DFDS A/S (DFDS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the DFDS Q2 Report 2026 Conference Call. I'm Lorenzo, the Chorus Call operator.[Operator Instructions] The conference is being recorded.[Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Michael Hansen, CEO. Please go ahead, sir.

Thank you very much. Good morning, and welcome, everyone, to the DFDS Q2 call. I'm Michael Hansen, the CEO of DFDS. And today, I'm joined here by our CFO, Karen Boesen; and our Head of Investor Relations, Soren Nielsen. So today is my first conference call together with all of you in DFDS -- so just a brief introduction. I've spent most of my career in international operationally complex B2B businesses, most recently as CEO of Hempel and before that, almost 20 years with the A.P. Moller - Maersk Group. Much of that work has been about transformation, performance improvement and making clear choices about where a company can create the most value. So my leadership style is quite straightforward: facts, transparency, accountability and then listening, but listening that leads to decisions and actions. So I've been with DFDS for a little over a month now. Obviously, not long enough to have all the answers, but on the other hand, long enough to have some initial views. And I see a company with very strong assets, leading positions in important markets, strong customer relationships, great operational capabilities and a lot of talented people. At the same time, we have also very clear challenges around our performance, complexity, capital allocation and more fundamentally making sure that we are absolutely clear on where DFDS should compete and how we can be different for our customers. So we need to do two things in parallel. We need to continue to improve our business and deliver on the areas that are within our control today. And we need to take a step back and make sure that we have the right long-term direction for DFDS. We'll come back to both of these elements during the presentation this morning. If we turn to the next page, I'll just briefly take you through the agenda of the call. I'll just do a very brief intro now before elaborating a little bit more on the strategic review that we have communicated that we're commencing here in the middle of August. Karen will then take us through the Q2 performance, including the ESG numbers, after which I'll sum it up through our outlooks and priorities, and we'll open up for Q&A towards the end. Going to the next page. So before we go into all the numbers, I just want to make a brief reflection on why I believe that DFDS truly matters. If we look across Europe, supply chains, they depend on reliability, factories, retailers, communities and millions of passengers rely on goods and travel arriving on time. And behind that, we have our 16,000 DFDS colleagues who keep Europe connected, north to south, east to west. So we don't just move freight or passengers, but we actually enable travel, trade and economic activity across the continent. Thousands of companies rely on us to keep their operations running, and that responsibility is truly what defines who we are and why DFDS plays such an important role in the European logistics and mobility infrastructure. If we turn to Page 4 -- then it's also been very clear during my onboarding that one theme has been consistently coming up, ambiguity, a lack of one clear direction. And that raises some fundamental questions to all of us, who is DFDS? Where should we invest? And how do we create competitive advantage? How do we best combine our ferry and logistics businesses and what kind of company do we really want to build over the next decade. That's not academic questions. They are questions that need to guide decisions on fleet renewal, our footprint, our technologies and not least our capital allocation. And without that clarity, it's really hard to make consistent choices. So that's why we have launched a strategy review. And the goal is not just to get a fancy document, but it's really about clarity for our business. It's about having one ambition and one direction for DFDS. Clearer understanding of our customers, for our colleagues and for our investors as well about where we're heading. So we'll complete this review within the next 6 months, and it will include financial ambitions as well. In parallel with that, we will continue to drive the needed financial performance improvements through the already established programs. Turning to Page 5. So with strategic clarity, it equally needs to be matched also with clarity in how we work together. And with 16,000 colleagues across Europe, we need shared expectations of what I call the nonnegotiables. Number one, safety. It is the #1 priority for this company across our vessels, our terminals, warehouses, trucks and offices. Collaboration is the second one. We'll succeed across our boundaries and not within silos, right? With a mindset of high challenge, high support. Number three, ownership and discipline to make decisions, take responsibility, follow through and then operate with transparency and not least with integrity. Number fourth, our customers. Every role across DFDS somehow contributes to the customer experience, which is our foundation for future sustainable growth. So we will succeed if we act as one company with a shared commitment, clear accountability and a collective success. So, with this brief introduction to myself and to the initial perspectives of DFDS, we'll now go into the Q2 results. Turning to the next page. We'll start out on Page 7 with the Q2 safety performance. And I'm sad to report that we have had a fatality in May of 2026 involving a Dutch DFDS colleague, a truck driver who during unloading operation on board one of our ferries in Dunkirk. The circumstances leading to this tragic accident are still being investigated by the authorities and in close collaboration with DFDS. Following the investigation's outcome, the learnings will naturally be integrated into our DFDS safety first program to prevent a similar accident in the future. Looking at the sea and land-based safety, there's no material changes to the LTIF compared to last year. As part of the strategy review, we will also revisit our targets for safety performance because we have to do much better. With that, I'll pass it over to Karen to take us through the numbers.

Thank you, Michael, and good morning to everyone. So, we delivered a Q2 in line with our plans, which is satisfying, and we are happy with that progress. It's a Q2 where both divisions delivered significant improvement year-on-year. Ferries improvements are supported by the lower net bunker costs and logistics demonstrated strong progress in the Boost projects. Unfortunately, our Q2 result is also impacted by a one-off of DKK 53 million. It's a one-off that relates to a litigation case that started back in 2015 and now has had a ruling in the opposite direction as the previous 2 rulings. So result impacting negatively by DKK 53 million, unfortunately. Moving on to our turning point. They all progressed in Q2. We saw continued progress in our Mediterranean ferry business. Our ferry rates are sustained. Jersey performance improved versus last year. We saw logistics boost projects continue to deliver quarter-on-quarter impact, and we are on track to deliver our DKK 300 million cost program with over DKK 250 million delivered to date. Finally, TES is also progressing, but more needs to happen there. Looking ahead, our earnings outlook and financial leverage improvements are on track as we will report in more detail in the coming slides. We do see a market that is at the risk of some downside with the high oil price levels that we see across the globe. Our fuel cost recovery is in focus across our network and to ensure a stable level there, we have hedged some of our oil price exposure in the second half of 2026 to reduce this uncertainty. Moving into the results, starting with Page 9, our Q2 revenue. Our Q2 revenue growth was driven by fuel charges due to the elevated oil product prices, both in Ferry and Logistics, but both divisions also saw some small underlying revenue growth when you disregard the fuel surcharges. So a satisfying and improved growth in the revenue compared to our previous quarters where we have been more flat. Turning to Page 10 and a quick walk-through of the key elements in our Q2 income statement. In addition to the 10% revenue growth of the quarter, we also delivered a 35% increase in the EBITDA level. Our EBITDA was up with more than DKK 300 million for the quarter. At the EBIT level, we have a quarter where we are up DKK 291 million to DKK 454 million EBIT for the quarter, which is more than double compared to last -- same quarter last year. If we look at our financial costs, we also saw a good improvement. We saw a reduced interest expense in the quarter of DKK 24 million. And if you clean off the one-off DKK 9 million interest costs relating to the litigation case that I just mentioned, the reduction is actually DKK 33 million or 16% reduction in our interest cost. This is both driven by lower absolute debt, but also lower interest cost levels. Turning to Page 11, we zoom in on the ferry activities. As already stated, we delivered a high year-on-year improvement with an EBIT of DKK 423 million for the quarter, up DKK 237 million compared to last year's Q2. This is driven by lower net bunker cost expenses, but also an improvement in the business units, where the key highlights are, and we have listed them on the slide, strong passenger results from Channel, good freight rates and a Jersey improvement compared to same quarter last year. Mediterranean with the capacity taken out, we see a utilization that is overall up. Our rail services, which is associated with the ferry services from Turkey to Europe, also improved. And although we do see some slowdown in the Turkish volumes overall. Both North Sea and Baltic saw some positive volume and rate development, but we are also challenged by higher cost in those areas, which luckily not offset all the positive improvements we see. And finally, Strait of Gibraltar were more or less flat with fewer savings because of weather. We also have provided the adjusted EBITDA, excluding the one-off items that I have mentioned, which, of course, underlines that the improvement on the underlying is higher than what we report in the actual accounts. Turning to Page 12 and looking at our logistics results for the quarter. We had a strong underlying business improvement in logistics this quarter. Our EBITDA is up 39% and EBIT is up DKK 52 million to DKK 85 million for the quarter, also here more than a doubling of the result same quarter last year. This is driven by strong performance recovery in both Nordic and Continent. In Continent, the recovery from last year's foot-and-mouth disease is also contributing here. And the U.K. & Ireland business continues to deliver stable performance. Finally, our business unit TES, our Turkey & Europe South logistics improved on a like-for-like business -- basis, sorry. But due to the -- but we continue to have challenges that we will have to address in an even more rigorous way, and we'll come back to that later in the call. Turning to Page 13, cash flow. We saw a strong cash flow generation for the quarter. This was driven by the better operating cash flow, the higher EBITDA, but also working capital where we both have seasonality impacts and we also have good impact from our working capital initiatives. The seasonality impact is mainly two parts. It's our buildup of prepayments from passengers up to the high summer season. And it's a mechanical thing around the ETS charges, which is cleared with the EU in Q3 every year. Our investments for the quarter were DKK 316 million gross and DKK 247 million net when you take into account our asset sales of DKK 69 million. They were mainly related to ferry dockings and acquisition of transport equipment. In total, our adjusted free cash flow for the first half year of 2026 amounts to just over DKK 1 billion, which is a good result. And turning to Page 14, looking at our financial leverage. With the reduction in net interest-bearing debt over the past 12 months of more than DKK 2 billion, our debt-to-equity ratio is now back at 50-50. And combined with the improved earnings levels, I'm happy to report that our leverage ratio in Q2 was down at 3.4, which is within our target range. Finally, turning to Page 15, a word on our ESG results for the quarter. First, our emission intensity, which increased by the quarter, unfortunately. Our absolute emission levels remains at level with last year, but due to the fewer sailings over the quarter. So in absolute terms, that means that our intensity per sailing goes up. In terms of e-truck fleet, we now have 151 electrical trucks in our fleet deployed around Europe, which adds to lower emissions, but also gives some -- provides some cost reductions where we are exempted from tolls -- road tolls. Finally, looking at our gender diversity, our overall rate of women remained stable, whereas we saw a good progress in women in non-office-based positions increased from 10% to 14%. And with that, I will hand back to you, Michael.

Thank you very much, Karen. So when we look at the outlook for 2026, you would have seen that we have increased the revenue outlook to now 3% to 5%, driven by the fuel surcharges, as you've just heard from Karen, that was previously otherwise on level with 2025. When it comes to our EBIT outlook, then we have raised the lower end of the outlook to DKK 1.2 billion so that we now have a range of DKK 1.2 billion to DKK 1.4 billion for 2026. When it comes to our CapEx, it's left unchanged at DKK 1.7 billion. And then this acquisition CapEx, you would have seen in our reports that we have received the conditional clearance regarding the Naviera Armas in Strait of Gibraltar, which have got to do with the acquisition of their ferry operations. That dialogue is still going on with the competition authorities, and that also means that we have not included it in our CapEx or cash flow outlook. Lastly, our adjusted free cash flow we have raised to DKK 500 million to around DKK 500 million. Previously, it was above DKK 250 million. If we turn to Page 18, then I'll summarize the key priorities for the rest of the year. Safety first. It does remain a key priority for all of us in DFDS to have an even safer work environment. Performance improvement in the near term, we are absolutely committed to making and continuing the performance improvements that are needed across our turning point actions, but also across the wider DFDS business. The cash flow focus will continue, not least through working capital focus. And then we are committed to deliver on the green transition and DE&I targets as well. Last but not least, we will complete the strategy review, as I mentioned before, within 2026 as well. So ending these prepared messages, we are now ready to start the Q&A.

[Operator Instructions] The first question comes from the line of Jakub Glinkowski from RBC.

Welcome, Michael, to the new role. A couple of questions from my side. Firstly, can you add any color at all on the bunker spread tailwind versus organic growth for H2 baked into the guidance? Then on H2 demand, I think the release mentioned that Q3 started in line, but you also flagged oil price risk to demand. And with July freight volumes that we just had released 3% lower, should we think of this 3% lower as the run rate for H2 if the spreads stay where they are today? And then finally, perhaps on leverage and capital returns. So you are at 3.4 x inside the midterm target. So what needs to happen for the dividend or the buyback to be back on the table?

Thank you, Jakub, for your questions. So in terms of -- that was a little bit difficult to hear in your first question, but what I heard was your question is around tailwind included -- potential tailwind in our business included in our guidance for the second half?

Yes, yes. I was just wondering if you could add any color on the split relating to the fuel tailwind versus the organic growth that you baked into the guidance for H2?

Yes. Thank you. I mean, obviously, there is an impact of both in our Q2. We see -- I mean, the recovery that we are seeing across our business in both divisions are continuing in the second half, and that has been within our expectations throughout the year. Those are affirmed as we recheck our forecast over the summer. And then, of course, we see the higher oil price levels compared to what you could call at least what we had last year and the years before, which also will have some impact in our results of the second half. That was the first question. Second question, the lower volumes that we came out with this morning for July. I don't necessarily -- we don't necessarily see that as something that will sustain throughout the rest of 2026. In parts of Europe, July is a vacation month. And that means that freight volumes, at least in the Northern Europe part and the North Sea, which is a significant part of our business is impacted by vacation period. So I don't necessarily see it as -- I do not see it as representative for the full year. Finally, coming back to the leverage, as I said, very pleased to be within the range of our target, which also corresponds to our external rating. And with that, we remain investment grade. In terms of timings of potential new dividends and buyback, that is obviously a conversation that we will have at the right time with our Board and ultimately has to be decided at that level. It's not something I have any news on in this call.

The next question comes from the line of Kristian Godiksen from SEB.

First of all, Michael, welcome on board. And then to the questions. Firstly, maybe could you elaborate a bit on the strategic view in terms of the degree, how comprehensive and open-minded that is? That will be the first question. And then second question, just curious whether you've been in any dialogue or contact with any of the executives from Grimaldi. And then thirdly, obviously, there are some changes in the Board, whether you could put some comments on whether you know Smedegaard from previously or -- and maybe put some comments on the reason why Polaris is coming on to the Board. And then I have another question for you, but let me just wait with that. Sorry.

Yes. No, thank you very much, Kristian. So if we start out with the first, which was around the strategic review that we have now initiated, we go into it with a very open mind. That means that we will look through the entire portfolio, turn every stone, so to speak, and see what should be the building blocks to the future DFDS. So that's a process that I don't want to kind of make any kind of preconceived ideas about other than saying that we go into it with a very open mind and really with the aim of creating the foundation of the future DFDS. So that was your first question. Second was about Grimaldi. No, I have not met up with the executives from there. And number three was about the news regarding the Board of DFDS that was released yesterday. I have not previously worked together with Niels Smedegaard, so I haven't got any kind of previous work experience with him. And with regards to Polaris coming in or rather, I should say, Jan Johan Kuhl being nominated, then that's really a matter for the Lauritzen Foundation to answer that question since they are the one who have nominated him.

Okay. Then just a follow-up on the question previously. I was just wondering on the Polaris part, whether you could put a bit more, I guess, it's also because they buy a stake that would be. Do you know whether there's been any dialogue between Polaris and Lauritzen Foundation in that regard and how that stake came into play? I would just follow up on that. And then a follow-up on the bunker spread. Just a bit unsure on what specifically you said, Karen, in terms of previously when you guided in connection with the Q1 results, you said that you expect -- you had included in your guidance a normalized spread level. And so I'm a bit uncertain on what you're saying now is that on a net-net basis, obviously, the spread especially has been higher in Q4. You're beginning to hedge some of it. And then obviously, you have some headwind from the fluctuation in the bunker prices. What is the net change compared to the previous assumptions in the guidance? Sorry?

Yes, I'll just take the first question and Karen will take the second. With regards to Lauritzen Foundation and Polaris, I can't comment on it. That's really a question again for the Lauritzen Foundation to answer. So I don't have more color to add to that. With regards to Bunker, Karen?

Yes. And fair enough, Kristian, I probably wasn't too clear on that. I'll try to be as clear as I can. We -- it is correct that when we went out with our increase -- first increase in guidance back in April, we also said that there was an inclusion of bunker spread improvement, so to speak, in our guidance, mainly for the first part of the year. Obviously, at the moment, we see that sustained. And as mentioned both in our report and briefly by me in my voiceover of the slides is that we have gone out and hedged part of that for the second half to ensure stability in our earnings. So that gives us stability and contributing to allowing us to lift our lower level of our guidance up and also, therefore, the midpoint. So we have included the effect both of the flowing part and the hedging part in our guidance for the year. Again, acknowledging that there is very high uncertainty on the levels just over the last 1.5 months, we have seen significant swings upwards again, whereas we've had -- they were downwards in June. And we anticipate in our planning that we will continue to see these swings in oil price levels also in the coming months. And have taken those swings and potential downsides into account as well.

Okay. So -- but I guess is it fair to say then that was helpful. But just -- I guess, obviously, that's one of the reasons why you raised the low end of the guidance, but I guess that would also be an argument why you should raise the high end of the guidance. So you should lift the guidance range as is, I guess, on the top and the higher end of the range, you could argue that it's an underlying downgrade if you have included some tailwind from this spread, which is now included in the guidance? Or am I missing something?

I wouldn't use the word an underlying downgrade. But as I said, we see high uncertainty and both up and downside to the current oil price levels, which we have taken into account.

The next question comes from the line of Ulrik Bak from Danske Bank.

And also welcome from my side to you, Michael. First question also on the bunker spreads. You state that you have hedged some of your exposure for H2. Could you be a bit more specific so how much of your exposure has been hedged for H2? And also if you have hedged anything for 2027? That would be my first question.

Yes. Thank you. In terms of how much -- so there are -- I mean, there are routes or areas that are exposed to the spread between HFO and MGO. And then there are other routes where the surcharges is a clean MGO to MGO pass-through. So, the pass-throughs, which are contractual, completely industry standard, they affect our business units differently depending on whether, as I know a lot of you know, whether the vessels have scrubbers, right, and can save on other fuels. So it does not apply to our entire fleet far from. Therefore, if you look at overall how much of our total bunker cost we have hedged for the remainder of the year, then you are below half. And if you look at it on where you have this, how shall I say, the spread exposure, then it's a little bit above half.

Understood. So, is that for H2? And what about 2027?

Yes. Looking into 2027, obviously, there are some -- we are looking into that, and we have started looking into locking in something for Q1.

But you cannot quantify whether that's...

No, that's too early at this point in time. I mean we have -- and this is -- we have commented on it this time because it is an impact to our second half, and it also gives us a reassuring and comfort in our guidance. But it is actually not a new thing for us to do this. And we do that on rolling four quarters. But obviously, the further out you come in the four quarters, the lower the volume we have hedged. But it is something that we have done for several years.

That's very clear. So perhaps moving on to the Mediterranean ferries segment. So what is the latest update here? And how are the financials trending in this part of your business? You have increased your prices in Q1 and supposed to recover some of the losses you made last year. So is it trending in the right direction here in Q2?