Ladies and gentlemen, welcome to the DFDS Q4 and full year 2022 report conference call. Throughout, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Today, I'm pleased to announce Torben Carlsen, CEO. Please go ahead.
Thank you very much. Good morning, and welcome to DFDS's Q4 and full year 2022 conference call. I am, as usual, joined by our CFO, Karina Deacon, and Søren Brøndholt, our head of investor relations. Despite headwind in certain areas, most of our businesses performed very well in 22, and I'm pleased to close the year with an EBITDA in the high end of our outlook range. We see, of course, both challenges and opportunities in 2023. We remain confident in our ability to achieve solid results in the new year. This is also, we believe, reflected in the proposed increase in the return of cash to shareholders, and as you no doubt have noticed, we have brought back the share buyback program. We continue to see great potential to strengthen and grow our network further in the coming years.
We've assumed that the acquisition of McBurney Transport Group will be approved, and that will of course be an exciting and value-creating first step in 2023, and expectedly not the last. Our Q4 was in line with our expectations, we've chosen to focus in this call more on the full year results. Let's turn and have a closer look at 2022. Page 3, full year EBITDA up 45% to DKK 5 billion Danish kroner for the to 2022. DKK 5 billion is within our win 2023 target range, which we had said we would achieve in 2023, also pleased that we have demonstrated this earnings capability.
The growth in 2022 was driven by return of passengers and the full year impact of the HSF acquisition. Furthermore, our freight ferry and logistics performance also improved and contributed to the growth. We are seeing increasingly headwind from the Dover Strait overcapacity situation and also the war in Ukraine. On the ESG side, our ferry emissions reduced 4% in line with our 2030 target. With that, I will hand over to Karina on page 4 for more details on the numbers.
Yes. Thank you, Torben. I will talk a little bit about the revenue growth. We already touched upon the increase of 45% in EBITDA, and that was achieved on the back of a revenue increase of 47% overall. That was very much impacted by the 2.9 million passengers returning. On average, we're now at index 74 in terms of passenger numbers compared to 2019. You might recall that Q1 was still impacted by COVID. If we look at the various geographies, Baltics was actually above 2019 with the index 104. In the freight ferry, the growth was related to the BAF surcharges.
Overall, the revenue was slightly negative because the volumes was down by 2.5%, driven by the channel events and the war in Ukraine. Logistics also grew from surcharges, but also after growth in solution sales and new activities like the customs revenue and warehouse activities. Finally, acquisitions, of course, mainly the full year effect of HSF, but also ICT and lately Lucey, acquired here in the autumn. If we turn to slide 5 on the P&L, as mentioned then, EBITDA grew in both ferry and logistics. If we look at the group margin, we saw a slight decline, clearly linked to the higher proportion of earnings from logistics.
In 2022, we now have 21% of EBITDA from logistics, whereas we had 17% in 2021. Going further down in the P&L, few words on depreciation. We have talked about that throughout the year. Higher impact from acquisition and also the impact of the two RoPax vessels that we deployed in the Baltics early in the year. The significant increase in EBITDA trickles down to EBIT as well. That grew 87% leading to a margin improvement to 9.1% up from 7.2% in 2021. Finance cost, we saw an increase of 23%. I will say we ain't seen nothing yet because that's just the beginning.
We are impacted by the higher interest rates, but also from acquisitions, both due to the debt, but also the interest on leases in those companies. If I look ahead into 2023, finance cost is one of the items where we will see a significant increase. Interest rates at the moment are up more than 3 percentage points compared to what we saw in 2022. And with the increased cost from acquisition as well, it could be up by something like DKK 200 million compared to the level we saw in 2022. The bottom line for 2022, all in all, it meant that profits before tax more than doubles to DKK 2.1 billion. We turn the page to talk a little bit about the balance sheet and the cash flow.
After Q3, we saw ROIC being back above our target level of 8%, and it increased further after Q4. Now we reported 8.6% compared to the 5.2% in 2021. Driven heavily of course, by the passengers returning, but also increases in other parts of ferry, most significantly in the North Sea. Operating cash flow was up DKK 1.3 billion, but reduced by the additional investments, both in operating CapEx, and also looking or taking the new builds into account that we had that we did early in the year. All in all, adjusted free cash flow, meaning before acquisitions was DKK 900 million. Net interest-bearing debt went up 5% compared to 2021.
Due to the strong earnings, we saw a further improvement in leverage from the 2.9 after Q3 to now 2.8. That is, of course, a significant decrease compared to the 3.7 after year-end 2021, sorry. Turning to slide 7, a few words on our debt. After Q3, I talked about the ongoing refinancing plans after the repayment of the bonds in September, which we at the time replaced with a bridge facility. In Q4, we completed the refinancing of our U.N. Ro-Ro facility from 2018. That means that the DKK 3.7 billion was refinanced with our five core banks, and the debt is now due or mature at the end of 2026.
We have a small remaining part which was extended to 2024. In 2023, we will look for further refinancing as we still have a short-term debt on our balance sheet linked to the bridge facility. We will consider whether it's the right time to use our investment-grade rating of BBB- that we got this summer and potentially issue bonds, but that will of course be subject to market conditions. Let's see how that develops. On slide 8, very quickly on Q4. After the significant growth rates we saw the first 3 quarters of the year, we're back to more normal levels. Although 17% and 18% on revenue and EBITDA is still quite significant.
That means that EBITDA was again significantly above the Q4 of previous years. Ferry freight was flat. The overcapacity in the channel and the 9% market decline in Q4 on the channel reduced results. The recovery in passengers continued, and in Q4, we were at index 83 versus 2019. Finally, logistics also improved, driven by dry goods, which continued to benefit from the cost coverage initiatives and warehousing activities. Turning to slide 9 on ferry. In Q4, we saw a decline in volumes of 11%, and that was driven by the channel. If we exclude the channel, the decline was about 3%.
Nevertheless, EBITDA was on level with Q4 2021, driven by strong performance in the North Sea. If we look at the BU Med, we had some one-off costs, partly related to a settlement with a customer, and that meant that EBITDA here was a bit below 2021. If we look at the full year, volumes were down 2.5%. Behind that number, there is a significant variations. When we went into the year, we expected BU Med to come out with double-digit volume increases, and that actually happened with 11% for the full year. North Sea was flat, impacted in part with the difficulties for the automotive industry, while as we talked about many times now, Channel and Baltics brought the total number down.
The these volumes numbers was of course reflected in earnings, where we saw solid results in North Sea and BU Med. If we look at the improvement in Channel, it was all due to the return of passengers because the freight was significantly down. Baltics for the full year on level, freight down, but also good contribution on the passenger side. Eventually or finally BU Passenger significantly up compared to 2021. That led to a small positive EBITDA for the year. Just maybe worth mentioning that Total passenger earnings for 2022 are now DKK 955 million. The DKK 1 billion that we have talked about that we were missing from COVID is almost recovered now.
On slide 10, on logistics, there we saw a Q4, which was very much as expected for our drive business, and they continued the significant improvements that they have had throughout the year. Cold chain was slightly below last year. We are impacted by lower volumes to the UK, also to do with the bird flu that has been in the UK. If we look at the full year 2022, our EBITDA was up 80%, of course, impacted by acquisitions. If we exclude those, we saw an organic growth of almost 30%.
As mentioned, during the year, we saw the improvement from better cost coverage, and we saw the new activities, and also a considerable performance improvements in several of our business units and business areas. One of the things that have had an impact on our results during the year is the large shift we have seen in haulage capacity. It has really been a rollercoaster throughout the year, with a shortage in the first half of the year, with difficulties to find drivers, for instance, due to the Mobility Package but also the war, et cetera. Over the summer, the demand was lower, and we had a decent balance. Q3, another peak, where high demand and shortage, and then Q4, a plenty of capacity.
Monitoring the development and the supply demand is very important for us so we can adapt swiftly, which our business has also done. Finally, on coaching then, HSF of course has a huge impact. The integration has taken a lot of attention during 2022, and it has developed as planned. We have a run rate effect of the synergies of more than 8 million EUR here when we exit 2022. As you might recall, we had said that we were expecting around 10 million EUR, and I definitely see the remaining path to be able to achieve that as well. Just bear in mind when you look at the numbers that about half of these synergies are recorded on the ferry.
That concludes the number review, and then back to you, Torben.
Thank you very much, Karina. On ESG, the emissions intensity reduced 7% for the ferry, where we of course have by far our largest emissions in Q4, following a number of decisions on route planning. This gives a 4% full-year reduction, which is in line with what we need to achieve to meet our 2030 goals. We are progressing the design of our next generation ferry fuel vessels with green propulsions. During 2022, we now have installed solar panels to deliver 25% of our electricity need, and this is a development that continues in 2023.
Our trucks are the latest and highest emissions standard, and each trucks are being deployed until now in Denmark and Belgium and soon also in Sweden. We are making slow progress in terms of getting the underrepresented gender to 30%. Turning to page 13. As was mentioned, our distribution increases to DKK 586 million this year if the proposals by the board is adopted by the annual general assembly. The increase is based on the strong financial position and also, of course, looking into that we want to pursue growth prospects also going forward.
The capital distribution is distributed into a dividend of DKK 5 per share. We relaunch the buyback programs that we discontinued in 2018 when we acquired the Turkish business. The buyback will run from the 10th of February to the 21st of February. Moving to page 14. The outlook of 2023 reflects the strong position we enter the year in. Of course, also some headwind that we have noted and included in our guidance. Not least the slowdown in European economy. We despite this expect continued growth for passenger and most of our freight activities.
The two exceptions are Ukraine, where we continue to expect headwind and the full year effect of the war on the Channel, the overcapacity situation is not improving. The market is going down. We will also see a relatively strong negative impact from this situation. Overall revenues are expected to remain on level with 2022, and the EBITDA range reflect these recessionary indications that we see, plus the two situations in Ukraine and on the Channel. Overall, in light of that, we feel that it is a guidance range that reflect our belief in the resilience of our business model.
If we continue with the outlook for 2023, on page 15, our CapEx is expected to be around DKK 1.6 billion. We have no ferry purchases or new buildings in sight for this year. Of course, we have the acquisition that we expect to be completed from end of Q1. That will mean a payment of DKK 1.2 billion. On page 16, our priorities for 2023, adaptation of capacity, wherever that would be required due to any geopolitical developments that we either have only seen some part of or that develops during 2023. Nothing new in that. This is how we always operate.
Organic growth, well-positioned, especially in logistics, but also in the Mediterranean, ferry region. Inorganic growth through the McBurney acquisition, and other initiatives, for new business. We will focus a lot of the cash flow generation, we'll continue to reduce our emissions, and we will make significant moves forward in terms of getting a, especially the green vessel, on the water. With that, we will turn back to the moderator for questions.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star followed by 2. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by 1 at this time. One moment for the first question, please. Our first question is from Dan Togo Jensen of Carnegie Investment Bank. Please go ahead.
Yes, hello. A few questions from my side here. It may be told me if you could elaborate a bit on the guidance for 2023 and your expectation of growth in certain markets. I understand definitely that the Baltics and the Channel is under pressure. But what supports growth in Med and in the North Sea as you see it going into 2023? What are we looking for here? Is it sort of, say, mid-single digit growth? Please, if you can share some thoughts on that. Thanks.
Yes. If we start with the North Sea, it is a modest growth, you know, almost flat. We just believe with the different cost optimizations and adaptations we make, that we will still be able to show progress on the North Sea. On the Mediterranean, it's really a continuation of what we've seen in recent years, with of course, some slowdown from the double-digits that Karina talked about just before. Given that Turkey is also impacted by the growth prospects in Europe. Continuing trend of de-globalization benefiting Turkey and thus also the transports between Turkey and Europe.
Maybe I
Sorry, please go ahead, Karina. Yeah.
Yeah. I'll just add on the North Sea, I think we also mentioned it last time that there is a backlog on the automotive industry, so that helps improvement. Of course, you have the little bit darker view from a recession point of view pulling in the other direction. That backlog keeps a base, a solid base under the numbers. Hence we can see a roughly flat development expected, yes.
Okay. Then turning to one of the more troubled market, the Channel. What is, sort of say, what is the end game here? Are you just sitting on the fence and waiting for somebody basically to pull the plug here, or can you do something in between, adjust capacity, do something on the cost base, et cetera, pricing? That's probably difficult in the current environment. What can you do to mitigate what's going on in the Channel until, you know, there comes some sort of breakthrough market-wise?
We will continue to do what we have been doing in 2022 and before. With the capacity sharing agreement with P&O, you've seen that we've taken out, we've taken out sailings, 4 or 5 sailings per day during 2022. Still being able to offering our customers attractive schedule with the space sharing with P&O. We will, of course, continue to look at if we should adopt further our number of sailings and then try to run as lean an operation as possible, making sure that the service levels keep a very high standard, including of course that we offer both Dover and Calais.
Again, with the small strike actions that have been recently, the value of that is proven. There's never a strike in Dunkirk, so we always keep operating. Our customers value that, and we believe that our product command a premium in the market. It's all those small things that our team continue to pursue and optimize. We also believe that during 23 there will be action from the English and the French governments in terms of creating a level playing field on the cost of the people. We do what we are best at. We have of course not quite, but almost the same market share as the 2 other ferry operators combined.
The economies of scale there mean that all things equal, we should be the ones suffering the least from the situation.
Two more questions from my side, if I may, and then I'll hand it over. On the Pax side, the passenger side, we'll be all looking, of course, for the 2019 levels again to appear in your numbers in terms of traffic. We're not seeing that quite yet. Is there some markets that are approaching this, or when should we expect for this 2019 level? Is it late 2023 or maybe into 2024 before we can see such a number?
Actually, as I mentioned, the Baltics, they are already above the 2019 level. We don't see any reason why that shouldn't continue into 2023. If we look at the BU Passenger, so the Oslo-copenhagen route and Amsterdam, Newcastle, we actually expect them to almost more or less approach the 2019 levels. As we talked about before, it's slight different composition of passengers on the OSC route, so not the Asian passengers. In terms of volumes, we expect that we can be more or less back at 2019 level. We have the Channel, and that is of course impacted by the overcapacity in general. We are relatively optimistic about actually passengers returning.
It's more a question of our market share on the Channel.
Yeah. Just a final question here. You have alluded to that you are in talks with Ekol of taking over their international businesses. Can you give us an update on how that is progressing and what we should look out for here? Thanks.
Yeah. The, we have applied with the Turkish competition authorities. They are still looking at the case. They've sent out questions to the market. They're sending us questions, you know, every now and then. We don't have any update on when they will have finalized their work, so that we can continue to see if a transaction can be made. We continue as-
Thank you.
Understand we continue to see great potential for Turkey and an acquisition of Ekol would mean that we would mirror the setup we successfully have in the North Sea, for example, with logistics and ferry routes.
Thanks a lot.
You're welcome, Dan.
The next question is from Michael Vitfell-Rasmussen of Danske Bank. Please go ahead.
Yeah. Thank you very much. 3 questions from my side. First of all, can you talk a little bit about the one-off settlement that you discussed in in the BU Med during Q4? Can you add some flavor on which kind of customer type was this? And what exactly was the disagreement on? Just to make sure that this is not something which will potentially spread to to other customers. Thank you.
There is, there's no more to report on that. It's definitely one-off in nature, so you don't have to worry about that coming back. It's a complex matter that have, you know, combining elements from several years.
Okay. Thank you. Thank you for that clarification. Just staying on the Med, if you could first of all, talk about potential impacts in Q1 from the earthquake in Turkey. Then secondly, if one should assume this gives you a bit of a medium-term boost, potentially from the rebuilding process, once we are over the current situation.
Yes. It's simply too early. We have been focused on seeing how we can help out down there. We've sent the docks that we normally use for detecting refugees who have found people buried down there. We've sent, we've taken a vessel out of circulation to ship heavy machinery and also to help with the cleaning up. I do not think that this will impact the growth prospects for Turkey as such, but of course, the whole country is completely absorbed with this now. We are doing everything we can to help with the unique capabilities that we have.
We do not expect that this is something that either negatively or positively will impact, 2023.
Okay, great. Thank you. Just my last question is on the proposed Dutch auction share buyback. Can you just share a little bit, kind of your thinking here? Leverage is obviously coming down, but it's still relatively high. You're seeing M&A opportunities. Karina talks about higher interest costs and refinancing and so on. What actually makes you believe it's a good idea to go out and do the share buyback right now, rather than maybe reducing the debt or keeping it on the war chest for M&A?
I think it's maybe first and foremost a signal to our investors that we are very focused on capital distribution whenever there's room. The size of this is, of course, somewhat smaller than we used to demonstrate in 2016, 2017, 2018. It is just a signal that now we are back in our range. That is still the way we are thinking, that there will be a basic dividend, and then we will supplement with share buybacks.
We know that investors value the Dutch auction type when we last had them, since it, in a share like DFDS with maybe more limited sales, we give investors a chance to transact larger chunks than maybe they're used to. So it is first and foremost a signal that also, you know, indicates that when we are even in a better position, we will not hesitate to pay back to the shareholders. We'll do it in the way that we think most shareholders appreciate the most.
Thank you, Torben. That also makes sense. Yeah, we also think the share price is a bit undervalued here. That's all from my side. Thank you.
Yeah. Thank you.
The next question is from Ulrich Bach of SEB. Please go ahead.
Good morning, Torben and Karina. Also a couple of questions from my side. On the guidance, I see that there is quite a bit negative delta on the ferry guidance compared to 2022, on EBITDA of DKK 300 million-600 million. If you just take, like, a holistic view, what does this negative delta imply in terms of volume growth in 2023 and also revenue per lane meter growth? If you could clarify that, please.
That's very detailed, Ulrich, but obviously it means that ferry is down in volumes, not least driven by the channel. Obviously, without channel, it's a smaller, single-digit down, very small. But it is down in terms of value, volumes. And in terms of rate per meter, when you look at this globally, it looks. When you start seeing the reporting, it will look great. That is partly because we are losing volume where the rate, you know, per meter is relatively low on the channel. Probably too detailed to guide you on at this level.
Sure. Okay. A question to the Mediterranean segment. I just noticed in your volume report for January that you reported flat Mediterranean volumes year-over-year. Does that concern you in any way in terms of continued growth like you stated earlier?
No.
All right. Then this one-off item in the Mediterranean, can you just elaborate how big was that, the impact from that? Does that have an impact on the EBITDA before special items that you report in the Q4 numbers?
The amount is around DKK 50 million.
Okay.
It's not in special items.
Okay. The number we see, EBITDA before special items, that has deducted the DKK 50 million?
Yes.
Right.
Right. To a question to your logistics division. How does the price outlook for your services look if we look ahead? You talked about the scarcity of truck drivers has become less and with the, you know, general demand also declining, should we expect the prices also to come down in this part of the business?
The base prices are not coming down. Of course, we have a very confirmed models for some of the surcharges and that they will move according to how fuel and other elements move.
Okay. In terms of these synergies from HSF, did you report any synergies during 2022? Will the EUR 8 million that you talked about, will that be a positive delta purely in 2023?
No, we had a lot of it in 2022. About EUR 6.5 million of the EUR 8 million were already there in 2022. Most of them, as I also said, were in the ferry division because it relates to us using our own ferry on some of the HSF goods.
Yes, very clear. Thank you. That's all the questions from my side.
Our next question is from Ruairi Cullinane of RBC Capital Markets. Please go ahead.
Yes, good morning. My first question is could you talk us through your expectations regarding potential return of Asian passengers on the Oslo-Copenhagen route, if you are still targeting that customer segment? Secondly, we saw some very weak market volumes, particularly on the channel at the end of last year. The volumes looked better in January, but I'd be interested in insight on what drove that. Finally, can you sort of talk us through the factors which are suppressing the ROIC in the cold chain business unit?
Well, let's start with the Asian passengers we do not believe come back in big numbers in this summer season. We believe that they will be back in 2024. 2023, we're obviously planning for other passenger segments. Notably Norwegians are attractive for us there. The whole Asian is only an issue on this Oslo-Copenhagen route as you know, Rari. On the next question.
The channel volumes.
The channel volumes. Yes, we saw a market decline in demand for the channel last year. We have not seen a reversal as such of this. Of course, in combination with the lower capacity, you know, we are looking into a bleak 2023. Nothing so far that I have seen at least indicate that we'll all of a sudden see a growth on the, you know, overall on the channel. Yeah. I don't know if that... Then the third question.
ROIC in cold chain.
ROIC in cold chain. Do you want to cover that, Karin?
Yeah. We have made some investments into warehouses. Also we have made some CapEx investments. You are right, it is a lower ROIC than what we would hope for and what we expect actually. It is something that we are working with logistics to see what we can do in terms of the asset base. Of course, it's also a mathematical thing that when we make the investment in the warehouses, it does take a while before we have the sufficient return in. I can assure you that it's something that is on our agenda.
With the embedded in the forecast for 2023, we'll also see an improvement of that %.
Okay. Thank you.
The next question is from Chris Lewis of Freight Business Journal. Please go ahead.
Hello. Can you hear me?
We hear you fine.
Yes, sorry. I was wondering if you could elaborate a little bit on your plans for Ireland. What do you hope to achieve in the market? Also, do you operate ferries from the continent of Europe into Ireland itself? If so, how is that segment performing?
Well, I can start with, you know, our plans for Ireland is that we've for many years had a logistics business that is doing well in Ireland. Both in Ireland and Northern Ireland, including also some container traffic actually from Ireland to the continent. Last year we acquired Lucey, a contract logistics company in Ireland with domestic distribution and warehousing, where the integration is doing great. It's performing better than expected. The 29th of December, we entered an agreement with McBurney, a cold chain logistics operator based in Northern Ireland, but with a lot of traffic also to the UK, where it connects neatly to our existing cold chain business.
We are hoping that that transaction gets approved by the Irish authorities in this quarter. Then we'll be a significant logistics operator in the islands of Ireland. With regard to ferry routes, post-Brexit, we opened a direct route from Rosslare in Ireland to Dunkirk. This was to give customers an opportunity to bypass the land bridge, which is of course characterized with more paperwork and more unpredictability than such a direct ferry route. The plans are, of course, to continue and develop that route, plus make a successful integration of the McBurney acquisition once it goes through.
Yeah. Have you noticed any drift away back to the land bridge route away from the direct continental routes as people get used to the complexities of customs clearance, or are volumes on that direct route holding up?
We asked ourselves that question, or we asked that very much before we started. I'm happy to report that, you know, the interest for the direct route seems to hold up. In all honesty, we've had some challenges in providing the right tonnage for that market.
Mm-hmm.
But I think we are getting there. It seems that customers are very loyal and have some advantages from using this route. The drivers come to the continent rested. Some of them ship, you know, two or three trailers-
Mm.
one driver, and then the driver can deliver more of the trailers when he arrives. No signs that it's reverting back to pre-Brexit mode.
Okay. All right. Okay. Thank you. All right. Thank you.
You're welcome.
Our next question is from Jens Løgstrup of Expon ApS. Please go ahead.
Hello to you. First of all, congratulations with the result and the nice growth in the EBITDA. Actually, much better than I expected in the beginning of the year. Thank you. Nice to see that. I'm also happy to see that you are starting off this year a buyback program. I do not understand why you choose this Dutch auction. I think it's quite an uncommon way of doing it, and I think that when you have a situation like this where the stock price is obviously too low, it is much better to have a daily activity on the stock exchange and it's much better to have a longer period. It may not be a question because you already shared a little about this.
It's just a comment from me that I think this is unusual. You don't see it very often in the Danish stock market, and I clearly prefer the normal way of doing this.
Thank you for your views, Jens. We, for DFDS, this is a usual way to do it if you look back. We think actually because of the size of our daily trading that, as we said before, this offers an interesting opportunity for larger investors that want to be able to transact larger amounts where they normally would have to expect to only be able to do that over maybe months. We will, you know, we are very pleased with our choice here. If one day we have more money to return, we'll probably also go back to, as we've done in the past, a combination of the two methods of buybacks.
I have to say that I'm not quite sure that you're right that this was the way you did it. I mean, for example, in 2017, it was 1 in a 12 months period.
No, I think you should consider, yeah.
I'm positive that we've done this before. Let's take that offline, Jens. We have done pre-stock options before.
Okay.
Yeah. Thank you.
Ladies and gentlemen, just a final reminder, if you would like to ask a question, you're welcome to press star and then one. Our next question is from Lars Heindorff of Nordea. Please go ahead.
Yes. Morning. Thank you for taking my questions. A question regarding your earnings visibility. You talked about the outlook for the at least for the first half and the early parts of this year. You mentioned that you have automotive backlog. However, there's also quite a bit of inventory correction going on at least globally. Wanted to share, I mean, hear your thoughts about the, you know, seasonal development. I mean, do these two level each other out here in the first half of this year, and what to expect for the second half? That's my first question, yeah.
It's a complex question. If we had the answer to that, you know, it would be a surprise, I guess. I think Karina's comment before about the automotive is simply that, when we look into a recession, it is good for us to see that our large automotive customers have these backlogs, and that their supply chains are starting to flow better than before. It means that we have this space, these space loads coming to our vessels, primarily. Of course, we also see from some of our customers and hear from the market that there is some destocking going on.
The destocking, you know, still means that things get shipped from the warehouse to the market and typically through our vessels as well since a lot of the warehouses are on the continent. I don't think with at least the sizes of this that we've seen so far that we are too concerned about this. Of course, during 2022, we have heavily increased our exposure to contract logistics. We continue to see a very high demand for warehousing and cross-docking operations that we offer.
All right. Can you see, I mean, in terms of the automotive, if we stay with that, do you have a disability which extends beyond, let's say, one to three months? I don't know how far out you can see.
No, we don't have firm bookings or. The larger of our customers share their plans, but they are, of course, not better than what happens in reality. Of during the whole supply chain disruptions, we saw a lot of changes to the plans that got shared with us. At least it shows that end of. If we try to order a truck today, it's a 9-12 months delivery time. We know that the order books are in a shape which means that there will be, if there were no production issues, that there will be a relatively steady volume flow from these automotive manufacturers, especially on the truck side.
Okay, thank you. The other one is regarding ETS, which is now gonna be implemented across Europe and apply for the entire shipping industry. I wanted to hear your thoughts about that. I'm sure that you're gonna say that it will be a pass-through. I want to hear your thoughts on it anyway.
It will be a pass-through. You got that right.
Yeah, but in terms of size. Yeah. I mean, because it's, I mean, your Scope 1 is a pretty high number, what I've been able to calculate. What will that mean in terms of if you need to pass that on in terms of price increases?
Well, it's a couple of hundred million EUR when fully implemented in 2027 or 2028. That sounds, of course, like a lot of money. The market has seen big shifts and changes in fuel costs as well. It's nothing extraordinary or unusual compared to what our customers have seen before. I think, you know, we welcome the ETS. We are a little bit concerned that it is not equally applied to the land transport at the same time. On the other hand, we've seen with the heavy fuel prices we've had recently that there has been relatively little modal shift to the land even despite these situations.
We've seen, you know, in 2015 when the SECA area went to low sulfur, heavy pass-throughs to customers. We saw it for the Mediterranean area when that area also came under the low sulfur regime. We're not too concerned about it. We would, of course, much rather spend the money on green initiatives than to pay it as this ETS tax. That's also why it allows us to speed up some of the initiatives in that area so that we can pay it to do something good rather than pay it to the EU, where we can be concerned how fast they are able to recycle it to the industry.
Thank you.
Welcome, Lars.
Ladies and gentlemen, this concludes our Q&A session, and I hand back to Torben Carlsen for any closing comments.
Thank you very much. Thank you for the many good questions and your interest in DFDS. We enter, as you can hear from this, 2023 with great confidence due to the strength of our freight network, which both cover ferry, road, and rail. Confidence in our contract logistics solutions and also in the return, further return of our passenger business. We look forward to speaking to you again, and thank you.
Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.