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

Thank you. Welcome to our full year 2020 webcast presentation, and thank you very much for dialing in. First, I need to ask you to read Page 2 carefully, and then let's move on to Page #3. Here, you see the presentation team for today. My name is Michael Larsen, and I'm the group CEO of NTG Nordic Transport Group. And with me today I have Christian Jakobsen, our group CFO. If we then flip to the next page. Here, you see the topics that we intend to go through on the presentation today, including an overview of key highlights during the year, a review of the financial performance for the group and for each of the divisions and the presentation of the outlook for 2021. We will then end the presentation with a Q&A session where the line will be open to questions from the audience. Let's move on to Page #5. These are the highlights for the full year 2020. 2020 was an eventful year, both internally and externally. I'll not dwell too much on the COVID-19 situation, as I believe you are all aware of its implications. But there's no doubt that it did have a significant impact on our business in 2020. That is also why I'm very pleased that we managed to deliver a net revenue in line with 2019, while seeing profitability as measured by adjusted EBIT increased by 25%. The profitability increase was driven by a number of factors, which Christian will come back to shortly. But one of them was the corporate overhaul we completed in 2020 that resulted in restructuring, closedown or divestment of nonperforming activities in Germany, Sweden, Switzerland, Estonia, Vietnam, Australia, Croatia and Turkey. The increasing profitability was also supported by a positive development in the former Gondrand activities following significant restructuring in both 2019 and 2020. The activities contributed positively to adjusted EBIT in the third and fourth quarter of the year. Despite the uncertainty and turbulence, we managed to complete 3 acquisitions and establish 4 greenfield start-ups in 2020, which strengthened our existing footprint across Europe and also in the U.S. 2020 was also a year of change internally, as the management team was reorganized when I joined as group CEO back in May. Peter Grubert joined as Executive Vice President in October. And Soren Holck Pape was announced as CEO of the Air and Ocean division in November last year. And Soren started in NTG in January this year. And with these additions, the management team is now officially complete. For the year 2021, we expect net revenue in the range of DKK 5.5 billion to DKK 6 billion, and an adjusted EBIT in the range of DKK 300 million to DKK 350 million. But it should be noted that visibility is lower than normal, and these ranges reflect an increased level of uncertainty. If we then move on to Page #6. Here, we have provided an illustration of the historical financial performance. 2020 was up in terms of growth as net revenue remained constant compared to the year before. The development was driven by a negative organic growth due to the general activity decline that was offset by the acquisition of Ebrex, Saga Trans and TB International. What is worth noting, though, is that we managed to increase the margin by 100 basis points to 4.9% in 2020, driven by a combination of an increasing gross margin and conversion ratio, primarily driven by the Road & Logistics division, but also the Air & Ocean division towards the end of the year. And the strong operating performance resulted in an all-time high adjusted free cash flow. Christian will now take you through the financial performance in a more detailed manner. Christian, if you would, please.

Thank you, Mike. If you turn to Page 7, please, and as Mike mentioned, we are generally very pleased with the financial results for 2020 that we believe illustrate our agile business model. On Page 7, you see the main highlights for the group. Net revenue remained constant at DKK 5.3 billion and the growth of a decline in organic growth of 4.9% also by an equivalent positive impact from the acquisitions of the Ebrex, TB International and Saga Trans. The negative organic growth was driven by a decline in activity in the existing business of -- that accounted for minus 3.1% and the discontinuation of low-performing activities of minus 2.4%. Start-ups have partly offsetting effect of 0.7%. Adjusted EBIT increased 25% to DKK 261 million in 2020, corresponding to a margin of 4.9%. In the fourth quarter alone, we generated an adjusted EBIT of DKK 82 million, corresponding to a margin of 5.8%. I'll dive into the contribution from each division shortly. But before doing so, I would like to highlight Gondrand for the last time. Gondrand, positively contributed to EBIT in both the third and fourth quarter with DKK 1.8 million and DKK 3.8 million, respectively. Gondrand has now been restructured, integrated into our existing activities, and we will not report on the performance in the former Gondrand activities from Q1 '21 and onwards. But of course, we will continue with the work. And then if we move to Page 8, then we have presented the Road & Logistics division. Net revenue in the division totaled DKK 4.3 million, representing a growth of 3.7% compared to 2019. The growth was primarily driven by the effect of acquisitions which more than offset the negative organically. That was primarily driven by the restructuring and closedown and divestment of low-performing activities in Germany in 2020. And the closedown and divestment of activities in Czech Republic and Italy in the late 2019. Adjusted EBIT increased 36% to DKK 247 million, corresponding to an operating margin of 5.8% in the fourth quarter alone. Adjusted EBIT totaled 75%, DKK 4 million corresponding to a margin of 6.7%. This is an extraordinary achievement by the division. The increase in adjusted EBIT was primarily driven by a gross margin increase of 3.9% in improved prices due to the pandemic -- driven by improved price due to the pandemic in fixed bottlenecks and uncertain trade lanes. And in view of new customers in the Nordics, a favorable development in the direct cost and the deposition of EBIT and the increased conversion ratio driven by restructuring and efficiency initiatives completed during the year. And then if you flip to Page 9, we have the Air & Ocean division. The division realized net revenue of DKK 1.1 billion, corresponding to a total growth of minus 12.8% compared to 2019. And the combination of COVID-19 and the significant overhaul of the division to [indiscernible] on the growth in 2020 and the contribution from the existing businesses was minus 12.8%. While closedown, divestments or restructuring of nonperforming activities in Germany, Switzerland, Estonia, Vietnam, Austria Croatia and Turkey in 2020, and Italy and Czech Republic in 2019 contributed with minus 2.5%. Start-ups in the U.S. had a partially offsetting effect of 2.5% in 2020. Adjusted EBIT increased -- decreased 50.1% to DKK 12 million -- DKK 100 million, corresponding to an operating margin of 1.1% and 2.0%, respectively. The decrease was driven by a decline in gross margin due to the challenging market condition and [indiscernible] base. And the negative contribution from start-ups in the U.S. in the first 6 months. The decline was partially offset by turnaround in China and improved performance in Sweden, Finland and the Netherlands. Because of the deteriorating performance in the division, significant restructuring and cost-saving initiatives were implemented. These initiatives started to materialize towards the end of the year, and the division reported an increase in operating margin and conversion ratio despite gross margin contraction in Q4. Following on the redefined focus on core activities with a limited number of geographies and the introduction of Soren Holck Pape as the new CEO in the division, we expect the division to be able to return to growth and increase profitability in '21. And then we can turn to Page 10, we are presenting some of the key figures. And so on left, we see that the net working capital decreased to minus DKK 208 million by the end of the year as a result of our very strict cash management. And we have an impact of payment stems from certain public support programs of around DKK 10 million at the end of the year. The increase in adjusted EBIT and decline in net on capital, specializing cost and purchase of property, plant and equipment contributed to a strong cash flow generation that was approximately 3x higher in Q4 compared to the year before. In the bottom, you see the net interest bank debt, excluding our effects of IFRS 16 that went further into negative territory in total minus DKK 196 million by the end of 2020. And then you go flip to Page 11, then we have the full year outlook. We expect a revenue in the range of DKK 5.5 billion to DKK 6 billion, corresponding to a growth of approximately 3% to 13%. On adjusted EBIT, we expect a result between DKK 300 million to DKK 350 million, corresponding to a growth of 15% to 34%. And as Mike mentioned, the guidance remains subject to more uncertainty than usual. And we base it on the range of assumption that's provided on the slide, including a stable recovery and greater reopening of countries following COVID-initiated lockdowns. And then we also would like expect maturities in trade patterns. And that was all what we have prepared for you. Then we will open for the Q&A.

[Operator Instructions] The first question comes from the line of Marcus Bellander from Nordea.

I have a handful of questions. If we start with Q4, I noticed that revenue in Air & Ocean was up about 30% quarter-on-quarter. Was that mainly driven by higher freight rates in ocean? Or what's going on there?

Yes. Yes. But it definitely has had its impact, but we also saw that some of the scale advantages, the big -- have in ocean, that is, at the moment, to a realistically what we saw earlier. So we are at the moment, completing of some customers that we were not able to get before on -- for example, from China to Western Europe and to the U.S. So it's a mix, both of the of that. And then we had a couple of countries, Sweden and Finland, who did particularly good in the Q4. So it's a mix of more things.

Okay. That's interesting. And why do you think that is? Why is the bigger guys scale advantage is diminishing now?

I think that the carriers are not that dependent on the big guys at the moment. So they are maybe not offering them the same conditions as before. They have -- we are a seeing that we were getting some space, which we put one of the big guys problems getting. So that is, I think, the market condition at the moment.

Okay, okay. And then I'm just curious, it looks like minorities in Q4 constitute a slightly bigger share of the net profit than it has done in the past few quarters. Is there anything extraordinary there? Or what level should we expect going forward?

We can say that, in particularly, our Polish and the business in the Netherlands did extremely really good. They have a relatively high minority. And then the problems are countries are sitting in group and that's why that we have this. Then we also see that the start-ups are getting interesting, and they are also normally -- sort of that negative input they have on the minority interest, that's also being lower. So there's a lot of wheels moving on that one.

Okay. Okay. Understood. And then if we move on to your guidance for 2021, I'm a little puzzled, I guess, that -- both the revenue and EBIT guidance. I had imagined that revenue would the -- or you would guide slightly higher on revenue because my thinking was that you have fuel prices are up, the freight rates are up. You've made some acquisitions. And supposedly, it will also grow organically in 2021. Yet you're only guiding for, I think, it's 7% or 8% growth in revenue. Is there anything that's sort of holding it back?

I mean, if our revenue has been DKK 5.3 billion in 2020 and the mid-range of our of the future then is DKK 5.7 billion. That's close to 10%. And then please also remember, we will have a full year effect of the close down. So that means that we will see that some of this, we closed down the last year, it goes down in the end of '20. That will also have a fixed but not a significant as we saw that so I think we have guided a decent growth in the revenue.

All right. And then your EBIT margin guidance, which, on the other hand, was pretty strong or at least it seemed like that to me. The midpoint of the EBIT guidance range and the midpoint of the revenue guidance range implies, I think it's 5.7% EBIT margin, which would obviously, be a very strong print. But you're keeping your midterm EBIT margin guidance at 4% to 5%. And does that mean that 2021 will be completely extraordinary in terms of profitability? Or are you sort of warming up to a revision of the midterm EBIT margin target?

We do not see '21 as a special year so that you can put in what that concluded. But I mean we didn't reach -- we didn't -- I think you should -- there's 2 things. Midterm guidance is also something which is based on more years. In some years, you can maybe be above and sometimes you can below. And then you have this that we didn't come over in 2020. And I mean, in my point of view, you should reach one target before setting a new target. So of course, we will deliver things when we know where we were land in the -- in terms of one.

All right. Understood. I'm looking forward to that. Next question about Gondrand. And I know we're -- we'll stop talking about it in a little while. But I'm just wondering how much more there is to do when it comes to that turnaround because there was a -- you phrased it in a way in the announcement that made me think it was -- that there was a lot of sort of improvement still to harvest. I think you wrote that the impact of the restructuring initiatives are starting to materialize. So if you could add some color on that.

I fully believe that there's still a lot of potential to work with. Now we have created a stable platforms all around. And now we are ready to build on these platforms and work even more with them. So even though that we have reached a level where they are bringing positive EBIT to the group. Then, of course, we'll still -- we still believe that there's a big potential in that part of the business also.

Okay. Okay. That's good to hear. And finally, last question, just on net working capital, the net working capital has been very low for 3 quarters now. Is this a new normal? Or should we expect it to reverse at some point during 2021?

I definitely -- you also know that, for example, Easter will come on a very bad timing for our net working capital this year. So then I would expect that our net working capital a little bit more -- will worsen a little bit. And we see that, in general, as we have always said, we do believe that we will come closer to 0. That is the situation. But you also -- I think you also know that we're finding this trend every day. And we will definitely do that. Also, we have already been visiting some of our suppliers to see whether they would be interesting in giving us more these. So this is an ongoing bare where the customers own more days, and we try to move it over to our own suppliers for them. But we will not be able to keep the neocate in that range. For hub and when we will probably see some higher working capital throughout the year. That is my expectations. But unfortunately, I can't give you an exact picture on that.

The next question comes from the line of Michael Rasmussen Danske Bank.

Well done, guys, on some very good results here. So a couple of questions from my side. I think I'll take them one by one. First of all, on the air and Ocean division in 2021, can you give us a little bit more insight into kind of how you think of of kind of the improvement, both in growth and also in terms of margins just for modeling purposes? And on that division, you guys consider giving both Air & Ocean volume and yields?

I think that's for our expectations, and that's also what we have seen for the first couple of months, which we, of course, have put into our guidance. When you see the trend in the Air & Ocean division keeps moving. So we expect the volumes and turnover will be higher. And we also see that at the moment, that our markets are going up. So unless something special will happen on the market. And then we do believe that we have a stronger position after we did this overhaul of the division. And we have many strong countries that will perform. That is definitely our expectation.

And on the volumes and yields?

I think that the volumes will increase in the yields also a little bit.

Okay. But do you guys consider giving that out on a quarterly basis, your --

No. No, not for the moment. We will -- we still consider that to be this sun has now, I think. So I wouldn't expect that to be before in '22. So -- because now we will certainly want some things a little bit different than what we have done. So to be able to compare 2 years and show the development, and I would expect that we will start giving it out from '22.

Do you have any numbers that you could share with us maybe GP per tonne for AR?

I would rather not.

Okay. So moving on to the road division. Now you mentioned, Christian, that you had a pretty good first couple of months in Air & Ocean. Do you see something similar in road? I mean, when we look at the bridge data, the road toll data. When we look at Danske Freight Forwarders Index. It seems like you've had a pretty good start to '21 here. And also in combination with that, are you seeing any gross margin pressure from your sub-suppliers in the road division, please?

We don't any see that -- as I must say I'm impressed by you can find all the data because you really are polling with your noise the volumes. So we are definitely seeing that -- and we were also a little bit cautious when we had the discussions, where will it be and then confirmed our guidance based on that. We do see a good start on '21 on the volumes. And if you then, of course, some of the building -- because of the very cold climate in the Northern Europe offer building material we have been slower than anticipated. But we do see good volumes, and we also see that the margin pressure will come a little bit on -- we are seeing that our holes are expecting that the diesel price will -- due to the diesel to the fuel prices, and then we will see a bigger margin pressure. But probably not as a bit a little bit later in the year. That's at least my expectation.

Great. Okay. So just jumping back on the Air & Ocean division. You mentioned Soren Holck Pape is now well underway, and he's got plans. It sounds like we're really looking forward to that. On the M&A side, it's been a while since you've done M&A in that division. What is Soren's experience on the matter? And what are you thinking here? I mean, are you thinking from a group perspective that you just want the division stabilized and then you'll start to add on M&A? And just do M&A in the Road & Logistics? Or is Soren just ready to kind of move full speed ahead, both fixing the underlying business and as well as doing M&A?

Yes. Soren has been part of NTG now for 55 days. So I believe that we'll give them a couple of days more before we have made a full picture of of how the Air & Ocean division looks. He's working really hard, and no doubt about that. We have huge expectations. But I think before we start talking about that we need to give them a couple of days more to take hi own impression about what we need and what we're going to do in the Air & Ocean division.

[Operator Instructions] The next question comes from again from Michael Rasmussen from Danske Bank.

Okay. I'm back again. So just in order, so I understand it fully on Slide #8 and #9, where you did the divisional breakdown of Q4 -- well, both Q4 and full year actually in terms of revenue growth. Am I missing something or where is currency impact in those bridges?

We don't put that into the bridges.

Okay. But I mean, if revenues, for example, in aero notion is down by 7.5% total, then FX must have had some impact on that? Or is it something I'm missing here?

But we do not put that in. You had to realize that if you -- the FX is always difficult because you can have 1 country working with in FX, but dealing everything in dollars. So the FX is something which we put into our -- we do not show what the effect would be.

Okay. So that is -- that basically is a little bit in each of these breakdowns here. Could you give us an update on the partners, where are we in terms of performance status? Anyone wanted to exit or move on or if you could just give us kind of the general perhaps run-through?

We do not see any big movements on our partners. It's pretty stable with the partners of course, some of the close ones there were some partners, which have lifted, but that's what we have chosen. So and then we have not seen any significant partners wanting to leave us. But of course, we have a huge rotation that I think is quite normal. So but nothing big to report on that.

Great. Okay. And the 4 greenfield startups, is that new --? Or...

Yes that's new.

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

Okay. I think that is all from us. Then we will go back and work hard to deliver some good results for the first quarter. Thank you very much for listening.