NTG Nordic Transport Group A/S (NTG) Earnings Call Transcript & Summary

Good morning, everyone. As mentioned, my name is Mikkel Fruergaard. And firstly, we would like to thank all of you for joining us on this special day for NTG, where we, for the first time ever, will present our yearly results via a webcast session. And if you start out by flipping to Page 2 of the presentation, you will, here, find our disclaimer, which we urge you to read through. And once you have done that, you can then flip to Page 3. And as you can see here, I have been joined today by Jesper Petersen, who is the CEO of our Road & Logistics division; and by Christian Jakobsen, who is our CFO. So the current full executive management team is present for today's presentation. And as you may have heard, the Board of Directors have selected a new group CEO for NTG, Michael Larsen, which is a gentleman that is well known to us here in the executive management team as he is, today, the MD of NTG Nordic, which is the most profitable of our daughter companies. And Michael Larsen, of course, brings with him a wealth of knowledge concerning the road market and how to build and run a profitable business within this market. And we are looking very much forward to welcoming Michael Larsen as a valuable colleague within the executive management team. We're now turning back to the 2019 financial report. It is important to state that 2019 was, in many ways, an eventful year for NTG where the #1 highlight was the stock listing of our company, which took place on October 9 last year. And as mentioned before, this was definitely an important milestone that we, here in NTG, are all very proud of having achieved. 2019 was also yet another year of high growth for NTG. And despite the fact that we have spent much time on the stock listing process itself, we still managed to achieve a full year growth rate of above 18%, which is also something that we are extremely proud of. Now considering the current situation, we are finding ourselves in, in these days where our reality is heavily influenced by the coronavirus outbreak, it can seem a bit purposeless to focus on the 2019 results, but we still consider prudent to quickly take you through the financial highlights of the year before we will start telling you more about the 2020 guidance, which we guess is what you all want to hear more about. So if you flip to Page 4 of the presentation, you will find today's agenda. Christian, he will start out by taking you through the financial highlights. And then Jesper, he will take you through the results of the Road & Logistics division. I will then take you through the Air & Ocean results. And then Christian, he will finish up by explaining a bit about special items, minorities, so on and so forth before we move into the 2020 guidance followed by a Q&A session. So Christian, the word is yours.

Yes, Good morning. As Mikkel said, 2019 was another busy year for us. We passed the DKK 5 million (sic) [ DKK 5 billion ] turnover mark with a turnover of DKK 5.3 billion, which was in the middle of our guided range. This was, as Mikkel said, a growth of 18.2%, of which 8% was organic and 10% was acquired growth. We also passed a mark -- the DKK 200 million mark on the EBIT before special items. This is in the middle of our narrowed range and in the bottom of the original range. Our EBIT margins have been squeezed a little, mainly due to the underperforming entities we have addressed a couple of times last year. We have decided to divest the activity in Italy and in Czech, which were 2 significant loss-making countries where the scale -- the divestment was effective in December, but Jesper would give a little bit flavor on that when he's on. And Jesper, could you please take over and talk a little bit about the Road?

Yes. When we look back on 2019 Road, 2019 shows the revenue for Road & Logistics of DKK 4.1 billion, a growth of 13%, of which 6% was organic. EBIT went from DKK 170 million in 2018 to DKK 181 million in 2019, an increase of 6%, mainly due to a strong performance by the PADS in Denmark and Sweden, and full year effects of the acquisitions in EU continent, UK and DK. The EBIT margin had a decrease from 4.7% in 2018 to 4.4% in 2019 due to underperformance in certain PADS in Continental Europe, which led to the divestment of the activities in Italy and Czech Republic. We have been looking for some matches, which could generate the necessary skills and scale in 2 countries. We have had dialogue with 11 companies in the 2 countries, but we did not find the right match, and we, therefore, decided to look for somebody to acquire our activities and found a match in Q4. We also closed our logistics -- Gondrand logistic activities in Eisenach, Germany in Q4 2019. When we look at the start of 2020, we had a positive start of the year in January, February and seeing that our Road & Logistics activities, in general, have lived up to our expectations in the start of the year. So now we go to Air & Ocean. Mikkel, the word is yours.

Thank you very much. 2019 was, as far as the Air & Ocean division is concerned, a year with high focus on top line growth, and we are proud of the fact that we have managed to create a 39.1% revenue growth, lifting the total revenues of the division to just over DKK 1.2 billion. Out of these 39.1% total growth, 23.2% comes from acquisitions and 15.9% comes from organic growth, including new start-ups in new and interesting markets such as U.S. and Turkey. The adjusted EBIT for the period was DKK 24.3 million compared to DKK 14.9 million in 2018. So we have managed to grow our EBIT with a higher percentage than our revenues, thereby also improving our margins, of course. As some of you might remember, it was only in the summer of 2016 that we started to focus on Air & Ocean and created our division. So we have, no doubt, come a long way over the past 3.5 years, and we are, today, present with own offices in 25 countries. But it's also important to note that we are still in the early phases of building up this division, and we still need to build much further scale in order to reach more market conform margins within the division. And this is exactly what we will continue to focus on during 2020 after things have hopefully normalized here on the other side of the corona outbreak. Christian, back to you?

Yes. If you please flip to Page 8, then we have the other key figures. We have the special items as we have discussed before and informed about before. The biggest part is DKK 58 million from this excess value expense we described extensively in the Q3 presentations. Then we have the DKK 26 million cost from the stock market introduction. And then we have a little bit higher cost on the other things that is primarily the closedown of the nonprofitable sites, which is in Czech and Germany and Italy, which is -- was higher than what [ ELA ] yes, was a new thing. On the cash flow side, we have again been able to convert our results into cash, and that is mainly due to the fact that we're able to keep our net working capital on the same level as prior year as almost minus DKK 100 million. That also affects the net interest-bearing debt. We had DKK 127 million net without the IFRS 16 in 2019. And if we then flip to Page 9, then we have the minorities. They were 14%. That is in line with what we have previously informed. And then we have started the conversion of a couple of companies, NTG Polar Finland and NTG Polar Poland has -- have been allowed to convert their shares from 2020. And that means that we also will see that we have some rollout of the results. And we -- because of the fact that we are seeing a very -- a big movement in the world, we have also increased our range on the minorities what we're guiding. We are guiding at 11% to 19% for 2020. And then if we flip to Page 10, then we have our expectations for 2020. It is, of course, a market of unknowns as we have today. We have seen a big movement over the last week before presenting our year result and also when addressing our expectation throughout that week and also adjusted it down. As we have written in year [indiscernible], we had a good start on the year. January was a little above budget, February a little behind budget. Road was a little better than budget and Ocean a little behind. So all in all, the start was okay. It is not too strong months, January and February traditional. So we were happy, but also not too big months. Now we are seeing, however, that the world is panicking, the borders are closing, volumes are going down. We are an asset-light player and will adapt to the capacity, to the market conditions. But on top of the volumes going down, we're also seeing the balances in the market moving. Trucks, in particular, in Eastern Europe, standing still on the borders. And we will also expect that the debtor loss will increase. Also, we have put in some expectations to lay off some employees throughout the year. And that has been effective when we were preparing the guidance. Please be aware that we have made this guidance within the full spread of the guidance. It has really been a challenge to make this guidance, but we have decided, as a new company, that it was important for us to give our best guidance at the moment. We have put in some wording about the uncertainty that is, of course, very relevant. And we will, after the Q1, give an update on our guidance and of course, if we see that the activity or the results are very far away from our expectations in this guidance, then we will either adjust the guidance or cancel it. That was what we had from us. Then we will please start the Q&A.

[Operator Instructions] The first question comes from the line of [ Finn Petersen. ]

I fully understand it's difficult to give any guidance at the moment, but if you -- could you say something about how the booking situation is? How is the forward booking? I know that you don't have 3 months forward, but just the next month relative to what you normally see.

Yes, maybe you should take that one, Jesper, and then afterwards Mikkel because I think we have 2 different situations from the 2 divisions.

Yes. Yes. I can tell you that until this moment, on Road, we have had, yes, full activity, actually. But as Christian mentioned, we now see that our trucks are blocked on the borders, especially in East Europe, but also on the other borders, we see quite long waiting time before we can cross the borders. What you also see is that some of, you can say, the big factories, especially within automotive, have announced that they will stop the production and -- I mean, Volvo, [indiscernible] and even Valmet has announced that temporarily, they will close down the production. You also see that the retail shops are forced to close down in many countries. So we see now that the stocks are going to be filled up. And that means that there are difficulties actually to receive the goods. So we expect that the coming weeks that activity will go down. But to which extent is, of course, very difficult for us to say. But until now, the activity has actually been, yes, surprisingly high, to be honest. Mikkel?

Yes. For the Air & Ocean, it's a different picture. We see -- we start to see now a sharp decline in the number of bookings coming in. And especially after it is said, of course, as you see, a lot of the big airlines have grounded the vast majority or the largest part of their fleets. And passenger fleet is normally used for air cargo as well, of course. So the largest part of the air cargo is actually moving on passenger fleets. And of course, when the fleets have been grounded, it also means that we are facing a difficult situation within air freight at the moment, no doubt.

The next question comes from the line of Marcus Bellander.

I have a few questions, if I may. Starting with your guidance. And as [ Finn ] said, I realize it's hard to guide in these uncertain times. But since you did, I will still poke at it a little bit. If we start with your revenue guidance, if I do some quick calculations, it seems you're -- basically, the underlying revenue decline is about 13%. And I assume some of that is fuel, which shouldn't have any impact on earnings. So if we adjust for fuel, it's maybe 10% or something like that. But when I look at your EBIT guidance, and I calculate the underlying decline. And the way I calculate it is, I take the 2019 number, I add Ebrex and I add the Gondrand improvements, and then I compare it to the midpoint of your guidance, I get a 40% decline, roughly. So a 10% decline in revenue and a 40% decline in earnings. And I guess I'm just surprised by the -- that there is such -- so much operating leverage in your business model. I was wondering if you could elaborate a little bit on that.

Did you have more questions, then we will take them all in once.

Yes. So my second question was regarding the strong organic growth in Air & Ocean in Q4. I'm just wondering what's the driver there. If it's the U.S. start-ups or something else? And then my third question was regarding the -- if there is any financial impact from the divestment of Italy and the Czech Republic? I mean, do you get paid at all for those units or are you basically just handing them off to the buyers?

Mikkel, would you please start with the Air & Ocean?

Yes, I can do that. I can do that. We have started up quite a lot of new start-ups throughout 2019. And when you create new start-ups, they are rarely very active in the beginning and then they become more and more active throughout their life cycle, of course. And what we see in Q4 is that many of the start-ups that we created in the beginning of the year started to produce volumes in Q4. And then we also -- as you mentioned, Marcus, we also added 3 new start-ups in U.S. during the second half of 2019. So it is simply just more volumes from the newly created start-ups that you see.

Okay.

And then the easy question, that was -- we have received a little money for both Italy and Czech, but it was minor positions. And then on the guidance, you're absolutely right about we are able to adapt. But what we have factored in is that we -- at the moment, we are seeing that, as Jesper mentioned, our trucks are standing on the borders, and that has been factored in to where we see it. And then, as I also mentioned, we are expecting to increase the debtor loss within -- I think that what we are hearing is that people are calling us for extended payment terms and then we also see some layoffs that we put in to our book. And then, to be honest, we hope that we have been conservative. We have given a big spread, but you're right that is a big decrease in our EBIT compared to our general, and we are not maybe expecting that for 2021 that we should see that because then we will be able to adapt -- if the economic environment is like this then we'd be better to adapt the balances on particularly our Road business. But today, we are seeing challenges where some new imbalance that we haven't seen before, where we have been actively finding customers, which have adjusted into the current situation. Now we also have to be active in solving that and that will take a bit of time.

[Operator Instructions] Dear speakers, there are no further questions at this time. Please continue.

Okay. But thank you very much for your time. We will go out and do our best to keep our profit high and fight this coronavirus off. And then everybody, please stay safe. Thank you very much.

Thank you.