DFDS’ strategy and financial ambitions have been updated as the Danish ferry and logistics company’s Win23 strategy period, 2018-2023, has come to an end.
The updated strategy and financial ambitions was presented at a Capital Markets Day in December.
“Following a period with significant expansion of our ferry and logistics network, we now turn to unlocking value through organic growth and focus on free cash flow. This is also supporting the ambition to reduce our financial leverage towards 2.5x over the next three years,” explained CEO Torben Carlsen (pictured).
A key objective of the Win23 strategy was to expand geographical coverage of the network, as well as the range of offered logistics solutions.
This strategy was achieved through both acquisitions and asset investments, primarily in ferry newbuildings and warehouse facilities.
In addition, organisational capabilities to provide logistics solutions were strengthened and developed, including the creation of a customs organisation on the ground with more than 200 employees.
The expanded network and capability upgrades have enhanced customer relevance and ability to engage in more extensive customer partnerships with manufacturing companies, food producers, and retailers, DFDS claimed.
Win23’s key financial ambitions were achieved in 2022, as the revenue of DKK27 bill exceeded the forecast of DKK25 bill and an EBITDA of DKK5 bill was in line with the DKK5.5 bill forecast adjusted for a 10% macro risk uncertainty.
Today, DFDS’ network combines ferry, road, and rail transport with complementary and related logistics solutions.
The ferry network carries both freight and passengers, operates its own port terminals in the most important hubs, and provides rail transport from select ports.
It is also leveraged by combining road and ferry transport to provide door-door transports (FTL/LTL) across Europe.
Towards 2030, DFDS’ focus will move to unlock the value of the expanded network by accelerating organic growth through increased exposure to high-growth markets, enhanced network capabilities, and increased relevance for freight customers, requiring bundled transport and logistics solutions.
Five methods will be earmarked to unlock the value of the expanded network and reach financial targets:
Protect & Grow Profits – Organic growth focus driven by expanded product range and bundling of products to meet customer demand. Benefit from broader geographical network and access to high-growth markets. Enhance competitive cost base and capacity utilisation focus.
Standardise to Simplify – Standardise operating procedures across the network to reduce complexity, enable growth and faster response to market developments. Reduce cost to serve through higher operating efficiency.
Digitise to Transform – Further develop and grow self-service customer options. Provide more transparency and green data to enable flow optimisations. Automate port terminal operations, deploy AI to enhance planning and prediction capabilities for sea and land transport. Future-proof tech platform to adopt new technologies faster and offer easier connectivity.
Moving to Green – Achieve short-term climate plan targets through the ‘Every Minute Counts’ ferry scheduling programme and technical upgrades. Electrify port terminal and warehouse operations. De-carbonise trucking by switching to biofuel and battery driven trucks. Prepare green ferry newbuilding programme and continue to develop partnerships to increase supply of green fuels.
Be a Great Place to Work – Safety First programme rollout. Adapt to new expectations among employees and provide engaging leadership. Promote diversity, equity, and inclusion among managers, as well as office and non-office colleagues.
Target ambitions have also been set for a three-year period 2026-2030 for financials, including:
ROIC: The ambition is to raise the return on invested capital (ROIC) to at least 10% by 2026 from the current level of around 8%.
Capex: Operating capex is expected to amount to DKK1.5-2 bill annually through 2024/2026.
In 2026, a newbuilding programme for green ferries is expected to commence with capex investments of around DKK0.5 bill. In the following years, 2027/2030, green ferry capex is expected to amount to around DKK1.75 bill annually. This programme covers six planned newbuildings.
However, the green capex level starting from 2026 is contingent on availability of green fuels and timing is therefore subject to some uncertainty, DFDS said.
Free Cash Flow: The ambition is to annually generate an adjusted free cash flow of a minimum of DKK1.5 bill.
This free cash flow ambition will be introduced to balance the skewness the IFRS 16 accounting rules impose on ROIC for a company like DFDS with long-term commitments for port terminals and warehouses.
Financial Leverage: The ambition is to lower financial leverage, NIBD/EBITDA, to 2.5x by the end of 2026. This will be supported by focus on organic growth and a reduction in the asset ownership share. The target range of 2-3x is unchanged.
Capital Distribution: Distribution policy is unchanged to return excess capital to shareholders through a mix of dividend and share buybacks. The starting point for determining the level of capital distribution to shareholders is the current and expected future financial leverage, NIBD/EBITDA.
Green transition: The 2030 target of a 45% reduction in ferry emission intensity for the existing fleet is unchanged. This includes the aim of having six green ferries in operation by the end of 2030. The baseline for the emission reduction target is 2008.
The target for reduction of land emission intensity is 75%, which will primarily be achieved through electrification of trucks, port terminals, and warehouses. The baseline for the emission reduction target is 2022, due to insufficient data in the previous years.
The ambition to become a net zero company by 2050 is unchanged, DFDS also revealed.