood. Thank you. The next question regarding passenger volumes and your guidance. You're saying that you now only expect to recoup 25% of the volumes lost during 2020. I'm just wondering what has prompted that downgrade. Is it the challenge from Irish Ferries or is it your booking situation or if you could elaborate a little bit on that, I would appreciate it.
Yeah. We're just looking out the windows and can see that our passenger ferries are still not sailing to Norway. When we look at our weekly numbers on the channel, there are no passengers. We had originally thought that passengers would start coming back during Q2, early Q2, and now, at best, that's towards the end of Q2. You're not allowed to travel between our key markets, Denmark, Norway, U.K., France, and U.K., Holland. It had nothing to do with competition.
Okay. Understood. I guess just a housekeeping question before I jump back into the queue. You mentioned higher bunker costs having a negative impact, well, across the network, I suppose. Usually you have bunker adjustment factors in your customer contracts. Why is there a negative impact? Is this just a timing effect, or if you could elaborate?
Yes, you're right. The spreads in Q1 last year were significantly higher. You might recall that it's a very strange situation we had in the first quarter. The fact that we had higher spreads in Q1 2020 and the fact of the time lag, which means that we had more of this adjustment income in Q1 2020 compared to this year. Those two things makes a negative impact.
Okay. Understood. Thank you. I'll get back into the queue.
Thank you. Our next question comes from the line of Casper Blom from ABG. Please go ahead, your line is open.
Thank you very much. Congrats with the strong start to the year. Great to see. First question goes to the acquisition of HSF. This delay in the consolidation, should we worry in any way about the regulatory approval of you being allowed to make this acquisition?
We don't think so. We have no indications that there are any concerns. When our lawyers look at this, we don't meet any concerning thresholds. It's simply been a matter of difficulties in finding the data that have been requested by the EU. That's without being too technical, because there are no borders. There are also very bad statistics about movement of goods between European countries. No indications other than the delay.
Okay, good to hear. On the passenger business, I think, Karina, you mentioned that you have seen a bit of salary compensation. I was personally impressed about the ability to lower the loss given how weak the revenue line was. Can you speak to when the passenger business gets back on track? Let's say that you're back to the utilization you saw in 2019. And how much will the underlying cost base then have moved? I mean, I suppose you have used this opportunity to take out costs and optimize the business. Can you give any guidance to how the cost level would be when we get back to a normalized passenger situation?
I think we have, as you said, taken a lot of initiatives. Some of them are difficult to measure because we're back at full speed. If I am to give a guess, we have been targeting that we wanted to improve in our EU passenger with about DKK 100 million. That's not only cost reductions, that's also with the inclusion of the Frederikshavn stopover. Cost reductions and then that added leg has been the target to reach DKK 100 million when we come to a steady state.
Is it then fair to assume sort of the same magnitude in the rest of the passenger business, so the part that's not in the direct business unit?
No, that's not fair. Obviously here we also trimmed the cost base there, but it's a completely different cost base that we have, for instance, on the channel compared to on the Oslo, Frederikshavn , Copenhagen route. That has been the focus, and when we have, you might remember we've talked about changing concepts and stuff, that's very much been on the BU passenger business unit.
Okay. That's very clear. Just finally, a question regarding the Mediterranean. There was a bit of movement in the Turkish lira here also recently, overnight big moves. Did that just sort of show that your Euro pricing approach is working, or were there any sort of calls from customers asking for a lower euro price on the back of this, or is the plan working?
The plan is working. Customers always call to, they use any opportunity of course.
Told you.
They pay in Euros, and that works fine. Export is strong from Turkey. Our customers are also benefiting from that.
That's good to hear. I think that situation at least showed that it was smart to move to Euro pricing. Thank you.
Welcome.
Thank you. Our next question come from the line of Ulrik Bak from SEB, please go ahead, your line is open.
Yes, hello. Hi Torben, Karina. Also a few questions from my side. First of all, in terms of this increased competition on the English Channel, where both Irish Ferries and P&O are adding capacity, while also Cobelfret, they have also launched a new route to Ireland from the continent. Have you included anything from that in your guidance for 2021?
We have, of course, considered the competitive situation. The Cobelfret vessel was an addition to their current schedule, and it's a.
Maybe it was the Grimaldi route.
Yeah.
Yeah, thanks.
I think Cobelfret added a ship on the unaccompanied. Our Irish route is accompanied travel, we don't suspect that that will have any major impact. An operator from Ireland has announced that they have a vessel that they will deploy in the channel. We have, of course, looked at that, we think that the forecast that we have presented are solid regardless of whether they start operating or not.
All right. Then in terms of duty-free sales and border shop sales, can you quantify how much of that is included in the 2021 EBITDA guidance? Is it something where we should look for 2022 to see a significant impact from that?
You'll have to wait for 2022.
Any magnitude guidance?
Not that we can disclose specifically. As I mentioned in the introduction, we've seen drivers spending more than they used to. Maybe instead of EUR 4 or 5, they spend a EUR 10 on board. Obviously, if we have 3 or 4 million passengers coming back doing the same, then you can do the math. We don't know how fast they come back, and we are not convinced that less frequent travelers will utilize their allotments to the same extent.
All right. Very clear. Then to the HSF acquisition. I know you haven't mentioned anything about this potential synergies, if you apply a rule of thumb for past M&As, acquiring companies tend to realize around 10% revenue synergies and 5% cost synergies of the combined entity. If I do use those numbers for the acquisition of HSF, you get to an EBITDA impact of DKK 270 million by 2022. Is that way off of your internal budgets or is it more or less in line?
That's way off.
Right. Okay. Very clear.
I think also bear in mind that we don't have a lot of locations where we'll add them together and take out a lot of people and stuff. All the cost synergies that you are referring to there, we're more complimentary than sort of overlapping.
All right. Okay. Thank you. That's all for me. Thanks.
Thank you.
Thank you. Our next question comes from the line of Marcus Bellander. It's a follow-up question. Please, go ahead. Your line is open. Our next question comes from the line of Marcus Bellander. Please, go ahead. Your line is open.
Sorry, I was muted. Two more questions, if I may. The first following up on the competitive situation on the English Channel, and I appreciate it's difficult to say or answer, but what do you think? How bad can the situation get there? We're seeing P&O back at full capacity, more or less. Irish Ferries adding two vessels. There are also some new routes between Ireland and France. You have a new route between Calais and Sheerness, is it? It just seems like there's an awful lot of new capacity. What's your sort of scenario?
Yeah, I think. Yeah. The new route that we launched for Sheerness is to cater for the unaccompanied traffic between Calais and Dover. P&O used to carry a lot of this traffic but have stopped. We had a few on our unaccompanied vessels, but that's not ideal. That's a separate thing that we think will just optimize the unaccompanied traffic and reliability. We noted that P&O have added a fifth vessel, speculating that that is a response to the Irish Ferries initiative, to make sure that they have a product that is far superior to a one or two ship operator. We are monitoring. We have a good relationship with our customers. There's relatively strong volumes. We're quite confident in our position on the channel.
Okay. Thank you. Then one more, if I may. I'm just trying to do some backwards calculations on your guidance and it seems you had a very strong EBITDA margin in Q1, and as far as I can tell, you're essentially suggesting, or your guidance essentially, the midpoint of your guidance ranges essentially suggests that the EBITDA margin will be approximately the same for the remainder of the year as it was in Q1. That just seems a little conservative to me. For that to happen, I think costs must increase quite a bit. Is there any reason to believe that costs will increase a lot in the next few quarters?
There are some one-offs in the Or not one-offs, but for example, the capacity agreement that Karina mentioned with the Department for Transport, we don't necessarily know that, that will continue throughout the year. That will reduce the margin slightly. Of course, as we also mentioned, there is a lot of lack of visibility still with the passenger side. Maybe we are conservative. We want to make sure that we can deliver what we are putting forward. I think we can do that.
Okay. That makes a lot of sense. Thank you.
Thank you. We have no more questions from the line. I will hand it back to our speakers.
Okay. Thank you very much. Thank you for your participation and good questions. We look forward to seeing you again in a quarter's time, hopefully again with good messages from DFDS. Enjoy your day.