Annual Report 2006 Brevik Kristiansand Lo-lo activities Ro-ro activities DFDS Tor Line – The North Sea Routes: Gothenburg AngloBridge (Gothenburg-Immingham/Harwich) EuroBridge (Gothenburg-Brevik-Ghent) NorBridge (Brevik-Kristiansand-Immingham) BritanniaBridge (Esbjerg-Immingham/Harwich) ElbeBridge (Cuxhaven-Immingham) ShortBridge (Rotterdam-Immingham) Esbjerg Terminals: DFDS Scandic Terminal, Esbjerg The DFDS Terminal, Copenhagen DFDS Tor Terminal, Rotterdam (Maasvlakte) DFDS Immingham Cuxhaven Nordic Terminal, Immingham North Shields, Newcastle NorthSea Terminal, Brevik Skogn KST Terminal, Kristiansand Harwich Skogn Terminal, Skogn (Trondheim) Rotterdam (Maasvlakte) Tilbury OCT, Oslo Moss Container Terminal, Moss Ghent DFDS Tor Line/DFDS LISCO – The Baltic Sea Routes: Oslo BalticBridge (Fredericia-Copenhagen-Klaipeda) HansaBridge (Lübeck-Riga) Moss NevaBridge (Kiel-St. Petersburg) Larvik DFDS LISCO Line (Klaipeda-Kiel) Brevik Frederiksstad/ St. Petersburg Halden ScanBridge (Baltijsk-Klaipeda-Karlshamn) Kristiansand RailBridge (Klaipeda-Baltijsk-Sassnitz) Lysekil Tramp activities Greenock Lo-lo activities Riga DFDS Lys Line Belfast Routes: Karlshamn Drogheda Norway-the Continent/Great Britain (side door) Norway-the Continent (side door) Esbjerg Copenhagen Klaipeda Dublin Norway-the Continent (lo-lo) Norway-Great Britain/Ireland (lo-lo) Fredericia Cork Norway-Great Britain/Spain (lo-lo) Baltijsk Waterford Immingham Tramp activities between Scandinavia and Spain, Hamburg Portugal and the Mediterranean Kiel Sassnitz (Mukran) Lübeck Avonmouth Rotterdam (Maasvlakte) DFDS Container Line Chatham Routes: Ireland-the Continent Ghent DFDS Suardiaz Line Bergen Routes: Oslo Spain-Ireland-England-Scotland Haugesund Stavanger Cruise ferry activities DFDS Seaways Routes: Copenhagen-Oslo Amsterdam–Newcastle Bergen-Haugesund-Stavanger-Newcastle Esbjerg-Harwich Bilbao Terminals: The DFDS Terminal, Copenhagen Newcastle Copenhagen Esbjerg Canal tours in Copenhagen: DFDS Canal Tours DFDS Tor Line port terminal DFDS Seaways port terminal Amsterdam (IJmuiden) Harwich Brevik Kristiansand Gothenburg Esbjerg Immingham Cuxhaven Skogn Harwich Rotterdam (Maasvlakte) Tilbury Ghent DFDS Tor Line – The North Sea Oslo Moss Larvik Brevik Frederiksstad/ Halden St. Petersburg Kristiansand Lysekil Greenock Riga Belfast Karlshamn Drogheda Esbjerg Copenhagen Klaipeda Dublin Fredericia Cork Baltijsk Waterford Immingham Hamburg Kiel Sassnitz (Mukran) Lübeck Avonmouth Rotterdam (Maasvlakte) DFDS Tor Line/DFDS LISCO – The Baltic Sea Chatham Ghent Bergen Oslo Haugesund Stavanger Bilbao Newcastle Copenhagen Esbjerg DFDS Seaways Amsterdam (IJmuiden) Harwich 1 Route Map and Activities 3 DFDS 2006 4 Key Figures DFDS Group 5 Foreword 6 Vision, Strategy and Goals 8 Management Report 12 The World Outside DFDS 16 DFDS Tor Line 20 Theme – DFDS Tor Line 22 DFDS Seaways 26 Theme – DFDS Seaways 30 Risk Factors and the Environment 32 Shareholder Information 34 Financial Review 37 Accounts 2006 38 Contents 39 Income Statement 40 Balance Sheet 42 Equity 45 Cash Flow Statement 46 Accounting Poilcies 51 Notes 82 DFDS Group Companies 83 Statements 84 Fleet List 86 Commercial Duties 88 Corporate Governance in DFDS 90 Definitions and Glossary 91 The History of DFDS The Management Report comprises page 1-36 and 82-91. DFDS in brief DFDS is a leading Northern European liner shipping company based in Copenhagen. The DFDS route network includes freight routes and combined freight and passenger routes. The Group also operates its own sales companies and port terminals for handling freight and passengers. Freight activities are operated by DFDS Tor Line. The main customer groups consist of international transport and shipping companies and manufacturers of large quantities of industrial goods whose logistics include a significant element of transport by sea. Passenger activities are operated by DFDS Seaways. The main target groups are Mini Cruise passengers, holidaymakers travelling in their own cars, group travel and transport and conference passengers. DFDS Seaways also offers freight services. DFDS employs approximately 4,300 people and operates a fleet of approximately 68 ships. DFDS was founded in 1866 and is listed on the Copenhagen Stock Exchange. Market position strengthened Profit better than expected New financial objective Return on invested capital (ROIC) DFDS share, % total shareholder return % 80 7 70 6 60 5 50 4 40 3 30 2 20 1 10 0 0 ’02 ’03 ’04 ’05 ’06 ’02 ’03 ’04 ’05 ’06 Key Figures DFDS Group Key Figures DKK million 2002 2003 2004 2005 2006 2006 EUR million1) Income statement Revenue 4,864 5,265 5,723 6,278 7,524 1,009 DFDS Tor Line 2,632 3,196 3,815 4,478 5,710 766 DFDS Seaways 2,268 2,097 1,934 1,837 1,838 247 Operating profit before depreciation (EBITDA) 786 794 870 890 1,129 151 DFDS Tor Line 425 516 571 674 937 126 DFDS Seaways 383 332 314 264 241 32 Profit on disposal of ships, buildings and terminals -5 -15 20 29 33 4 Operating profit (EBITA) 132 310 374 432 597 80 Financing, net -132 -139 -190 -202 -184 -25 Profit before tax -6 157 200 231 402 54 Profit for the year 330 130 194 193 364 49 Extraordinary items -117 0 0 0 0 0 Profit for the year after minority interests 202 116 176 175 352 47 Profit for analytical purposes -15 117 177 182 348 47 Capital Total assets 7,027 6,999 7,986 8,457 9,991 1,340 DFDS A/S’s share of the equity 2,623 2,528 2,546 2,803 3,154 423 Total equity 2,604 2,528 2,700 2,904 3,265 438 Net interest bearing debt 2,585 2,529 3,556 3,970 4,654 624 Invested capital, average 5,525 5,403 6,458 6,667 7,551 1,013 Average number of employees 4,070 4,108 4,026 4,215 4,346 - Cash flow Cash flow from operating activities before finance and after tax 832 687 829 711 1,167 157 Cash flow from investments -496 -316 -1,449 -855 -1,698 -228 Acquisitions -45 36 -18 -328 -306 -41 Other investments -451 -352 -1,431 -527 -1,392 -187 Free cash flow from operating activities 336 371 -620 -144 -531 -71 Operations and return Number of ships in operation 59 61 66 66 68 4 Lanemetres, ‘000 7,389 8,906 9,920 10,722 12,074 Passengers, ‘000 1,894 1,890 1,693 1,589 1,481 Revenue growth, % 13.0 8.1 8.7 9.7 19.8 EBITDA-margin, % 16.2 15.1 15.2 14.2 15.0 Operating margin, % 2.7 5.9 6.5 6.9 7.9 Invested capital turnover rate, times 0.88 0.97 0.89 0.94 1.00 Return on invested capital (ROIC), % 1.6 5.0 5.8 6.0 7.1 Return on equity, % -0.6 4.5 7.0 6.8 11.7 Capital and per share Equity ratio, % 39.4 38.5 33.8 34.3 32.7 Financial gearing 0.99 1.00 1.40 1.42 1.48 Earnings per share (EPS), DKK na. 15 22 23 46 Dividend per share, DKK 7.0 5.0 7.0 7.5 11.0 Number of shares at the end of the period, ‘000 8,000 8,000 8,000 8,000 8,000 Share price at the end of the period, DKK 138 185 285 382 680 Market value, DKK million 1,107 1,476 2,276 3,035 5,440 Key figures for 2004 have been restated to IFRS. Key figures for 2002 and 2003 have not been restated to IFRS. 1) Rate of exchange for EUR on 31 December 2006: 745.60 DFDS KEY fiGURES 2006 was a year of progress for DFDS – Another main objective of the strategy is the market position was further strength- strengthening and expansion of our mar- ened and financial performance improved ket position. In the longer term, this will considerably. support increases in the level of earnings Return on invested capital exceeded by generating new opportunities to the cost of capital due to a high level of improve our customer service and activity in the freight market, as well as achieve further economies of scale. the adaptation and streamlining of opera- Over the next few years, DFDS will tions introduced since 2001. therefore continue to increase its market We successfully completed several share through acquisitions, alliances and major, forward-looking investments in partnerships, primarily in the North Sea 2006, which was also the year in which and the Baltic Sea. the fleet-renewal process instigated in In conclusion, we would like to offer our 2001 was completed. The need for sincere thanks to staff, customers, busi- investment in new tonnage will therefore ness partners and shareholders for their be more limited in the coming years. contribution to the progress achieved in We would like to extend a special 2006. We look forward to continuing our thanks to Managing Director Ole Frie, who co-operation in pursuit of our common retired at the end of 2006. Ole Frie has for goals. many years influenced DFDS’ develop- ment, not least the successful implemen- tation of the shipping strategy since 2001. Main strategic objectives The level of earnings was decisively improved in 2006, but ongoing improve- ment remains one of the main objectives A Year of the strategy. This is reflected in a further definition of the financial objective: the of Progress return on invested capital should be increased to a level that exceeds DFDS’ cost of capital by 30–50%. One of the ways this will be pursued is through an ongoing strengthening of competitiveness through continuous reduction of unit costs and improving capacity utilisation. 5 Ivar Samrén Chairman of the Board Niels Smedegaard CEO foREWORD DFDS Organisational structure in order to build significant market shares DFDS’ activities are organised in two divi- in the areas in which the company oper- sions: DFDS Tor Line operates freight ates. shipping and combined freight and pas- The share of group revenue generated senger shipping using ro-pax tonnage.