20 RO-ro shipping <strong>DFDS</strong> annual report 2009 Markets, activities and customers Ro-Ro Shipping’s activities comprise the operation of route networks on the North Sea and the southern half of the Baltic Sea. On the North Sea, primarily the flow of goods between Scandinavia and Great Britain/the Continent, as well as between the Continent and Great Britain, are serviced. In the Baltic Sea, services are mainly focused on the flow of goods between Scandinavia and the Continent on the one hand, and Russia, the Baltic States and the CIS countries on the other. The network includes ro-ro and ro-pax routes, the latter primarily in the Baltic, where the market for unaccompanied trailers is larger than on the North Sea. International haulage and forwarding companies account for approximately 56 % of total volumes, manufacturers of heavy industrial goods approximately 44 %. This split remained unchanged from 2008. The most important industrial target customer groups are the car industry and producers of heavy goods and plant equipment requiring development of tailor-made logistics systems, including investment in specialised transport equipment, IT solutions, dedicated warehouses and, in some cases, deployment of larger tonnage. Industrial logistics contracts are therefore long-term with <strong>DFDS</strong> operating as part of the customer’s supply chain. Market trends The Northern European ro-ro freight market as a whole declined by about 10 % in 2009 as a result of the recession, which began in late 2008. The total decline in <strong>DFDS</strong>’ primary markets in the southern Baltic Sea and the North Sea was around 15 %. The largest decrease was experienced in H1 2009, particularly Q1. The market stabilised in H2, and in Q4 volumes reached a level at or above Q4 2008 in several market areas. The low level of activity created overcapacity in most companies in the ro-ro sector, as well as among container and trailer operators, impacting rate levels negatively. The competitive situation, especially in the Baltic Sea, was characterised by overcapacity in the land-based transport sector. However, in response to the market conditions, several shipping companies adapted capacity by closing routes and by chartering out and laying up tonnage. Ro-Ro Shipping’s success criteria The most important success criteria for Ro-Ro Shipping are reliability and frequency and a schedule adapted to customers’ requirements. Other significant factors include adjusting capacity to reflect market trends, and reducing clients’ overall transport time on an ongoing basis, which places demands on tonnage speed and turnaround time in port. Fleet modernisation and adaptation The fleet was further modernised in 2009 following the deployment of two newer ro-ro ships on the route between Rotterdam and Immingham at the start of the year, and a ro-pax newbuilding on the route between Kiel and Klaipeda in May 2009. Customer service has been improved on both routes through increased reliability, frequency and capacity. In addition, the third in a series of four chartered ro-ro newbuildings was delivered in mid-2009. By the end of 2009, three older chartered ro-ro ships had been returned, and the fleet’s oldest ro-ro ship was sold in early 2010. In mid-2009, three ro-ro ships sailing between Sweden and England were extended, which reduces operating costs and environmental impact per unit, and adds capacity to the market. The renewal of tonnage in 2008 and 2009 led to savings in terms of both operating costs, including bunker consumption, and improved operational reliability, strengthening the route network’s long-term competitiveness. It is therefore currently estimated that no tonnage investments are required within the next couple of years. The tonnage market The global decline in activity generated overcapacity in the market for ro-ro and ro-pax tonnage, particularly for older and smaller tonnage. Older ships still constitute a disproportionately large share of global ro-ro tonnage, and rates for newer and larger tonnage are therefore expected to remain relatively stable over the coming years. This is also based on a moderate influx of new tonnage, as capacity on orders constituted approximately 15 % of global capacity at the end of 2009. In addition, the number of ships scrapped is expected to rise in 2010 and new orders very limited. Ro-Ro Shipping 2008 2009 DKK miLLION Q1 Q2 Q3 Q4 FULL YEAR Q1 Q2 Q3 Q4 FULL YEAR Revenue 926 997 1,009 867 3,799 669 736 798 794 2,997 Operating profit before depreciation (EBITDA) 186 217 207 174 784 119 135 132 133 519 Profit/loss on disposal of tangible assets 0 7 3 2 12 0 0 0 0 0 Depreciation -62 -65 -66 -53 -246 -63 -69 -73 -82 -287 Operating profit (EBIT) 124 159 144 123 550 56 66 59 51 232 Operating profit margin (EBIT), % 13.4 15.9 14.3 14.2 14.5 8.4 9.0 7.4 6.4 7.7 Invested capital, average 4,596 4,645 4,626 4,491 4,560 4,510 4,916 5,256 5,320 4.965 Return on invested capital (ROIC) p.a., % 10.8 11.9 12.2 10.7 11.7 4.7 5.0 4.4 3.6 4.4 Lanemetres, '000 2,605 2,663 2,474 2,269 10,017 2,139 2,274 2,327 2,457 9,197 Passengers (Baltic Sea), '000 45 58 81 40 224 63 94 129 77 363
<strong>DFDS</strong> annual report 2009 RO-ro shipping 21 Adjustment of activities Deterioration of market conditions during the year necessitated an adjustment of activities in H2 to reduce the route network’s capacity and lower costs. Sales activities were also intensified. The main adjustments in 2009/10 were: n Early in 2009, the routes NorBridge (Norway-UK) and AngloBridge (Sweden-UK) were merged, and a ro-ro ship freed up and chartered out n Freight-agency staffing levels in Germany, Sweden and Lithuania were reduced by 12-17 % n Renegotiation of port and stevedore agreements n Reduction in the number of departures n Bunker consumption optimised n HansaBridge (Latvia-Germany) closed in early 2010. The main customer groups ARE international haulage and forwarding companies and manufacturers of heavy indu Strial goods FREIGHT ROUTES (RO-RO) PASSENGER AND FREIGHT ROUTES (RO-PAX) SALES AGENCY ST. PETERSBURG BREVIK GOTHENBURG KARLSHAMN MOSCOW ESBJERG AARHUS COPENHAGEN KLAIPEDA FREDERICIA BALTIYSK IMMINGHAM CUXHAVEN KIEL SASSNITZ (MUKRAN) TILBURY HARWICH ROTTERDAM GHENT
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