Earnings Call: Q1 2021

May 18, 2021

Thank you. Welcome to our Q1 2021 conference call and thank you for listening in. First of all, I need to ask you to read Page 2 carefully. And then after that, let's move on to Page number 3. Here you see the presenters for today. My name is Michael Arsen, and I'm the Group CEO of NGG Nordic Transport Group. And together with me today, I have Christian Jacobsen, our Group CFO. If we then move on to the next page, Here you see the topics that we intend to go through on the call today, including Q1 highlights, financial overview and the full year outlook. And by the end of the presentation, the line will be open to questions from the audience. Let's move on to Page number 5. These are the main highlights for the Q1. And I'm proud to say that the Q1 represents the best quarter in the history of NTT. Revenue increased by double digit figures, driven by favorable ocean freight rates and activity development and effects of recent acquisitions. The operating margin almost doubled in the quarter, driven by the successful reorganization in Germany towards the end of last year, restructuring initiatives In multiple geographies in 2020 across both divisions, which among others resulted in a very strong rebound in profitability in the Air and Ocean division. The end of Q1 also marked the 3 month anniversary of the new custom machine in the UK. And while the transition caused significant delays and noise in trade flows and volumes dropped in the beginning of the year, We experienced a recovery in the volumes towards the end of Q1. Although we have to make multiple adjustments to our setup in the very beginning, we managed to quickly increase efficiency and turn our focus towards capturing new customers from other players struggling to adapt to the new circumstances. In Q1, we also continued to maintain momentum on the integration of our recent acquisition, And we remain on track to finalize the integration of Ebrix in the Q2 of this year. When it comes to the more recent acquisitions, but small acquisitions, the integration of Seika Trends And TB International were completed by the end of the quarter and the integration of Cargorings is also progressing according to plan. Finally, we updated our full year outlook on 3rd May 2021 to revenue of DKK5.9 billion to DKK6.3 billion and adjusted EBIT of DKK360 million to DKK400 million. With these words, I will now hand you over to Christian, who will take you through the financial results. Christian? Thank you, Michael. The positive development we experienced in Q4 2020 continued into the Q1 of 2021, The performance in both divisions exceeded our expectations. On Page 6, you see the main financial highlights Where net revenue in Q1 reached DKK 1,500,000,000 up 17.6 percent versus Q1 last year. The organic growth made a strong rebound to 11.4%, especially driven by the Aeronautics division, While the acquisition completed in 2020 and Q1 2021 contributed 7.3%. As you see, we have added a new component to the gross decomposition as we now report several key on FX effects That were negative 1.1 percent for the quarter, which was mainly due to the Polish starting. I'll come back to the underlying drivers Shortly, we'll go through each division. Adjusted EBIT increased 125 percent to DK101,000,000 In Q1 2021, as reorganizations and restructurings triggered a record high operating margin of 6.6% for the quarter compared to 3.4% last year. If we move to Page 7, you see the summary of Key financial performance indicators, which illustrates that the extraordinary capacity situation in the iron ocean markets An early signs of capacity shortages in combination with increasing fuel prices in the road market had a negative effect on gross margins in Q1 2021 compared to recent previous quarters. However, the extensive reorganization and restructuring institutes Completed in 2020 resulted in increasing efficiencies in both divisions that ultimately drove operating margins to new highs. The development was particularly distinct in the Aeronautics division, where the operating margin increased 5.6 percentage points compared to Q1 2020. If we go to the next page, we double click on the Rowan Logistics division. The division generated a net revenue of SEK 1,200,000,000 in Q1 2021, which was 10% above the same period last year. The growth was primarily driven by the acquisition of Evertz, TB International, Segas Hunt and Cargo Inc. That contributed with 9% And growth in the system businesses of 1.9%. The organic growth was mainly driven by the North, Dutch and English entities, While growth in the Polish and Finnish entities experienced a slowdown as the automotive motor markets were affected by semiconductor shortages And cost and bottlenecks in the wake of Brexit. And in Germany, we reduced the activity on some challenges services. Total growth for the period was 2.4%, including FX effects of minus 0.5%. Adjusted EBIT increased 75 percent to €81,000,000 corresponding to an operating margin of 6.9% versus 4.4% in Q1 2020, driven by a general gross margin improvement across entities compared to Q1 last year And the increasing conversion ratio resulting from the successful call rate adaptions and restructurings predominantly in Germany. Then we proceed to Page 9. You see the Aeronautium division. The division realized net revenue of DKK 3 DKK 63,000,000 for the quarter, 49% above the same period last year. The rebound in organic growth was primarily driven by Higher freight rates on both air and ocean transportation and increasing activity in mainly the Nordics, Netherlands and Germany, together representing a growth of 53.2 percent in existing businesses. A startup in the U. S. Contributed positively The total growth was 1.5%, while the close downs of activities in Germany, Croatia, Romania and Turkey had a negative impact of minus 1.4%. Total growth for the period was 49.4%, including the negative Impact from of FX effects of 3.9%, mainly due mainly from U. S. Dollars and russian ruble. Gross profit increased 20% for the quarter, while scarcity of and challenges in Procuring capacity drove the gross margins lower. Adjusted EBIT increased from approximately 0 in the Q1 last year to $20,000,000 in the Q1 of 2021. Corresponding to a margin of 5.5%, the development was driven by increasing Portability in Germany and Denmark, which more than outweighed the effects of increasing time spent per shipment due to prevailing capacity shortages. Based on the strong performance of the division in the Q1 of 2021, we remain committed to the strategy of prioritizing A limited number of core markets and increasing focus on sales and streamline operating procedures. And then if we flip to Page 10, we highlight all the key On the left, you see that the net working capital increased to minus 146,000,000, which is still bigger than last year. This is mainly due to the growth in the Air and Ocean division and timing of European Easter holiday. The development in net working capital almost offset the strong financial performance for the quarter, and the adjusted free cash flow came to DKK4 1,000,000, as illustrated in the middle, which was below previous periods. Finally, to the right, you see net interest bank debt excluding the IFRS 16 That increased to minus DKK 151 1,000,000 due to the development in the adjusted free cash flow and the impact of acquisitions of business activities. On top of our net cash position, we further strengthened our access to liquidity by entering into an agreement a new committed credit facility up to $500,000,000 replacing the former committed facility of $150,000,000 And then if we flip to Page 11, you see the full year outlook for 2021, which we announced on the 3rd May 2021. We maintained this guidance. And for the full year 2021, we expect net revenue in the range of DKK 5,900,000,000 to DKK 6.3 DKK 1,000,000,000 and an adjusted EBIT in the range of DKK 360,000,000 to DKK 400,000,000. The guidance includes The expected effects of reassessment of the previous impaired lease agreement estimated at DKK 20,000,000 So I'll be to final negotiations with customers and final contract relations and the Expected effects of the acquisition of the 75% of the shares in the June fiscal, which is expected to close in the first half of twenty twenty one. On the right side of the slide, you see the assumptions underlying our guidance. I'll not go through each of them, but Murray emphasized that the guidance is still subject to a significantly larger degree of uncertainty than usual. And that was all what we have planned for now. So now we will go to the Our first question for today is from Michael Rasmussen from Danske Bank. Please go ahead. Thank you so much. My first question will be a little bit on the impacts that you've seen from the semiconductor shortage. I believe You mentioned Poland and Finland. Can you comment a little bit about how that has developed Into the Q2 and also when did this issue start during the Q1? And should one expect this to be a little bit like a catch up effect? So when we are out of this problem, then you will Kind of be able to compensate for that or net net should this be a negative for the full year? So that's my first question. And my second question is more just a bit of insight into how you think about acquisitions. Obviously, we've seen you doing a number of relatively small acquisitions in the Vokes division. When are you kind of seeing that you're ready to take on maybe, first of all, a little bit larger acquisitions, But also acquisitions in the Air and Ocean Division. So those are my 2 first questions, please. Thank you. Thank you. On the semiconductor, I think we had the first real effect in. In March, and we've also seen it here in Q2, we are not able to tell you whether that would be a catch up effect or not. Something could but on the other hand, we don't know when that will come if there will come 1 because as we hear, there are still challenges on the semiconductor market. So So we'll not be able to tell you whether it will come and when it will come. And on the acquisitions, we fully agree that we have made some What we think is very nice, hold on acquisitions in the road division. And we are working also Looking for bigger acquisitions, both in the Iron Ocean and in the World divisions. As you know, we have a big pipeline, and we're working on that every day to come closer to acquisitions, which will bring value to us. And yes, we are ready and then we just have to wait that the right acquisitions will land. That sounds good. So when you look at this Very hot, both ocean and air markets. What are you seeing in terms of kind of Getting the capacity because I think that this has changed slightly in both directions in the past. So we obviously know that the ocean carriers Are now more eager to get people using the online booking platforms. It also seems like Maersk is talking about smaller freight forwarders getting an increasing share of their revenues with the larger Straightforwarders may be struggling a little bit on using that because they would rather use their bargaining power. So How do you see this market? Is this something which you've seen as a positive or as a negative for Geisagio? As for us, I think we as you also know, last year, we had challenges adapting to the new situation. And we've been very happy with how we have adapted in the Q1 and auto. We were happy about it in Q4. So we had closed some challenges, comments in Q4 as we have discussed earlier. So In particular, here in Q1, we have been very good in adapting to the situation. And we see that we get capacity and we are also servicing customers which we couldn't service before. And maybe you're right, I don't know whether the biggest Challenge is getting the space involved. They have to answer that. But we see that we have the possibility to get And some services that we couldn't get before. And that's also what we see here in the start of Q2, but we also expect that that will come back to a more normalized situation during the year. Great. And just my final question on the Air and Ocean division. You reached already now a 5.5% EBIT margin. So is this something extraordinary? Or is this kind of the new level going forward on a 21% The gross margin, you can achieve 5.5% operating margin. And then once the Operating sorry, the gross margin maybe improves, maybe also there's a bit of upside to the EBIT margin? Or Are you satisfied with pretty satisfied with the 5% levels? I think we can say we're very satisfied with the performance in the Air and Ocean division for the Q1 coming from a 0 last year to reaching 5.5%. We think that's really strong. I don't know whether we don't know whether we can maintain this level. We will do everything we can. But it is also We had a lot of tailwind in Q1 and yes, we don't know what how the win will be in the coming quarters. It sounds very good. I'll step back into the queue here. Thank you. Our next question is from Markus Belanda from Nordea. Please go ahead. Thank you. Maybe I can pick up where Michael left off, the Air and Ocean division. I'm just Wondering if you could elaborate a little bit on what you have done there, because it's a pretty Big improvement in EBIT margin compared to the Q4. And I'm just wondering if it's is it all the strong markets? Or are you seeing More cost savings coming through. A little more detail would be appreciated. I think we have already said that we closed a couple of challenging companies. And the last thing we did was In Q4, where we closed them, so I also think that we said that Q4 was a little bit more better in the underlying business than what we saw. And then to be honest, we have a lot of tailwind. We have really landed some good projects in. And that's where it is. But we are also very positive about the start in Q2. So as I said, we had a lot of tailwind and maybe we don't expect that much tailwind In the coming quarters, we will keep struggling to and fighting for the high margins and the high activity, But we also see some challenges when it comes back to the normal situation. Okay, understood. And also staying on the Air and Ocean division, I'm just wondering How big an impact you've seen from the Suez Canal log jam? I imagine there wasn't much impact in Q1, but How has it affected April or Q2? I don't think we have a big impact. We had some impact, but I don't think it will affect us a lot. Fortunately, they solved it pretty fast. And I haven't heard of any customers who are claiming us for money and a function like this. So I think most understand that, Yes. This was an unfortunate situation and at least we couldn't do anything about it. So we don't see a big effect, at least I haven't heard of that at the moment. Okay. And then also on your I think Christian, you said you have a new credit facility of €500,000,000 and That replaces a €150,000,000 facility. So it's a pretty big increase, obviously. I'm just wondering Why you bother to do that at this point, given that you have a pretty large cash pile? You have to do this when the times are good, then you have to prepare yourself and get that onboard. So it's not like we are expecting to spend it tomorrow, But we are ready for also bigger acquisitions and more acquisitions. As you know, we have made 5 within the last couple of months. So maybe If some in the future would be a little bit bigger, then we need a little bit more firepower. So we think that was The right time to do it when we also have the time to do it. Okay. That makes sense. And then finally, just a house Keeping question for our modeling, the $20,000,000 impairment reversal, I'm just wondering which line that will affect In Q2, which line in the P and L? That will be on the depreciations. Okay, great. Excellent. Thank you. That's all for me. Thank you. There are no further questions that are coming through. Okay. Then we will say thank you, and have a nice day.