22 RO-ro shipping <strong>DFDS</strong> annual report 2009 Project “Lightship” At Group-level a project was launched in autumn 2009 to improve the efficiency of ship operations. The project’s work streams include bunker optimisation, staffing, maintenance, purchasing and supplies, management systems and the efficiency of loading and unloading operations. The target at Group level is to achieve an overall saving of approximately DKK 100 million in 2010. Ro-Ro Shipping’s share of the target represents a saving of around DKK 50 million. Activity development Ro-Ro Shipping’s routes cover three regions: the Baltic Sea, the North Sea (Sweden/Norway-Belgium/United Kingdom) and the Continent (Denmark/Germany/Netherlands-United Kingdom). The freight capacity for the entire route network was 13.1 million lanemetres in 2009, 6 % lower than in 2008, adjusted for the charter agreement with Polferries in September 2008. The largest capacity reduction was implemented in the North Sea by fewer sailings and tonnage changes. Capacity is almost evenly divided between the three regions, although the relationship between the number of sailings and the number and size of ships varies. The route network’s total capacity utilisation was reduced by 4 percentage points in 2009, with the largest reduction on the Continent and the smallest in the Baltic Sea. Figures are adjusted for volumes from Passenger Shipping’s route network, where the Bergen route was closed in September 2008, and the charter agreement with Polferries. Ro-Ro Shipping transported 8.2 million lanemetres in 2009. Adjusted for Polferries and Passenger Shipping, this represents a decrease of 12 % compared to 2008. The market stabilised over the year, with a decline of 23 % in Q1 and an increase of 6 % in Q4. The rise in Q4 was driven by a 20 % increase in the Baltic Sea, partly due to the recession taking hold earlier in this region and closure of a competing route. On the North Sea and the Continent, the rise in Q4 was 1-2 %. The business model for liner services with ro-ro ships involves a relatively low proportion of variable costs, related primarily to stevedoring, while remaining costs are largely unaffected by changes in activity levels. Performance is thus sensitive to changes in volume and rate per unit. In addition to lower volumes, the recession in 2009 led to rates in all regions falling by 4-8 %. This can be attributed to price pressure, currency fluctuations (particularly in SEK), changes in freight mix, and traffic imbalances. The significant deterioration in Ro-Ro Shipping’s financial performance in 2009 can therefore be attributed to lower volumes and rates and a high proportion of fixed costs on the other hand. The operational changes implemented since mid-2008 have contributed to reduce the rate of decline in all regions. The North Sea: The weakening of SEK strengthened westbound traffic on the North Sea, but a growing imbalance in the flow of goods reduced the overall rate. Lower volumes, especially from the automobile sector, resulted in a marked deterioration in earnings on the route between Sweden and Belgium. Lower volumes from industrial companies also affected earnings on the route between Sweden and Great Britain. The Continent: The recession led to significant overcapacity in the market between Benelux and Great Britain, with particularly significant reductions in revenue on the route from Holland. Lower volumes from the automobile sector, especially in H1, impacted the route from Germany while development on the routes from Denmark was more stable. The Baltic Sea: New tonnage was introduced in 2009, which improved the service level but also raised the cost level. The recession intensified competition between road and sea transport. A competing route closed towards the end of the year, and <strong>DFDS</strong> closed the route between Latvia and Germany at the end of January 2010 in order to concentrate the route network on the smaller number of ports to the east. Financial performance Revenue was down by 21 % to DKK 2,997 million in 2009. Adjusted for bunker surcharges, the reduction was 14 %. In addition, three major factors affected the comparison of revenue between 2009 and 2008: Passenger revenue from the ro-pax Esbjerg-Harwich route was transferred to Passenger Shipping at the beginning of 2009; a new charter agreement was signed with Polferries in September 2008; and the route network’s reduced capacity led to an increase of 60 % in revenue from chartering out tonnage. Adjusted for these items, revenue was 18 % lower in 2009, which can be coupled with 12 % lower volumes and lower rates and exchange-rate fluctuations averaging a decline of 6 %. Operating profit before depreciation (EBITDA) declined by 34 % to DKK 519 million in 2009, a reduction of DKK 265 million. Due to the lower level of activity, the EBITDA margin was reduced to 17 % from 21 % in 2008. In addition, the variable costs for stevedoring, as well as staff and sales costs, were reduced as a result of the changes implemented. Lower oil prices in 2009 reduced bunker costs, but this was offset by lower revenue from bunker surcharges. Oil consumption was reduced by 11 % in 2009, partly due to the bunker-optimisation programmes implemented as part of operational changes, and partly due to reduced capacity on the route network. Depreciation, excluding value adjustment of goodwill, rose by DKK 22 million in 2009 following the addition of a ro-pax newbuilding and two new ro-ro ships, and the extension of three ships. Operating profit (EBIT) was DKK 232 million, down 58 % or DKK 318 million. Average invested capital in 2009 was DKK 4,965 million, an increase of DKK 405 million. This can be attributed to the addition of three ships and the extensions completed in 2009. The return on invested capital in 2009 was 4.4 %.
<strong>DFDS</strong> annual report 2009 HEADER 23