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

Good day, and thank you for standing by. Welcome to NTG Full Year 2021 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] And now, I would like to hand the conference over to Mr. Michael Larsen, Group CEO of NTG. Thank you. Please go ahead, sir.

Thank you. Welcome to our full year 2021 conference call, and thank you very much for dialing in. Let's move on to Page 2. We kind of ask you to read the important notice provided in this slide. And then let's move on to Page #3. Here, you see the presenting team of today. My name is Michael Larsen. I'm the Group CEO of NTG Nordic Transport Group. And with me today, I have Christian Jakobsen, our Group CFO. Let's move on to Page #4. Here, you see the agenda for this conference call, which includes highlights for the full year 2021; a review of the financial performance of the group and each of the 2 divisions; the presentation of other key figures; and the outlook for 2022 as well as our updated midterm target. At the end of the presentation, the line will be open to questions from the audience. Let's move on to Page #5. These are the main highlights for 2021, which marked the 10th year anniversary of NTG. 2021 was a remarkable year in many ways. And I'm particularly proud of the efforts of all our employees who managed to hold their heads high in what turned out to be a very unusual and unpredictable year. Capacity shortage and market volatility were the main themes of 2021, caused by a range of external events such as Brexit, COVID-19, semiconductor shortage and the Suez channel obstruction, coupled with a very high demand for consumer goods throughout the year. In combination, this resulted in tight capacity, supply chain disruptions, increasing freight rates and elevated unpredictability. In spite of challenging market conditions, we managed to accelerate the momentum from previous years. And we more than doubled our adjusted EBIT in 2021, passing the DKK 500 million mark and delivered on our outlook for 2021 as announced on 11th of November 2021. In 2021, we completed 4 acquisitions within the Road & Logistic division, Cargorange, Neptun, Twente and LGT, representing approximately DKK 1 billion in revenue on an annualized basis. The integration of all acquisitions are progressing according to plan, and we are prepared for additional acquisitions in 2022 should the right opportunity arise. For 2022, we expect a net revenue in the range of DKK 7.8 billion to DKK 8.3 billion and an adjusted EBIT of DKK 570 million to DKK 630 million. In connection with the release of the 2021 financial report, we also provided an update on our midterm targets. And all previous targets were hereby replaced with a target of realizing DKK 1 billion in adjusted EBIT no later than by the end of 2027. Finally, I would also like to highlight that we announced our first stand-alone sustainability report for 2021 that provides a status on the sustainability agenda at NTG. And it marks an important first out of many steps on our ESG journey that we have begun. And we look forward to build on this platform in the years to come. With those words, I'll now hand you over to Christian, who will take you through the financial results for 2021.

Thank you, Michael. As Michael mentioned, we are very pleased with the financial results for '21, where EBIT for the first time surpassed the DKK 500 million mark. On Page 6, you see the main financial highlights for the group, where net revenue for the full year '21 totaled DKK 7.3 billion, up 36.9% versus the same period last year. The development of our existing business was the main growth driver, contributing 26.5% and acquisitions in the Road & Logistics division further contributed an additional 12.3%. While the restructuring of low-performing business areas during 2020 provided a slight revenue decline of 2.2%. Gross profit increased by 28.6% to DKK 1.6 billion, corresponding to a gross margin of 21.8%. It was 23.2% in 2020. Market volatility, capacity shortages and increased pressures on input factor prices were the main drivers of the decline. Adjusted EBIT increased 107.9% to DKK 542 million in '21, corresponding to an operating margin of 7.4% versus 4.9% in 2020. The development was driven by increased efficiency and scalability as well as the effects from acquisitions and activities discontinued in 2020, which altogether led to a conversion ratio increase of 12.9 percentage points in '21. Further, adjusted EBIT was positively affected by the net positive one-off effect of DKK 20 million in the Road & Logistics division in the second quarter of the year. And then if we move to Page 7, you see the summary of the key financial performance indicators, where -- which illustrate that the gross margin development for the group was impacted by increase in [indiscernible] in Air & Ocean division in '21, an increase in oil and diesel prices in the Road & Logistics division, partly offset by capacity surcharges introduced throughout the second half of the year. The acquisition of LGT Group in September '21 had a positive effect on the gross margin in the last 2 quarters of the year. The conversion ratio development in the Road & Logistics division was driven by the impact of LGT Group while the development in the Air & Ocean division was a result of the slight normalization in activity levels in Q4. The development in operating margin during '21 was driven by increased efficiency and scalability of fixed costs, effects from -- and effects from restructuring in 2020, the impact of acquisitions completed during '21 and, finally, the net positive one-off effects that I referred to earlier. And then we flip to Page 8. You see the financial revenue for Road & Logistics division. The division generated a net revenue of DKK 5.5 billion in '21, which was 29.8% above the same period last year. The increase was related to growth -- acquisition growth that contributed 15.2% and organic growth of 14.5%, which was driven by the effect of surcharges introduced to safeguard existing capacity and customer relationships but also including volumes and spot prices. Gross profit increased 28.7% to DKK 1.3 billion, corresponding to a gross margin of 22.7% versus 22.9% in 2020 as a result of increasing input prices, although partly offset by surcharges introduced in the second half of the year. Adjusted EBIT increased 74% to DKK 430 million in '21, corresponding to an operating margin of 7.7% versus 5.8% in 2020, driven by the effect of restructurings completed in 2020, acquisitions completed during the year and the DKK 20 million one-off effect. And then if we flip to Page 9, you see the financial revenue for the Air & Ocean division. The division generated a net revenue of DKK 1.8 billion in '21, which was 65.9% above 2020. The organic growth of 65 -- 66.5% was mainly driven by elevated freight rates and, to a certain extent, volume increase. Gross profit increased 28.1% to DKK 330 million, corresponding to a gross margin of 18.9% versus 24.5% in 2020. And as I mentioned before, the development was a result of innovative freight rates that resulted in increasing pass-through revenue, which drove gross margins lower throughout the year. Adjusted EBIT increased 825% (sic) [ 828.1% ] to DKK 112 million, corresponding to an operating margin of 6.4% versus 1.1% in 2020. And that was primarily driven by increased efficiency and the restructuring activities that we financed in 2020 that contributed to a conversion rate improvement of 29.1 percentage points and an operating margin increase of 5.3 percentage points in '21. Then if we move to Page 10, you see an overview of other key figures. On the left, you see the net working capital totaled minus DKK 187 million as per end of December 2021. The development was mainly driven by higher cash commitment in the Air & Ocean development following a longer transit time and shift in the market terms. If we go to the middle, and the adjusted free cash flow totaled DKK 112 million in the fourth quarter of the year and DKK 288 million for the full year compared to DKK 314 million in 2020. The development was mainly driven by an increase in adjusted EBIT, offset by an increase in working capital commitment during '21. Coming to the right, you see the net interest-bearing debt, excluding IFRS 16, which totaled DKK 25 million by the end of the fourth quarter of '21 compared to '21 -- 2020. The development was mainly related to acquisitions completed in '21. And then if we move to Page 11, you see the full year outlook for '22, where we expect a net revenue in the range of DKK 7.8 billion to DKK 8.3 billion and an adjusted EBIT in the range of DKK 570 million to DKK 630 million. The outlook for '22 includes full year effects of the acquisitions of Cargorange, Twente Express, Neptun Transport and LGT Group. And please, also bear in mind that the results in '21 was quite positively affected by the DKK 20 million positive one-off effect, which I have now mentioned [indiscernible]. Our guidance for '22 assumes a stable macroeconomic environment with no additional material adverse events affecting regional and global cargo volumes and trade patterns. In addition to the full year outlook for '22, we have also provided a midterm financial target in connection with the release of the annual report for '21. And if you turn to Page 12, you see that the updated midterm target is based on an adjusted EBIT margin of 7.4% in Q1, which was well above the previous midterm target of 4% to 5%. And as a result of this and the overall development of the business in '21, we have introduced a new midterm target that replace all previous targets. And we now target to deliver DKK 1 billion in additional -- in adjusted EBIT no later than in '27. The new target is based on a combination of organic growth and M&A, financed by the cash flow and credit facilities of the company. No assumption of capital raises are due, although we will evaluate this source if an opportunity arose. Finally, the midterm target is based on the assumption of a stable macroeconomic environment and NTG continuing to develop the business, establish start-ups and execute on its M&A agenda. And now I will pass over to Michael for closing remarks.

Thank you, Christian. As mentioned in the beginning, 2021 was characterized by tight capacity, increasing freight rates and elevated unpredictability. But again, thanks to our hardworking employees and our flexible and agile business setup, we managed to stay on track in these very turbulent times and delivered on our very ambitious guidance for 2021. This was all that we have planned for today. So moderator, if you please open the line for Q&A. Thank you very much.

[Operator Instructions] Our first question comes from the line of [ Lars Heindorff ] from Nordea.

A couple of questions. First one, regarding the guidance, the revenue guidance of DKK 7.8 billion to DKK 8.3 billion implies 7% to 14% top line growth. And I'm curious to if you can maybe give us a little bit insight into how much of that will be organic.

Yes. Lars, the organic growth, actually, I think, we have around DKK 350 million as acquisition of growth. So the rest would be organic.

So DKK 350 million from M&As for the recent acquisitions that you made?

Yes.

Okay. Yes, it makes sense. It was almost DKK 280 million in the fourth quarter, the impact on the top line. So I would -- initially, I would [indiscernible].

But we also have to realize that that's a full year update of acquisitions that we made in 2020 as well in the fourth quarter.

Okay. And then maybe sort of more about sort of current trading and also what goes on in Ukraine and Russia. Maybe just an update on cargo flows, if there are anything there which sort of affects the operations also in terms of -- I mean we have previously heard a little bit about shortage of drivers and also with -- I mean this comes on top of what we've also seen some of the changes in the EU regulation, which have also been affecting the flows a little bit.

Yes. If we start with the flow of the cargo, it's plus/minus what we have seen for the last quarter. So that's not a big change there. But with the capacity, there's no doubt about it that we see an issue with the capacity on the road side. Especially, one reason could be the conflict in Ukraine, Russia, but one other main reason, I would say, is the EU Mobility Package, which has went into force here in the start of February. And we still, you can say, wait to see the full effect of this package that I believe we'll see in the end of first quarter and the start of the second quarter. So there, we will see the full effect of the mobility package.

And if that -- if I understand it correctly, then the risk sounds like it will be more shortage of drivers. Is that -- is there a risk that, that could maybe put a bit of pressure on the gross margin in Road & Logistics?

We are working all the time with the clients to make sure that we can keep the capacity in the market. But we will also have in mind that, again, we have not seen it come into effect still. But there's also a lot of drivers producing. Russia, at the moment, will not be able to produce, so there will most likely be some capacity from that -- these trade lanes between Poland-Russia, Baltic-Russia who will be possible to take into the other trade lanes. So it will, you can say, take a little bit of the capacity shares away, hopefully.

Okay. And then in Air & Ocean, I know you don't disclose volume numbers, and hence, we are unable to do some math on yields and stuff like that. But just sort of -- I don't know if you even can give me a ballpark. But what I'm trying to get at here is, there is, at least, in my mind, sure, there's some kind of, what I call, super profits given the situation we have right now with high rates, both in ocean and in airfreight. And I don't know if you can any way try to sort of quantify how much you believe that kind that impact have had on the '21 numbers. And what I'm trying to get at here is to see, okay, if we assume that things will start to normalize, congestion will start to ease at some point during the course of this year, what kind of impact will that have on, of course, both the top line but also certainly on the EBIT line. [indiscernible] question.

Yes. But you're absolutely right that we are seeing that due to the capacity shortage, we have to look a lot longer for funding the capacity for our clients. And there, we would charge a little bit more. So definitely, there are some more gross profit to reach -- to some of the [ parts ]. But on the other hand, we also have to spend a lot of time finding these [ parts ], the capacity, and that means that we also spend more time within our organization to develop. So maybe there would be a little bit less the gross profit per [ part ] probably. But we will also see that the productivity by our employees will increase. So it would be very difficult to say what is the real impact of it. But probably there's a positive impact [indiscernible].

Okay. And then lastly, getting back, maybe mostly I think this is affecting the Road & Logistics, which is the skyrocketing energy prices. And when I -- I'm curious to get any kind of info on have you been able to pass this on and price-wise in general. Have you announced price increases -- increasing recently? And are you planning to do that also?

But we have [ demand ], and more or less, all our offers would take care of that on a monthly basis. We are actually, right now, working on to go from monthly to every 14 days to make sure that we can also, you can say, pay our subcontractors to make sure that we have the capacity needed in the market. But it's not a big worry. We have this built into, more or less, on our orders.

Okay. And just to give a sort of a sense for the impact here on the oil prices, I mean, how much of your volumes are -- or what you call it, spot volumes, which are more probably more exposed where you need to adjust these things or -- and how much is, obviously, more recurring and longer-term where you have some kind of an agreement where I assume there will be sort of a pass-through automatically built into those agreements.

Almost all of our long-term customers, they have [ a decent number ], which is automatically regulating this. And now as Michael say, we have to pull on [ additional lever ] to regulate the prices on 14-day period instead of a 1-month period. But normally, spot prices, that will never be at an agreed price, and that means that you have to come with a price, and then you'll -- of course, when you're doing the quoting, then you will say that now it's a little bit more expensive, but then you would do with the quoting based on the price that you have today and where you're standing in the capacity. So I also believe that the spot prices, they will be adjusted when we're sitting at the desk and knowing that now we have to pay you all a little bit more, then you will also charge the customer a little bit more.

[Operator Instructions] There are no further questions. I'll now turn the call back to Mr. Larsen, Group CEO, for closing remarks.

Thank you. Thank you, everybody, for your time today, and a nice day to everybody. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.