DFDS is currently facing what some might call a luxury problem. The company has plenty of cash to use on corporate acquisitions, but DFDS is having trouble finding something to spend it on.
It is not easy for Danish DFDS to find investment opportunities, and the company - even after a possible USD 105 million dividend payment - is still holding significant funds enabling it to perform acquisitions for "several hundred million dollars" as CEO Niels Smedegaard explains in an interview with ShippingWatch.
"We have very solid cash holdings, as is evident from our very low gearing, and we have a great relationship with our banks. It's not the financing that's keeping us up at night, it's more the matter of finding the right opportunities," he says.
He plans to stick with the current strategy, mainly focused on freight transportation, when placing the money in an acquisition.
"It needs to be related to the customer segments we're working with today. You won't see us investing big-time in passenger transport to Greek islands or something like that. We're more freight oriented, 80 percent of our revenue comes from freight, and so we're primarily looking in transport and freight segments," he explains, pointing to North Europe, the Baltic and surrounding regions as centers of interest.
But he is not in a rush to acquire more business.
"There are always risks tied to acquisitions, and the key thing for us is to minimize this risk and maximize the returns. We don't feel pressured by this. If there's nothing out there, and we're still making money and maintain a solid cash flow, we're going to deliver returns to shareholders," he says, adding that even after a possible dividend payment of USD 105 million the company will continue to look for acquisitions.
Russian crisis led to new demand
The massive cash holdings have been a topic in the media for a long time, and the subject only becomes more relevant following the company's second quarter interim report and half-year result, in which revenue increased from USD 493.7 million in the second quarter last year to USD 508.8 million this year - a four percent improvement.
This result was achieved in spite of the situation in Russia, where the country has, among other things, shut down the import of Danish agricultural goods, a business that represented a good market for DFDS, bringing in a "solid profit."
"We've made certain reconfigurations in terms of Russia. Where in the past we sailed with two ships, we're now down to one, in order to reduce our costs. We've moved some of the tonnage around to ensure sufficient capacity on the routes between Sweden and the Baltic, where traffic is increasing. And we also managed to bring new segments on board the ships - segments that see a benefit in sailing from Kiel to Klaipeda (Lithuania) instead of going by road through Poland," says Niels Smedegaard, adding:
"There used to be major reefer operators, refrigerated trucks, driving Danish pork and dairy products to Russia via the Baltic nations and our route. But that's virtually stopped now, so our customers have had to find new segments, and they now seem to have been able to reconfigure their traffic and are returning to us as customers. This traffic might not necessarily be headed to Russia, but it could be the Baltic region, onwards to Sweden or Germany, or England for that matter," explains the CEO.