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

Good morning. This is the conference operator. Welcome, and thank you for joining the full year 2024 conference call. [Operator Instructions] At this time, I would like to turn the conference over to Group CEO, Mr. Mathias Jensen-Vinstrup; and Group CFO, Mr. Christian Jakobsen. Please go ahead, sir.

Thank you, and welcome, everybody, to our full year 2024 conference call, and thank you for dialing in. My name is Mathias Jensen-Vinstrup, and I'm the Group CEO of NTG, and I have Christian Jakobsen, our Group CFO, with me today. We will spend the next 20, 30 minutes taking you through our highlights for 2024, the outlook for 2025 and the presentation of our newly-defined strategy to reach our 2027 target while promoting further resilience and reduced complexity of scaling NTG even further. If we flip to the next slide, we kindly ask you to read the forward-looking statement provided on the page. And if we move to Slide #3, you see the agenda for this conference call, which, as always, includes the full year highlights for 2024, a short M&A update, a review of the financial performance of the group, followed by the two divisions, a presentation of other key figures, and our outlook and EBIT guidance for 2025. And finally, an outline of our Route '27 strategy. By the end of the presentation, the line will be open to questions from the audience. So if we move on to the next slide, Slide #4, you will find the highlights for 2024, which was a year marked by a lot of progress for us NTG as a company, including the signing of 5 acquisitions, defining our strategic direction for the coming years and a strengthening of the leadership team. In 2024, we delivered organic growth and achieved our EBIT target for the year despite challenging market conditions that impacted both the European road market and the global air and ocean markets. Both divisions grew organically on revenue, but margin pressure, soft demand in key markets, the restructuring of the German Air & Ocean organization and effects related to the AGL earn-out provision release altogether led to a lower adjusted EBIT compared to 2023. A part of our focus in 2024 was dedicated to the development of the organization, ensuring a fit-for-future setup. And we, amongst others, welcomed the new CEO of the Air & Ocean division and, a COO of the Continental European Road and Logistics activities. We also finalized the rollout and migration of the group-wide transport management system within Air & Ocean called CargoWise, which is a key enabler of the strategic initiatives within the Air & Ocean division going forward. Lastly, we have announced our full year guidance for 2025 of DKK 575 million to DKK 650 million on adjusted EBIT, which Christian will elaborate on later in the presentation. On the next slide, you see a brief M&A update, and I'll keep this slide brief as I believe you are all aware of our active M&A efforts throughout the last year. But I wanted to highlight that in January, we closed the acquisition of ITC Logistics and Thortrans, as shown on the left-hand side of the slide. And we are pleased to welcome all of our new colleagues into the NTG family and looking forward to bringing them along on the journey going forward. It goes without saying that M&A remains a strong strategic priority for NTG and we continue to search for and evaluate opportunities to continue our buy-and-build strategy going forward. So with those words, I will hand it over to Christian, who will take you through the financial results for Q4 and for the full year 2024. Go ahead, Christian.

Thank you very much, Mathias. So please flip to Page 6. In 2024, global freight forwarding markets were once again impacted by the high volatility, the conflict in the Red Sea, changes in ocean seasonality, and bankruptcy among hauliers led to increased competition and higher freight rate costs across both divisions. The Air & Ocean division delivered an increase in transport volumes compared to last year, driven by organic growth and start-up activities. Meanwhile, the Road & Logistics division faced a soft market, saw another year of declining volumes and compared to last year already muted in 2023. To safeguard hauliers and capacity, freight costs increased during the year. Despite the headwinds, NTG achieved satisfactory results across both divisions with top line growth of 12.2%, but a decrease in adjusted EBIT of 16.8% compared to 2023. The gross margin was impacted by a higher pass-through element from increased freight costs, resulting in a margin of 21.1% in 2024 compared to 22.4% in 2023. The gross margin in Q4 recovered due to price increases in Road announced in October 2024. Operating margin reflects current market conditions and lower margins from newly-acquired companies. And if we flip to the next page, we see the highlights for the Road & Logistics division. As I said, we saw for the second consecutive year, a declining rates and soft volumes due to the soft macroeconomic environment in Europe. And as a result of another challenging year, the high hauliers costs squeezed our gross margin and yield. To offset the higher cost, the market responded with the prior mentioned price increase during Q4 2024. The Road & Logistics division seized the opportunity to intensify sales efforts and gain market share through the year. Net revenue totaled DKK 6.6 billion, corresponding to a growth of 6.5%. Organic growth was flat at 0.1%, driven by market share gains, but fully offset by lower rates and market volumes. Growth from M&A was 6.1%, driven by the acquisition of RTC Transport in February and SCHMALZ+SCHÖN in October. As said, higher haulier costs and pressure on freight rates negatively impacted the gross margin, which was 21.9% in 2024 compared to 22.3% in 2023. The lower adjusted EBIT was mainly driven by higher cost base related to the increase of activity and the integration of SCHMALZ+SCHÖN cost base. And we flip to the next page. You see Air & Ocean. The global air and ocean freight market were impacted by uncertainty and significant rate volatility with volumes showed -- while volumes showed a positive trend compared to previous year, in ocean freight, the conflict at the Red Sea that started in late 2023 continued into '24, resulted in longer transit times and higher rates. We estimate that both air market and ocean market grew mid-single digit. Net revenue totaled DKK 2.7 billion in 2024, corresponding to a growth of 28.6%. Organic growth was 24.9%, mainly due to higher freight rates and -- but also gain of new volumes. The acquisition growth was 3.4% due to the impact of -- from freighting and SCHMALZ+SCHÖN. The higher freight rates had a negative impact on margins, resulting in a gross margin of 19.2% in 2024. And adjusted EBIT was positively affected by the higher gross profit from organic growth and acquisition, but offset by the earn-out provision released from the AGL transaction, and the one-off sale -- a one-off building sale in Germany last year. Cost base was negatively impacted by start-up activities in the U.S., some one-off termination expenses in Germany. And then our projects department across the division had a very strong year. And then if we flip to the next page, please, you will find an overview of other key figures. The development in VC (sic) [ WC ] was primarily impacted by local challenges in the U.S. entities, net working capital development and during -- after several initiatives were initiated to secure a normalized level going forward. And with SCHMALZ+SCHÖN coming in, in Q4, had a negative impact on our net working capital with around DKK 44 million. The adjusted free cash flow continued its positive development and was DKK 152 million for the year. Net interest-bearing debt totaled DKK 1.6 billion as of December 31. Excluding the effects of IFRS 16, the net interest-bearing debt would have been DKK 429 million. Net interest-bearing debt was as mainly affected by the acquisition of SCHMALZ+SCHÖN and the leverage ratio, including effects of IFRS 16 ended up at 2.0 EBITDA before special items. And then if we move to the outlook, then we have -- we expect an adjusted EBIT in the range of DKK 575 million to DKK 650 million. The outlook assumes a slight volume growth in both divisions, but with continued pressure from soft macroeconomics and muted consumer confidence. In European road and logistics market, we expect a growth in line with European GDP growth. The freight rates environment is expected to see slight increases due to the rate adjustment announced in October '24. For the Air & Ocean division, we anticipate moderate growth in transport volumes, offset by declining freight rates due to oversupply of freight capacity. We will continue closely to monitor activity and adjust capacity and cost base accordingly. The outlook for 2025 includes the effects of the acquisition completed in '24 as well as ITC Logistics and Thortrans, which we completed in January '25. It does not account for potential impact from other acquisitions during the year, if any. And currency exchange rates are assumed to remain at current levels. And given the elevated macroeconomic and geopolitical uncertainty, the assumptions underlying this outlook may change. In addition to the full year outlook for 2025, we maintain our midterm financial target provided in 2021 annual report aiming to achieve an EBIT of DKK 1 billion by the end of 2027. This target is based on a combination of organic growth and M&A, financed by our own cash flow and credit facilities. No assumptions of capital raises are included, although we will evaluate funding sources for large acquisitions. The midterm target assumes no additional material adverse events affecting regional and global cargo volumes and trade patterns. NTG continuing to develop the business, establishing start-ups and execute on its M&A agenda. And that was all for me. So I will hand the word back to Mathias.

Thank you, Christian. And if we move on to Slide #11, we will now provide a short introduction to our recently finalized strategy, which we refer to as the Route '27 strategy. So in September last year, we launched a strategic review following more than a decade of rapid expansion, both size-wise and geographically. And upon reflecting on the network of businesses that we manage today, we identified several initiatives to further enhance performance as well as resilience going forward. And so if we move on to the next slide, you see a brief snapshot of NTG in numbers in 2019 at the time of the IPO vis-a-vis today. And the upper half of the slide clearly illustrates how our business has grown in terms of number of legal entities, operational entities, employees and financial performance. And the bottom half of the slide illustrates how the composition of our portfolio of businesses has changed as well from full and part loads being the main driver of operating profits to a more diversified portfolio of value drivers, including Air & Ocean, logistics and groupage activities as well. And it also illustrates how we have expanded from being a Nordic-based forwarder to being a global end-to-end logistics provider with multiple profitable regions around the world. And then last but not least, which is the lower right-hand side of the slide, you also see how the incentive mechanisms have gradually changed over the years as illustrated by minority shareholders' share of net profit in the bottom right-hand side of the slide. So with this development in mind and moving onwards to Slide #13, we highlight the reason for launching a strategic review. So as I mentioned, we have successfully evolved from a Danish road insurgent to a global freight forwarder by incubating and acquiring entrepreneurial businesses with values similar to ours and with a persistent commitment to pursuing a decentralized business model with a strong belief that empowered local management teams, combined with aligned incentive models will drive local market outperformance. This model enabled a lean, cost-effective central layer, providing the turnkey solutions and business sparring to support organic growth within each of the local entities. Now this considerable growth, however, raises completely natural challenges that we, as a company, must navigate, namely increased complexity from scale and the need for implementing appropriate long-term incentives when our co-ownership model expires within any given local entity. And to thrive in today's uncertain market environment, we must adapt our operating model to maximize the benefits of our decentralized structure while simultaneously addressing its complexities and the opportunities that it present to us. So, all in all, this rapid growth and expanded network have unlocked the opportunity to focus on optimization in addition to locally-driven organic growth initiatives. And we thus see a significant potential to establish an additional kicker of long-term growth and resilience. And the components of this kicker are illustrated on the right-hand side of the slide. And with the Route '27 strategy, we outlined the foundation and the operating blueprint for addressing these opportunities and challenges, again, to extract further value from the platform that we manage and operate today. We won't dive into the specifics of the Route '27 strategy during this presentation. But in summary, our strategy rests on 4 key pillars that underpins our midterm target of DKK 1 billion by the end of 2027, and we'll briefly elaborate on each of these pillars on the next page. So, in a nutshell, the strategy is an explicit acknowledgment of the fact that each of our entities transition through different stages of their life cycle at different points in time and the dynamics and the support requirements differs across each of these stages and so do our avenues for further value creation. We move on to Slide #14. We boil down our strategy into an ambition, where to play and how to play. And there are obviously many steps and initiatives that go below the slide you see in front of you. But unfortunately, we don't have enough time to go through all of them during this conference call. The key highlights, however, are as follows. We will focus on our core markets, which are Europe in Road & Logistics and the 3 core lanes in Air & Ocean being the Transatlantic, Transpacific and the Far East westbound. So in Air & Ocean, basically the East-West trades. And we'll continue to serve customers of all sizes, both small- and medium-sized enterprises as well as large enterprises across general cargo and across our specialized verticals that we operate today. And most importantly, we'll continue to safeguard the DNA of NTG of having a decentralized business model where customers come first, and where we empower our teams in the front line to perform and excel through appropriate incentive structures. But to leverage the strengths of this decentralized model, we needed to be supported by a robust central function and organization that can provide the corporate and digital infrastructure required for the entities to excel and succeed also in the future. So we have, therefore, identified the 4 key pillars that I mentioned before to maximize the benefits and manage the complexity of having this decentralized business model that we have, which you see in the middle of the slide in front of you. So when we say as topic #1, when we say leverage and scale our global network benefits, we mean a greater focus on the untapped operational and commercial potential that is embedded within our network. And we'll do so by establishing a global and a regional organizational blueprint to align and promote best practices and improve transparency across the markets we do business in. And with the new CCO and COO support functions, we will act as a proactive sparring partner to the local entities, helping them reduce the operational complexity and ensure an even greater degree of transparency within and across the entities that is part of NTG today. Data is a key enabler of operational and commercial excellence. And the Route '27 direction includes quite a few initiatives to develop and leverage our digital infrastructure to facilitate transparent and data-driven decision-making, both to reduce complexity, but also to maintain agility and preserve our entrepreneurial culture. So as an example, this includes management and employee dashboard overviews, providing real-time insights into both the operational and the commercial activities within each local entity and each part of each local entity, allowing for more and increasingly seamless business intelligence on a continuous basis. Our people remain our greatest asset, and we are committed to investing in our growing network of about 2,700 employees across 76 operational entities in 26 countries. And in line with this commitment, we will implement an explicit people and culture strategy focused on talent development, employee engagement and creating clear career pathways and global opportunities to cultivate talent in the future. And finally, we'll continue to pursue targeted M&A, leveraging our proven playbook and value proposition to build further scale, competencies and capture synergies across our European road and logistics and the global air and ocean footprint. So Finally, on Slide #15, you see a high-level timetable of the strategy execution. We are well underway with the mobilization and execution on select additions that are key to the strategy, enabling a wider launch during this year and the actual results of the initiatives kicking in by the end of this year and the beginning of 2026. Now this was a rather quick introduction to our strategy. But if you're interested in a deep dive, please do not hesitate to reach out to us. And with those words, it's now time for Q&A.

The first question is from Dan Togo, Carnegie.

A few questions from my side. I'll just take them here one by one. In the Road business, the price increases enforced during Q4 seems to be optimistic that this is steady going into '25. So how should we think of revenue on an organic basis in Road into '25. There's also a component of volumes here. I guess this is probably a low, low single digit we're looking at here. But what is the price component just to get a better understanding of how we should think of revenue development in '25 in the Road business? And then you exit '24 with -- again, in Road with a gross margin of around 23%. Is that now the level that we should look for going into '25? That would be the first question.

Thank you, Dan. I think we had talked about the price increasing starting in October. But most of the price negotiation have a price for the full year, meaning starting from 1st of January. So I would expect to see that price increases have the full effect actually first from quarter 2, but already you should see a better effect from Q1. And therefore, I think unless that we see the hauliers coming and asking for higher prices, then you would see that the gross margin is pretty sustainable. But please remember the price increases is mostly in the north of Europe. We have seen less on the continent of price increases.

Okay. So when I think at Road as a business area, we are talking low single-digit volumes slightly. And I assume also then low single-digit price increases for, so to say, the business area as a whole. Is that a fair assumption?

To be honest, at the moment, we don't see the pickup that you normally see in the spring. We just had a chat with the biggest companies here in the beginning of the week, and we haven't seen this March pickup. So please be a little cautious on the volumes and the low single-digit price increases that we are talking about is mainly in the Nordics.

Okay. Then on Air & Ocean, you mentioned project development here having say a meaningful impact in '24. How should we think of that in '25? And what will be the delta when I try to bridge the 2 years in '25 compared to '24 here?

It's a good question. And as Christian alluded to before, there's definitely been some tailwinds on the project side within a range of different entities. So that will -- that is expected to decline as we move in further into 2025. Now, there's also quite a few dynamics that goes in the other direction. So please keep in mind, for instance, the German Air & Ocean organization and the impact on the financial results in '24 and the fact that the restructuring was successfully completed by the end of 2024. There's also been a fairly significant start-up in the U.S. being supply chain solutions, that have continued to improve in operating performance over the course of 2024, and we expect that improvement to continue at a moderate pace into 2025 also. So all in all, we expect sort of these effects to balance each other out to a certain extent. And then you add the impact of the acquisition of SCHMALZ+SCHÖN. And all in all, that gives rise to a moderate but positive development in 2025.

Okay. Then a question on the strategy. I read you a bit here in what you say is that in order to grow and continue the pace, you will focus more on larger acquisition rather than grow alone through, so to say, the partnership model. Has the partnership model, is that going to be a bit sidetracked going forward, at least as part of the whole growth picture? I guess you will probably do some going forward, but the majority of the acquisition and growth through acquisitions will be through, outright acquisitions rather than doing partnership models. Is that a correct, interpretation?

Well, I would say partially correct interpretation in the sense that we are very enthusiastic about the partnership model, and we'll continue to apply the partnership model in the future. However, any Ring-the-Bell incentive model has an expiration date because there is an embedded option over 5 years, and that will be exercised sooner or later if the entities are successful, and they usually are, right? So in that sense, there comes a time after the Ring-the-Bell where the dynamics of the entities, both from an incentive point of view, but also from sort of a life cycle point of view differ from what they were in the past. This is what we've seen in Sweden. This is what we've seen in Denmark, which are sort of the two main strongholds of the business from all the way back to 2011, 2012, 2013. And it's really a reflection on these dynamics on the other side of the Ring-the-Bell model and on the other side of being a fast-growing entity to being a mature sizable platform. What is it that is required and needed in order to continue driving future growth and operational and commercial performance in this new context and environment. So I would say it's very much a diversified approach depending on the size, the maturity and the incentives of each individual entity more than it is a down prioritizing of one model over the other.

Okay. Good. Then just one final question from my side and then I'll drop out. Are you considering new verticals as well? I mean you've added a few along the way in order to either diversify or to have new income streams, more leg to stand on. So are new verticals, could that potentially also be on the agenda?

It's a very good question. And listen, this was a key part of the strategy process also, right, reflecting on sort of what are the attractive pockets of the market and how can we potentially penetrate any one of these. Now sort of the conclusion was that we will continue to pursue verticals, but based on sort of a rather opportunistic approach and based on the decentralized business model, acknowledging that the value of penetrating a vertical won't arise from sort of a group-wide global initiative to enter into vertical X, Y or Z, right? It needs to be driven by the local entities and the opportunities they see in the local market. Could we, as a group, invest in any particular vertical? Absolutely. Would that be the highest return on investment compared to the other opportunities that we have? Probably not. That's the conclusion. And that's why we remain fairly pragmatic in terms of targeting global verticals on the group side.

Next question is from Lars Heindorff, Nordea.

Also a few questions from my side. If we start with SCHMALZ+SCHÖN, when you acquired it last year in August, you stated around about DKK 1.1 billion, slightly above that in yearly revenue that was in '23 and around about close to DKK 80 million in EBIT equal to an EBIT margin around close to 7%. Then in the notes for this year, you write the earnings contribution if it had been acquired on the 1st of January, which suggests that revenue last year declined by around about 30% and EBIT around about 60%. The contribution last year, DKK 33 million, which is quite a bit below what it was in '23. So the question is actually, what do you expect going forward from SCHMALZ+SCHÖN? Is this the EBIT level that we should expect in '25?

First of all, Lars, I think you recall our announcement on the EBIT a little high. It was not what we wrote. I think we wrote EUR 5 million EBIT. And then please remember that we -- that they also -- there's this IT project that we have to do, that means, we, at the moment, also they are paying for some group costs that is -- where they take their fair share of the group cost. And therefore, when you see that figure, you can't compare it 100% to the real contribution of SCHMALZ+SCHÖN. And then it was a very hard quarter. And I also think we have said that these groupage and logistics companies with December is very, very low. And yes, it looked like December -- Christmas was already starting on the 7th of December this year in Germany. So it's been really -- we've also seen a lot of the big companies had been closed by then, and people were sent home. So December has been -- was very, very slow.

Yes. But that was also why I mentioned the full year numbers and not just the fourth quarter contribution, which is I know is very low because of the seasonality. But I'm not sure I understand your answer. Do you expect that the DKK 33 million, whether that's pre or post group costs? Is that going to be the earnings contribution roughly the same level for '25?

I don't think we are giving a guidance on each company.

Okay. And then on -- maybe just a status, Mathias, you mentioned a little bit about it when Dan asked about this sooner. The development there, which has been very close related to the development in the freight rates because of your involvement in the spot market. Part of the strategy that you presented here also this morning indicates that you want to perhaps move away from that. So I mean, how far away are we from this very high dependence on the spot market and hence, the quite high cyclicality and volatility in the Air & Ocean EBIT?

Listen, Lars, I think every market participants are dependent on the spot market because either you sort of -- you procure at spot or you benefit from any potential discrepancies between the spot and the contracted rates, right? So I think the dependencies will continue now. In terms of having multiple avenues of procurement, then we are getting closer, I would say, almost by the day, if not the week, to having more options and even more competencies to diversify our approach to procurement. It has been sort of a, I would say, rather sporadic ongoing effort for a while, but now we have a very tangible and clear plan on how to develop and execute on these initiatives going forward. So it will be a gradual process. It won't be a big bang, and we will do it carefully to make sure that we stick to our agreements and we keep our words, but we will continue to ramp up on the procurement efforts going forward. It will be a very smooth linear almost process in terms of the magnitude. But we have seen progress, and we are a few steps down the road already.

All right. Let me try to ask in a different way. So given the decline in the rates, both in -- particularly in sea freight, which is maybe also to some extent in airfreight that we see at the moment, do you believe that you can deliver organic EBIT growth in '25 versus '24 in the Air & Ocean business?

Yes, we do. So I think there's multiple sides of the yield. I mean, if we disregard the cost base for a second and just look at yields, right? On the yield side, there's obviously procurement efforts and there's the sort of correlation with the rates. There's also a network aspect to this, right, being able to service customers in both ends of the shipment. And that is part of the global network and scale initiatives. And we have a very tangible approach to driving further network benefits with a view to just squeezing out more juice of the lemon, so to speak. And that we have confidence and will contribute positively to the results.

And then the last one, and then I'll jump back in the queue. On -- again, getting back to the M&A impact. Dan asked about a little bit about -- and you said that the GP margin in the Road business is sustainable around the 23%. How much? Because if I recall correctly, both of those two acquisitions, SCHMALZ+SCHÖN and also ITC, which we haven't seen in the '24 numbers, I admit that, but we will see here in '25. How much will they contribute in terms of lift in GP margin?

I think it's something around 0.7%.

The next question is from Ulrik Bak, Danske Bank.

Mathias and Christian, also a question on this SCHMALZ+SCHÖN contribution. Those DKK 33 million contribution, if it had been on a full year basis, can you share if there are any one-off costs here? You mentioned IT, but also integration costs. Have they been -- are they weighing on that number? And if you could quantify that would be great.

I don't think we couldn't quantify, but they are weighing on that. Please remember that SCHMALZ+SCHÖN has a groupage setup where they need to implement a new group system. So it is something new where we had to invest as a group in new capabilities -- and because we are now also said that it's a part of our new setup, therefore, we had to hire the people, and we have not booked them as special items. So we have a higher cost base in group with that.

Okay. And any comments just high level on SCHMALZ+SCHÖN, ITC, whether they have performed or developed as you had expected when you entered those transactions last year?

I think they are -- everything in Germany under pressure. So it is a pressured market in Germany. We had to put that into our business case, but I think also that the pressure is a little higher than what we saw half a year ago. So the macroeconomic environment in Germany is challenged.

Understood. Then in terms of current trading, you mentioned that the usual spring pickup in activity hasn't really materialized. Does that have any impact on the way you are phasing in price increases? So what I'm asking is, has it delayed it? Or has it been lower the price increase than you had expected when you announced it?

I think most of the negotiations have been done in '24. So of course, it's harder to -- now you see new tenders, you see new negotiations, and therefore, you get a higher pushback if the market is soft. So of course, it will have an impact. But on the main part, it has already been negotiated.

Okay. And then a follow-up question on your comments around projects in Air & Ocean. Can you elaborate on what those projects are and also what the contribution was to EBIT in 2024?

But we don't give any projects, but you know we are transporting windmill wings. We are transporting cables. We are transporting more kinds of things also in the U.S. and in Germany and everywhere. So we have a broad project set up. And therefore, yes, we had some tailwind in several of these companies.

Understood. And then final question, this reorganization that you did in the Air & Ocean organization in '24, can you quantify how much that weighed on your earnings in '24, and also the roughly quarterly phasing, if you can provide that too?

Yes. So it's very low double-digit impact on EBIT.

[Operator Instructions] Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

Well, thank you, everybody, for dialing in. This was all from us, and please do not hesitate to reach out in case of any follow-up questions in the wake of this call. Thank you, and have a nice day.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.